NANCY NOWAK, Magistrate Judge
Before the Court are plaintiff's motion for summary judgment and defendants' counter-motions for summary judgment. I have reviewed all the relevant pleadings, arguments and evidence, and recommend that plaintiff's motion for summary judgment be DENIED and defendants' counter-motions for summary judgment be GRANTED for the reasons set forth below.
Docket entries 29 and 48.
Docket entries 39 and 41.
I have jurisdiction to enter this Memorandum and Recommendation under 28 U.S.C. § 636(b) and the District Court's Order referring this matter to me for disposition by order, or to aid in its disposition by recommendation where my authority as a Magistrate Judge is statutorily constrained.
Docket entry 14.
I. Background
This case involves an insurance coverage dispute concerning a claim for coverage by Gabriel's Liquors Wine under two commercial general liability policies with its insurance company. The insurer, plaintiff Onebeacon Lloyds of Texas (Onebeacon), filed a declaratory judgment action in this court seeking a judicial determination that it owes no duty to defend the insured, Gabriel's Liquors Wine, and the other defendants in a third-party lawsuit, styled Saglimbeni v. Gabriel, No. 2002-CI-01553, pending in the 285th Judicial District Court of Bexar County, Texas. In Saglimbeni, defendants have been sued by another wine and liquor retail store for, inter alia, tortious interference with business relations, business disparagement, civil conspiracy and restraint of trade. The Saglimbeni lawsuit alleges that defendants specifically targeted Saglimbeni's customers for a mail out advertising campaign that misrepresented Saglimbeni's business, products and pricing.
All of the other defendants are alleged to have been agents, servants or employees of Gabriel's Liquors. The parties do not dispute that if Onebeacon has a duty to defend Gabriel's Liquors that it also a duty to defend the individual defendants.
A copy of the Sixth Amended Petition in the Saglimbeni case is found at Docket Entry 48, Exhibit C.
In response to the complaint filed in this Court, defendants filed counterclaims against Onebeacon. Preliminary motions were also filed and orders entered as a result which clarified the dispute before this Court as involving only whether Onebeacon owes defendants a duty of defense in the Saglimbeni case pursuant to the insurance agreement. The parties have filed cross-motions for summary judgment on this issue, and those motions appear to be dispositive of the case.
II. Legal Standard
A. Summary Judgment
Federal Rule of Civil Procedure 56 governs motions for summary judgment. Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." The party moving for summary judgment bears the initial burden of informing the court of the basis for its motion and identifying those portions of the record which it alleges demonstrate the absence of a genuine issue of material fact. Once the movant has carried that burden, the burden shifts to the party opposing the motion to present affirmative evidence to defeat the motion. Where both parties have moved for summary judgment, the court reviews each motion independently and views all evidence and inferences in the light most favorable to the nonmoving party. B. The Eight Corners Rule
FED. R. CIV. P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
Celotex Corp., 477 U.S. at 323.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 257 (1986).
Ford Motor Co. v. Texas Dept. of Transp., 264 F.3d 493, 498 (5th Cir. 2001).
The parties agree that the substantive law of Texas should be applied to resolve the instant diversity action. Under Texas law, the "complaint allegation rule," also known as the "eight corners rule," provides that an insurer's duty to defend is determined solely from the face of plaintiff's complaint in the underlying action and the language of the applicable insurance policy. The four corners of the insurance policy are compared with the four corners of plaintiff's pleading to determine if any claim alleged in the pleading is potentially within policy coverage.
Gemmy Indus. Corp. v. Alliance Gen. Ins. Co., 190 F.Supp.2d 915, 918 (N.D. Tex. 1998); Nat'l Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997).
Guaranty Nat'l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998).
Pursuant to this rule, the insurer must defend the insured if there is, potentially, a case stated in the underlying complaint within policy coverage. The duty is determined by examination of the latest amended pleading upon which the insurer bases its refusal to defend the action. When reviewing the underlying pleading, courts must focus on the factual allegations pled rather than on the legal theories alleged. The allegations must be considered "without reference to the truth or falsity of such allegations." If a doubt exists as to "whether or not the factual allegations of a complaint against the insured state a cause of action within the coverage of a liability policy sufficient to compel the insurer to defend the action, such doubt will be resolved in the insured's favor."
Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d 466, 471 (5th Cir. 2001) ( quoting Merchants Fast Motor Lines, Inc., 939 S.W.2d at 141)).
Cornhill Ins. PLC v. Valsamis, Inc., 106 F.3d 80, 84 (5th Cir. 1997) ( quoting Rhodes v. Chicago Ins. Co., 719 F.2d 116, 120 (5th Cir. 1983)).
Merchants Fast Motor Lines, Inc., 939 S.W.2d at 141.
King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 191 (Tex. 2002) ( quoting Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex. 1973)).
Harken Exploration Co., 261 F.3d at 471 ( quoting Merchants Fast Motor Lines, Inc., 939 S.W.2d at 141).
"Even if the plaintiff's complaint alleges multiple claims or claims in the alternative, some of which are covered under the policy and some of which are not, the duty to defend arises if at least one of the claims in the complaint is facially within the policy's coverage." Stated differently, once coverage has been determined for any portion of the suit, the insurer is obligated to defend the entire suit.
Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 393 (5th Cir. 1995) ( quoting Rhodes, 719 F.2d at 119)).
Am. Home Assurance Co. v. United Space Alliance, LLC, 378 F.3d 482, 488 (5th Cir. 2004) ( quoting Stumph v. Dallas Fire Ins. Co., 34 S.W.3d 722, 728 (Tex.App.-Austin 2000)).
The insured in a duty to defend case bears the initial burden to show that an underlying claim potentially falls within the insurance policy's scope of coverage. The insurer must then prove the applicability of any exclusions to coverage. If an exclusion applies, the burden shifts back to the insured to prove an applicable exception to the exclusion.
United Space Alliance, 378 F.3d at 487 ( quoting Guar. Nat'l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998)).
Vic Mfg. Co., 143 F.3d at 193 ( quoting Telepak v. United Servs. Auto Ass'n, 887 S.W.2d 506, 507 (Tex.App. — San Antonio 1994, writ denied)).
Id.
III. Analysis
A. Does the Business Disparagement Claim in the Third-Party Lawsuit Trigger Coverage?
In their motions for summary judgment, defendants contend that the insurance agreement with Onebeacon, and specifically "Coverage B" of the policy, extends coverage to the business disparagement claim asserted against them in Saglimbeni. "Coverage B Personal and Advertising Injury Liability," provides as follows:
We will pay those sums that the insured becomes legally obligated to pay as damages because of "personal and advertising injury" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "personal and advertising injury" to which this insurance does not apply.
The policy's definition of "Personal and Advertising Injury" includes injury arising out of the "[o]ral or written publication of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services."
Id. at Section V, "Definitions" at ¶ 14(d).
Defendants argue that the business disparagement allegation in the Saglimbeni petition falls squarely within the "Personal and Advertising Injury Liability" coverage of the policy. The business disparagement allegation in the Saglimbeni lawsuit reads as follows:
At all times material hereto, Defendants, acting individually and/or in concert, engaged in a course of conduct constituting business disparagement directed at the INCORPORATED Plaintiff in that the Defendants, either individually and/or in concert, published disparaging words, that were false, were published with malice, and were published without privilege.
In this regard the INCORPORATED Plaintiff would show that Defendants, acting individually and/or in concert, used binoculars to spy on customers of the INCORPORATED Plaintiff, to obtain their license plates, and with the license plate numbers, to obtain the INCORPORATED Plaintiff's customers' names and addresses. These customers were then singled out for mailings of documents and mail outs, which were written, prepared, addressed and/or mailed by the Defendants. Your Defendants directed an advertising mail out campaign solely to INCORPORATED Plaintiff's customers. These advertising mail outs misrepresented INCORPORATED Plaintiff's business, products and prices.
