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IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION AMERICAN STATES INSURANCE COMPANY, Plaintiff v.

CIVIL ACTION NO. __________

ACE AMERICAN INSURANCE COMPANY, Defendant

ORIGINAL COMPLAINT TO THE HONORABLE DISTRICT JUDGE: Plaintiff American States Insurance Company (American States) files this Original Complaint against Defendant ACE American Insurance Company (ACE) pursuant to 28 U.S.C. 1332 and 2201 and would respectfully show the Court as follows: I. PARTIES 1. Plaintiff American States is an insurance company incorporated in the State of

Texas with its principal place of business in Richardson, Texas. American States was and is duly qualified to do and transact business in the State of Texas and executes and delivers insurance policies in Harris County, Texas. 2. On information and belief, Defendant ACE is an insurance company incorporated

in the state of Pennsylvania, with its principal place of business in Philadelphia, Pennsylvania. ACE was and is duly qualified to do and transact business in the State of Texas and executes and delivers insurance policies in Harris County, Texas. ACE may be served with process through its

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agent for service, CT Corporation System, 350 North St. Paul Street, Dallas, Texas, 75201. American States requests that citation be issued and served upon this defendant. II. JURISDICTION AND VENUE 3. This suit is filed pursuant to 28 U.S.C. 2201, which authorizes actions for

declaratory judgment. This suit is within the Courts diversity jurisdiction pursuant to 28 U.S.C. 1332 because it is between citizens of different states and the amount in controversy exceeds the sum or value of $75,000. American States seeks a declaration of the rights and duties of the parties under liability insurance policies issued by American States and ACE for the defense and potential indemnity of Hook and Anchor Marine & Water Sports, LLC (Hook & Anchor), in a suit styled Alexander Kosaka v. Jayme Lynn Jones, et al., Cause No. B-09-0641-C, In the 119th Judicial District Court, Tom Green County, Texas, which is currently on appeal sub nom Kosaka v. Hook and Anchor Marine & Water Sports, LLC, Case No. 03-11-00134-CV, In the Third Court of Appeals at Austin (the Underlying Suit). The cost of defending Hook & Anchor in the Underlying Suit and/or paying any judgment against Hook & Anchor in that suit1 would be a sum in excess of the minimum jurisdictional limits of this Court. The limits of both policies at issue are $1,000,000 for each occurrence. American States has funded the defense of Hook & Anchor in the Underlying Suit and seeks reimbursement of those defense costs in addition to its attorneys fees, costs, and prompt payment penalties for the prosecution of this subrogation action.

As a result of the jury findings and settlement credits in the Underlying Suit, Alexander Kosaka did not recover against Hook & Anchor. The duty to indemnify of ACE and/or American States will come into play only if the case is remanded following appeal.

Plaintiffs Original Complaint

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4.

Venue is appropriate in the Southern District of Texas, Houston Division,

pursuant to 28 U.S.C. 1391(b)-(d), because ACE is subject to the personal jurisdiction of this Court and is therefore deemed to reside in this district. 5. parties. 6. An actual controversy of a justiciable nature exists between American States and All persons having an interest in the outcome of this litigation have been joined as

ACE regarding the rights and responsibilities of American States under its policy and the rights and responsibilities of ACE under its policy in connection with the Underlying Suit. There is no other pending legal action seeking to adjudicate the rights of the parties. III. BACKGROUND 7. This declaratory action arises from an automobile accident that occurred on As a result of the accident, Alexander Kosaka

October 21, 2008 in San Angelo, Texas.

