Service Corp. International v. Great American Insurance , 264 F. App'x 431 ( 2008 )


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  •            IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT United States Court of Appeals
    Fifth Circuit
    FILED
    February 1, 2008
    No. 07-20313                     Charles R. Fulbruge III
    Summary Calendar                           Clerk
    SERVICE CORPORATION INTERNATIONAL
    Plaintiff-Appellant
    v.
    GREAT AMERICAN INSURANCE COMPANY OF NEW YORK
    Defendant-Appellee
    Appeal from the United States District Court
    for the Southern District of Texas
    USDC No. 4:06-CV-2484
    Before JOLLY, DENNIS, and PRADO, Circuit Judges.
    PER CURIAM:*
    Service Corporation International (“SCI”) sued Great American Insurance
    Company of New York (“Great American”), (1) alleging that Great American
    breached an insurance policy it issued to SCI when it failed to provide coverage
    for certain claims, and (2) seeking a declaration that the policy requires Great
    American to cover those claims. The district court granted summary judgment
    in favor of Great American, finding that Great American’s excess liability policy
    *
    Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
    be published and is not precedent except under the limited circumstances set forth in 5TH CIR.
    R. 47.5.4.
    No. 07-20313
    coverage has not been triggered because SCI’s underlying primary insurance
    policy has not been exhausted. For the following reasons, we AFFIRM the
    judgment of the district court.
    I. FACTUAL AND PROCEDURAL BACKGROUND
    SCI is a funeral services company with cemeteries throughout the United
    States.     Several individual and class action plaintiffs sued SCI for grave
    desecrations and improper burials at two of SCI’s cemeteries, Menorah Gardens
    Fort Lauderdale and Menorah Gardens West Palm Beach                       (the “Menorah
    Gardens lawsuits”). Some, but not all, of the events underlying the Menorah
    Gardens lawsuits occurred between May 1, 2000, and May 1, 2001 (the “2000-
    2001 policy year”). During the 2000-2001 policy year, SCI was covered by a $25
    million insurance policy from Texas Pacific Indemnity Company (“Chubb”) and
    a $50 million excess liability policy (to be triggered only when the Chubb policy
    was exhausted) from Great American.1
    While the Menorah Gardens lawsuits were pending against SCI, Chubb
    apparently determined that its covered claims relating to that litigation would
    likely exceed its $25 million policy limit for the 2000-2001 policy year, and
    Chubb tendered the full $25 million to SCI “in an attempt to accomplish a global
    settlement of all claims concerning the desecrations and spacing problems
    at . . . Menorah Gardens.” In exchange, SCI agreed that if SCI did not settle
    claims against it related to the Menorah Gardens lawsuits, SCI would
    “indemnify and hold harmless [Chubb] for its contractual obligations under its
    policies . . . .” SCI subsequently entered into a global settlement of all claims
    brought by the plaintiffs represented by the Gonzalez and Hirschfeld law firms
    for $100 million. This settlement covered both claims arising during the 2000-
    2001 policy year and claims arising outside of it. The Gonzalez and Hirschfeld
    1
    SCI also had coverage under another $1 million policy that is not relevant to this
    appeal.
    2
    No. 07-20313
    firms ultimately allocated only $13.75 million of the $100 million to claims
    arising during the 2000-2001 policy year.
    In addition to its losses related to the Menorah Gardens lawsuits, SCI has
    incurred more than $2 million in other insured losses during the 2000-2001
    policy year (the “non-Menorah Gardens claims”). SCI requested coverage from
    Great American for the non-Menorah Gardens claims. Great American denied
    coverage, asserting that its excess liability coverage had not been triggered
    because only $13.75 million had actually been paid to plaintiffs with claims
    arising during the 2000-2001 policy year, an amount not reaching the $25
    million underlying policy limit. On July 27, 2006, SCI filed an action against
    Great American, alleging that Great American’s refusal to pay the non-Menorah
    Gardens claims constituted a breach of its policy agreement and seeking a
    declaration that Great American must pay SCI for its losses related to the non-
    Menorah Gardens claims. The district court granted summary judgment in
    favor of Great American, finding that Chubb’s $25 million payment had not
    exhausted its policy limits because it was not made in payment of claims, as
    required to trigger Great American’s coverage. SCI appeals, and we have
    jurisdiction over the appeal under 28 U.S.C. § 1291.