Specifically, defendants point to the allegation in the Saglimbeni petition that the defendants disparaged Saglimbeni's business by "publish[ing] disparaging words." Defendants argue that this business disparagement allegation falls within the policy coverage, and therefore the policy imposes upon Onebeacon a duty to defend defendants against all claims in the Saglimbeni case.
Onebeacon responds that Saglimbeni's claim for business disparagement is excluded by the policy's "knowledge of falsity" provision and therefore that it has no duty to defend. This exclusion provides that insurance coverage will not apply to "[p]ersonal and advertising injury . . . arising out of oral or written publication of material, if done by or at the direction of the insured with knowledge of its falsity." Onebeacon argues that because in Texas, a business disparagement claim requires a showing of malice, and because the Saglimbeni petition specifically alleges malice, the business disparagement claim is excluded from coverage by the "knowledge of falsity" exclusion. Under Onebeacon's interpretation, malice in the context of a business disparagement claim presupposes knowledge of the falsity of the disparaging statements.
Section I, Coverage B, "Exclusions" at ¶ 2(a)(2), found at Docket Entry 29, Exhibit A at p. 4.
Defendants disagree and counter that under Texas law, a plaintiff need not prove actual knowledge of falsity in order to satisfy the malice element of a business disparagement claim. Defendants contend that since a plaintiff in a business disparagement claim may prevail without proving defendant's knowledge of the falsity of its statements, the "knowledge of falsity" provision does not operate to exclude coverage.
To prevail on a business disparagement claim under Texas law, "a plaintiff must establish that (1) the defendant published false and disparaging information about it, (2) with malice, (3) without privilege, (4) that resulted in special damages to the plaintiff." Concerning the falsity of the publication, "a business disparagement defendant may be held liable only if he knew of the falsity or acted with reckless disregard concerning it, or if he acted with ill will or intended to interfere in the economic interest of the plaintiff in an unprivileged fashion." Thus, Texas law does not require the element of malice be proven solely with evidence that the alleged tortfeasor knew of the falsity of the allegedly disparaging material. A business disparagement plaintiff may prevail without proving defendant knew its statements to be false.
Forbes Inc. v. Granada Biosciences, Inc., 124 S.W.3d 167, 170 (Tex. 2003) ( quoting Hurlbut v. Gulf Atl. Life Ins. Co., 749 S.W.2d 762, 766 (Tex. 1987)); Community Initiatives, Inc. v. Chase Bank of Texas, 153 S.W.3d 270, 284 (Tex.App. — El Paso 2004).
Hurlbut, 749 S.W.2d at 766 ( quoting Restatement (Second) of Torts, § 623A, comment g (1977)). Onebeacon cites various Texas cases involving the definition of "reckless disregard" in the context of a suit for defamation, in an apparent attempt to equate reckless disregard for the truth with actual knowledge of falsity. See Docket Entry 44, pp. 4-5 ( quoting New Times, Inc. v. Isaacs, 146 S.W.3d 144, 162 (Tex. 2004); Bentley v. Bunton, 94 S.W.3d 561, 591 (Tex. 2002); Huckabee v. Time Warner Entertainment Co. L.P., 19 S.W.3d 413, 420 (Tex. 2000)). While the cases cited by Onebeacon may further define the parameters of the reckless disregard standard in defamation actions, they do not hold that reckless disregard for the truth is the equivalent of knowledge of falsity. Furthermore, statements giving rise to a business disparagement claim need not be actionable as defamation under Texas law. See Gulf Atlantic Life Ins. Co. v. Hurlbut, 696 S.W.2d 83, 96 (Tex. App — Dallas, 1985), rev'd on other grounds, 749 S.W.2d 762 (Tex. 1987) ( quoting Page v. Lane-Texas Co., 258 S.W.2d 366, 369 (Tex.Civ.App.-Galveston, 1953)).
