American General Life Insurance v. Ace Insurance

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
MAY 11, 2005
No. 04-15980 THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 03-00611-CV-N
AMERICAN GENERAL LIFE INSURANCE COMPANY,
U.S. LIFE INSURANCE COMPANY,
Plaintiffs-Appellants,
THE FRANKLIN LIFE INSURANCE COMPANY, et al.,
Plaintiffs,
versus
ACE INSURANCE COMPANY,
CIGNA PROPERTY & CASUALTY COMPANY,
CIGNA INSURANCE COMPANY,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Middle District of Alabama
_________________________
(May 11, 2005)
Before BIRCH, BARKETT and WILSON, Circuit Judges.
PER CURIAM:
The central question presented in this case is whether, under Texas state law,
an insurance policy exclusion for claims or suits related to pending litigation can
relieve an insurer of its duty to defend. The district court answered in the
affirmative, granting summary judgment to the insurer for those claims that related
to an earlier class action litigation. With respect to whether other policy exclusions
precluded coverage on other non-related claims, the district court granted summary
judgment in part and denied summary judgment in part. For the reasons that
follow, we affirm the ruling of the district court.
BACKGROUND
In 1998, a predecessor company to Plaintiff-Appellant American General
Life Insurance Company (“AmGen”) settled a class action litigation involving a
plaintiff named Paul Garst. The two class action complaints (Garst complaints)
alleged that AmGen’s predecessor and its agents engaged in a scheme to
misrepresent the nature of life insurance policies to induce the class to purchase
them. The agents were alleged to have misrepresented that the premiums would
vanish within a certain number of years, or would not vary; that the policies were
investment vehicles; and that the policyholders would benefit from rolling over
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existing policies. The Garst complaints alleged that the misrepresentations were
carried out through policy illustrations, uniform sales scripts, and marketing
materials prepared by AmGen’s predecessor. Ultimately, this class action settled,
releasing AmGen’s predecessor and its agents from liability with respect to those
plaintiffs who did not opt out.
Later in 1998, AmGen’s predecessor asked a predecessor to Defendant-
Appellee Ace Insurance Company (“Ace”) to underwrite and insure AmGen, its
affiliated insurance companies, and its agents. A letter agreement was issued on
December 8, 1998, to the effect that Ace would insure AmGen and its agents. The
parties dispute the legal effect of this letter agreement.
When Ace learned of the class action litigation from one of its reinsurers, it
drafted two endorsements to AmGen’s insurance coverage: the Claims Exclusion
and the Prior Acts Endorsement. AmGen responded to Ace stating that the
exclusions were unacceptable. After a disagreement as to whether AmGen
provided sufficient notice of the class action in its annual report, Ace issued the
policies. Each Master Policy, delivered in January or February of 1999, included
the endorsements.
The Master Policies provide coverage on behalf of the insured’s agent for all
amounts in excess of the deductible and up to the limit of liability, which the
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insured becomes legally obligated to pay as damages. In order to qualify for
coverage, the damages must be caused by a wrongful act arising out of the
provision of professional services by the insured. The Master Policies also provide
coverage on behalf of the named insured–i.e., the company–for all amounts in
excess of the deductible, which the named insured becomes legally obligated to
pay by reason of vicarious liability arising out of the wrongful acts of its insured
agents.
The exclusions that are at issue in this case are Exclusion C, Exclusion K,
and Exclusion O. Exclusion C states that Ace will not defend or pay for “[a]ny
claim or suit for damages in any way related to any litigation which commenced
prior to the Effective Date . . . .” The policies define “related claims” as “all claims
involving the same wrongful act or wrongful acts which are logically or causally
connected by reason of common fact, circumstance, situation, transaction, even or
decision.” Exclusion O bars coverage for claims or suits for damages arising out
of the insured’s “promise of guarantees as to interest rages, fluctuations in interest
rates, future premium payments, or market values.” Exclusion K bars coverage for
intentional acts.
