Berkley Regional Insurance v. Philadelphia Indemnity Insurance

Case: 13-51180 Document: 00512917193 Page: 1 Date Filed: 01/27/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 27, 2015
No. 13-51180
c/w No. 14-50099 Lyle W. Cayce
Clerk
BERKLEY REGIONAL INSURANCE COMPANY, as Subrogee of Venus
Rouhani and as Assignee/Subrogee of the Tower of Town Lake Condominium
Association, Inc.,
Plaintiff - Appellant
v.
PHILADELPHIA INDEMNITY INSURANCE COMPANY,
Defendant - Appellee
Appeals from the United States District Court
for the Western District of Texas
U.S.D.C. No. 1:10-CV-362
Before STEWART, Chief Judge, and BARKSDALE and GRAVES, Circuit
Judges.
PER CURIAM:*
This case involves an insurance claim, controlled by Texas law for this
diversity action, arising from an injury sustained on the property of Towers of
* 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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.
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Town Lake Condominiums (Towers). Towers, in an attempt to satisfy the
notice requirements of an umbrella insurance policy with Philadelphia
Indemnity Insurance Company (Philadelphia), sent notice of the claim to the
broker of that policy. The core of the dispute is whether this notice satisfied
the requirements of the umbrella policy, and, if not, whether Philadelphia was
prejudiced as a result. Finding notice to the broker insufficient and
Philadelphia prejudiced, the district court granted summary judgment in favor
of Philadelphia. For the reasons stated herein, we AFFIRM.
I. FACTUAL AND PROCEDURAL HISTORY
In 2004, Venus Rouhani (Rouhani) sued Towers in Texas state court for
injuries she sustained at Towers, and a jury awarded her $1,654,663.50 plus
interest and costs (totaling $2,167,300.30) in 2006. The damages were covered
by a $1,000,000 primary policy issued by Nautilus Insurance Company
(Nautilus) and a $20,000,000 umbrella policy (Umbrella Policy) issued by
Philadelphia. During the state court appeal of the judgment, Towers, through
Nautilus, obtained two supersedeas bonds underwritten by Berkley Regional
Insurance Company (Berkley). Nautilus tendered its policy limits plus interest
in the amount of $1,457,561.41 to satisfy the judgment, but Philadelphia
refused to pay the remainder of the judgment, arguing that Towers failed to
give Philadelphia notice of Rouhani’s claim until after the verdict was
rendered.
In fact, during the pendency of the suit in 2005, Towers forwarded the
petition and notice of the suit to an alleged agent of Philadelphia, Wortham
Insurance Group (Wortham) (a/k/a Consolidated Insurance Agency
(Consolidated)), the broker of the Umbrella Policy. 1 Additionally, after the jury
verdict, Towers gave notice directly to Philadelphia and demanded that
1 Wortham and Consolidated are one and the same.
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Philadelphia pay the excess. Philadelphia argued this is the first notice of the
suit it received, while Berkley argued that notice to Wortham was sufficient to
count as constructive notice to Philadelphia. Berkley paid the remaining
$709,738.89 to Rouhani in exchange for an assignment of Rouhani’s and
Towers’ rights under the Umbrella Policy.
Nautilus brought this suit in district court in Berkley’s name as assignee
and subrogee of all rights Rouhani, Towers, and Nautilus had against
Philadelphia to recover this amount. Both parties moved for summary
judgment, with Berkley arguing that even if Philadelphia received late notice
of Rouhani’s claim, Philadelphia could not show it was prejudiced by the delay.
The district court did not resolve the question of whether Philadelphia received
timely notification of Rouhani’s claim because of fact issues regarding
Berkley’s theory of “constructive notice” to Philadelphia through Wortham.
The district court instead held that Philadelphia was not prejudiced as a
matter of law by any failure to provide timely notice and granted summary
judgment in favor of Berkley.
