Martin Marietta Matl, et al v. St Paul Fire & Mrne

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
_______________
m 01-10744
Summary Calendar
_______________
MARTIN MARIETTA MATL;
MARTIN MARIETTA MATERIALS SOUTHWEST, LTD.,
FORMERLY KNOWN AS MAROCK, INC.;
CONNIE SPRADLEY,
Plaintiffs-Appellants,
VERSUS
ST. PAUL FIRE AND MARINE INSURANCE COMPANY, ET AL.,
Defendants,
ST. PAUL GUARDIAN INSURANCE COMPANY,
Defendant-Appellee.
_________________________
Appeal from the United States District Court
for the Northern District of Texas
m 3:00-CV-2585-X
_________________________
January 31, 2002
Before JONES, SMITH, and
EMILIO M. GARZA, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
* Pursuant to 5TH CIR. R. 47.5, the court has
(continued...)

-- 1 of 6 --

2
St. Paul Fire and Marine Insurance
Company (“St. Paul”) insured Martin Marietta
Matl (“Marock”) and Connie Spradley under
a commercial general liability policy that cov-
ered liability and legal expenses stemming from
an “event” or “accident” but did not define
“accident.” Marock argues that its diversion
of water fro m Big Sandy Creek without a
water permit was an “accident” that resulted in
unexpected property damage to downstream
users. The district court held that the
deliberate, unlawful act was not an accident,
because property damage was the natural and
probable result. Finding no error, we affirm.
I.
Marock owned a facility that adjoined Big
Sandy Creek. St. Paul provided primary gen-
eral liability coverage for Marock and its offi-
cers. Trinity Materials, Inc. (“Trinity”), which
held senior water rights to use water from the
creek, operated a sand and gravel company
downstream of Marock.
The complaint alleges that Marock, without
a valid water permit, diverted the creek to
dredge, wash, and screen sand and gravel for
on-site construction, depriving Trinity of water
that it needed to operate. In a suit in state
court against Marock, Trinity alleged that the
diversion had caused production and sales
losses. Marock filed the instant federal action,
seeking a declaration that St. Paul has a duty
to defend and indemnify it in the state
litigation.2 The parties filed cross-motions for
summary judgment.
The district court granted St. Paul’s motion
for summary judgment, concluding that Trin-
ity’s petition in the state suit did not allege an
“accident,” which would be necessary to trig-
ger St. Paul’s duty to defend. The court held
that the same facts that negated the duty to de-
fend also negated the duty to indemnify. On
appeal, Marock argues that Trinity’s state peti-
tion alleges an “event” as defined by the
policy.
II.
Under Texas law, general principles of con-
tract interpretation apply to insurance policies.
Am. States Ins. Co. v. Bailey, 133 F.3d 363,
369 (5th Cir. 1999). State and federal courts
follow the “complaint allegation” or “eight
corners” rule when determining an insurer’s
duty to defend.3 If the petition does not allege
facts within the scope of coverage, an insurer
is not legally required to defend a suit brought
against its insured. Trinity Universal Ins. Co.
v. Cowan, 945 S.W.2d 819, 821 (Tex. 1997).
We construe the pleadings in favor of the in-
sured. Heyden, 387 S.W.2d at 26.
*(...continued)
determined that this opinion should not be
published and is not precedent except under the
limited circumstances set forth in 5TH CIR. R.
47.5.4.
2 This statement of the facts is taken almost
verbatim from the district court’s opinion. Martin
Marietta Materials Southwest, Ltd. v. St. Paul
Guardian Ins. Co., 145 F. Supp. 2d 794, 796
(N.D. Tex. 2001). The parties agree that the dis-
trict court’s statement of facts is accurate.
Appellant’s Br. at 5 (stating that the only flaw is
the conclusion that Marock acted “intentionally”);
Appellee’s Br. at 2-3 (accepting district court’s
statement).
3 Potomac Ins. Co. v. Jayhawk Med.
Acceptance Corp., 198 F.3d 548, 550 (5th Cir.
2000); Heyden Newport Chem. Corp. v. S. Gen.
Ins. Co., 387 S.W.2d 22, 24, 26 (Tex. 1965).