In 1999, notice of settlement and opt-out procedures were sent to the class
involved in the Garst litigation. Multiple class plaintiffs opted out and filed their
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own lawsuits. Ace characterizes these plaintiffs’ complaints (the “opt-out
complaints”) as asserting essentially the same allegations as the Garst complaints,
but concedes that the individual complaints were tailored to reflect the particular
alleged fraud experienced by the individual plaintiff. Ace presented the district
court with complaints that it claims are representative1 of other complaints filed by
the same attorneys on behalf of other clients.2 The defendants named in these opt-
out complaints were AmGen (or its predecessor and/or its affiliates) and various
agents. The primary allegations in the complaints are that the agents named made
fraudulent representations to the plaintiffs. All but one complaint relies almost
exclusively on allegations of fraud at the time of the sale of the policies. The opt-
out plaintiffs each seek to hold the individual agent directly liable for these
misrepresentations and the company liable vicariously or for improper supervision.
AmGen, pursuant to its policies with Ace, demanded that Ace defend
AmGen and its agents in the opt-out suits. When Ace declined to defend Ace,
citing its policy exclusions, AmGen defended its agents, then brought suit seeking
1
Apparently, AmGen failed below to point to evidence that refuting Ace’s
characterization of these complaints as “representative.” The district court therefore analyzed
the complaints as if they did indeed represent the opt-out plaintiffs. Because AmGen waived its
objection below, we likewise proceed under the assumption that these complaints are
representative.
2
The district court refers to these complaints by their Exhibit number. Each Exhibit,
attached to Document 34, contains a complaint that is representative of other opt-out plaintiffs
making similar claims. For consistency, we will refer to these complaints in the same manner.
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a declaration that Ace breached its duty to defend and a judgment awarding
AmGen costs for defense and settlement of the opt-out suits.
The district court granted summary judgment in part and denied in part in
Ace’s favor. The court also denied AmGen’s summary judgment motion. This
appeal followed.
STANDARD OF REVIEW
We review grants of summary judgment de novo, using the same standard as
the district court. See NAACP v. Hunt, 891 F.2d 1555, 1559 (11th Cir. 1990).
DISCUSSION
I. Texas Law
Under Texas law, insurance contracts are interpreted under the same rules of
construction as standard contracts. Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663,
665 (Tex. 1987). If the insurance policy is susceptible to more than one reasonable
interpretation, however, any ambiguity will be resolved by adopting a construction
that favors the insured. Nat’l Union Fire Ins. Co. v. Hudson Energy Co., 811
S.W.2d 552, 554 (Tex. 1991)
When determining whether an insurer has a duty to defend its insured, courts
use the so-called “eight corners” rule, or “complaint allegation” rule. This rule
requires courts to compare the insurance policy with the allegations in the petition
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or complaint filed against the insured. See King v. Dallas Fire Ins. Co., 85 S.W.3d
185, 187 (Tex. 2002). Thus, the duty to defend is determined from the face of the
pleading, without regard to ultimate truth or falsity of the allegations. Heyden
Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d 22, 24 (Tex. 1965); see also
Cigna Lloyds Ins. Co. v. Bradleys’ Elec., Inc., 33 S.W.3d 102, 104–05 (Tex. App.
1992) (“The focus of the inquiry . . . must be *105 on the facts alleged, not the
legal theories alleged. When the court reviews the allegations to determine
whether a liability insurer has a duty to defend its insured, a liberal interpretation in
favor of the insured should be given. See Nat’l Union Fire Ins. Co. v. Merchs.
Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997).
There is some confusion in the Texas circuit courts about whether there are
exceptions to the eight corners rule. Some courts have held that extrinsic evidence
may be considered if the policy terms are ambiguous, or the petition does not
contain factual allegations sufficient to enable the court to determine whether the
claims are within the policy coverage. Utica Lloyd’s of Tex. v. Sitech Eng’g Corp.,
38 S.W.3d 260, 263 (Tex. App. 2001); State Farm Ins. v. Wade, 827 S.W.2d 448,
453 (Tex. App. 1992); Gonzales v. Am. States Ins. Co., 628 S.W.2d 184, 187 (Tex.