    II. DISCUSSION
    We review de novo the district court’s grant of a motion for summary
    judgment. Tex. Indus., Inc. v. Factory Mut. Ins. Co., 
    486 F.3d 844
    , 846 (5th Cir.
    2007). Summary judgment is appropriate when “there is no genuine issue as to
    any material fact and . . . the movant is entitled to judgment as a matter of law.”
    FED. R. CIV. P. 56(c).
    The parties agree that Texas law applies to this case. Under Texas law,
    we interpret insurance policies using the general rules that govern the
    interpretation of other contracts. Schneider Nat’l Transp. v. Ford Motor Co., 
    280 F.3d 532
    , 537 (5th Cir. 2002). Our primary goal “‘is to ascertain and to give
    3
    No. 07-20313
    effect to the intent of the parties as expressed in the instrument.’” 
    Id. (quoting R&P
    Enters. v. LaGuarta, Gavrel & Kirk, Inc., 
    596 S.W.2d 517
    , 518 (Tex. 1980)).
    We accomplish this by considering the policy as a whole and interpreting the
    policy terms according to their plain and ordinary meaning. 
    Id. In addition,
    we
    construe insurance policies and their endorsements together unless they are so
    much in conflict they cannot be reconciled. See Mesa Operating Co. v. Cal.
    Union Ins. Co., 
    986 S.W.2d 749
    , 754 (Tex. App. 1999).
    At issue in this appeal is whether, as a matter of law, Chubb’s tender of
    $25 million to SCI triggered Great American’s excess liability coverage for the
    2000-2001 policy year. We begin with an examination of the Great American
    policy and endorsements. The “Other Insurance” clause of the Great American
    policy states, “The insurance afforded by this policy shall be excess insurance
    over any valid and collectible insurance available to [SCI], for loss covered by
    [the Chubb policy] . . . .” (emphasis added).2             The Great American policy
    incorporates the Chubb policy’s definition of “loss,” which is “those sums actually
    paid in the settlement or satisfaction of a claim which the insured is legally
    obligated to pay as damages because of injuries or offense . . . .” (emphasis
    added). Similarly, the Great American policy’s “Following Form Endorsement”
    states, “Nothing contained in this endorsement will obligate the company to pay
    a claim . . . before the underlying insurance . . . is exhausted by payment of a
    claim or claims” (emphasis added).                Moreover, the “Aggregate Limits
    Endorsement” provides,
    In the event of . . . exhaustion of the aggregate limit or limits
    designated in the underlying policy or policies solely by payment of
    2
    SCI claims that the “Other Insurance” clause does not apply to this dispute and that
    we should examine only the language in the endorsements. However, even assuming,
    arguendo, that SCI is correct, our analysis would be unchanged, because the endorsements
    contain the same key language as does the “Other Insurance” clause, which leads to the same
    conclusions.
    4
    No. 07-20313
    losses in respect to claims, accidents, or occurrences during the
    period of such underlying policy or policies, it is hereby understood
    and agreed that such insurance as is afforded by this policy shall
    apply as underlying insurance, notwithstanding anything to the
    contrary in the terms and conditions of this policy.
    (emphasis added).
    These clauses show that Great American agreed to provide excess
    insurance over the amount SCI is entitled to collect from Chubb for losses—sums
    actually paid in settlement of claims. The clauses consistently demonstrate that
    the parties intended loss and exhaustion to be measured by the sums used for
    payment of claims, not simply by the sums paid. The fundamental issue, then,
    is whether Chubb’s payment of $25 million was paid in settlement or satisfaction
    of claims for the 2000-2001 policy year, thereby exhausting Chubb’s coverage
    and triggering Great American’s coverage. Cf. Fed. Ins. Co. v. Srivastava, 
    2 F.3d 98
    , 102-03 (5th Cir. 1993) (noting that an excess insurer’s coverage “begins when
    a loss exceeds the policy limits of all underlying policies . . . regardless of
    whether the underlying insurers actually pay those limits” and holding that an
    excess insurer had no liability when losses did not reach its coverage layer even
    though underlying insurers were insolvent and could not pay).
