Certain Underwriters at LLoyd's of London Subscribing to Policy Number: FINFR0901509 v. Cardtronics, Inc., 2014 Tex. App. LEXIS 6398

Background

Cardtronics operated ATMs and leased cash from Bank of America; Mount Vernon Money Center (an armored carrier) handled pickup, vaulting, and replenishment. Mount Vernon’s president stole over $16 million belonging to Cardtronics.
Cardtronics had an "Automated Teller Machine and Contingent Cash in Transit" insurance policy with Certain Underwriters at Lloyd’s of London; policy covered money in care of armored motor vehicle companies but stated Underwriters would pay only the amount the insured "cannot recover" under its contract with the armored company or from that company’s insurance.
Cardtronics timely gave notice and submitted proof of loss; Underwriters repeatedly delayed acceptance/rejection, later conditioned payment on resolution of claims against Mount Vernon and its insurers, and ultimately denied coverage.
Cardtronics sued Underwriters for breach of contract and related claims; the trial court granted partial summary judgment holding Cardtronics suffered a covered loss and was not required by the policy to exhaust remedies against third parties before obtaining payment.
On interlocutory appeal, Underwriters argued the "cannot recover" clause requires Cardtronics to exhaust remedies (including judicial proceedings) against Mount Vernon and its insurers before Underwriters owe payment; Cardtronics argued the policy’s timing provisions require payment without prior exhaustion.
The court affirmed: it read "cannot recover" as referring to the insured’s position at the time of submitting proof of loss (within the policy’s deadlines), not as an implicit exhaustion requirement delaying payment until third-party claims are finally resolved.

Issues

Issue	Cardtronics' Argument	Underwriters' Argument	Held
Whether the policy requires Cardtronics to exhaust remedies against Mount Vernon and its insurers before Underwriters must pay	Policy deadlines (120-day proof of loss, 2-year suit limit) and subrogation clause show insured may seek payment without exhausting third-party remedies	"Cannot recover" means exhaustion is required; Underwriters may delay payment until third-party claims are conclusively resolved	Court held no exhaustion requirement; "cannot recover" measured at time of proof of loss under policy deadlines
Whether the term "contingent" makes the entire policy contingent on definitive third-party recovery determinations	"Contingent" modifies "cash in transit," and the policy contains no substantive clause making payment contingent on final third-party adjudication	"Contingent" means insurer’s liability is contingent on ultimate inability to recover from specified third parties	Court held "contingent" does not impose exhaustion; context and canons (last antecedent) support reading as modifying "cash in transit"
Whether federal cases on excess/DIC policies (Sherwin-Williams, Manpower) require exhaustion here	These cases concern excess/DIC policies and are distinguishable from this primary policy; they do not mandate exhaustion against non-insurer third parties before primary insurer payment	These authorities support requiring exhaustion or judicial determination before insurer pays when policy ties coverage to recoverability from others	Court distinguished those cases as inapplicable because Cardtronics’ policy is primary, not excess/difference-in-conditions
Whether subrogation and other policy provisions create an inconsistency if exhaustion is not required	Subrogation clause gives Underwriters rights to pursue recoveries after payment; policy deadlines require insured to timely file claims	Underwriters argued permitting immediate payment would render "cannot recover" meaningless and disincentivize insured from pursuing third-party claims	Court harmonized provisions: insured must take reasonable steps to preserve subrogation rights; insurer can pursue recovered funds after paying; timing — not final adjudication — governs payment

Key Cases Cited

State Farm Lloyds v. Page, 315 S.W.3d 525 (Tex. 2010) (standard rules for interpreting insurance policies and determining ambiguity)
State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430 (Tex. 1995) (avoid isolating clauses; interpret contract as whole)
Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462 (Tex. 1998) (contract interpretation principles apply to insurance policies)
Frost Nat’l Bank v. L&F Distribs., Ltd., 165 S.W.3d 310 (Tex. 2005) (courts construe contracts to avoid unreasonable or oppressive results)
Sherwin-Williams Co. v. Ins. Co. of Pennsylvania, 105 F.3d 258 (6th Cir. 1997) (excess/DIC policy required exhaustion of primary coverage; distinguished by court)
Manpower, Inc. v. Ins. Co. of Pennsylvania, 807 F. Supp. 2d 806 (E.D. Wis. 2011) (district court held DIC policy did not require judicial exhaustion; distinguished by court)
Temple-Eastex, Inc. v. Addison Bank, 672 S.W.2d 793 (Tex. 1984) (contract construed against drafter when ambiguous)