BERKLEY REGIONAL INSURANCE COMPANY, аs Subrogee of Venus Rouhani and as Assignee/Subrogee of the Tower of Town Lake Condominium Association, Inc., Plaintiff-Appellee, v. PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant-Appellant.
No. 11-50595.
United States Court of Appeals, Fifth Circuit.
Aug. 2, 2012.
III. CONCLUSION
For the foregoing reasons, we affirm Davis‘s and Clark‘s convictions for illegal gambling and conspiracy to commit illegal gambling; reverse Davis‘s and Clark‘s convictions for money laundering; and remand to the district court fоr resentencing and a forfeiture redetermination.
AFFIRMED in part; REVERSED in part; and REMANDED.
John Charles Tollefson (argued), Stephen Andrew Melendi, Lori Joanne Mur
Stephanie L. O‘Rourke (argued), Principal Lit. Counsel, Karen L. Landinger, Cokinos, Bosien & Young, P.C., San Antonio, TX, Tracy Glenn, Cokinos, Bosien & Young, P.C., Houston, TX, for Defendant-Appellant.
Before HIGGINBOTHAM, HAYNES and HIGGINSON, Circuit Judges.
HAYNES, Circuit Judge:
Philadelphia Indemnity Insurance Company (“Philadelphia“) appeals the grant of summary judgment to Berkley Regional Insurance Company (“Berkley“). We REVERSE and REMAND.
I. Facts
As the district court aptly characterized it, this case is “factually straightforward, [but] contractually complex.” Berkley Reg‘l Ins. Co. v. Phila. Indem. Ins. Co., No. 1:10-CV-362, Order at 2 (W.D.Tex. Apr. 27, 2011). Accordingly, we describe only those facts necessary to gain an understanding of the insurance coverage question presentеd here.
The underlying liability case involved a 2004 slip-and-fall by dentist Venus Rouhani (“Rouhani“) on the premises of the Towers of Town Lake Condominiums (“Towers“). Towers had general liability coverage in the form of a primary policy issued by Nautilus Insurance Company (“Nautilus“) with a policy limit of $1 million per occurrence, and excess/umbrella coverage through Philadelphia with a policy limit of $20 million for liability exceeding the primary policy‘s coverage. Rouhani sued Towers which submitted the case to Nautilus to provide a defense.1 For purposes of the summary judgment at issue here, the parties agreе that Philadelphia did not receive notice of the Rouhani lawsuit at that time.2
Rouhani‘s injuries were substantial—she was unable to continue practicing as a dentist. Expert reports put Rouhani‘s damages at $800,000 (the defense‘s number) or $1.25 million (the plaintiff‘s number). The parties, however, contested liability, yielding a situation where Rouhani made various settlement demands. Rouhani‘s initial settlement demand was $800,000. At a mediation in the underlying litigation, the parties reached an impasse with Rouhani‘s “bottom” offer at $215,000 and Towers/Nautilus‘s “top” offer at $150,000.
With negotiation attempts having failed, the case went to trial, and the jury awаrded Rouhani $1,654,663.50; ultimately, the judgment incorporated the jury verdict plus post-judgment interest and costs. The day of the verdict, Towers demanded that Philadelphia pay the amount in excess of the primary coverage amount. Philadelphia contends this was the first time it had notice of this suit (or claim). In addition to contesting coverage for late notice, Philadelphia also interposed certain policy defenses.
Nautilus filed an appeal on behalf of Towers that was ultimately unsuccessful.
In the district court, both sides moved for summary judgment. The only issue pertinent to this appeal is whether the failure to give Philadelphia notice prior to the jury verdict forfeits coverage it may otherwise owe.4 In support of its position that coverage had been forfeited, Philadelphia argued that its policy requires prompt notice of any occurrence involving, inter alia, “permanent disabilities,” “any coverage issue which may trigger a reservation of rights or coverage declination,” and any “incurred exposure of $500,000 or above.” In addition, Philadelphia pointed out that its policy further provides that “[w]hen [Philadelphia] believe[s] that a claim may exceed the ‘underlying insurance‘, [it] may join with the insured and the ‘underlying insurer’ [Nautilus] in the investigation, settlement and defense of all claims and ‘suits’ in connection with such ‘occurrence’ .... In such event, the insured must cooperate with [Philadelphia].” According to Philadelphia, the circumstances surrounding the underlying litigation triggered the notice requirement, and the lack of notice prior to the adverse jury verdict caused prejudice, thereby precluding coverage.
