SATTERFIELD AND PONTIKES CONSTRUCTION, INCORPORATED, Plaintiff - Appellant
UNITED STATES FIRE INSURANCE COMPANY, Defendant-Appellee AMERISURE MUTUAL INSURANCE COMPANY, Intervenor - Appellant
from the United States District Court for the Southern
District of Texas
CLEMENT, HIGGINSON, and HO, Circuit Judges.
BROWN CLEMENT, CIRCUIT JUDGE
and Pontikes Construction, Inc. (S&P), a general
construction contractor, sued United States Fire Insurance
Company (U.S. Fire), its secondary insurance provider, after
U.S. Fire refused to cover damages S&P incurred when a
courthouse construction project went awry. U.S. Fire argued
that it could not determine whether the funds S&P
recovered from subcontractors of the courthouse project went
to damages covered under U.S. Fire's policy because
S&P failed to allocate those proceeds when settling with
the subcontractors. If the subcontractor settlements were
used to pay for damages covered under U.S. Fire's policy,
then allowing S&P to collect under U.S. Fire's policy
would result in double recovery and unjust enrichment. The
district court granted summary judgment in favor of U.S. Fire
after it determined that S&P failed to meet its burden to
show allocation of the settlement proceeds between covered
and noncovered damages. We affirm.
was hired as the general contractor for a courthouse building
project by Zapata County, Texas. S&P, in turn, hired
numerous subcontractors to perform various roles for the
construction. The project was large and required several
years of work.
purchased two "layers" of insurance to cover
potential liabilities that could arise from the project. The
first layer comprised commercial general liability insurance
policies from American Guarantee and Liability Insurance
Company (AGLIC) and Amerisure Mutual Insurance Company
(Amerisure).AGLIC's policy spanned from 2006-2007,
and Amerisure's policies spanned from 2007-2011.
AGLIC's policy had a per-occurrence limit of $1, 000, 000
and an aggregate limit of $2, 000, 000. S&P also
purchased a second layer of insurance from U.S. Fire that
would kick in only when the first layer of insurance was
depleted. This policy had a $25, 000, 000 limit. S&P also
required its subcontractors to purchase insurance and sign
indemnity agreements to cover damage they caused to the
S&P's coverage was not all-inclusive. The policy it
purchased from U.S. Fire barred coverage for any
"property damage" resulting from exposure to fungi,
including mold, or bacteria. AGLIC's policy contained
similar exclusions. And U.S. Fire's policy did not cover
attorney's fees or other legal costs.
project did not go well. Zapata County eventually terminated
S&P and retained new contractors to complete the
construction. Zapata County sued S&P, and the parties
arbitrated their dispute.
arbitration panel found that "S&P failed to build
the courthouse in a good and workmanlike manner."
"S&P also failed to properly supervise its
subcontractors." And because of S&P's failures,
"the courthouse suffered physical harm and damage."
that the damage S&P caused required significant repairs,
the arbitration panel awarded Zapata County $2, 800, 000 for
mold remediation and dome reconstruction,  $855, 000 for
replacement of the courthouse roof, and $2, 417, 000 for
fireproofing replacement, terrazzo/window repairs, and
cleaning. The panel further awarded $430, 458 in prejudgment
interest to Zapata County, $1, 500, 000 for reasonable
attorney's fees, and some of the arbitration costs. In
total, the final award was $8, 032, 367.74.
included its subcontractors in the arbitration, seeking money
pursuant to the indemnification clauses in the subcontracts.
S&P informed U.S. Fire of its efforts to settle with the
subcontractors, and U.S. Fire said in an email that it would
not object to any "reasonable settlement." S&P
then entered into settlement agreements with fifteen
subcontractors and two third parties, collecting $4, 492, 500
for its efforts. These settlements were complete releases of
liability, but the agreements did not allocate the proceeds
of the settlements to the damages/liabilities they covered.
course, the $4, 492, 500 was not nearly sufficient to cover
the $8, 032, 367.74 arbitration award. S&P was obliged to
draw on its insurance policies to make up the $3, 571, 141.78
shortfall. S&P chose the AGLIC policy (which covered
liabilities from 2006-2007) to cover the damages. AGLIC paid
$1, 985, 604.63 to help satisfy the award, which it claimed
was an amount in excess of its obligations under the policy.