-- 2 of 6 --

3
The general commercial liability policy pro-
tects Marock from liability for an “event,”
which the policy defines as “an accident, in-
cluding continuous or repeated exposure to
substantially the same general harmful
conditions.” Texas and federal courts applying
Texas law to insurance contracts often have
considered the definition of “accident.”
The Texas Supreme Court most recently
summarized the test for determining whether
an insured’s actions constitute an accident in
Mid-Century Ins. Co. v. Lindsey, 997 S.W.2d
153, 155 (Tex. 1999), explaining that “both
the actor’s intent and the reasonably
foreseeable effect of his conduct bear on the
determination of whether an occurrence is
accidental.” The court described, in an
ambiguous passage, the importance of the
insured’s intent, stating that “voluntary and
intentional conduct is not an accident just
because ‘the result or injury may have been
unexpected, unforeseen, and unintended.’” Id.
(citation omitted). The court, however, went
on to say that “the mere fact that ‘an actor
intended to engage in the conduct that gave
rise to the injury’ does not mean that the injury
was not accidental.” Id. (citation omitted).
These paradoxical statements reflect an un-
derlying tension in Texas law. Some Texas
courts have held that the insured’s commission
of an intentional tort or intentionally unlawful
act bars finding an accident, regardless of the
consequences.4 Other Texas courts have held
that commission of an intentional tort bars
finding an accident only for the “natural and
probable consequence” of the action.5 In
Lindsey, 997 S.W.2d at 155, the court cited
both lines of cases with approval.
Unsurprisingly, St. Paul argues that the in-
tentional and unlawful acts should bar finding
an accident. Marock, on the other hand, rea-
sons that intentional acts bar a finding of acci-
dent only for the natural and probable conse-
quences of the act. Marock contends that un-
predictable and unforeseeable consequences
are covered accidents.
We need not resolve this tension.
Regardless of whether intent is dispositive,
Texas courts have been extremely reluctant to
declare the consequences of an unlawful act as
accidental. Trinity Universal, 945 S.W.2d at
4 Federated Mut. Ins. Co. v. Grapevine
Excavation, Inc., 197 F.3d 720, 723 (5th Cir.
1999) (“[D]amage that is the natural result of
voluntary and intentional acts is deemed not to
have been caused by an occurrence, no matter how
unexpected, unforeseen, and unintended that
(continued...)
4(...continued)
damage may be.”); Argonaut Southwest Ins. Co. v.
Maupin, 500 S.W.2d 633, 635 (Tex. 1973)
(unknowing trespass classified as an intentional
tort that gave rise to liability).
5 Meridian Oil Prod., Inc. v. Hartford Accident
& Indem. Co., 27 F.3d 150, 152 (5th Cir. 1994)
(considering recklessness of oil rig operator’s be-
havior leading to spill and natural consequences of
spill); Trinity Universal, 945 S.W.2d at 827-28
(considering relevant but not dispositive the in-
sured’s intent to make illegal copies of photograph
and violate plaintiff’s privacy); Hartrick v. Great
Am. Lloyds Ins. Co., No. 01-99-00215, 2001 WL
870072, at *5 (Tex. App.SSHouston [1st Dist.]
2001, no pet.) (“Intent or lack of intent is not
dispositive of coverage.”); Collier v. Allstate
County Mut. Ins. Co., No. 2-00-116-CV, 2001
WL 629307, at * 5 (Tex. App.SSFort Worth 2001,
no pet.) (stating that objective natural consequence
standard applies to the results of an intentional
act).

-- 3 of 6 --

4
827-28. Where the type but not the extent of
the damages is predictable, Texas courts refuse
to classify the act or its effects as an
“accident.”6
Marock deliberately diverted the water for
the construction project and did so without
water rights, which made its action unlawful.
Marock faces a heavy burden to show that the
consequences of its actions were so
unpredictable or bizarre as to make them
accidental.
The district court correctly held that when
an upstream user usurps a downstream user’s
water rights, the upstream user should foresee
damage to the downstream user. Marock
could foresee that diversion would harm
downstream commercial users, even if it did
not know the particular effects; that it did not
foresee the particular harm is irrelevant. Mar-
ock’s diversion and its consequences were not
an “accident” within the meaning of the policy.
Marock argues that by linking the term “ac-
cident” to foreseeability, the district court
made liability policies useless. Marock avers
that because foreseeability is an element of
many torts, the petition often will allege fore-
seeability and will prevent the insured from
claiming coverage. This argument is premised
on a misunderstanding of Texas insurance and
tort law.
First, Marock ignores the distinction that
Texas law defining “accidents” makes between
negligence and intentional torts. Marock cites
out-of-state cases for the proposition that a
foreseeability test would eliminate insurance
for negligence.7 Texas courts, however, have
been more willing to classify the consequences
as improbable and covered in the case of the
insured’s simple negligence; those courts have
been less likely to find an accident and
coverage where the insured has acted
intentionally; they have been least likely to find
accident and coverage where the insured
deliberately has violated the law.8
Favoring coverage for negligence rather
than intentional torts makes good sense. An
insurance company is less likely to contract to
protect the insured from the natural and
probable consequences of his deliberate
decision to break the law. That would create
a enormous moral hazard. An insurance
company can, however, much more easily
monitor and assist an insured who is seeking to
avoid simple negligence.9 The Texas courts
have interpreted liability contracts in the way
most likely to fulfill the parties’ intent.
6 Meridian Oil, 27 F.3d at 152 (describing
pollution as “natural and probable” consequence of
reckless oil rig operation even though specific im-
pact might not be foreseeable); Wessinger v. Fire
Ins. Exch., 949 S.W.2d 834, 841 (Tex.
App.SSDallas 1997, no pet.) (“Simply because the
degree of injury suffered may have been great does
not make the specific type of injury alleged any less
a natural result of the act.”).
7 Appellant’s Reply Br. at 4-5 (citing Sheets v.
Brethren Mut. Ins. Co., 679 A.2d 540 (Md. 1996);
City of Carter Lake v. Aetna Cas. & Sur. Co., 604
F.2d 1052 (8th Cir. 1979)).
8 Compare, e.g., Mass. Bonding & Ins. Co. v.
Orkin Exterminating Co., 416 S.W.2d 396, 400-
01 (Tex. 1967) (negligent application of
pesticides); Meridian Oil, 27 F.3d 152 (reckless
failure to take precautions to keep oil rig from
leaking); Maupin, 500 S.W.2d at 635 (trespass).
9 Seth J. Chandler, Visualizing the Moral
Hazard, 1 CONN. INS. L.J. 97, 135-36 (1995)
(describing limits on liability coverage as a means
for insurers to reduce moral hazard).