Philadelphia appealed to this court, which reversed the grant of
summary judgment in Berkley Reg’l Ins. Co. v. Philadelphia Indem. Ins. Co.,
690 F.3d 342 (5th Cir. 2012) (Berkley I). The court in Berkley I held that
Philadelphia “presented sufficient facts in support of its position that it
suffered prejudice to avoid summary judgment” but did not grant summary
judgment in its favor. Id. at 351−52. The case was remanded to the district
court, which then ordered additional post-remand discovery, and summary
judgment motions were again filed by both parties. The post-remand discovery
revealed a number of “agency agreements” executed between Philadelphia and
various Wortham entities. Philadelphia then sought partial summary
judgment on Berkley’s “constructive notice” claim, and Berkley cross-moved for
summary judgment on that same issue. Philadelphia also argued that—
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assuming the notice was insufficient—it was entitled to summary judgment
because it suffered prejudice as a result of Berkley’s untimely notice. Berkley
opposed this motion but did not move for summary judgment on the prejudice
issue.
The district court granted summary judgment in favor of Philadelphia
on the constructive notice issue and denied Berkley’s cross-motion on the same.
The district court also granted Philadelphia’s motion for summary judgment
on the prejudice issue. This appeal followed.
II. DISCUSSION
A. Notice
We first consider whether notice to Wortham sufficed as notice to
Philadelphia. This court reviews the district court’s grant of summary
judgment de novo, applying the same standards as the district court. Haverda
v. Hays Cnty., 723 F.3d 586, 591 (5th Cir. 2013). Summary judgment is proper
only “if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.
P. 56(a). Further, “[o]n cross-motions for summary judgment, we review each
party’s motion independently, viewing the evidence and inferences in the light
most favorable to the nonmoving party.” Trinity Universal Ins. Co. v. Emp’rs
Mut. Cas. Co., 592 F.3d 687, 691 (5th Cir. 2010) (citation omitted). This court
“may affirm the district court’s decision on any basis presented to the district
court.” Haverda, 723 F.3d at 591 (internal quotation marks and citation
omitted). “The district court’s interpretation of an insurance contract is a
question of law also subject to de novo review.” Valmont Energy Steel, Inc. v.
Commercial Union Ins. Co., 359 F.3d 770, 773 (5th Cir. 2004) (citation
omitted).
As a preliminary matter, we must examine the language of the policy
requiring notice. The Umbrella Policy, in relevant part, states that “[y]ou must
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see to it that ‘we’ are notified promptly of an ‘occurrence’ or an ‘offense’ which
involves,” among other things, “[p]ermanent disabilities” and “[a]ny claim with
an incurred exposure of $500,000 or above.” “You” is defined as the insured,
Towers. If the language of the policy is not ambiguous, “the court’s duty is to
enforce the policy according to its plain meaning.” Id. However, if “the
language of a policy or contract is subject to two or more reasonable
interpretations, it is ambiguous.” Id. at 774 (quoting Nat’l Union Fire Ins. Co.
of Pittsburgh, PA v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995)).
The Umbrella Policy only required Towers to “see to it” that Philadelphia
was “notified promptly” of various claims, including Rouhani’s claim. This does
not appear to require direct notice from Towers to Philadelphia and
contemplates indirect notice. Thus, the plain meaning of the language in the
Umbrella Policy allows alternative means beyond direct notice. See id. at
773−74. Given that indirect notice was permitted by the Umbrella Policy, we
now consider whether notice to Wortham was one of these permitted indirect
methods. Towers enlisted Wortham as an insurance broker to help it procure
an excess or umbrella policy for Towers. Wortham then contacted another
broker, McGowan and Company (McGowan), who ultimately secured the
Umbrella Policy with Philadelphia. We must determine whether an agency
relationship existed between Wortham and Philadelphia under this
connection.
“It is true that, generally speaking, an insurance broker is considered
the agent of the insured; if the insured reports a claim to the broker, but the
broker fails to report it to the insurer, the insured is not relieved of his notice
obligations.” Duzich v. Marine Office of Am. Corp., 980 S.W.2d 857, 865 (Tex.