    According to SCI, Chubb’s $25 million payment of its policy limits for the
    2000-2001 policy year must have been a payment in settlement of claims,
    because the only possible liability Chubb could have had to SCI under Chubb’s
    policy was for claims. SCI may be correct that Chubb reasonably believed that
    SCI was likely to incur more than $25 million in losses due to the payment of
    claims and that Chubb’s belief caused it to tender payment to SCI. However, we
    are unpersuaded that Chubb’s subjective estimate of SCI’s probable losses for
    2000-2001 should determine the actual amount of loss SCI suffered, particularly
    for purposes of a contract between SCI and Great American. As explained
    above, the terms of the policy show that Great American and SCI agreed that
    5
    No. 07-20313
    losses would be measured by payment of claims. Great American contemplated
    the risk that SCI would be subject to claims in excess of Chubb’s policy limits.
    It did not contemplate that Chubb would pay its policy limits without regard to
    whether the payment would be used for covered claims. We must be “careful not
    to shift contracted-for risks.” 
    Srivastava, 2 F.3d at 102
    .
    SCI also argues that because it paid the full $25 million from Chubb to
    various claimants as part of a lump-sum settlement rather than pocketing the
    $11.25 million that was not eventually paid for 2000-2001 claims, the full $25
    million constituted a loss. However, to be counted toward the $25 million loss
    threshold needed to trigger Great American’s excess policy coverage, the loss
    must be attributable to the 2000-2001 policy year. The $100 million settlement
    represented a lump sum paid for claims arising both during and outside the
    2000-2001 policy year, and only $13.75 million went to claims arising during the
    2000-2001 policy year. Thus, of the $25 million Chubb paid, only $13.75 million
    constituted a loss for 2000-2001 under the terms of the Great American policy.
    The remaining $11.25 million was used to cover other claims and cannot be
    considered in determining whether the loss threshold that would trigger Great
    American’s coverage has been reached.
    SCI also contends that because Chubb tendered its full policy limits based
    on a good-faith belief that it had liability on claims that would exceed $25
    million, a court cannot reconsider that decision in light of subsequently
    discovered facts. In support of this position, SCI cites Keck, Mahin & Cate v.
    National Union Fire Insurance Co., 
    20 S.W.3d 692
    , 702-03 (Tex. 2000), and
    National Surety Corp. v. Western Fire & Indemnity Co., 
    318 F.2d 379
    , 385-86
    (5th Cir. 1963). In Keck, an excess insurer who paid part of a claim sued the
    primary insurer and the primary insurer’s attorneys for equitable subrogation,
    alleging that the attorneys’ negligent handling of the underlying lawsuit had
    forced the excess insurer to pay too 
    much. 20 S.W.3d at 695-96
    . As a defense,
    6
    No. 07-20313
    the attorneys argued that because a thorough investigation of the claim would
    have shown that the excess insurer actually had no liability, the excess insurer
    was a “volunteer” with respect to its settlement payment and was not entitled
    to subrogation. 
    Id. at 702.
    The Texas Supreme Court disagreed, holding that
    “[a]n insurer who pays a third-party claim against its insured is not a volunteer
    if the payment is made in good faith and under a reasonable belief that the
    payment is necessary to its protection.” 
    Id. It reasoned
    that adopting the
    attorneys’ position “would significantly increase potential conflicts of interest
    between insureds and their insurers” and “discourage insurance companies from
    paying or settling disputed claims and thereby force insureds more often into
    litigation with their insurers.” 
    Id. at 703
    (internal quotation marks omitted).
    Similarly, in National Surety Corp., the court held that one insurer could not
    defeat its obligation to reimburse a co-insurer for the co-insurer’s good-faith
    settlement by arguing that the co-insurer did not actually have liability for the
    settled 
    claims. 318 F.2d at 385-86
    .