App. 1982) (“[W]here the basis for the refusal to defend is that the events giving
rise to the suit are outside the coverage of the insurance policy, facts extrinsic to
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the claimant’s petition may be used to determine whether a duty to defend exists”).
Other courts are hesitant to apply any exceptions at all. See Landmark Chevrolet
Corp. v. Universal Underwriters Ins. Co., 121 S.W.3d 886, 891 (Tex. App. 2003)
(applying strict eight corners rule to prohibit the “inject[ion]” of missing facts into
the complaints); Tri-Coastal Contractors, Inc. v. Hartford Underwriters Ins. Co.,
981 S.W.2d 861, 863–64 (Tex. App. 1998) (applying the strict eight corners
approach to reverse trial court’s use of extrinsic evidence).
II. Policy Exclusions
The district court held that Exclusion C, which bars coverage for claims
related to pending litigation, relieved Ace of its duty to defend the lawsuits
exemplified by Exhibits 8-11. Since the district court entered its summary
judgment order, the Texas Court of Appeals issued a decision that is directly on
point. King Chapman & Broussard Consulting Group, Inc. v. Nat’l Union Fire
Ins. Co., __ S.W.3d __ (Tex. App. 2005). In that case, the Texas court concluded
that the “prior litigation” exclusion in the insurance policy precluded coverage.
The Court reviewed the allegations in the prior litigation and concluded that the
insurer had no duty to defend the current claim because it was related to the prior
litigation. Id. at __. It appears that this court did not consider it a violation of the
eight corners rule to look to the allegations of the prior lawsuits.
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In this case, the district court conducted its analysis in the same manner as
the Texas Court of Appeals, comparing the allegations in the opt-out complaints
with those in the prior Garst complaints. The court noted that the Third Amended
Complaint in the Garst class action alleges that AmGen’s predecessor induced
class members to purchase policies through misrepresentations and omissions
made in company generated policy illustrations and materials. The class action
also alleges that AmGen’s predecessor trained its sales representatives to make
uniform, consistent written misrepresentations and memorize sales scripts. Based
on these allegations, the class brought claims for fraud, fraudulent concealment,
and deceit. The court granted summary judgment in favor of Ace for Exhibits 8-11
finding that Ace had no duty to defend these “related” claims. We affirm because
Ace carried its summary judgment burden. Ace demonstrated, as required by King
Chapman, that the factual allegations in the Garst complaints and the opt-out
complaints represented by Exhibits 8-11 are related, arising out of the same
scheme of misrepresentation perpetrated by AmGen’s predecessor.
Notably, the district court observed that not all of the representative opt-out
complaints involve these types of allegations. Rather, the Exhibit 12 complaint
involved allegations that did not implicate misrepresentations stemming from the
company’s own promotional campaign. The complaint asserted a vicarious
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liability theory that the agents breached their obligation to communicate changed
circumstances to the policyholders, which resulted in the policy performing worse
than the agents had promised it would. The court concluded that Exhibit 12 was
not a “related claim” and therefore not excluded by Exclusion C. Additionally, the
court found that concealment continued after the class action settled, meaning that
the acts of concealment would not be “prior” or “pending” claims or suits as
required by Exclusion C. With respect to the claims in Exhibit 12, then, the Court
granted summary judgment to the extent that the claims were intentional acts based
on Exclusion K (barring coverage for intentional acts). Insofar as these claims
were based on negligence, however, the court denied summary judgment.
Under Texas law, when the words of a policy are unambiguous, courts must
accord them their “plain, ordinary and generally accepted meaning.” Western
Reserve Life Ins. Co. v. Meadows, 261 S.W.2d 554, 557 (Tex. 1957). We affirm
the district court because it has interpreted the policy exclusions in a manner
consistent with their plain meaning.
CONCLUSION
After reviewing the thorough district court order and the parties’ briefs, we find no
error. Accordingly, we affirm the district court.
AFFIRMED.
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