Burks v. XL Specialty Insurance Co., 534 S.W.3d 458

Background

Roger D. Burks, former CFO of Superior Offshore, was covered by a directors & officers (D&O) claims-made policy issued by XL Specialty Insurance Company.
Superior Offshore reorganized in Chapter 11; the plan agent sued Burks to avoid/recoup transfers (2007–2008 transfers) and to avoid obligations under a Separation Agreement, seeking monetary recovery including disgorgement/restitution.
XL denied coverage and refused to advance defense expenses; Burks settled the plan agent’s claims and sued XL for breach of the D&O contract seeking defense costs and indemnity for the settlement.
XL moved for summary judgment arguing: (1) the bankruptcy claim was outside the policy period and not interrelated with derivative suits made during the policy period; (2) no duty to advance defense expenses because disgorgement is uninsurable and thus outside the policy’s “Loss” definition; (3) no duty to indemnify because the settlement represented uninsurable disgorgement.
The trial court granted summary judgment for XL without specifying grounds; on appeal the court addressed each ground and concluded XL had not established entitlement to summary judgment on the breach‑of‑contract claim.

Issues

Issue	Plaintiff's Argument (Burks)	Defendant's Argument (XL)	Held
Whether the plan agent’s post‑policy claim is "deemed" made during the policy period under the policy’s interrelated‑claims provision	The plan agent’s bankruptcy avoidance claims arise from the same facts/period as shareholder derivative suits filed during the policy period, so the claim is interrelated and deemed made during the policy period	The bankruptcy claim is not interrelated with the earlier derivative actions; eight‑corners rule bars consideration of extrinsic pleadings to show interrelatedness	Reversed summary judgment: genuine fact issue exists on interrelatedness; eight‑corners rule does not bar using derivative complaints to assess interrelated‑claims application when not contradicting underlying pleadings
Whether XL had a duty to advance defense expenses	Policy requires advancement of Defense Expenses until it is finally determined loss is not covered; even if disgorgement itself is uninsurable, defense costs are covered/advanced subject to repayment	Disgorgement (ill‑gotten gains) is uninsurable under Texas law, so no possibility of coverage and no duty to advance defense costs	Reversed summary judgment: under the policy language XL must advance Defense Expenses until final determination; XL did not show it was entitled to judgment as a matter of law
Whether the plan agent’s complaint alleged a "Wrongful Act" under the policy	The complaint alleges acts/omissions (receipt of compensation, stock transfers, benefits) while Burks acted as an officer — fitting the policy’s broad "Wrongful Act" definition	The plan agent pursued only constructive‑fraud theories; intent/scienter is not alleged, so no covered "Wrongful Act"	Reversed summary judgment: the policy’s broad definition does not require scienter; facts alleged raise a fact issue whether a wrongful act was pleaded
Whether XL must indemnify Burks for his settlement (i.e., settlement represented uninsurable disgorgement)	Settlement does not automatically mean admission or that payment was disgorgement; record lacks settlement agreement and there is evidence contesting that funds were ill‑gotten, so fact question exists	The settlement resolved claims seeking disgorgement/uninsurable restitution; indemnity is barred as a matter of law	Reversed summary judgment: genuine issue whether settlement represented uninsurable disgorgement; insurer did not establish exclusion as matter of law

Key Cases Cited

FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868 (Tex. 2000) (standard when trial court does not specify summary judgment grounds)
Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009) (summary judgment burdens and viewing evidence in nonmovant’s favor)
Prodigy Commc’ns Corp. v. Agric. Excess & Surplus Ins. Co., 288 S.W.3d 374 (Tex. 2009) (claims‑made policy principles)
Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) (contract/insurance‑policy construction rules; ambiguities construed for coverage)
Pendergest‑Holt v. Certain Underwriters at Lloyd’s of London, 600 F.3d 562 (5th Cir. 2010) (D&O advance‑of‑defense discussion; insurer must advance costs until determination)
Reeves Cnty. v. Houston Cas. Co., 356 S.W.3d 664 (Tex. App.—El Paso 2011) (interrelated‑claims analysis; relatedness factors)
In re TransTexas Gas Corp., 597 F.3d 298 (5th Cir. 2010) (discusses restitutionary judgments and insurability under Texas law)
Level 3 Commc’ns, Inc. v. Fed. Ins. Co., 272 F.3d 908 (7th Cir. 2001) (treats distinction between judgments and settlements seeking disgorgement)