The district court, however, rejected Philadelphia‘s position, concluding instead that, as a matter of law, Philadelphia was not prejudiced by the lack of notice prior to the adverse jury verdict. It ultimately granted summary judgment in favor of Berkley for the amount of the judgment in Rouhani in excess of the amount paid under the Nautilus policy. This timely appeal followed.
II. Standard of Review
We review a district court‘s award of summary judgment de novo, applying the same standard as the district court. See, e.g., Trinity Universal Ins. Co. v. Emp‘rs Mut. Cas. Co., 592 F.3d 687, 690 (5th Cir.2010). Summary judgment is appropriate “if, viewing the evidence in the light most favorable to the non-moving party, there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”
III. Discussion
The parties agree that Texas law applies to the question presented here: Does the failure to give notice to an excess carrier until after an adverse jury verdict constitute evidence of prejudice that forfeits coverage?5
The Texas Supreme Court first delved into the area of notice provisions in Members Mutual Insurance Co. v. Cutaia, 476 S.W.2d 278 (Tex.1972). There, the court addressed “[o]nly the condition regarding the forwarding of suit papers,” and concluded that in light of the plain wording of the contract,6 as well as the prior holdings of the court, the notice-of-suit requirement contained in the automobile liability policy at issue was a condition precedent such that noncompliance yielded forfeiture of coverage. Id. at 278-81. In reaching this conclusion, however, the court acknowledged “the apparent injustice which result[ed] in this particular case,” stating further that it “share[d] some of the impatience which naturally arises when a reasonable provision or condition in an insurance policy is used by the insurance company to defeat what appears to be a valid claim.” Id. at 281.
Nevertheless, the Cutaia court asserted that it would not rewrite insurance contracts in order to remedy this apparent injustice, noting rather that it was up to the State Board of Insurance or the legislature to “insert a provision that violations of conditions precedent will be excused if no harm results from their violation.” Id. The next year, by issuing Board Order 23080, the State Board of Insurance did just that:
As respects bodily injury liability coverage and property damage liability coverage, unless the company is prejudiced by the insured‘s failure to comply with the requirement, any provision of this policy requiring the insured to give notice of action, occurrence or loss, or requiring the insured to forward demands, notices, summons or other legal process, shall not bar liability under this pоlicy.
State Bd. of Ins., Revision of Texas Standard Provision for General Liability Policies—Amendatory Endorsement—Notice, Order No. 23080 (Mar. 13, 1973), available at http://www.tdi.state.tx.us/commercial/pcck23080.html. Thus, Board Order 23080 effectively superseded Cutaia‘s discussion of prejudice as to certain policies.78
Thereafter, cases involving an insured‘s failure to comply with notice and related requirements consistently recognized that although the policy provisions imposing these requirements were valid, no forfeiture of coverage from breaching such obligations would result absent prejudice to the insurer. See, e.g., Harwell v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170, 174 (Tex.1995) (“The insured‘s failure to notify the insurer of a suit against her does not relieve the insurer from liability for the underlying judgment unless the lack of notice prejudices the insurer.“). These cases based their reasoning on the contractual nature of insurance policies and the general rules of contract construction. See Cont‘l Cas. Co. v. N. Am. Capacity Ins. Co., 683 F.3d 79, 89 (5th Cir.2012) (“Insurance policies are interpreted using the same rules governing other contracts.“).