-- 4 of 6 --

5
Second, regardless of the competing policy
arguments, Texas courts have chosen to
impose a requirement that to count as an
“accident,” intentional torts must lead to an
unforeseeable type of harm. Because this case
is brought pursuant to diversity jurisdiction,
we have an obligation to apply Texas law as
state courts would apply it, regardless of the
policy consequences.10
Marock argues that because Trinity alleges
negligence in the state petition, we should con-
sider Marock’s diversion non-intentional. In
Texas, negligent acts that create improbable
consequences are accidents.11 Texas courts
also have held, however, that the facts, rather
than legal theories alleged in the state petition,
should determine the insured’s intent. Where
a state petition alleges facts that could support
theories of both negligence and intentional
torts, Texas courts will consider the insured’s
actions intentionally unlawful.12 Despite
Trinity’s allegations of negligence, the state
petition alleges that negligence arises from
Marock’s deliberate, unlawful acts. Those un-
derlying acts drive our “accident” analysis, as
described above.
III.
The district court held that St. Paul did not
have the duty to defend or indemnify. Martin
Marietta, 145 F. Supp. 2d at 800. On appeal,
Marock argues that the district court
prematurely resolved the question of
indemnification.
In Farmers Tex. County Mut. Ins. Co. v.
Griffin, 955 S.W.2d 81, 84 (Tex. 1997), the
court held that a trial court can resolve the in-
demnification question at summary judgement
if “no set of facts could be developed” to cre-
ate a cause of action for indemnification. The
court held that the petition’s allegations of a
drive-by shooting never could state a claim for
an “accident.” Id.
The duty to defend is broader than the duty
to indemnify. State Farm Lloyds v. Borum, 53
S.W. 3d 877, 889 (Tex. App.SSDallas 2001,
pet. denied). In most cases in which the un-
derlying petition does not state factual
allegations sufficient to create a duty to
10 Klaxon Co. v. Stentor Elec. Mfg. Co., 313
U.S. 487, 497 (1941) (stating that “the proper
function of [a] federal court is to ascertain what the
state law is, not what it ought to be”).
11 E.g., Harken Exploration Co. v. Sphere
Drake Ins. PLC, 261 F.3d 466, 474 (5th Cir.
2001) (concluding that negligent oil leak that con-
taminated water, killed cattle, and destroyed land
had unpredictable effects that could be considered
accidental); Hartford Cas. v. Cruse, 938 F.2d 601,
604-05 (5th Cir. 1991) (classifying extensive dam-
age from negligent failure properly to level house
as accidental); Mass. Bonding, 416 S.W.2d at 400-
01 (holding that negligent application of pesticide
that had cumulative, toxic effects was an accident).
12 Am. States Ins. Co. v. Bailey, 133 F.3d 363,
371-72 (5th Cir. 1998) (stating that alleged sexual
misconduct giving rise to intentional tort and neg-
(continued...)
12(...continued)
ligence claims should be considered an intentional
tort for purposes of defining as an accident); Fol-
som Investments, Inc. v. Am. Motorists Ins. Co.,
26 S.W.3d 556, 559 (Tex. App.SSDallas 2000, no
pet.) (stating that “negligence that is related to and
interdependent on claims of intentional conduct
does not constitute” an accident); King v. Dallas
Fire Ins. Co., 27 S.W.3d 117, 123 (Tex.
App.SSHouston [1st Dist.] 2000, pet. granted)
(same); Freedman v. Cigna Ins. Co. of Texas, 976
S.W.2d 776, 779 (Tex. App.SSHouston [1st Dist.]
1998, no pet.) (same).

-- 5 of 6 --

6
defend, there is no duty to indemnify. Id.
The district court held that the state petition
could never state a claim for an accident.
Marock does not isolate a single fact or legal
theory that would transform the deliberate di-
version of water into an “accident.” We can-
not envision such a development at trial, so
summary judgment was appropriate.
AFFIRMED.

-- 6 of 6 --