(Kosaka) sustained injuries as the result of a collision with another vehicle driven by Jayme Lynn Jones (Jones). At the time of the accident, Jones was an employee of Hook & Anchor, but Chemical Weed Control, Inc. (Chemical Weed) owned the truck Jones was driving. Kosaka originally sued only Jones and Chemical Weed. In his First Amended Petition, Kosaka added Hook & Anchor and Darrell D. Wilson, the owner/principal of both Chemical Weed and Hook & Anchor, as defendants. In that petition and in his Second and Third Amended Petitions, Kosaka alleged causes of action for negligence against Jones; negligent hiring, training and entrustment against Chemical Weed, Hook & Anchor, and Wilson; and vicarious liability/respondeat superior against Chemical Weed, Hook & Anchor, and Wilson. Kosaka also alleged that Hook & Anchor and its employees, including Jones, had permission to use the Chemical Weed truck. The live pleading at the time the Underlying Suit went to trial was Plaintiffs Original Complaint Page 3 of 8

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Plaintiffs Third Amended Petition, which is attached hereto as Exhibit A and is incorporated by reference (the Petition). American States provided a defense to Hook & Anchor in the Underlying Suit and continues to defend Hook & Anchor on appeal. 8. American States issued Commercial Auto Policy Policy No. 04-CC-218471-1 to

Hook & Anchor for the period August 8, 2008 to August 8, 2009 (the American States Policy). ACE issued Business Auto Policy No. PMU H08303320 to Chemical Weed for the period June 6, 2008 to June 6, 2009 (the ACE Policy). Both policies provide primary coverage for vehicles owned by the insured and excess coverage for non-owned vehicles. Because Hook & Anchor had custody of and was using the vehicle involved in the accident with the express consent and permission of Chemical Weed and its principal, Wilson, Hook & Anchor qualifies as a permissive user and insured under the ACE Policy. In addition, ACE assumed the defense of and settled Kosakas claims against Jones and has acknowledged that Hook & Anchor qualifies as an insured under the ACE Policy for Hook & Anchors alleged vicarious liability for Jones. Because Chemical Weed owned the vehicle Jones was driving, American States tendered the defense of Hook & Anchor to ACE as the primary carrier. ACE declined this tender and offered to share the costs of Hook & Anchors defense. 9. This action is necessary to determine whether the coverage of the American States

Policy is excess to or co-primary with the coverage of the ACE Policy. American States requests that the Court declare that: (1) the coverage of the ACE Policy is primary and the coverage of the American States Policy is excess with regard to the duty to defend and indemnify Hook & Anchor in the Underlying Suit; (2) American States has no duty to indemnify Hook & Anchor for any liability to Kosaka in the Underlying Suit until the limits of the ACE Policy are exhausted; and (3) ACE has the sole duty to defend Hook & Anchor in the Underlying Suit. In

Plaintiffs Original Complaint

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addition, American States seeks to recover from ACE the costs it has incurred in defending Hook & Anchor in the Underlying Suit and the costs and attorneys fees incurred in bringing this action for ACEs breach of contract pursuant to Texas Civil Practice and Remedies Code section 38.001 et seq., to which American States is entitled as Hook & Anchors subrogee. IV. GROUNDS FOR DECLARATORY JUDGMENT A. The Coverage Of The ACE Policy Is Primary. 10. Hook & Anchor had custody of and was using the vehicle involved in the accident

with the express consent and permission of Chemical Weed and its principal, Darrell D. Wilson. It is also undisputed that Hook & Anchor qualified as an insured under the ACE Policy for the allegations of vicarious liability based on Joness negligence. Hook & Anchor is therefore an insured under both the American States and ACE policies. 11. The American States and ACE commercial auto policies contain identical other

insurance clauses, which provide in pertinent part: For any covered auto you own, this Coverage Form provides primary insurance. For any covered auto you dont own, the insurance provided by this Coverage Form is excess over any other collectible insurance. *** When this Coverage Form and any other Coverage Form or policy covers on the same basis, either excess or primary, we will pay only our share. Our share is the proportion that the Limit of Insurance of our Coverage Form bears to the total of the limits of all the Coverage Forms and policies covering on the same basis. Thus, each policy provides primary coverage for vehicles owned by the named insured and excess coverage for non-owned vehicles when other collectible insurance is available. The prorata clause applies only if both policies provide either primary or excess coverage. See

American Natl County Mut. Ins. Co. v. Travelers Indem. Co., 2010 WL 2541975, slip op. at *