For example, in Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex.1994), the Texas Supreme Court held that where an insurer is not prejudiced by the insured‘s breach, the insurer is “not excused from its obligation to perform under the contract.” Id. at 694. In reaching its conclusion, the court recognized that “[i]nsurance policies аre contracts, and as such are subject to rules applicable to contracts generally.” Id. at 692. The court further noted that “[a] fundamental principle of contract law is that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from any obligation to perform.” Id. The court explained that “materiality of a breach” depends on, inter alia, “the extent to which the nonbreaching party will be deprived of the benefit that it could have reasonably anticipated from full performancе.” Id. at 693. Accordingly, “[t]he less the non-breaching party is deprived of the expected benefit, the less material the breach.” Id. The Hernandez court thereby held that the insureds’ failure in that case to obtain the insurer‘s consent before settling was not a material breach:
Gulf ... stipulated that it “has not incurred any financial losses ... with regard to its subrogation rights by the failure of the [Hernandezes] to obtain [its] consent before settling with McCullough and releasing him from all liability.” Gulf, therefore, remains in the same position it would have occupied had the Hernandezes complied with the settlement-without-consent clause. Since Gulf has not been prejudiced by the Hernandezes’ breach, the breach is not material, and Gulf therefore is not excused from its obligation to perform under the contract.
Id. at 693-94(alterations in original)(footnote omitted); see also Hanson Prod. Co. v. Ams. Ins. Co., 108 F.3d 627, 630 (5th Cir.1997) (noting that the Texas Supreme Court in Hernandez held that “where the insurer is not prejudiced by the breach, the breach is not material, the insurer has not been deprived of the benefit of the bargain, and it should not be relieved of its obligation to provide coverage“).
Whereas Hernandez involved the breach of a consent-to-settle provision, most recently in PAJ and National Union Fire Insurance Co. v. Crocker, 246 S.W.3d 603 (Tex.2008),9 the Texas Supreme Court ana
One month after PAJ, the Texas Supreme Court decided Crocker. In Crocker, the plaintiff, a resident of a nursing home owned by Emeritus Corporation (“Emeritus“), filed a lawsuit against Emeritus and Richard Morris (“Morris“), a nursing home employee, “seeking compensation for injuries suffered when she was hit by a door swung open by Morris.” 246 S.W.3d at 604. Emeritus had a commercial general liability policy issued by National Union Fire Insurance Company of Pittsburgh (“National Union“) that covered the plaintiff‘s claims. Id. Unbeknownst to Morris, however, since “Morris was acting within the course and scope of his emрloyment when the accident occurred, he qualified as an additional insured under the policy.” Id. Nevertheless, although National Union defended the lawsuit against Emeritus, it took no action on behalf of Morris who did not appear at trial or otherwise defend the case. Id. at 604-05.
At trial, the court severed the plaintiff‘s claims against Morris from her claims against Emeritus. Id. at 605. Emeritus received a jury verdict in its favor, but a default judgment was entered against Morris for $1 million.11 Id. With the default judgment in hand, the plaintiff sued National Union as Morris‘s judgment creditor, contending that “even though Morris did not comply with the notice-of-suit provision, Nationаl Union had actual knowledge of [the underlying] suit, and hence was not prejudiced by Morris‘s failure to forward the suit papers.” Id.
The Texas Supreme Court first determined that National Union had no duty to notify Morris of his potential coverage as an additional insured.12 Id. at 606-08.
Does proоf of an insurer‘s actual knowledge of service of process in a suit against its additional insured, when such knowledge is obtained in sufficient time to provide a defense for the insured, establish as a matter of law the absence of prejudice to the insurer from the additional insured‘s failure to comply with the notice-of-suit provisions of the policy?
Id. at 609 (citation omitted). Noting that “National Union had no duty to notify Morris of coverage and no duty to defend Morris until Morris notified National Union that he had been served with process and expected National Union to answer on his behalf,” and that “[a]bsent a threshold duty to defend, there can be no liability to Morris, or to [the plaintiff] derivatively,” the court answered “no” to the question we raised.13 Id.
Unlike the instant case, Crocker involved a primary insurer. Crocker thereby focused on the need for notice of suit to trigger the duty to defend. Id. Importantly, however, the Crocker court did not hold that notice is necessary only in cases where a duty to defend is owed, and other cases have suggested the contrary. Notice of a claim or occurrence “enable[s] an insurer to investigate the circumstances of an accident ... so that it may adequately prepare to adjust or defend any claims that may be then or thereafter asserted аgainst persons covered by its policy,” Employers Casualty Co. v. Glens Falls Insurance Co., 484 S.W.2d 570, 575 (Tex. 1972).
