Citigroup, Inc. v. Federal Insurance
2011 U.S. App. LEXIS 16316
| 5th Cir. | 2011Background
- Associates First Capital purchased a three-layer integrated risk program from Lloyd's and nine excess insurers, totaling $200 million.
- Citigroup, as successor to Associates, notified insurers of two actions (Morales class action in CA and an FTC action) during the policy period and sought coverage.
- Lloyd's paid $15 million of its $50 million primary limit under a settlement releasing FTC and Morales claims; excess insurers refused coverage.
- Citigroup sued the excess insurers in federal court after Lloyd's settlement; some claims settled with National Union and Starr Excess; Chubb Atlantic and ACE arbitrations stayed.
- The district court granted summary judgment for the excess insurers, holding no coverage attached because Lloyd's payment did not exhaust underlying limits; Citigroup and St. Paul cross-appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether excess insurers attach when underlying exhaustion occurs. | Citigroup argues Zeig rule requires exhaustion upon settlement. | Excess policies require full payment of underlying limits; settlement under Lloyd's does not exhaust. | No; policies require full underlying payment before excess attaches. |
| When accrual for the Twin City claim occurred for statute purposes. | Accrual occurred when denial letter was received (Oct. 2002). | Accrual occurred no later than the April 2002 denial letter. | Accrual occurred in April 2002; Oct. 2002 letter is irrelevant for accrual. 4-year limit applies. |
| Whether Zeig rule governs interpretive ambiguity for excess policies. | Zeig should apply to determine exhaustion under ambiguity. | Texas law does not adopt Zeig; policies unambiguous here. | Zeig not adopted; policies unambiguous; exhaustion follows policy text. |
| Whether Tex. statute of limitations bars Twin City claim. | Claims timely if within four years from accrual. | April 2002 accrual date bars October 2006 suit. | Claim untimely; four-year limit runs from April 2002. |
| Overall result on district court judgment. | District court erred in constructing exhaustion and accrual. | District court correctly dismissed claims based on policy language and accrual. | Affirmed district court; St. Paul cross-appeal moot. |
Key Cases Cited
- Utica Nat'l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198 (Tex. 2004) (contract interpretation—exhaustion of underlying policies for excess)
- Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738 (Tex. 1998) (interpret policy language to give effect to intent; no ambiguity if reasonable interpretation only)
- Knott v. Provident Life & Accident Ins. Co., 128 S.W.3d 211 (Tex. 2003) (Knott rule—denial must be communicated; magic words not required)
- Qualcomm, Inc. v. Certain Underwriters at Lloyd's, London, 161 Cal. App.4th 184 (Cal. Ct. App. 2008) (interpreting ‘full amount’ and exhaustion in underlying policies)
- Comerica v. Zurich American Insurance Co., 498 F.Supp.2d 1019 (E.D. Mich. 2007) (persuasive authority that ‘payment of loss’ requires actual payment)
- Lozada v. Farrall & Blackwell Agency, Inc., 323 S.W.3d 278 (Tex.App.—El Paso 2010) (accrual when denial language communicates no coverage)
- Pace v. Travelers Lloyds of Tex. Ins. Co., 162 S.W.3d 632 (Tex.App.—Houston [14th Dist.] 2005) (examples of communications denying coverage)
- Provident Life & Accident Insurance Co. v. Knott, 128 S.W.3d 211 (Tex. 2003) (Knott rule context cited in accrual discussion)