To paraphrase Justice Oliver Wendell Holmes Jr., a case “which appeals to the feelings and distorts the judgment” makes bad law. In the face of exceptionally tragic circumstances, however, the Fifth Circuit Court of Appeals resisted the urge to let its emotions carry the day. In Scottsdale Insurance Co. v. Discovering Me Academy LLC, the court instead adhered to well-established principles of Texas contract law to preclude coverage under a policy issued by Scottsdale Insurance Co. based on an automobile exclusion in Discovering Me Academy’s general liability policy.
Discovering Me Field Trip
On a hot afternoon in July 2018 in Houston, Discovering Me, a local daycare, took a group of 28 children on a field trip to a local park. After returning from the field trip, Discovering Me employees inexplicably miscounted the number of children exiting the van and left a 3-year-old child inside. The child remained in the van until his father arrived nearly four hours later to pick him up from the daycare, at which point he had become unresponsive from heat exhaustion. Tragically, medical personnel were unable to resuscitate the child, and he was pronounced dead at a local hospital.
Following the child’s death, his parents brought a wrongful death action against Discovering Me. Discovering Me was covered under a commercial general liability policy issued by Scottsdale, and Scottsdale filed a declaratory judgment action in the U.S. District Court for the Southern District of Texas seeking to determine its obligation, if any, to defend and indemnify Discovering Me and its manager, who was also named in the underlying suit. The district court granted Scottsdale’s motion for summary judgment on the issue, and Discovering Me appealed.
The Texas Eight Corners Rule
Noting that “[t]he primary goal [of contract interpretation] is to effectuate the parties’ intent as expressed in the contract,” the Fifth Circuit applied Texas’ “eight corners rule,” which compares only two documents in ascertaining whether an insurer has a duty to defend: the complaint (or other operative pleading) and the insurance policy. These two documents are analyzed without regard to the truth of the allegations in the complaint, with any doubt about the duty to defend resolved in favor of the insured. If the complaint “only alleges facts excluded by the policy, the insurer is not required to defend.”
Key to this case, Discovering Me’s policy included an automobile exclusion for bodily injury “arising out of the ownership, maintenance, use or entrustment to others” of any automobiles used by the insured. The policy also contained a separate sexual and/or physical abuse liability coverage part, which required Scottsdale to pay damages for “sexual or physical injury or abuse, including assault and battery, negligent or deliberate touching.” Notwithstanding the automobile exclusion, Discovering Me contended that the lawsuit involved allegations of “physical injury,” and thus triggered the policy’s sexual and/or physical abuse form, which did not include its own automobile exclusion (i.e., one separate and apart from the exclusion contained in the general liability coverage form).
The court found its answer in the sexual and/or physical abuse form, pointing to a provision that coverage under the form “is subject to this coverage form and the exclusions, conditions and other terms of this policy.” Noting it has “long been the rule that we must read all parts of a policy together, giving meaning to every sentence, clause, and word,” the court held that the use of the word “and” clearly incorporated the other exclusions of the policy — including the automobile exclusion — into the sexual and/or physical abuse form. Thus, even assuming the sexual and/or abuse form was triggered by the allegations in the lawsuit, the Fifth Circuit affirmed the district court ruling that the automobile exclusion barred coverage under the Scottsdale policy.