Plaintiffs Original Complaint

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(S.D. Tex. June 22, 2010) (When two car-insurance policies cover the same accident, Texas courts find no conflict between one policys excess clause and anothers pro-rata clause. Texas courts do not equitably prorate defense costs. Instead, they respect the contracts and enforce the excess clause.). Because ACEs insured, Chemical Weed, owned the vehicle loaned to Hook & Anchor, ACEs coverage is primary and American States coverage is excess for Hook & Anchor. As the primary carrier, ACE had a duty to defend the entire suit if any of the claims in the Underlying Suit fell within ACEs coverage. See Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 495-96 (Tex. 2008) (The duty to defend is not negated by the inclusion of claims that are not covered; rather, it is triggered by the inclusion of claims that might be covered.); Harken Exploration Co. v. Sphere Drake Ins., 261 F.3d 466, 474 (5th Cir. 2001); Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 395 (5th Cir. 1995). Because its coverage is excess, American States has no duty to defend or indemnify Hook & Anchor until the limits of the ACE policy are exhausted. B. Because ACE Has A Duty To Defend Hook & Anchor, American States Is Entitled To Recover Its Costs Incurred In Defending Hook & Anchor. 12. As the excess carrier for Hook & Anchor, American States has a right of

contractual and equitable subrogation against the primary carrier that should have assumed Hook & Anchors defense. See, e.g., American Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480, 482 (Tex. 1992); Royal Ins. Co. of Am. v. Caliber One Indem. Co., 465 F.3d 614, 617 (5th Cir. 2006). Because ACE refused to assume the defense of Hook & Anchor, American States is also entitled to recover its attorneys fees pursuant to Texas Civil Practice and Remedies Code section 38.001(8) as Hook & Anchors subrogee. 13. A claim for defense costs is a first-party claim for purposes of the prompt

payment statute. Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 20 (Tex. 2007) Plaintiffs Original Complaint Page 6 of 8

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(the prompt-payment statute, formerly article 21.55, and now codified as sections 542.051.061 of the Texas Insurance Code, may be applied when an insurer wrongfully refuses to promptly pay a defense benefit owed to the insured). A prompt payment claim combines an insurer's contractual and statutory liability into one cause of action. Harris v. Am. Prot. Ins. Co., 158 S.W.3d 614, 621 (Tex. App.Fort Worth 2005, no pet.). Because ACE breached its contract by refusing to accept the tender of Hook & Anchors defense, ACE is liable to American States for the 18% penalty on the defense costs American States incurred in protecting Hook & Anchors interest in the Underlying Suit. WHEREFORE, PREMISES CONSIDERED, American States Insurance Company prays that Defendant ACE American Insurance Company be cited to appear and answer herein, and that on final hearing American States have the following judgment: 1. A declaration that ACE has primary coverage for and the duty to defend and indemnify Hook & Anchor in connection with the Underlying Suit; A declaration that Plaintiff American States has excess coverage for and no duty to defend or indemnify Hook & Anchor in connection with the Underlying Suit until the limits of the ACE Policy have been exhausted by judgment or settlement; An award of the defense costs American States has incurred to defend Hook & Anchor in the Underlying Suit; Attorneys fees and costs American States has incurred in asserting this declaratory and subrogation action and associated prompt payment penalties; and Such other and further relief to which American States may be entitled whether at law or in equity.

2.

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Plaintiffs Original Complaint

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Respectfully submitted, HANNA & PLAUT, L.L.P. 211 East Seventh Street, Suite 600 Austin, Texas 78701 Telephone: (512) 472-7700 Facsimile: (512) 472-0205

By: /s/ Catherine L. Hanna Catherine L. Hanna State Bar No. 08918280 Southern District ID: 13577 Attorney-in-Charge Eric S. Peabody State Bar No. 00789539 Southern District ID: 28229 ATTORNEYS FOR AMERICAN STATES INSURANCE COMPANY

Plaintiffs Original Complaint

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