In Burlington Northern and Santa Fe Railway Company v. National Union Fire Insurance Company of Pittsburgh, No. 08-06-00022-CV, 2012 WL 3728176 (Tex. App. Aug. 29, 2012), the Texas Court of Appeals concluded that a contractor’s liability policy required the insurer to defend the railroad in suits arising from a fatal collision at a railroad crossing.  The court also concluded that summary judgment was inappropriate as to the duty to indemnify because material issues of fact remained as to the applicability of the products-completed operations hazard exclusion.  The case was on remand from the Texas Supreme Court, and the appellate court’s conclusions on both issues were opposite of the conclusions it originally reached.

In August 1995, a Burlington Northern and Santa Fe (“BNSF”) train collided with an automobile in Texas, killing two people and injuring a third.  Id. at *1.  The decedents’ families sued BNSF “alleging, in part, that the collision was caused by the railroad’s failure to properly maintain the vegetation at the crossing.”  Id.  BNSF settled one of the cases and lost the other in a multi-million dollar jury verdict.  Id.

BNSF sought a defense and indemnity from the general liability insurer of its contractor responsible for maintaining the vegetation along the railroad’s right-of-ways.  Id.  BNSF asserted that it was entitled to coverage as an additional insured under the contractor’s policy.  Id. at *3.  The insurer disagreed, arguing that BNSF was not an additional insured and, even if BNSF were an additional insured, coverage was precluded under the products-completed operations hazard exclusion.  Id. at *3.  The court sided with BNSF.

As to the additional insured status, the endorsement provided that BNSF qualified as an additional insured only if the plaintiffs in the underlying lawsuits sought to recover based on the contractor’s negligence, not BNSF’s negligence.  Id. at *3-4.  The complaint contained allegations indicating that both the contractor and BNSF may have been at fault.  Id. at *4.  The court reasoned that “[t]he fact that the petitions also contain factual allegations that BNSF was at fault for the collision . . . does not change the insurer’s duty to defend the entire suit.”  Id. at *6.  Thus, the court determined that BNSF qualified as an additional insured. 

As to the products-completed operations hazard exclusion, the controlling issue was whether the contractor’s work was completed at the time of the accident.  Id.  The court rejected its own prior reasoning that the use of past tense in the underlying complaint conclusively demonstrated the operations were completed and, therefore, coverage was precluded.  Id. at *7.  This time, the court strictly adhered to the eight-corners rule and read the allegations in the underlying complaint liberally.  Id. at *7-8.  The court determined that a “reasonable reading” of the allegations “would permit evidence of a claim that is potentially covered by the policy.”  Id. at *8.  Accordingly, the court concluded the insurer owed a duty to defend.  Id.

The court also determined that the insurer might owe a duty to indemnify based upon extrinsic evidence regarding whether the contractor’s operations were completed.  Id. at *8-9.  The evidence raised questions of material fact that defeated motions for summary judgment on the duty to indemnify claim.  Id. at *9.The case indicates that the Texas courts may be willing to reconsider issues on remand that were not explicitly mandated by the higher court.  Here, the case was remanded on the question of the duty to indemnify, but the court opted to revisit the issue of the duty to defend because “the Supreme Court’s holding was sufficiently ambiguous, particularly in light of BNSF’s arguments to the Supreme Court that we erred in our application of the ‘eight-corners rule.’”  Id. at *1 n.1.  The revisiting of the duty to defend issue likely had significant economic consequences for the insurer.