Court of Appeals for the Fifth Circuit Cases

Liberty Mutual Fire Ins v. Copart of CT

75 F.4th 522 • 2023-07-31

Citation75 F.4th 522

Date Filed2023-07-31

Docket21-10938

Cited22 times

StatusPublished

Full Opinion (html_with_citations)

Case: 21-10938 Document: 00516840351 Page: 1 Date Filed: 07/31/2023

United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit

____________ FILED
July 31, 2023
No. 21-10938 Lyle W. Cayce
____________ Clerk

Liberty Mutual Fire Insurance Company; Liberty
Insurance Corporation,

Plaintiffs—Appellees,

versus

Copart of Connecticut, Incorporated,

Defendant—Appellant.
______________________________

Appeal from the United States District Court
for the Northern District of Texas
USDC No. 3:19-CV-2748
______________________________

Before Higginbotham, Southwick, and Higginson, Circuit
Judges.
Stephen A. Higginson, Circuit Judge:
Defendant-appellant Copart of Connecticut appeals the district
court’s grant of summary judgment in favor of plaintiffs-appellees Liberty
Mutual Fire Insurance Company and Liberty Insurance Corporation. For
the following reasons, we affirm in part and reverse in part.
Case: 21-10938 Document: 00516840351 Page: 2 Date Filed: 07/31/2023

No. 21-10938

I.
Copart of Connecticut, Inc. (“Copart”) is a subsidiary of Copart, Inc.,
an online car-auction company that sells used, wholesale, and repairable
vehicles. Copart owns several parcels of land in Lexington County, South
Carolina, on which it operates “machine salvage junkyard and vehicle wash
facilities.” This appeal concerns whether Copart’s insurer must defend or
indemnify Copart with respect to a lawsuit filed against it in South Carolina.
A.
On October 14, 2016, eight property-owner plaintiffs (the “Livingston
Plaintiffs”) sued Copart in South Carolina state court. The case was later
removed to the U.S. District Court for the District of South Carolina. In their
complaint, the Livingston Plaintiffs allege that they own properties located
near Copart’s land and that Copart’s operations have damaged their
properties. Specifically, the Livingston Plaintiffs allege that a continuously
flowing spring-fed stream, Tom’s Creek, originates “on or directly east” of
one of Copart’s properties and that this creek system runs through, or feeds
wetlands on, the Plaintiffs’ properties. They allege that wrecked and
salvaged vehicles and machines stored on unpaved lots on Copart’s property
are “variously leaking gasoline, oil, hydraulic fluids, antifreeze, and other
hazardous fluids and materials into the soil.” According to the Livingston
Plaintiffs’ complaint, “[d]uring any significant rainfall event, water, soil,
sediment and hazardous materials and chemicals are washed from the Copart
property into Tom’s Creek ultimately through the Plaintiffs’ properties.”
They allege that this has “dramatically changed the nature of [their]
property,” by way of “aesthetic[]” damage “in the form of cloudy water for
several days, after each rainfall event,” and a “negative[] impact[]” on the
“flora and fauna in and around streams and ponds on Plaintiffs’ property.”

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No. 21-10938

The Livingston Plaintiffs further allege that “scientific testing
conducted on a variety of samples from points on the periphery of [Copart]’s
property and within the Tom Creek’s watershed, reveal alarming levels of
heavy-metals and other dangerous elements.” The Livingston Plaintiffs
allege that these samples show “large concentrations of aluminum, lead,
titanium, arsenic, and copper throughout,” and that “[t]hese are the same
elements found within various components of motor vehicles, such as
batteries, radiators and fuel.”
The Livingston Plaintiffs allege violations of the Resource
Conservation and Recovery Act, the Clean Water Act, and the South
Carolina Pollution Control Act, as well as claims for negligence, negligence
per se, nuisance, and trespass.
B.
During the relevant periods, Copart held insurance policies with
Liberty Mutual Fire Insurance Company (“LMFIC”) and Liberty Insurance
Corporation (“Liberty Insurance”) (collectively, “Liberty”). Copart and
Liberty dispute whether, in light of certain “pollution” exclusions in the
relevant policies, Liberty has a duty to defend or indemnify Copart with
respect to the South Carolina case (the “Underlying Suit”). 1
LMFIC issued five commercial general liability (“CGL”) policies to
Copart, for policy periods spanning from 2012 to 2017. The parties agree
that the policies are substantively identical in relevant part. Coverage A of
the CGL policies provides that LMFIC

_____________________
1
As the parties confirmed at oral argument, the Underlying Suit was resolved by
settlement while this appeal was pending. See Stipulation of Dismissal with Prejudice,
Livingston, Jr. v. Copart of Conn., Inc., No. 17-2543 (D.S.C. May 31, 2022), ECF No. 196.

