Singleentry.com, Inc. v. St. Paul Fire & Marine Insurance , 117 F. App'x 933 ( 2004 )

United States Court of Appeals
Fifth Circuit
F I L E D
REVISED DECEMBER 29, 2004
December 7, 2004
Charles R. Fulbruge III
In the Clerk
United States Court of Appeals
for the Fifth Circuit
_____________________
m 04-50110
Summary Calendar
_____________________
SINGLEENTRY.COM, INC.,
Plaintiff-Appellant,
VERSUS
ST. PAUL FIRE & MARINE INSURANCE COMPANY,
Defendant-Appellee.
____________________
Appeal from the United States District Court
for the Western District of Texas
m A-03-CV-94-SS
____________________
Before DAVIS, SMITH, and DENNIS, submitted their dispute to arbitration, and on
Circuit Judges. August 7, 2002, SingleEntry obtained an arbi-
tration award against ThinkSpark.
JERRY E. SMITH, Circuit Judge:*
St. Paul denied coverage to ThinkSpark for
SingleEntry.com, Inc. (“SingleEntry”), ap- the claims assert ed by SingleEntry in the un-
peals a summary summary judgment in favor derlying litigation. On February 11, 2003, the
of St. Paul Fire and Marine Insurance Com- state court ordered a turnover that assigned
pany (“St. Paul”). SingleEntry, as assignee of ThinkSpark’s claims against St. Paul to Sin-
ThinkSpark Corporation’s rights, contends gleEntry, which then sued St. Paul, alleging
that ThinkSpark provided notice of a claim status as an assignee and judgment creditor or
within its policy period under a claims-made third-party beneficiary of the policy and seek-
technology errors and omissions policy. In ad- ing indemnification under the policy. St. Paul
dition, SingleEntry avers that St. Paul is re- removed to federal court on the basis of diver-
quired to show prejudice for failure to provide sity jurisdiction.
notice and was required to provide a defense
to ThinkSpark under article 21.55 of the Texas SingleEntry and St. Paul filed cross-mo-
Insurance Code. We affirm. tions for summary judgment on the legal ques-
tion whether the provision in the policy that
I. required ThinkSpark to notify St. Paul of a
St. Paul issued ThinkSpark a claims-made loss “as soon as possible” is a mandatory not-
technology errors and omissions policy cover- ice requirement and therefore a condition pre-
ing the period from November 9, 2000, to cedent to coverage. The district court denied
November 9, 2001. SingleEntry hired Think- Single-Entry’s motion for partial summary
Spark to design and build a website. In the judgment and granted St. Paul’s cross-motion
spring of 2000, a dispute arose between Sin- for summary judgment, determining that
gleEntry and ThinkSpark. SingleEntry sued ThinkSpark had failed to comply with the
ThinkSpark on December 5, 2000, alleging notice requirements.
fraud, breach of contract, violations of the
Texas Deceptive Trade Practices Act, and an II.
alternative claim for negligent misrepresenta- An assignee steps into the shoes of the as-
tion. signor and takes the assigned rights subject to
all defenses that an opposing party might be
ThinkSpark knew of the litigation no later able to assert against the assignor. Burns v.
than December 7, 2000, but did not inform St. Bishop, 48 S.W.3d 459, 466 (Tex.
Paul until September 18, 2001, when Think- App.SSHouston [14th Dist.] 2001). A third-
Spark’s insurance broker sent St. Paul a copy party beneficiary judgment creditor of the in-
of the petition. SingleEntry and ThinkSpark sured steps into the shoes of the insured. State
Farm Lloyds Ins. Co. v. Maldonado, 963
S.W.2d 38, 40 (Tex. 1998). The judgment
*
Pursuant to 5TH CIR. R. 47.5, the court has creditor must show that the insured complied
determined that this opinion should not be pub- with the conditions precedent and terms of the
lished and is not precedent except under the limited policy. Id.circumstances set fort in 5TH CIR. R. 47.5.4.
2
When interpreting an insurance policy un- Compliance with the provision that notice
der Texas law, a court must construe ambig- be given as soon as practicable is a condition
uities against the insurer and in favor of the in- precedent, the breach of which voids policy
sured. Nat’l Union Fire Ins. Co. v. Willis, 296 coverage. Id. (citing Broussard v. Lumber-
F.3d 336, 339 (5th Cir. 2002). The primary mens Mut. Cas. Co., 582 S.W.2d 261, 2662
goal is to give effect to the written expression (Tex. App.SSBeaumont 1979); Duzich v.
of the parties’ intent. Id. This is necessary to Marine Office of Am. Corp., 980 S.W.2d 857,
ensure that the interpretation of the policy will 866 (Tex. App. SSCorpus Christi 1998). Ac-
give effect to each term in the contract so that cordingly, “failure to give timely notice is a
none will be rendered meaningless. Id. An breach of the insurance contract and relieves
insurance policy will be considered ambiguous the insurer of its obligation to defend or
if, when considered as a whole, it is reasonably indemnify. Id. (citing Assicurazioni Generali
susceptible to more than one meaning. Mata- SpA v. Pipe Line Valve Specialties Co., 935 F.