    Despite SCI’s assertion to the contrary, neither Keck nor National Surety
    Corp. controls the outcome in this case. In both of those cases, a third party was
    challenging an insurer’s coverage decision based on subsequently acquired
    information in a way that could compromise the settling insurer’s rights. As the
    court in Keck explained, allowing such second-guessing would encourage
    insurance companies to litigate disputed claims and discourage insurance
    companies from 
    settling. 20 S.W.3d at 703
    . Here, however, that rationale does
    not apply, because Chubb’s rights are not at stake. No one is questioning
    Chubb’s business decision to settle with SCI for $25 million or arguing that
    Chubb should be held responsible for an unwise settlement decision. Rather,
    the issue is simply whether Chubb’s payment triggers Great American’s policy
    coverage. SCI does not explain, and we do not see, how a holding in favor of
    Great American in this case would discourage insurance companies in positions
    7
    No. 07-20313
    similar to Chubb’s from entering settlement agreements with their
    policyholders. Therefore, the public policy considerations that motivated the
    court in Keck and that were present in National Surety Corp. are not present
    here.
    Finally, SCI argues that even if Chubb’s payment did not exhaust its
    policy limits as a matter of law, there is a fact issue regarding exhaustion that
    precludes summary judgment. It cites Dresser Industries, Inc. v. Underwriters
    at Lloyd’s, London, 
    106 S.W.3d 767
    , 776 (Tex. App. 2003), for this proposition.
    In Dresser, an insured party entered a settlement, the primary insurers tendered
    their policy limits, and the excess insurer contributed to the settlement. 
    Id. at 768-69.
    The insured party then sought coverage from the excess insurer for
    unrelated claims, and the excess insurer argued that the underlying policies had
    not been exhausted because the settled claims were fraud claims that should
    never have been covered. 
    Id. at 769.
    The trial court granted summary judgment
    to the excess insurer, holding that the underlying claims were not covered losses
    because they were non-covered fraud claims, and thus exhaustion was
    impossible. 
    Id. at 774-75.
    The appeals court reversed, finding that the fact that
    the underlying insurers settled for the full amount of their coverages and that
    the excess carrier contributed as well created fact issues concerning exhaustion
    and coverage. 
    Id. at 776.
    SCI contends that Dresser establishes a rule that the
    tender of policy limits, alone, is sufficient to raise a fact issue concerning
    exhaustion. We disagree. In Dresser, it appears, the fact that multiple insurers
    paid out their policy limits created a fact issue as to exhaustion because it
    created a fact issue about coverage—whether the coverage question was as
    simple as applying a fraud exclusion that any insurance company would have
    immediately recognized. Here, however, there is no analogous dispute over
    whether claims were covered. The dispositive fact in this case is undisputed:
    only $13.75 million was ultimately paid to plaintiffs with covered claims arising
    8
    No. 07-20313
    within the 2000-2001 policy year. Based on that fact, we conclude that Chubb’s
    policy has not been exhausted in a way that triggers Great American’s coverage.
    SCI identifies no genuine disputed issues of fact that could change that
    conclusion.
    In sum, the plain language of the Great American insurance policy and its
    endorsements demonstrates that Great American’s coverage is not triggered
    until SCI’s losses—defined as sums actually paid in settlement of claims—have
    reached $25 million. Because only $13.75 million has been paid in settlement
    of relevant claims thus far, Great American’s coverage layer has not been
    reached. SCI’s position to the contrary is at odds with the terms of the Great
    American policy and is not supported by Texas case law. Therefore, Great
    American need not provide coverage for the non-Menorah Gardens claims.
    III. CONCLUSION
    The district court correctly concluded that, as a matter of law, Great
    American’s policy layer has not yet been reached. Therefore, Great American
    did not breach its contract with SCI, and SCI is not entitled to declaratory relief.
    Thus, we AFFIRM the judgment of the district court granting summary
    judgment in favor of Great American.
    AFFIRMED.
    9