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Sierra Equipment, Inc. v. Lexington Insurance Co.

United States Court of Appeals, Fifth Circuit

May 15, 2018

SIERRA EQUIPMENT, INCORPORATED, Plaintiff - Appellant,
v.
LEXINGTON INSURANCE COMPANY, Defendant-Appellee.

          Appeal from the United States District Court for the Northern District of Texas

          Before REAVLEY, ELROD, and SOUTHWICK, Circuit Judges.

          JENNIFER WALKER ELROD, Circuit Judge:

         This appeal arises from a property insurance policy that Lexington Insurance Company issued to LWL Management to insure construction equipment that LWL leased from Sierra Equipment. Sierra argues that, even though it was not a party to the insurance policy, it has standing to sue Lexington for coverage pursuant to Texas's equitable lien doctrine. Because the lease agreement between LWL and Sierra did not require that LWL obtain insurance with loss payable to Sierra, we determine that the equitable lien doctrine does not apply and Sierra lacks standing to sue Lexington for coverage under Texas law. Accordingly, we AFFIRM.

          I.

         Sierra leased various pieces of heavy construction equipment to LWL according to an equipment lease agreement. The lease agreement required LWL to insure the leased equipment, deliver a copy of the insurance policy to Sierra, and obtain a policy in form, in terms, in amount, and with insurance carriers reasonably satisfactory to Sierra. The agreement did not require that the policy list Sierra as an additional insured or contain a loss payable clause listing Sierra.

         About a year after Sierra and LWL entered into the lease agreement, LWL filed for bankruptcy. The following year, Lexington issued a domestic property insurance policy with LWL as a named insured. The policy did not include Sierra as a named insured, nor did it mention Sierra. Furthermore, though required by the lease agreement, LWL did not provide Sierra with a copy of the policy.

         During LWL's bankruptcy proceedings, and after Sierra inventoried the leased equipment, Sierra claims that it discovered that much of its equipment had been damaged, lost, or destroyed. Sierra filed an application with the bankruptcy court seeking payment from LWL for this damage. According to Sierra, however, no substantial payments from LWL ever came of this claim. This led to an investigation by Sierra, Sierra's discovery of the Lexington policy, a demand by Sierra for payment from Lexington, and eventually this action, which was filed in Texas state court but removed by Lexington on the basis of diversity jurisdiction.

         Sierra seeks declaratory judgment that: (1) Sierra was the rightful owner of the leased equipment; (2) LWL breached the lease agreement by failing to name Sierra as an additional insured under the policy; and (3) Sierra may assert a claim for the proceeds of the policy up to and including the extent of its loss related to the leased equipment. At the district court, Lexington filed multiple dispositive motions, including a motion to dismiss for lack of standing.

         The district court granted Lexington's motion to dismiss with prejudice, stating that "only where the lessee had a duty to take out insurance for the lessor's benefit, or include the lessor as an additional insured, and the lessee failed to do so, can the lessor maintain a direct action against the insurer." Analyzing the lease agreement, the district court found that it "does not include any language creating a duty that LWL procure insurance for Sierra's benefit or with Sierra as an additional insured." Thus, the district court held that Sierra had no standing to bring a direct action against Lexington. The remaining motions were dismissed as moot. Sierra timely appealed.

         II.

         "This Court reviews a dismissal for lack of standing de novo." Moore v. Bryant, 853 F.3d 245, 248 (5th Cir. 2017). Where the district court decides the motion to dismiss based on undisputed facts, "our review is limited to determining whether the district court's application of the law is correct and . . . whether those facts are indeed undisputed." Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996).

         "In this diversity action, we must apply Texas law as interpreted by Texas state courts." Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 593 (5th Cir. 2011) (quoting Mid-Continent Cas. Co. v. Swift Energy Co., 206 F.3d 487, 491 (5th Cir. 2000)). Our task is to make an Erie guess as to how the Texas Supreme Court would decide the question before us. Id. "We consider Texas Supreme Court cases that, 'while not deciding the issue, provide guidance as to how the Texas Supreme Court would decide the question . . . .'" Id. at 594 (quoting Am. Int'l Specialty Lines Ins. Co. v. Rentech Steel L.L.C., 620 F.3d 558, 564 (5th Cir. ...


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