3
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No. 21-10938

will pay those sums that the insured becomes legally obligated
to pay as damages because of “bodily injury” or “property
damage” 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 “bodily
injury” or “property damage” to which this insurance does not
apply.
This coverage is subject to an exclusion for damages caused by
pollution. Specifically, Coverage A, as amended by an endorsement,
excludes from coverage any “‘[b]odily injury’ or ‘property damage’ which
would not have occurred in whole or part but for the actual, alleged or
threatened discharge, dispersal, seepage, migration, release or escape of
‘pollutants’ at any time.” The policies define “pollutants” as “any solid,
liquid, gaseous or thermal irritant or contaminant, including smoke, vapor,
soot, fumes, acids, alkalis, chemicals and waste.” “Waste includes materials
to be recycled, reconditioned or reclaimed.”
In addition to its CGL policies with LMFIC, Copart also purchased
umbrella policies with Liberty Insurance for policy periods spanning from
2014 to 2017. The parties agree that the policies are substantively identical
in relevant part. Under the umbrella policies, Liberty Insurance has “the
right and duty to defend any ‘suit’ seeking damages covered by this
insurance, . . . when: (1) [t]he total applicable limits of ‘underlying insurance’
have been exhausted by payment of judgments or settlements; or (2) [t]he
damages sought because of ‘bodily injury[,’] ‘property damage’ or ‘personal
and advertising injury’ to which this insurance applies would not be covered
by ‘underlying insurance’ or ‘other insurance.’” The umbrella policies list
the LMFIC CGL policies as “underlying insurance.”

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No. 21-10938

Like the CGL policies, the umbrella policies contain in an
endorsement an exclusion for damages caused by pollution. 2 The pollution
endorsement also modifies the duty to defend with respect to pollution-
related damages. It provides that, “[f]or the purposes of this endorsement,”
Liberty Insurance “will have the right and duty to defend any ‘suit’ seeking
damages covered by this insurance, . . . if the ‘retained limit’ has been
exhausted by payment of damages that would be covered by this
endorsement.’” The “retained limit” for purposes of the endorsement is
$1,000,000.
C.
On November 18, 2019, Liberty filed a declaratory action against
Copart in the U.S. District Court for the Northern District of Texas. Liberty
alleged in its complaint that LMFIC was “currently defending Copart in the
Underlying Suit pursuant to its reservation of rights and [sought], by this
action, a declaration that it has a right to withdraw that qualified defense.”
Liberty cited the Livingston Plaintiffs’ pleadings, and the pollution exclusion
in its CGL and umbrella policies, and asked the court for, inter alia, a
declaration that Liberty has “no duty to defend or indemnify Copart or any
other person in connection with the claims asserted in the Underlying Suit
and therefore ha[s] no duty to pay any portion of the defense costs incurred
or paid by any person in connection with the Underlying Suit.”
Liberty later moved for summary judgment seeking a declaration that
it had no duty to defend or indemnify Copart as to the Underlying Suit.

_____________________
2
The pollution exclusion in the umbrella policies uses language that is similar, but
not identical, to its counterpart in the CGL policies. The umbrella policies’ exclusion also
has further exceptions not found in its CGL counterpart, but, for reasons we will explain,
we need not reach the meaning of those provisions in order to resolve this appeal.

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No. 21-10938

Copart filed an opposition to Liberty’s motion, as well as its own cross-
motion for partial summary judgment on the duty to defend.
The district court granted Liberty’s motion for summary judgment
and denied Copart’s cross-motion. The court found that the pollution
exclusion was unambiguous and that it was “clear” that the Livingston
Plaintiffs alleged damages caused by pollutants, so Liberty had no duty to
defend under the CGL policies. The court further found that there was no
duty to defend under the umbrella policies because the $1,000,000 retained
limit had not been exhausted. The court then found that, “[b]ecause Liberty
Mutual has no duty to defend the Underlying Suit, it follows that it has no
duty to indemnify.” Final judgment issued for Liberty the same day.
Copart timely appealed, challenging the district court’s conclusions.

II.
A district court’s judgment on cross motions for summary judgment
is reviewed de novo, “addressing each party’s motion independently, viewing
the evidence and inferences in the light most favorable to the nonmoving
party.” Siplast, Inc. v. Emps. Mut. Cas. Co.,

23 F.4th 486, 492

 (5th Cir. 2022)
   (per curiam) (citations omitted). We affirm a grant of summary judgment
   “only if there is no genuine issue of material fact and the party is entitled to
   prevail as a matter of law.”

Id.

 (citation omitted). The court “may affirm a
   summary judgment on any ground supported by the record, even if it is
   different from that relied on by the district court.” Campos v. Steves & Sons,
   Inc.,

10 F.4th 515

, 520 (5th Cir. 2021) (citations omitted). The interpretation
   of insurance policies is reviewed de novo as well. Richard v. Anadarko
   Petroleum Corp.,

850 F.3d 701, 707

 (5th Cir. 2017) (citations omitted).




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                                     No. 21-10938


          The law of the forum state, Texas, applies in this diversity case.
   Siplast,

23 F.4th at 492

 (citations omitted). “Under Texas law, an insurer
   may have two responsibilities relating to coverage—the duty to defend and
   the duty to indemnify.”

Id.

 (quoting ACE Am. Ins. Co. v. Freeport Welding &
   Fabricating, Inc.,

699 F.3d 832, 839

 (5th Cir. 2012)). These two duties are
   distinct, and the duty to defend is generally broader than the duty to
   indemnify. Zurich Am. Ins. Co. v. Nokia, Inc.,

268 S.W.3d 487, 490

 (Tex.
   2008). This is because “[a]n insurer must defend its insured if a plaintiff’s
   factual allegations potentially support a covered claim, while the facts actually
   established in the underlying suit determine whether the insurer must
   indemnify its insured.”

Id.

 (emphasis added) (citation omitted).


