67 F.4th 672
5th Cir.2023Background
- Allied World issued a WaterPlus Package policy to Windermere Oaks WSC that included Public Officials and Management Liability coverage but contained a contractual‑liability exclusion.
- Three Windermere members sued the cooperative and certain directors (including board member Dana Martin), alleging an ultra vires sale of valuable property to an entity controlled by Martin for far less than value and a subsequent settlement that preserved the transaction.
- The underlying complaint asserted ultra vires and breach‑of‑fiduciary‑duty claims (statutory and common‑law), alleging over $1,000,000 in losses and resulting rate/fee increases.
- Windermere and its directors tendered defense to Allied World; Allied World refused, invoking the contractual‑liability exclusion among other theories.
- The district court granted summary judgment for the insureds (duty to defend) and entered final judgment under Rule 54(b); Allied World appealed solely on the contractual‑exclusion issue.
- The Fifth Circuit affirmed: the underlying claims are for breaches of fiduciary/common law duties (not contract breaches), so the contractual‑liability exclusion did not bar the duty to defend; Allied World is liable under the Texas Prompt Payment of Claims Act for failing to defend.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the policy's contractual‑liability exclusion bars coverage/duty to defend | Underlying suit alleges fiduciary/ultra vires breaches that arise from common‑law/statutory duties independent of any contract | Underlying claims arise from or relate to the disputed sale/settlement (contracts) so exclusion applies | The exclusion does not apply: claims target duties established at law and could exist absent any contract, so duty to defend exists |
| Whether Allied World is liable under the Texas Prompt Payment of Claims Act for failure to defend | Breach of the duty to defend is a per se violation of the Act | Allied World primarily relied on the contractual exclusion; no other successful defense on appeal | Allied World is liable under the Act because it breached the duty to defend |
Key Cases Cited
- Monroe Guar. Ins. Co. v. BITCO Gen. Ins. Corp., 640 S.W.3d 195 (Tex. 2022) (applies Texas eight‑corners rule to duty to defend)
- Ewing Const. Co. v. Amerisure Ins. Co., 420 S.W.3d 30 (Tex. 2014) (contractual‑liability exclusion does not apply to claims based on independent common‑law duties)
- Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139 (Tex. 1997) (complaint allegations construed liberally; doubts resolved for insured)
- Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650 (Tex. 2009) (breach of duty to defend constitutes a violation of the Prompt Payment of Claims Act)
- Gore Design Completions, Ltd. v. Hartford Fire Ins. Co., 538 F.3d 365 (5th Cir. 2008) (summarizes duty to defend rule: "When in doubt, defend")
- Amedisys, Inc. v. Kingwood Home Health Care, LLC, 437 S.W.3d 507 (Tex. 2014) (contract interpretation governed by parties' expressed intent)