Indeed, “[w]hen an insurer must prove it was prejudiced by the insured‘s failure to comply with the notice provisions, the recognized purposes of the notice requirements form the boundaries of the insurer‘s argument that it was prejudiced; a showing of prejudice generally requires a showing that one of the recognized purposes has been impaired.” Blanton v. Vesta Lloyds Ins. Co., 185 S.W.3d 607, 612 (Tex. App.--Dallas 2006, no pet.) (citation and internal quotation marks omitted). Against that backdrop, the rights afforded the insurer by the notice requirement—including, but not limited to, the rights to “join in” the investigation, to settle a case or claim, and to interрose and control the defense—are considered valuable rights that if deprived, may prejudice the insurer. See, e.g., Trumble Steel Erectors, Inc. v. Moss, 304 Fed.Appx. 236, 239, 244 (5th Cir.2008) (per curiam) (unpublished) (recognizing that under Texas law “‘[p]rejudice’ is the loss of a valuable right or benefit“; noting that prejudice may result when the failure to timely notify an insurer deprives the insurer of its right “to investigate when and in the manner that an
From the foregoing, we distill various principles applicable to the instant case. Whereas certain contractual obligations in a general liability policy, such as the duty to defend15 and the duty to indemnify, protect the insured, other obligations protect the insurer. For example, generally, under a liability policy, the insured must notify the insurer of an occurrence or claim for which damages within coverage of the policy may be sought and/or a resulting suit,16 and it must give notice to, or obtain consent from, the insurer prior to settling any such case or claim. In this way, the insurer protects, at minimum, its right to participate in the underlying liability litigation, and it also preserves the opportunity to minimize its losses.17 Notice requirements thus afford valuable rights. Nevertheless, it is likewise clear that in order for an insured‘s breach to defeat coverage, the breach must prejudice the insurer in some tangible way. See, e.g., PAJ, 243 S.W.3d at 636-37. Although we distill these principles from cases involving primary carriers, we discern no basis for a different rule for excess carriers. While their responsibilities are different and, thus, they may not suffer prejudice in all of the circumstances where a primary carrier would, they nonetheless have a contract with the insured and are entitled to rely upon the same contract principles discussed above. See E. Tex. Med. Ctr. Reg‘l Healthcare Sys. v. Lexington Ins. Co., 575 F.3d 520, 529-30 (5th Cir.2009) (applying same rules of contract construction and notice-prejudice rule to an exсess carrier as apply to a primary carrier); see also Prince George‘s Cnty. v. Local Gov‘t Ins. Trust, 388 Md. 162, 879 A.2d 81 (2005) (applying Maryland law and concluding that the requirement to show prejudice applies to excess carriers as well as primary carriers and finding prejudice as a matter of law where excess carrier did not receive notice until ten days after a large jury verdict).18
Moreover, once the case is “over,” notice is clearly too late. See Md. Cas. Co. v. Am. Home Assurance Co., 277 S.W.3d 107, 117 (Tex.App.--Houston [1st Dist.] 2009, pet. dism‘d) (concluding that insurer had established, as a matter of law, that it was prejudiced because “notice—provided only after the сlaims had been settled—was so late that it wholly deprived [the insurer] of its ability to defend the lawsuit“). Indeed, the Texas Supreme Court indicated as much in distinguishing Crocker from PAJ: “[I]n PAJ, the named insured made a request for coverage under the policy, albeit several months after ‘as soon as [was] practicable.’ In the pending case, however, the additional insured‘s notice was not merely late; it was wholly lacking. PAJ‘s notice was tardy; Morris‘s was nonexistent.” Crocker, 246 S.W.3d at 609(alteration in original); see also Md. Cas., 277 S.W.3d at 118-19 (“[A]s the supreme court has noted, determining whether prejudice arises from a tardy notice is a different inquiry than determining whether prejudice arises from a complete lack of notice. As in Crocker, the notice here was wholly lacking. Under the circumstances presented in the instant case, wholly lacking notice, as opposed to merely late notice, supports a finding of prejudice as a matter of law.” (citations omitted)).