                                         III.
          We first consider whether Liberty has a duty to defend Copart in the
   Underlying Suit. Whether an insurer has a duty to defend is a determination
   governed by the “eight-corners rule.” Siplast,

23 F.4th at 492

 (citing
   Richards v. State Farm Lloyds,

597 S.W.3d 492

, 494 (Tex. 2020)). Under the
   eight-corners rule, “an insurer’s ‘duty to defend is determined by the claims
   alleged in the petition and the coverage provided in the policy.’” Richards,
   597, S.W.3d at 494 (quoting Pine Oak Builders, Inc. v. Great Am. Lloyds Ins.
   Co.,

279 S.W.3d 650, 654

 (Tex. 2009)). “The ‘four corners’ of the petition
   and the ‘four corners’ of the policy together comprise the ‘eight corners’ that
   give the rule its name.” Id. at 494-95. A court may not consider “facts
   ascertained before the suit, developed in the process of the litigation, or by
   the ultimate outcome of the suit” as part of its duty-to-defend determination.
   Canutillo Indep. Sch. Dist. v. Nat’l Union Fire Ins. Co. of Pittsburgh,

99 F.3d 695, 701

 (5th Cir. 1996) (quoting Gulf Chem. & Metallurgical Corp. v.
   Associated Metals & Minerals Corp.,

1 F.3d 365, 369

 (5th Cir. 1993)); see also




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                                     No. 21-10938


   Am. Alliance Ins. Co. v. Frito-Lay, Inc.,

788 S.W.2d 152, 153-54

 (Tex. Ct. App.
   1990). Nor may the court “imagine factual scenarios which might trigger
   coverage.” Waste Mgmt., Inc. v. AIG Specialty Ins. Co.,

974 F.3d 528, 535

 (5th
   Cir. 2020) (quoting Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchs. Fast
   Motor Lines, Inc.,

939 S.W.2d 139, 142

 (Tex. 1997) (per curiam)).
          The duty to defend “is determined by the third-party plaintiff’s
   pleadings, considered in light of the policy provisions, without regard to the
   truth or falsity of those allegations.” GuideOne Elite Ins. Co. v. Fielder Rd.
   Baptist Church,

197 S.W.3d 305, 308

 (Tex. 2006) (citations omitted). The
   analysis focuses on the facts alleged in the pleadings, not the legal theories
   asserted. Evanston Ins. Co. v. Legacy of Life, Inc.,

645 F.3d 739, 745

 (5th Cir.
   2011) (citations omitted). “[I]n case of doubt as to whether or not the
   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 insured’s favor.” Waste Mgmt.,

974 F.3d at 535

 (quoting Nat’l Union,

939 S.W.2d at 141

).
          “If coverage is found for any part of a suit, the insurer must defend
   the entire suit.” Allstate Ins. Co. v. Disability Servs. of the Sw. Inc.,

400 F.3d 260, 263

 (5th Cir. 2005) (citations omitted).
                                          A.
          The CGL policies provide that Liberty has no duty to defend Copart
   in suits alleging harms to which the insurance under the policies does not
   apply. The policies exclude from coverage any damages that “would not
   have occurred in whole or part but for the actual, alleged or threatened
   discharge, dispersal, seepage, migration, release or escape of ‘pollutants’ at
   any time.” “Pollutants” are in turn defined as “any solid, liquid, gaseous or
   thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids,
   alkalis, chemicals and waste.”




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                                          No. 21-10938


           As a threshold matter, Copart does not dispute that the CGL policies’
   pollution exclusion is unambiguous as written. Courts applying Texas law
   have consistently interpreted pollution exclusions such as this to be absolute
   and unambiguous. See, e.g., Noble Energy, Inc. v. Bituminous Cas. Co.,

529 F.3d 642, 646

 (5th Cir. 2008) (“Texas courts have consistently held similar
   pollution exclusions to be unambiguous.” (first citing Nat’l Union Fire Ins.
   Co. v. CBI Indus., Inc.,

907 S.W.2d 517, 521

 (Tex. 1995); and then citing
   Zaiontz v. Trinity Universal Ins. Co.,

87 S.W.3d 565, 571

 (Tex. Ct. App.
   2002)); see also Peleus Ins. Co. v. Ron Sparks, Inc.,

2022 WL 4125222

, at *3
   (N.D. Tex. Sept. 8, 2022) (finding that an identically worded pollution
   exclusion was unambiguous).
           Nor is there a serious dispute that the pollution exclusion applies to at
   least some of the Livingston Plaintiffs’ allegations. 3               A review of the
   complaint against the language of the pollution exclusion confirms the
   exclusion’s applicability. The Livingston Plaintiffs allege that Copart’s
   activities have led to the discharge of various hazardous materials and
   chemicals, including, inter alia, gasoline, oil, antifreeze, hydraulic fluids,
   lead, and arsenic, that have in turn caused aesthetic harm in the form of
   cloudy water and physical harm to nearby flora and fauna. The complaint
   thus includes many allegations that fit within the CGL policies’ pollution
   exclusion—that is, allegations of damage resulting “in whole or part” from
   Copart’s “discharge, dispersal, seepage, migration, release or escape of”
   materials including “chemicals and waste.”


           _____________________
           3
               As Liberty and Copart acknowledge on appeal, the operative pleading for this
   court’s duty-to-defend analysis is the Livingston Plaintiffs’ Third Amended Complaint,
   filed in federal court in South Carolina on March 9, 2018. See Northfield Ins. Co. v. Loving
   Home Care, Inc.,

363 F.3d 523, 528

 (5th Cir. 2004) (“The duty to defend is determined by
   consulting the latest amended pleading.” (citation omitted))).