App.—Corpus Christi 1998, pet. denied) (emphasis added); John Alan
Appleman & Jean Appleman, Insurance Law & Practice § 5089.55 (1981). Yet,
“Texas courts have recognized that, under some narrow sets of circumstances,
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an insurance agent may be deemed to have acted as the agent of both the
insured and the insurer.” Monumental Life Ins. Co. v. Hayes-Jenkins, 403 F.3d
304, 318 (5th Cir. 2005) (emphasis added) (citations omitted). For instance,
“[a]n insurance agent can act as the agent of both the insured and the insurer
by collecting the premium and delivering the policy for the carrier, and by
procuring insurance for the insured.” Maintain, Inc. v. Maxson-Mahoney-
Turner, Inc., 698 S.W.2d 469, 472 (Tex. App.—Corpus Christi 1985, writ ref’d
n.r.e.) (emphasis added).
Philadelphia urges that “an insurance broker is considered the agent of
the insured[,]” and that because Towers reported the claim to Wortham, the
broker, “but [Wortham] fail[ed] to report it to [Philadelphia], [Towers] is not
relieved of [its] notice obligations.” Duzich, 980 S.W.2d at 865 (emphasis
added). Berkley argues this situation created “dual agency,” as in Maintain
and Duzich. See Maintain, 698 S.W.2d at 472; Duzich, 980 S.W.2d at 865
(“[A]n insurance company may be estopped to deny that such broker is its own
agent when that person has authority to perform various functions on the
insurer’s behalf.”).
To support its contention that Wortham had authority to act on behalf of
Philadelphia, Berkley submits a 2002 “agent agreement” (2002 Agreement) 2 to
which Philadelphia was a party with Wortham. 3 In finding a lack of agency,
the district court focused on paragraph 7 of the 2002 Agreement, which states
“[Wortham] and its officers, agents, or employees are not agents of, and have
no authority, express or implied, to bind [Philadelphia].” Paragraph 7
2 Berkley also submitted three other agreements between Philadelphia and other
Wortham entities, but these were all entered into after the verdict in the 2006 case and do
not control.
3 The 2002 Agreement actually names Consolidated as the party to the agreement,
but, as previously noted, Consolidated and Wortham are the same entity. For clarity’s sake,
Wortham is discussed as the party to the 2002 Agreement.
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concludes that “[n]o insurance submitted for consideration shall be effective
until [Wortham] receives [Philadelphia’s] written acceptance thereof.”
Philadelphia reads paragraph 7 as not only prohibiting Wortham from
binding Philadelphia to insurance contracts without Philadelphia’s approval,
but also as an overall prohibition of any type of agency. Berkley, however,
suggests that paragraph 7 should be read as a whole and is only a limit to
Wortham’s ability to bind Philadelphia into insurance contracts. Thus,
Berkley urges, paragraph 7 is not a prohibition of all agency relationships
between the two. Examining the 2002 Agreement as a whole, there are other
facts that tend to support an agency arrangement between Wortham and
Philadelphia. The 2002 Agreement is titled “Agent Agreement.” The 2002
Agreement names Wortham as “Agent.” The purpose of the 2002 Agreement
was for “[Philadelphia] to insure risks of [Wortham’s] clients.” Paragraph 1 of
the 2002 Agreement appoints Wortham as Philadelphia’s “representative,
without exclusive territorial rights, subject to restrictions placed upon
[Wortham] by the laws of the state or states in which [Wortham] is authorized
to write insurance and further subject to the terms and conditions set forth
[t]herein.” (emphasis added).
Reading the 2002 Agreement as a whole, it at least arguably created an
agency relationship between Wortham and Philadelphia. Paragraph 7 seems
to be an exception to Wortham’s authority that would prevent it from binding
Philadelphia to insurance contracts. The express authority from the 2002
Agreement permits Wortham to act as Philadelphia’s representative and
delineates how premiums, commissions, and refunds are to be handled
between the two. If the 2002 Agreement was not meant to establish an agency
relationship between Wortham and Philadelphia and allow Wortham to
represent Philadelphia as its agent for brokerage purposes, it is difficult to
imagine its purpose.