But AGLIC's money in conjunction with the subcontractor
settlements-which together totaled $6, 478, 104.63- failed to
cover the arbitration award. S&P turned to U.S. Fire, its
excess insurance provider, to cover the remainder. U.S. Fire
paid nothing, arguing that the first layer of insurance for
covered damages had not been completely exhausted.
Amerisure-although it believed U.S. Fire was obligated to pay
the shortfall-paid $1, 146, 405.10 to help satisfy the
arbitration award. Despite these payments from AGLIC and
Amerisure, S&P was required to spend $439, 131.98 to
satisfy the balance of the award.
and AGLIC sued U.S. Fire, claiming that the excess
insurer breached its policy. Amerisure intervened, seeking
equitable subrogation for the amount that it contributed.
sides moved for summary judgment. S&P's argument was
simple: U.S. Fire, as its second layer insurance provider,
was required to make up the shortfall after the first layer
of insurance was exhausted. Approximately $4, 500, 000 of the
$8, 000, 000 award that S&P owed to Zapata County was
satisfied by the subcontractors. And AGLIC should have paid
roughly $1, 500, 000 of the arbitration award ($1, 000, 000
for one occurrence plus prejudgment interest, post-judgment
interest, and other fees). That left a shortfall of roughly
$2, 000, 000 that U.S. Fire should have paid.
Fire contended that S&P's argument ignores that not
all of the damages awarded by the arbitration panel were
covered under its insurance policy-including the mold
remediation award ($2, 800, 000), the attorney's fees
award ($1, 500, 000), the prejudgment interest award ($202,
320.53), and the arbitration fees ($29, 909.74). Once these
sums, along with AGLIC's $1, 000, 000 first layer of
insurance, are removed from the $8, 000, 000 arbitration
award, then no more than $2, 500, 000 was potentially
recoverable from U.S. Fire.
course, simply because roughly $2, 500, 000 of the damages
were covered under its policy does not mean that U.S. Fire
believed that it was obligated to pay that amount. After
determining which damages were potentially covered, U.S. Fire
looked to the $4, 492, 500 subcontractor settlement award and
considered whether the proceeds applied to covered or
noncovered damages under its policy. The waterproofing
subcontractor, whose work probably caused the mold damage,
paid $1, 750, 000 to settle S&P's claims against it.
U.S. Fire stipulated that this amount could be allocated to
the uninsured mold damages. So $1, 750, 000 of the $4, 492,
500 subcontractor settlement award applied to the noncovered
damages. U.S. Fire contended that the remaining $2, 742, 500
of the subcontractor settlement award applied to the covered
damages that S&P sought to recover from U.S. Fire. That
amount was greater than the $2, 531, 411.51 of potentially
covered damages, and so there was no shortfall for U.S. Fire
to pay. Allowing S&P to recover from both the
subcontractors and U.S. Fire for the same damages would
result in double recovery and unjust enrichment.
the district court, S&P initially contended that it was
entitled to allocate its subcontractor settlement money
however it liked. S&P repeatedly emphasized that its
subcontractor settlements were not allocated or earmarked for
specific building damage. So the settlements could either go
to the damages that were covered under U.S. Fire's policy
or they could go to the noncovered damages (mold,
attorney's fees, etc.). Eventually, S&P changed its
position and argued that the subcontractor settlements were
allocated between covered and noncovered damages.
district court granted summary judgment in favor of U.S.
Fire, reasoning: "S&P chose not to insure a
substantial portion of the risk it carried . . . [and now]
seeks to leave its insurers on the hook for risks they did
not agree to insure. This theory is not only lacking in case
support, it would produce an unfair result." The
district court relied heavily on a case that the parties did
not cite or discuss, RSR Corp. v. International Insurance
Co., 612 F.3d 851 (5th Cir. 2010), for the proposition
that "S&P cannot unilaterally allocate all of its
settlement proceeds to uncovered losses in order to
manufacture a covered loss." Drawing on principles from
the case law, the district court placed a burden on S&P
to demonstrate that the settlement proceeds could be
allocated to the noncovered portions of U.S. Fire's
policy. S&P was unable to show that any settlement
proceeds (other than the $1, 750, 000 from the waterproofing
subcontractor) could be allocated to the noncovered damages.
S&P eventually attempted to demonstrate that the record
indicated close connections between many of the subcontractor
settlements and damages not covered by U.S. Fire's policy
in supplemental briefing, the district court found these
contentions unpersuasive and untimely. It concluded that
S&P had failed to raise a ...