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                                     No. 21-10938


          The central dispute here is whether the Livingston Plaintiffs have
   alleged any facts that do not fall within the pollution exclusion. To get around
   the exclusion, Copart must identify allegations of harm by non-pollutants
   alone. We reiterate that the exclusion negates coverage for harms that
   “would not have occurred in whole or part but for” pollutants. Given the
   breadth of the exclusion, Copart must identify allegations in the Livingston
   complaint that are confined to non-pollutants. If the complaint contains such
   allegations, then the suit triggers Liberty’s duty to defend, despite that the
   other allegations in the complaint may be excluded. Evanston Ins. Co.,

645 F.3d at 745

(“If any allegation in the complaint is even potentially covered by
the policy then the insurer has a duty to defend its insured.” (emphasis in
original) (citation omitted)).
In search of non-excluded allegations, Copart points out that the
Livingston Plaintiffs’ complaint names “30+ independent substances,”
including some non-pollutants such as water, soil, and sediment. Copart
relies, in various ways, on the complaint’s allegations regarding these
substances to argue that the Underlying Suit contains allegations not
excluded from coverage by the pollution exclusion, thereby triggering
Liberty’s duty to defend. None of Copart’s arguments is persuasive.
First, Copart asserts that Liberty unjustifiably reads the Livingston
Plaintiffs’ allegations to refer to a “composite,” “inseparable” substance—
namely, polluted water—that damaged the Livingston Plaintiffs’ properties.
Copart contends that the Livingston Plaintiffs’ complaint is better read as
alleging harm from a long list of “independent” substances, some of which
are pollutants and some of which are not. Read this way, Copart argues, the
Livingston Plaintiffs’ complaint alleges harm from non-pollutants alone.
But this argument is meritless. Copart is correct that the complaint
mentions many different substances, some of which, like water, may indeed

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No. 21-10938

be non-pollutants. 4 But it exceeds the bounds of plausibility to interpret the
complaint as alleging “independent” harm by the non-pollutant substances.
The narrative thrust of the complaint is that rainfall carries pollutant-laden
stormwater from Copart’s properties to the plaintiffs’ properties and thereby
causes them harm. The water is indeed alleged to include some non-
pollutants like soil, sediment, dirt, rock, and sand, but the water is also
consistently and repeatedly alleged to include “hazardous materials and
chemicals” and “chemical waste.” With only one discernible exception,
discussed infra, Copart cites no specific allegation from the complaint
supporting its position that the pleading can be read to allege harm by non-
polluted water alone. 5

_____________________
4
We accept arguendo Copart’s contention that some of the named substances are
not pollutants under the exclusion, but we need not, and do not, resolve this question one
way or the other.
5
In support of its position, Copart cites two unpublished district-court cases from
Virginia. Neither is germane. First, in Nationwide Mutual Insurance Co v. Boyd Corp., No.
09-211,

2010 WL 331757

 (E.D. Va. Jan. 25, 2010), the district court found that a pollution
   exclusion did not preclude a duty to defend because, while the underlying complaint
   contained “several allegations of damage from ‘polluted stormwater,’ there [we]re also
   allegations in the complaint of damage from ‘water’” alone. Id. at *4. The court pointed
   in part to “allegations of damage attributable to excess water flow,” which was not a
   “pollutant” under the policy. Id. Here, the Livingston Plaintiffs make no comparable
   allegation.
            Copart’s second case, Builders Mutual Insurance Co. v. Half Court Press, LLC, No.
   09-46,

2010 WL 3033911

(W.D. Va. Aug. 3, 2010), more closely resembles this case. There,
the court considered an allegation that the insured, a property developer, had negligently
failed “to create and maintain sufficient detention basins and erosion and sediment control
measures,” causing the underlying plaintiffs’ downslope property to be damaged by “the
continued presence of such water, dirt, spoil, rock, sand, silt, debris and/or other such
sediment.” Id. at *3. The court read this statement to “allege[] damage from water, in
addition to damage from sediment,” and found a duty to defend because “[w]ater is not a
pollutant under the exclusion.” Id. at *3-4. But these allegations differ from those of the
Livingston Plaintiffs. Damage in the form of “continued presence of water,” due to a
failure to maintain detention basins and erosion controls, sounds less in pollution than the

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No. 21-10938

Detached from the allegations as written, Copart instead argues that
the non-pollutant substances “could,” in fact, “potentially be the damage-
causing culprit,” i.e., “the source of at least some of the damage alleged by
the Underlying Plaintiffs.” Copart asserts that “[n]on-polluted stormwater
flowing from Copart’s property after a significant rain event could stir up
[non-pollutant] substances . . . resulting in cloudy water” on the Livingston
Plaintiffs’ properties, and that such a “possibility is entirely compatible with
the allegations in the Livingston Complaint.” But these arguments are out
of bounds on the duty-to-defend analysis, under which the court may not
“imagine factual scenarios which might trigger coverage.” Waste Mgmt.,

974 F.3d at 535

 (quoting Nat’l Union,

939 S.W.2d 139 at 142

). The duty to defend
   is governed by the allegations in the complaint, and the complaint alleges
   harm by water laden with pollutants.
           Finally, Liberty’s interpretation of the complaint—i.e., “composite”
   stormwater laden with various substances including pollutants, rather than
   “30+ independent substances,” any or all of which allegedly caused harm—
   is broadly consistent with this court’s decision in Noble Energy,

529 F.3d at 642

. There, the court found that a pollution exclusion applied to negate the
   insurer’s duty to defend where the underlying plaintiffs alleged damage from
   “a mixture of highly flammable gas condensate and presumably innocuous
   basic sediment and waste.”

