Turner v. Cincinnati Insurance
9 F.4th 300
5th Cir.2021Background
- Cincinnati issued a claims-made D&O policy for ATI covering claims first made during Dec. 30, 2010–Dec. 30, 2011.
- Nelson (Dallas) suit alleging systemic misrepresentations and high-pressure recruitment was filed Feb. 8, 2010 (pre-policy period).
- Bartlett (McLennan) suit with virtually identical allegations was filed Oct. 14, 2011 (during policy period); six Bartlett plaintiffs later obtained a default judgment against ATI ($1,662,200) after ATI did not appear at trial.
- Plaintiffs sued Cincinnati to collect under the policy; the district court granted summary judgment for Cincinnati, holding Plaintiffs lacked standing (no adversarial judgment or valid assignment) and, alternatively, that Bartlett was sufficiently related to Nelson so the claim was first made pre-policy.
- On appeal, the Fifth Circuit held Plaintiffs had standing to sue (default judgment satisfied the policy's adjudication requirement) but affirmed summary judgment on coverage: Bartlett and Nelson were interrelated wrongful acts, so the claim was first made before the policy period. The receiver-intervenor appeal was dismissed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing / No-direct-action rule | Default judgment against ATI is an "adjudication" permitting direct suit against insurer | No direct action allowed absent a fully adversarial judgment or a valid assignment | Court: Default judgment satisfied the policy's adjudication requirement so Plaintiffs may sue (reverses district court on standing) |
| Coverage — relatedness / "first made" / interrelated wrongful acts | Bartlett alleges distinct acts at different campuses; not the same wrongful acts as Nelson | Bartlett and Nelson allege virtually identical corporate practices; thus one "claim" first made in 2010, outside policy period | Court: The petitions are virtually identical and share a common nexus; Bartlett and Nelson are one claim first made before policy, so no coverage (affirms district court on coverage) |
| Intervention by receiver (Levy) | Receiver seeks permissive intervention to pursue ATI's coverage claims | No coverage exists, so no relief to be sought; intervention unnecessary | Court: District court did not abuse discretion denying permissive intervention; Levy appeal dismissed |
Key Cases Cited
- In re Essex Ins. Co., 450 S.W.3d 524 (Tex. 2014) (articulates Texas no-direct-action rule)
- Great Am. Ins. Co. v. Hamel, 525 S.W.3d 655 (Tex. 2017) (judgment binds insurer only if insured had meaningful incentive to contest — "fully adversarial")
- State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996) (limits assignments and non-adversarial judgments binding insurers)
- D.R. Horton-Tex., Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740 (Tex. 2009) (distinguishes duty to defend and duty to indemnify)
- Hartford Cas. Ins. Co. v. DP Eng’g, L.L.C., 827 F.3d 423 (5th Cir. 2016) (duty to indemnify depends on facts established in underlying case)
- Landmark Am. Ins. Co. v. Eagle Supply & Mfg. L.P., 530 S.W.3d 761 (Tex. App.—Eastland 2017) (applies Hamel and no-direct-action rule to non-adversarial judgments)