Flagship Credit Corporation v. Indian Harbor Insur, 481 F. App'x 907

Hartt filed a class action in December 2009 against Flagship Credit Corporation in Pennsylvania for alleged improper notice of default under Texas law, involving over 900 borrowers.
Flagship sought defense and indemnity from Indian Harbor under a policy; Indian Harbor reserved rights to deny coverage for amounts not constituting loss, including penalties.
Policy defined loss as damages, settlements or other amounts (including penalties where insurable) and defense expenses exceeding the retention, but excluded fines, penalties or taxes and other uninsurable matters.
After Flagship and Hartt settled, Indian Harbor declined indemnity, contending the settlement amounts were penalties outside the policy’s scope.
Flagship and Indian Harbor cross-moved for summary judgment; district court held the statutory minimum damages were penalties and granted summary judgment to Indian Harbor, dismissing Flagship’s breach claim.
On appeal, Texas law governs the analysis; the court considers whether statutory minimum damages under Texas law are penalties under the policy.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Are statutory minimum damages penalties under the policy?	Flagship: damages are not penalties; they are insured losses under the policy.	Indian Harbor: statutory minimum damages are penalties and excluded from coverage.	Statutory minimum damages are not penalties; they fall outside the exclusion.
Does the noscitur a sociis canon apply to limit penalties to payments to the government?	No, broader reading allowed by district court.	Yes, the trio fines-penalties-taxes should be interpreted to payments to government.	Noscitur a sociis limits penalties to payments made to the government; the Hartt settlement not a penalty.
Are attorneys’ fees penalties and hence outside coverage, and were they properly before the court?	Fees may be penal and outside coverage; factual issues exist.	Fees not properly before the court for ruling on appeal.	Attorneys’ fees arguments are not properly before the court on appeal.
Has Flagship abandoned its breach-of-contract claim by failing to present it below?	Flagship preserved its breach claim and district court dismissed it.	No adequate presentation below; no ruling on that claim.	Flagship did not abandon; breach claim survives remand.

Vaughn v. Woodforest Bank, 665 F.3d 632 (5th Cir. 2011) (de novo review for summary judgment; insurance contracts interpreted as law)
French v. Allstate Ins. Co., 637 F.3d 571 (5th Cir. 2011) (insurance contract interpretation is a question of law)
Wal-Mart Stores, Inc. v. Qore, Inc., 647 F.3d 237 (5th Cir. 2011) (ambiguity determination prior to construction canons)
Procter & Gamble Co. v. Amway Corp., 376 F.3d 496 (5th Cir. 2004) (choice-of-law considerations; true conflicts required)
In re Hickman, 260 F.3d 400 (5th Cir. 2001) (penalties; central notion of punishment in definition)
Matter of Wood, 643 F.2d 190 (5th Cir. 1980) (penalties concept in context of civil wrongs)
Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323 (Tex. 2011) (Texas canon of construction applying terms in context)
United States v. Monsanto, 491 U.S. 600 (U.S. 1989) (judicial redrafting concerns when applying canons)
Bayle v. Allstate Ins. Co., 615 F.3d 350 (5th Cir. 2010) (diversity: substantive Texas law applies; conflicts analysis)