Id. at 647

(emphasis added). As in Noble, that
the alleged water contains some “presumably innocuous” materials does not
push the complaint’s allegations outside the scope of the pollution exclusion.

_____________________
Livingston Plaintiffs’ alleged injuries, which focus on harm to flora and fauna and cloudy
water, caused by the introduction of various substances, many of which are indisputably
pollutants. In other words, the complaint at issue in Half Court could plausibly be read to
allege harm by the presence of water itself, while the complaint here alleges harm from
substances in that water. Regardless, even Half Court were comparable, we are not bound
by this out-of-circuit opinion.

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No. 21-10938

For these reasons, the district court did not err in declining to read
into the complaint allegations of “independent” harm by non-pollutants
alone.
In a similar vein, Copart argues that the Livingston Plaintiffs allege
damage caused by “various naturally occurring materials . . . in the
stormwater” that are not pollutants under the CGL policies. Specifically,
Copart contends that water, soil, sediment, dirt, rock, sand nutrients,
biological material, and “other matter” are “indigenous to—indeed,
prevalent in—the geographical area where the Copart and Underlying
Plaintiffs’ properties are located and are not ‘pollutants.’” Copart cites non-
Texas cases for the proposition that the pollution exclusion does not apply to
substances like these and contends that the Livingston Plaintiffs’ allegations
mentioning these substances give rise to a duty to defend.
But this argument rests on the faulty premise that we have already
rejected. It does not matter if these “indigenous” substances are not
pollutants under the policy because, as explained, the complaint alleges harm
by stormwater laden with both non-pollutants and pollutants. And the
pollution exclusion covers harms caused “in whole or part” by pollutants.
Copart cites no allegations of harm by these “indigenous” substances alone.
And again, Copart transgresses the limits of the duty-to-defend
inquiry when it asserts that, as a matter of fact, the cloudy water on the
Livingston Plaintiffs’ properties “could have been caused by the discharge and
movement of these natural, indigenous substances.” It is the allegations in
the pleadings, not hypothetical facts, that dictate our analysis. Waste Mgmt.,

974 F.3d at 535

.
            In seeking to show that Liberty has a duty to defend, Copart
   emphasizes one specific allegation in the complaint above all else. In
   paragraph 118 of the complaint, which Copart dubs the “Water Trespass




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                                     No. 21-10938


   Allegation,” the Livingston Plaintiffs allege that Copart’s “actions
   constitute a trespass by encroachment of water, sediment, and other matter
   onto Plaintiffs’ property.” Copart contends that this paragraph “alleges
   water as a cause of damage, clearly triggering Liberty Mutual’s duty to
   defend.” In other words, the argument goes, the Livingston Plaintiffs allege
   trespass caused by water alone, and water is a non-pollutant.
          While the quoted allegation may admit of such an interpretation if
   read in isolation, “Texas law requires us to consider the allegations in the
   complaint along with any reasonable inferences that flow from the facts
   alleged”—that is, “all the facts alleged in combination”—when assessing
   the duty to defend. Liberty Mut. Ins. Co. v. Graham,

473 F.3d 596, 601-02

   (5th Cir. 2006) (citing Allstate Ins. Co. v. Hallman,

159 S.W.3d 640, 645

 (Tex.
   2005)).   And the context surrounding this allegation defeats Copart’s
   proffered interpretation. The so-called Water Trespass Allegation is situated
   in a seven-paragraph cause of action asserting that Copart’s conduct satisfies
   the legal elements of trespass. The paragraph immediately preceding the
   cited allegation alleges that Copart has caused “harmful material to enter and
   flow onto Plaintiffs’ properties by permitting its improperly controlled
   stormwater, laden with soil, sediment, chemicals and other pollutants, to be
   discharged onto Plaintiffs’ properties.” Similarly, the very next paragraph
   alleges that Copart “knew or should have known that their activities in failing
   to properly manage their industrial and land disturbance activities in close
   proximity to Plaintiffs’ property would, to a substantial certainty, result in
   the discharge of stormwater laden with soil, sediment, and harmful chemicals
   onto the property of Plaintiffs.” The next two paragraphs each allege, again,
   that Copart is responsible for “stormwater laden with soil, sediment, and
   harmful chemicals on[] Plaintiffs’ properties . . . .”
          This context instructs that the “water, sediment, and other matter”
   referred to in paragraph 118 is the same pollutant-laden stormwater that is



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                                          No. 21-10938


   the subject of the rest of the trespass allegation. Indeed, this polluted
   stormwater is discussed throughout the complaint; paragraph 118 simply
   uses language that is less precise than other parts of the complaint. And
   although Copart urges us to resolve all doubts about this allegation in its
   favor, given the context and the inferences it yields, “the facts alleged” in
   this one phrase, in this one paragraph, “do not create that degree of doubt
   which compels resolution of the issue for the insured.” Nat’l Union,