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The district court found these facts did not fall into the “narrow set of
circumstances” in which an insurance broker has been deemed a dual agent
under Texas law because Wortham went through McGowan to obtain a policy
and then submitted the McGowan offer to Towers, which Towers chose. See
Monumental Life Ins. Co., 403 F.3d at 318. Further, Towers paid the premium
to Wortham, but Wortham would forward the premium to McGowan, not
Philadelphia. While the district court was likely correct that this alone would
not create an agency relationship between Wortham and Philadelphia, it
ignores the intent and effect of the 2002 Agreement. Assuming, without
deciding, that the 2002 Agreement did create an agency relationship, we must
lastly consider whether the authority of Wortham to accept notice of claims on
behalf of Philadelphia was within the scope of that agency relationship. We
find that it was not.
In Texas, it is “well settled that if an agent’s acts are within the scope of
his authority, then notice to the agent of matters over which the agent has
authority is deemed notice to the principal.” Preston Farm & Ranch Supply,
Inc. v. Bio-Zyme Enters., 625 S.W.2d 295, 300 (Tex. 1981) (citation omitted).
Conversely, “[a]n agent’s notice of matters which is outside the scope of the
agency or not related to its purposes is not imputed to the principal.”
Tamburine v. Ctr. Sav. Ass’n, 583 S.W.2d 942, 949 (Tex. App.—Tyler 1979, writ
ref’d n.r.e.) (citation omitted). As such, “[b]efore notice or knowledge of an
agent is imputed to his principal it must first be shown that the authority of
such agent extended to the very matter about which and concerning which such
knowledge or notice was acquired.” Id.
Under the 2002 Agreement, Philadelphia expressly allowed Wortham to
act as an insurance broker and sell Philadelphia policies as Philadelphia’s
representative, subject to Philadelphia’s approval. The 2002 Agreement is
silent as to whether Wortham had the ability to accept notice of claims on
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behalf of Philadelphia. Thus, Wortham did not have express authority to
accept notice of claims. Crooks v. M1 Real Estate Partners, Ltd., 238 S.W.3d
474, 483 (Tex. App.—Dallas 2007, pet. denied) (“Express authority is delegated
to an agent by words that expressly and directly authorize the agent to do an
act or series of acts on behalf of the principal.”).
It is true that an agent who has no express authority cannot have implied
authority. Id. The district court stated that Wortham could not have implied
authority to accept notice of claims because the 2002 Agreement “contained no
express grant of authority to accept notice of claims.” Berkley Reg’l Ins. Co. v.
Philadelphia Indem. Ins. Co., No. A-10-CA-362-SS, 2013 WL 6145979, at *5
(W.D. Tex. Nov. 21, 2013) (citation omitted). However, the relevant question
here is whether the express authority of Wortham to act as an insurance broker
and sell Philadelphia policies under the 2002 Agreement impliedly contained
the ability of Wortham to accept notice of claims on Philadelphia’s behalf. See
Crooks, 238 S.W.3d at 483 (“Implied authority is the authority to do whatever
is reasonably necessary and proper to carry out the agent’s express powers.”
(citation omitted)). The authority to sell Philadelphia insurance, subject to
Philadelphia’s ultimate approval, would not also impliedly include the ability
of Wortham to accept notice of a claim on Philadelphia’s policy several years
after Wortham had completed the brokering transaction. The claims process
is distinct from policy brokering, and even though Wortham may have had
authority to broker policies, this authority did not impliedly include authority
to accept notice of claims. See Landry v. State Farm Fire & Cas. Co., 428 F.