dor Petroleum Corp. v. St. Paul Surplus Lines Supp 879, 887 (S.D. Tex. 1996)). Where an
Ins. Co., 174 F.3d 653, 657 (5th Cir. 1999) insurance policy requires notification of an oc-
(quoting Forbau v. Aetna Life Ins. Co., 876 currence or a lawsuit as soon as practicable or
S.W.2d 132, 134 (Tex. 1994)). A court immediately, courts must consider the reason-
should not strain to find ambiguities that may ableness of a delay in notification if the facts
defeat the parties’ probable intention. Id. Fur- are undisputed. Id. Notice requirements are
thermore, an insurance contract will be given strictly interpreted, because the parties specifi-
its certain legal meaning or interpretation if cally negotiate them. Matador, 174 F.3d at
possible. Id. 657.
The terms in an insurance contract are A claims-made policy is distinguishable
given their ordinary and generally accepted from an occurrence policy, where an occur-
meaning, unless the policy shows that the rence during the policy triggers coverage. Id.words were meant in a technical or different Alternatively, under a claims-made policy,
sense. New Era of Networks, Inc. v. Great N. providing notice triggers the insured’s cover-
Ins. Co., 2003 WL 23573645, at *8 (S.D. Tex. age. Id. An insurer is not required to show
2003) (citing Am. States Ins. Co. v. Hanson prejudice from late notice where a claims-
Indus., 873 F. Supp. 17, 22 (S.D. Tex. 1995)). made policy is involved. Id. at 659. Courts
The purpose of a notice requirement is to will not rewrite policies to permit notice-pre-
enable the insurer to investigate the circum- judice to be applied to claims-made policies,
stances of an accident while the matter is fresh because to do so would interfere with the
in the minds of the witnesses so that it may right to contract. Id. A party rightly should
adequately prepare to adjust or defend any be held to know the conditions of the policy
claims that may be then or thereafter be as- and the conscious choice that it made in select-
serted against persons covered by its policy. ing a claims-made policy instead of an occur-
Id. (citing Employers Casualty Co. v. Glens rence policy. Hirsch v. Tex. Lawyers Ins.
Falls Ins. Co., 484 S.W.2d 570, 575 (Tex. Exch., 808 S.W.2d 561, 565 (Tex. App.SSEl
1972); Bay Elec. Supply, Inc. v. Travelers Paso 1991, wrti denied). Therefore, the failure
Lloyds Ins. Co., 61 F. Supp. 2d 611, 619 (S.D. to provide proper notice under a claims-made
Tex. 1999)). policy negates coverage, regardless of whether
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the insurer has been prejudiced. Id. A show- The terms and conditions of the policy demon-
ing of prejudice is required only in narrowly strate that this notice requirement was meant
defined cases involving bodily injury and to be a condition precedent. Accordingly, be-
property damage. Dairyland County Mut. Ins. cause SingleEntry took the assigned rights
Co. v. Roman, 498 S.W.2d 154, 157 n.2 (Tex. from ThinkSpark subject to all the defenses St.
1973). Paul is able to assert, the district court prop-
The instant policy sets forth definite re- erly granted St. Paul’s cross-motion for sum-
quirements with which ThinkSpark must com- mary judgment.
ply to secure coverage. Under the policy
section titled “When this Policy Provides III.
Liability Protection,” the policy states: “If an SingleEntry’s assertion that notice was pro-
accident, error, event, offense, or wrongful act vided before the expiration of the policy is
happens that may involve liability protection unavailing. The policy specifically mandated
provided in this policy, you or any other pro- that notice be provided “as soon as possible.”
tected person involved must tell us or our Therefore, under Texas law, ThinkSpark’s
agent what happened as soon as possible.” delay of notification from May 2000 until
ThinkSpark, however, did not notify St. Paul December 2001 fails to fulfill the condition
until nine months after SingleEntry had filed precedent of providing notice. Moreover,
suit. although SingleEntry repeatedly cites the lang-
uage of the policy stating that “failure to com-
In addition, ThinkSpark did not give notice ply could affect coverage,” this language must
to St. Paul when SingleEntry failed to pay over be read along with the requirement that notice
$219,952 worth of invoices on May 9, 2000. must be given “as soon as possible.” Accord-
Also, in June 2000, ThinkSpark referred the ingly, St. Paul was properly granted summary
controversy with SingleEntry to an attorney, judgment on SingleEntry’s suit as the assignee
and its chief financial officer predicted that the of ThinkSpark’s claim.
dispute would result in litigation. St. Paul’s
policy states that “it is reasonable that a pro- St. Paul also defends SingleEntry’s claims
tected person could foresee a claim or suit by noting that the policy did not cover the
being made or brought if one of your custom- dispute that arose between ThinkSpark and
ers refused to pay all or part of your charges SingleEntry. Specifically, the policy states that
for those products or services.” Consequently, “[w]e won’t cover loss that results from any
the actual period of time during which Think- delay in delivery of, or failure to deliver your
Spark failed to notify St. Paul is actually much computer or electronic products or services.”
longer than nine months. The dispute between SingleEntry and
ThinkSpark arose because ThinkSpark failed
Analogously, there is ample Texas authority to complete the requested website for Single-
that taking eleven months to notify an insurer Entry by the deadline of May 1, 2000.
is not “as soon as practicable.” Chicago Ins.