939 S.W.2d at 142

. 6
           For the foregoing reasons, we affirm the district court’s conclusion
   that the Underlying Suit does not trigger Liberty’s duty to defend under the
   CGL policies.
                                               B.
           Copart also contends that Liberty has a separate duty to defend under
   the umbrella policies. We disagree.
           The relevant endorsement in the umbrella policies provides that
   Liberty “will have the right and duty to defend any ‘suit’ seeking damages
   covered by this insurance, . . . if the ‘retained limit’ has been exhausted by
   payment of damages that would be covered by this endorsement.’” The
   “retained limit” is $1,000,000. The parties do not dispute that the retained
   limit has not been exhausted. This would appear to end this court’s inquiry
   as to the umbrella policies: the duty to defend the Underlying Suit does not



           _____________________
           6
               Copart asserts in a footnote that its interpretation of the Water Trespass
   Allegation is plausible because the encroachment of water alone can constitute trespass
   under South Carolina law. But, again, this observation misses the point, because the duty
   to defend is concerned with the facts alleged, not the legal theories asserted. Evanston Ins.
   Co.,

645 F.3d at 745

 (citations omitted).




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                                          No. 21-10938


   attach unless and until the limit has been exhausted, and it has not been
   exhausted.
           Copart attempts to get around this fact in two ways. First, Copart
   contends that the district court erred in granting summary judgment on this
   basis because Liberty did not raise the retained-limit issue in its motion for
   summary judgment. But even though Copart is right about Liberty’s initial
   omission, 7 this argument is unavailing. The district judge “is free to grant
   summary judgment on the basis of any facts shown by competent evidence in
   the record.” United States v. Hous. Pipeline Co.,

37 F.3d 224, 227

 (5th Cir.
   1994) (citations omitted). And in any event, this court in its appellate role
   “may affirm a summary judgment on any ground supported by the record.”
   Campos, 10 F.4th at 520, 526 (citations omitted).                   The retained-limit
   argument and the supporting portions of the record are fully before this court.
           Copart cites this court’s decision in Federal Deposit Insurance Corp. v.
   Laguarta,

939 F.2d 1231

(5th Cir. 1991) for the proposition that, while we
generally may affirm summary judgment on a ground not relied upon below,
Liberty’s failure to raise the retained limit as a ground for summary judgment
means that this court may not rely on it to affirm summary judgment on
appeal. But Laguarta’s holding is more qualified than Copart implies. The
court in Laguarta held that it would be improper “under the circumstances
of th[at] case to affirm a summary judgment on . . . grounds that were neither

_____________________
7
While Liberty quoted the “retained limit” language in its opening summary-
judgment brief, this quotation of the policy was Liberty’s sole reference to the retained
limit, and it was unaccompanied by any arguments addressing its effect. Indeed, rather
than argue the retained-limit point, Liberty merely asserted that “[n]one of the exceptions
to the [umbrella policies’] [pollution] exclusion apply,” and that Liberty therefore has no
duty to defend under the umbrella policies. Liberty first argued the retained-limit issue in
its combined opposition to Copart’s motion for summary judgment and reply in support of
its own motion for summary judgment.

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No. 21-10938

raised below by [the appellee] nor even raised sua sponte by the district
court,” because “the parties were not afforded an opportunity to develop the
issue below, and it was not implicit or included in the issues or evidence
tendered below.”

Id. at 1240

. In such a case, the opposing party may lack
   notice of the issue, and the record may be inadequately developed in relevant
   respects.

Id.

These are not the circumstances here. The parties here had an
opportunity to develop the retained-limit issue below, and it was the entire
basis of the district court’s ruling as to the umbrella policies. There is no
suggestion that the record is inadequately developed on this issue, which
merely requires the court to read an insurance policy.
Copart argues in the alternative that the retained-limit provision is
without effect. It contends that the provision is found in an endorsement
(#8) that conflicts with a different endorsement (#14) in the umbrella
policies, and that this conflict generates an ambiguity that must be resolved
in favor of Copart. The asserted conflict is as follows.
The umbrella policies’ main coverage form provides, in Section 1.b,
that Liberty’s duty to defend is triggered when (a) Copart’s underlying
insurance has been exhausted, or (b) Copart’s underlying insurance does not
cover a claim but the umbrella insurance does. Endorsement #14, titled
“Duty to Defend Amendment,” modifies one sentence in Section 1.b, but
not the provisions just cited. Specifically, Endorsement #14 replaces the
sentence, “However, we have no duty to defend any ‘suit’ if any other
insurer has a duty to defend all or a portion of that ‘suit,’” with the sentence,
“However, we have no duty to defend any ‘suit’ against the insured if any
other insurer has a duty to defend the insured against all or a portion of that
‘suit.’” Endorsement #14 makes no other change to Section 1.b.
Endorsement #8, titled “Combined Named Peril and Time Element
Pollution Liability Coverage—with Duty to Defend and Products-