On the other hand, learning about a case before verdict—even when it is already well “down the road“—does not necessarily mean that the insurer was prejudiced as a matter of law. See Coastal Ref., 218 S.W.3d at 290-92 (reversing summary judgment for insurer on a late notice case; evidence showed that although the insurer was notified of the suit before trial and invited to participate in settlement negotiations, it failed to join; insurer could not show it was prevented “from defending the suit or controlling settlement negotiations after notice was received“; insurer could not show that delayed notification prevented its investigation).
Berkley argues that this case is more like the “better late than never” cases and not like Crocker because no default was entered; rather, the case was litigated by competent counsel to a jury verdict. We disagree with Berkley. Construing, as we must, the facts in the light most favorable to the non-moving party, Philadelphia was not just notified “late,” it was notified after all material aspects of the trial process had concluded and an adverse jury verdict was entered. It lost the ability to do any investigation or conduct its own analysis of the case, as well as the ability to “join in” Nautilus‘s evaluation of the case.
Most importantly, however, Philadelphia lost a seat at the mediation table. Mediation, by nature, is a dynamic process, and for that very reason, parties are expected (and usually ordered) to appear ready to
Thus, we cannot fully know what effect, if any, Philadelphia‘s participation would have had on this process—e.g., convincing Nautilus to take Rouhani‘s offer of $215,000, convincing Rouhani to come down further or accept Nautilus’ offer of $150,000, or even “dropping down” to pay the $65,000 difference between the parties’ offers (with or without a side agreement between itself and Nautilus to litigate who must ultimately pay that amount). All of these rights were lost, leaving Philadelphia holding the bag for more than $700,000 in excess liability if Berkley prevails. Cf. Coastal Ref., 218 S.W.3d at 291 (distinguishing Clarendon because there the insurer “proved actual prejudice in that it lost the opportunity to settle the case for an amount within the insured‘s self-insured retention“). Certainly, once a jury verdict that dwarfs the settlement demand is entered, the settlement and litigation posture changes. See Prince George‘s Cnty., 879 A.2d at 100 (concluding that excess carrier was prejudiced by being “precluded ... from exercising any of its rights“). Additionally, Berkley‘s argument that Philadelphia could have рarticipated in the appeal rings hollow when one reviews the standards of review applicable to the appellate issues presented in the underlying case.19 The cows had long since left the barn when Philadelphia was invited to close the barn door.20
Philadelphia‘s representative William Gross provided an affidavit in which he stated: “Philadelphia was deprived of the opportunity to investigate the accident, to contribute to the development of a defense strategy, to participate in the lawsuit, to evaluate the settlement demands, to accеpt or reject any of the settlement demands, or to otherwise represent its interests during the pendency of the underlying litigation .... Philadelphia would have exercised these rights had it been given the opportunity by being put on notice.” Under the circumstances, in light of (1) this affidavit, (2) the fact that significant settlement demands and a mediation occurred without Philadelphia‘s knowledge, and (3) the rendering of a jury verdict before notice was given, we conclude that Philadelphia has presented sufficient facts in support of its position that it suffered prejudice to avoid summary judgment.21 We thus REVERSE the grant of
Philadelphia also argues that it is entitled to summary judgment in its favor. We are unable to reach this issue because fact issues exist.22 Accordingly, we leave it to the district court to address Philadelphia‘s argument in the first instance in light of the analysis here provided.
REVERSED AND REMANDED.
Notes
Id. at 278.[t]he policy of insurance expressly provided certain conditions. Among the conditions were those which required [the insured] to give notice of any accident and to forward any suit papers immediately to the company .... The policy further provided that “no action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy ....” There is no provision in the policy that failure to comply with the conditions precedent would be excused if no harm or prejudice were suffered by the insurer; and such a provision would have to be inserted into the policy by implication.