Co. v. W. World Ins. Co., 1998 WL 51363, at We affirm based on ThinkSpark’s failure to
*3 (N.D. Tex. 1998). Therefore, the district fulfill the condition precedent of providing no-
court correctly found that ThinkSpark failed to tice to St. Paul “as soon as possible.” This de-
fulfill the notice requirement of the policy. cision, moreover, is bolstered by the conclu-
4
sion that the claim was not covered by the pol- policy, yet the terms did not explicitly state
icy. Therefore, summary judgment was prop- that the notice requirement was a “condition
erly awarded because SingleEntry, as assignee, precedent” to coverage. Again, although the
is subject to all defenses St. Paul may raise notice requirement was not specifically labeled
against ThinkSpark. as a “condition precedent,” the court found
that the delays violated the requirements set
IV. out in the policy. Id.SingleEntry argue that in Texas, for there
to be a condition precedent, terms such as “if” SingleEntry further urges that ThinkSpark
or “provided that” or “on condition that” nor- had discretion to determine when the need for
mally must be used. Criswell v. European coverage may exist. SingleEntry cites Em-
Crossroads Shopping Ctr. Ltd., 792 S.W.2d ployers Ins. v. Bodi-Wachs Aviation Ins.
945, 948 (Tex. 1990). Furthermore, Single- Agency, Inc., 39 F.3d 138 (7th Cir. 1994), to
Entry tries to distinguish Fed. Ins. Co. v. illustrate that the insured has discretion in de-
CompUSA, 319 F.3d 746, 748 (5th Cir. 2003), termining when an insurer must be given not-
because the contract in that case stated that ice. In Bodi-Wachs, the insured gave notice to
“the insured shall, as a condition precedent to its insurer directly after an amended pleading
exercising their rights” give written notice. was filed against it for fraud and negligence.
Therefore, SingleEntry contends that the lang- Id. Notably, the decision of the district court
uage “condition precedent” must be used for a granting coverage to the insured did not dem-
notice requirement to act as a condition prece- onstrate that the insured has discretion of
dent. when to provide notice, but that the insured
fulfilled the requirements of the policy.
In Gemmy Indus. Corp. v. Alliance General
Ins. Co., 190 F. Supp. 2d 915, 921 (N.D. Tex. Alternatively, ThinkSpark had reason to be-
1998), however, the insurance policy in con- lieve that coverage would be needed when it
troversy did not explicitly have the words failed to reach its deadline for SingleEntry’s
“condition precedent” for the notice require- website on May 1, 2000. Furthermore, in June
ment, but rather stated that notice must be 2000, the chief executive officer of Think-
given as soon as practicable. Id. The court Spark noted that litigation would likely result.
found that a delay of more than one year be- Consequently, ThinkSpark had the obligation
fore notifying the insurer was insufficient, re- to notify St. Paul of possible litigation no later
gardless of the fact that the notice requirement than June 2000, and its failure provide notice
was not specifically labeled as a “condition until September 2001 constituted a failure to
precedent.” Id. provide the proper notice.
Similarly, in Assicurazioni, 935 F. Supp. at V.
887, the policy at issue required notice as soon SingleEntry argues that St. Paul had a duty
as practicable, yet the insured notified its in- to provide defense and pay the final judgment
surer almost seventeen months after the occur- on behalf of ThinkSpark under article 21.55 of
rence and two months after receipt of the orig- the Texas Insurance Code. SingleEntry is in-
inal petition. The policy listed the notice re- correct, because it is not making a first-party
quirements under the condition section of the claim in this dispute. Under Article 21.55
5
§ 1(3), claims are defined as a first-party claim
made by an insured or policyholder under an
insurance policy or contract or by a beneficiary
named in the policy or contract that must be
paid by the insurer directly to the insured or
beneficiary. An illustration of a first-party
claim can be found in Hartman v. St. Paul Fire
& Marine Ins. Co., 55 F. Supp. 2d 600, 603
(N.D. Tex. 1998), showing that a first-party
claim is an immediate direct diminution of the
insured’s assets, in contrast to a third-party
claim, which goes through the first-party as a
conduit.
SingleEntry’s claim is not a first-party claim
for damage suffered directly by the insured.
Therefore, because ThinkSpark’s policy was
not a first-party insurance policy, Single En-
try’s third-party claim is not covered by article
21.55. In addition, SingleEntry is not the
holder of the policy or a named beneficiary.
Accordingly, SingleEntry does not meet the
requirements of article 21.55, so summary
judgment was properly awarded to St. Paul.
AFFIRMED.
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