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No. 21-10938

Completed Operations Amendment,” also modifies Section 1.b. And unlike
Endorsement #14, Endorsement #8 modifies Section 1.b’s duty-to-defend
criteria. Specifically, it provides that, “[f]or the purposes of this
endorsement,” the duty to defend is triggered not by criteria (a) and (b) listed
above, but instead “if the ‘retained limit’ has been exhausted by payment of
damages that would be covered by this endorsement.’” “[T]his
endorsement” consists of a pollution exclusion, as well as a series of
exceptions to the exclusion. Endorsement #8 uses the “other insurer”
sentence as modified by Endorsement #14 (rather than the sentence from the
primary coverage form), and otherwise leaves the rest of Section 1.b
unchanged.
Copart contends that these two endorsements conflict. It argues that
Endorsement #14 provides for a duty to defend if the underlying insurance
excludes coverage (here, via the CGL policies’ pollution exclusion) and the
umbrella policies provide coverage (here, via a particular exception to the
pollution exclusion not found in the CGL policies). Endorsement #8, on the
other hand, provides for a duty to defend only if the retained limit has been
exhausted. Copart cites case law suggesting that conflicting endorsements to
an insurance policy generate an ambiguity as a matter of law that must be
resolved in favor of the insured. See INA of Tex. v. Leonard,

714 S.W.2d 414, 417

 (Tex. Ct. App. 1986) (finding that two conflicting endorsements created
   an ambiguity that had to be resolved in favor of coverage for the insured);
   Pogo Res., LLC v. St. Paul Fire & Marine Ins. Co., No. 19-2682,

2022 WL 209276

, at *15 (N.D. Tex. Jan. 24, 2022) (“When, as here, an endorsement
   narrowing coverage creates ambiguity by conflicting with an endorsement
   expanding coverage, the construction that affords coverage to the insured
   governs.”).
          But Copart’s argument ignores the language of the endorsements, as
   well as fundamental principles of insurance-policy interpretation. Under



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                                    No. 21-10938


   Texas law, when interpreting an insurance contract, the court “must read all
   parts of the contract together, giving effect to each word, clause, and
   sentence, and avoid making any provision within the policy inoperative.”
   State Farm Lloyds v. Page,

315 S.W.3d 525, 527

 (Tex. 2010). Endorsements
   to insurance policies should not be read into meaninglessness. See Primrose
   Operating Co. v. Nat’l Am. Ins. Co.,

382 F.3d 546, 559

 (5th Cir. 2004).
          Here, the two endorsements can be interpreted in a way that gives
   effect to each. Endorsement #14 modifies Section 1.b as to Liberty’s duty to
   defend Copart in circumstances where another insurer has such a duty. This
   is the only modification that Endorsement #14 makes to Section 1.b. The
   endorsement is general in scope and does not purport to attach to any
   particular types of claims. Endorsement #8, on the other hand, modifies the
   duty to defend only as to claims that are covered by that endorsement, i.e.,
   pollution claims. The modification begins with the phrase, “For the purposes
   of this endorsement.” Copart does not acknowledge this limitation on the
   endorsement’s scope.      Accordingly, Endorsement #14 is best read as
   modifying the general duty-to-defend provisions of the umbrella policy, while
   Endorsement #8 is best read as modifying the duty-to-defend provisions only
   for claims implicated by that endorsement, i.e., for pollution-related
   damages. Copart’s perception of ambiguity ignores the plain language of the
   endorsements, and its proposed construction reads parts of the
   endorsement—namely, the retained-limit provision in Endorsement #8—
   out of the policy, in contravention of Texas law. Page,

315 S.W.3d at 527

;
   Primrose Operating Co.,

382 F.3d at 559

.
          For the foregoing reasons, we affirm the district court’s conclusion
   that Liberty has no duty to defend under the umbrella policies.




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                                       No. 21-10938


                                   *        *         *
          Because Liberty has no duty to defend Copart under the CGL policies
   or the umbrella policies, we affirm summary judgment in favor of Liberty as
   to its duty to defend.


                                          IV.
          Copart also appeals the district court’s grant of summary judgment in
   favor of Liberty as to Liberty’s duty to indemnify. “In Texas, an insurer’s
   duties to defend and indemnify its insured are ‘distinct and separate
   duties.’” Colony Ins. Co. v. Peachtree Const., Ltd.,

647 F.3d 248, 252

 (5th Cir.
   2011) (quoting Trinity Universal Ins. Co. v. Cowan,

945 S.W.2d 819, 821-22

   (Tex. 1997)). While the duty to defend is determined “solely by the facts
   alleged in the petition and the terms of the policy,” the duty to indemnify
   “generally cannot be ascertained until the completion of litigation, when
   liability is established, if at all.” Id. at 253 (citations omitted). In this way,
   “[t]he difference between the two [duties] is a matter of timing.” Id.
          Here, the district court addressed Liberty’s duty to indemnify Copart
   in one sentence, writing that, “[b]ecause Liberty Mutual has no duty to
   defend the Underlying Suit, it follows that it has no duty to indemnify.” In
   so holding, the court cited American States Insurance Co. v. Bailey,

133 F.3d 363

 (5th Cir. 1998), in which this court wrote that “[l]ogic and common sense
   dictate that if there is no duty to defend, then there must be no duty to
   indemnify.”

Id. at 368

. But this ipso facto rule has been abrogated in the years
   since Bailey. As this court later explained in Peachtree:
          In many cases an insurer may have a duty to defend but,
          eventually, no duty to indemnify. This has led some courts to
          observe that in Texas the duty to defend is broader than the
          duty to indemnify, because an insurer is obligated to defend




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                                    No. 21-10938


          whenever there is any potential basis for liability under the
          policy, while the duty to indemnify may never be realized.
          Other courts have run with this concept, erroneously holding
          that because the duty to defend is broader than the duty to
          indemnify, there can be no duty to indemnify absent a duty to
          defend.