In American Home Assurance Company v. United Space Alliance, LLC, the Fifth Circuit addressed this issue in the context of a coverage dispute much like that before this Court. In that case, the insurance policy included coverage for "personal injury," including business and advertising injury, as well as a "knowing falsity exclusion." Also, like Saglimbeni, the third-party lawsuit contained a business disparagement claim. The Fifth Circuit declined to find an exception to coverage. The Court noted that a disparagement claim did not require proof of knowingly false statements and observed that:
Texas courts have held that even where allegations involve false statements, if liability can be imposed without proving that the false statements were made with the knowledge that they were false, the "knowledge of falsity" exclusion will not apply to preclude coverage.
On its face, the Saglimbeni petition alleges only that the statements were "false, were published with malice, and were published without privilege." Saglimbeni does not allege that defendants knew the materials they published were false. Plaintiff's petition tracks the common law elements of business disparagement, which, as discussed above, do not require the defendant to know that the disparaging statements were false. Under Texas law Saglimbeni need not plead or prove that defendants knew their published statements to be false to be entitled to recovery for his business disparagement claim.
As already noted, it is the insurer's heavy burden to prove that an exclusion applies so as to bar coverage in a particular case. As has also been noted, courts must adopt the construction of an exclusionary provision urged by the insured as long as that construction is not unreasonable. Thus, if defendants' construction of the exclusion is a reasonable one, the Court must adopt that interpretation. Given the clear statement of Texas law concerning the elements of a business disparagement claim and the malice element in particular, I recommend that defendants' construction of the exclusion is reasonable, and accordingly the exclusion does not bar coverage here.
Guaranty Nat'l Insurance Co. v. Vic Mfg. Co., 143 F.3d at 193.
Harken Exploration Co. v. Sphere Drake Ins. PLC, 261 F.3d at 475 ("Courts must adopt the construction of an exclusionary clause urged by the insured as long as that construction is not itself unreasonable, even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties intent.") ( quoting Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 666 (Tex. 1987)).
B. Do Other Claims Asserted in the Third-Party Lawsuit Trigger A Duty to Defend?
Defendants have also argued that a duty to defend arises as a result of Saglimbeni's claims for tortious interference with prospective business relations and antitrust violations. Because the law provides that an insurer must defend its insured if there is but a single covered claim asserted in the third-party lawsuit, it is unnecessary for this Court to address whether these additional claims also support coverage.
IV. Recommendation
For the above reasons, I recommend that the Court find the underlying third-party petition alleges a cause of action which comes within the policy's coverage, that Onebeacon has not met its burden to show that a policy exclusion applies, and that Onebeacon owes a duty to defendants to defend with respect to the entire Saglimbeni lawsuit. I therefore recommend that the Court DENY plaintiff Onebeacon's motion for summary judgment and GRANT defendants' motions for summary judgment. I further recommend that the Court enter judgment for defendants consistent with the above, direct the parties to confer in attempt to resolve any remaining claims for attorneys' fees, and, if an agreement cannot be reached, direct defendants to file their motions for attorneys' fees consistent with Local Rule CV-7(i).
Instructions For Service and Notice of Right to Object/Appeal
The United States District Clerk shall serve a copy of this Memorandum and Recommendation on each and every party either (1) by certified mail, return receipt requested, or (2) by facsimile if authorization to do so is on file with the Clerk. According to 28 U.S.C. § 636(b)(1) and Federal Rule of Civil Procedure 72(b), any party who desires to object to this report must serve and file written objections to the Memorandum and Recommendation within 10 days after being served with a copy unless this time period is modified by the District Court. A party filing objections must specifically identify those findings, conclusions or recommendations to which objections are being made and the basis for such objections; the District Court need not consider frivolous, conclusive or general objections. Such party shall file the objections with the Clerk of the Court, and serve the objections on all other parties and the Magistrate Judge. A party's failure to file written objections to the proposed findings, conclusions and recommendations contained in this report shall bar the party from a de novo determination by the District Court. Additionally, any failure to file written objections to the proposed findings, conclusions and recommendations contained in this Memorandum and Recommendations within 10 days after being served with a copy shall bar the aggrieved party, except upon grounds of plain error, from attacking on appeal the unobjected-to proposed factual findings and legal conclusions accepted by the District Court.
See Thomas v. Arn, 474 U.S. 140, 149-52 (1985).
Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996).