647 F.3d at 253-54

 (cleaned up) (citations omitted). Thus, the assumption
   that the duty to indemnify cannot exist where there is no duty to defend is
   “faulty.”

Id. at 254

. Indeed, the court in Peachtree noted that the Texas
   Supreme Court had recently “clarified that an insurer may have a duty to
   indemnify even though the duty to defend never arises.”

Id.

 (citing D.R.
   Horton-Texas, Ltd. v. Markel Int’l Ins. Co.,

300 S.W.3d 740, 744-45

 (Tex.
   2009)). Accordingly, in Peachtree, “the district court’s summary judgment
   for [the insurer] was both premature and incorrect.”

647 F.3d at 255

.
          Such are the circumstances here. The district court granted summary
   judgment for Liberty on its duty to indemnify while the Underlying Suit
   remained pending.     In this regard, summary judgment was premature.
   Moreover, the district court found no duty to indemnify solely because it had
   found that Liberty had no duty to defend. In this sense, summary judgment
   was based on a “faulty assumption” and was incorrect. “[T]he facts
   adduced at trial might differ from the allegations, and thus, a duty to
   indemnify could be shown notwithstanding the absence of a duty to defend.”

Id. at 254

.
          Liberty cites the Texas Supreme Court’s decision in Farmers Texas
   County Mutual Insurance Co. v. Griffin,

955 S.W.2d 81

 (Tex. 1997) for the
   proposition that the duty to indemnify may be “justiciable before the
   insured’s liability is determined in the liability lawsuit when the insurer has
   no duty to defend and the same reasons that negate the duty to defend
   likewise negate any possibility the insurer will ever have a duty to




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                                           No. 21-10938


   indemnify.” In Griffin, for instance, the court explained that “[n]o facts
   c[ould] be developed in the underlying tort suit that c[ould] transform a
   drive-by shooting into an ‘auto accident,’” for the purposes of coverage.

Id.

A no-indemnity finding before resolution of the underlying lawsuit was
therefore appropriate.
But this is not such a case. The duty to defend is negated here because
the Livingston Plaintiffs only allege damage caused, either in whole or in part,
by pollutants. But evidence arising from or related to the Underlying Suit
may reveal that non-pollutants caused the plaintiffs’ damage. 8 Indeed, it is
here that Copart’s theories regarding the factual cause of the Livingston
Plaintiffs’ injuries—not germane to the duty-to-defend question—come to
hold water. If, for example, relevant evidence shows that the plaintiffs’
“cloudy water” was caused only by sand and sediment, then the pollution
exclusion may not apply. If this were so, Liberty may be obligated to
indemnify Copart.
Indeed, over-application of Griffin is precisely what the Texas
Supreme Court reined in when it decided D.R. Horton. The court wrote:

_____________________
8
We reiterate that the Underlying Suit has now settled. But the issue of
indemnification remains live in this case because Copart seeks, and Liberty opposes,
indemnification for that settlement amount. But, because the Underlying Suit has settled,
the relevant factfinding—namely, whether and to what extent the settlement amount is
covered by Liberty’s policies with Copart—will take place on remand in this coverage
litigation. See, e.g., Columbia Mut. Ins. Co. v. Fiesta Mart, Inc.,

987 F.2d 1124, 1126-29

 (5th
   Cir. 1993) (noting that, under Texas law “a prior judgment establishing liability is not
   binding in a subsequent proceeding on coverage” and proceeding to assess whether an
   insurer must indemnify a settlement reached by its insured); Enserch Corp. v. Shand
   Morahan & Co.,

952 F.2d 1485, 1493-94

(5th Cir. 1992) (explaining that, “[a]lthough the
insurers are bound by the settlement [the insured] arranged for itself in this case, they are
not estopped from contesting coverage of that liability,” and deciding that the “case must
be remanded for findings to make the necessary apportionment between damages for which
the insurers owe, and those for which they do not owe, [the insured] a duty to pay”).

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No. 21-10938

[The insurer] reasons that if the terms of the policy, when read
in light of the allegations asserted in the petition, do not give
rise to a duty to defend, then proof of all of those allegations
could not give rise to a duty to indemnify. It relies on Griffin
for this proposition, but the holding in Griffin was fact-specific
and cannot be construed so broadly. . . . [Griffin’s] conclusion
was grounded on the impossibility that the drive-by shooting in
that case could be transformed by proof of any conceivable set
of facts into an auto accident covered by the insurance policy.
It was not based on a rationale that if a duty to defend does not
arise from the pleadings, no duty to indemnify could arise from
proof of the allegations in the petition. These duties are
independent, and the existence of one does not necessarily
depend on the existence or proof of the other.

300 S.W.3d at 744-45

 (citations omitted).
          We heed this guidance and decline Liberty’s invitation to apply the
   Griffin holding to this case. As discussed above, this is not a case where no
   “conceivable set of facts” could give rise to coverage.
          We therefore reverse summary judgment as to indemnity and remand
   for factfinding to determine Liberty’s duty to indemnify Copart with respect
   to the Underlying Suit.


                                         V.
          We AFFIRM summary judgment as to Liberty’s duty to defend
   Copart in the Underlying Suit. We REVERSE summary judgment as to
   Liberty’s duty to indemnify Copart with respect to the Underlying Suit and
   REMAND to the district court for further proceedings to determine
   Liberty’s indemnity obligation, if any.




                                         23