Supp. 2d 531, 534 (E.D. La. 2006) (“The distinction between handling and
procurement is well-supported by case law . . . .”); see also Elkins v. Am. Int’l
Special Lines Ins. Co., 611 F. Supp. 2d 752, 766−67 (S.D. Ohio 2009) (holding
that “even if an insurance broker is the agent of the insurance company for
purposes of soliciting and procuring the policy, that would not necessarily
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make the broker the agent of the insurance company for the purpose of
receiving notice of suits and claims.”). Thus, implied authority did not exist
for Wortham to accept notice of claims on behalf of Philadelphia. 4 In other
words, even if the 2002 Agreement did allow Wortham to act as Philadelphia’s
agent for the purpose of brokering insurance policies, we cannot say the scope
of this relationship also included authority to accept notice of claims.
Accordingly, notice to Wortham of Rouhani’s claim did not suffice as notice to
Philadelphia. See Tamburine, 583 S.W.2d at 949. Thus, we AFFIRM the
district court’s grant of summary judgment on the issue of notice.
B. Prejudice
Because we find the notice to Wortham insufficient as notice to
Philadelphia, we next must determine whether Philadelphia suffered
prejudice. To be clear, Towers did notify Philadelphia of the suit, but only after
the adverse jury verdict was entered. In a well-reasoned, unanimous opinion,
the Berkley I panel did not grant summary judgment in favor of Philadelphia
on the prejudice issue, but discussed at length Texas law on prejudice from
nonexistent or late notice. The court concluded that notice-of-claim provisions
afford an insurer “valuable rights,” the deprivation of which may establish
prejudice as a matter of law, and remanded the case for consideration “in light
of the analysis [t]here provided.” Berkley I, 690 F.3d at 348−52. The Berkley I
court also noted that where notice came after an adverse jury verdict, as here,
it was not just late, but “wholly lacking.” Id. at 350. The Berkley I court
4 The district court also considered whether there was apparent authority for
Wortham to accept notice of claims, and found there was not. However, on appeal, counsel
for Berkley did not mention apparent authority in its opening or reply brief. Accordingly, we
do not reach the issue of apparent authority and deem it abandoned and waived. See In re
Tex. Mortg. Servs. Corp., 761 F.2d 1068, 1073 (5th Cir. 1985); Smith v. City of Tupelo, Miss.,
281 F. App’x 279, 284 (5th Cir. 2008) (per curiam) (finding claim abandoned due to inadequate
briefing).
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detailed the numerous ways in which Philadelphia was prejudiced. Id. at
350−51. The court considered that Philadelphia “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.” Id. at 350. The court also noted
that “Philadelphia lost a seat at the mediation table,” id., and found its “rights
were lost, leaving Philadelphia holding the bag for more than $700,000 in
excess liability if Berkley prevails.” Id. at 351. Lastly, the Berkley I court
disagreed with the notion that Philadelphia could have meaningfully
participated on appeal as a means to show lack of prejudice. Id.
On remand after Berkley I, Berkley had the opportunity to adduce
additional evidence that would create a genuine dispute of material fact
regarding prejudice. However, none of the evidence elicited made such a
showing. The district court, considering the analysis provided in Berkley I,
ruled that Philadelphia was prejudiced as a matter of law and noted that
“[r]egardless of whether Philadelphia would have actually participated in the
suit . . . Philadelphia’s valuable rights were lost, including the right to have a
seat at the mediation table, because it had no notice of the claim.” Berkley,
2013 WL 6145979, at *9 (internal quotation marks and citation omitted). On
this record, Berkley has presented no contrary facts to prevent a ruling of
prejudice as a matter of law.
Berkley’s only remaining argument on the prejudice issue is that Lennar
Corp. v. Markel Am. Ins. Co., decided after Berkley I, precludes a ruling of
prejudice as a matter of law. 413 S.W.3d 750 (Tex. 2013). In this regard, the
district court noted “Lennar held, under the specific facts of that case, whether
an insurer was prejudiced by a unilateral settlement made by the insured
turned on factual questions. Lennar made no pronouncements about prejudice
more broadly, and has no apparent relevance to this case.” Berkley, 2013 WL
6145979, at *9 n.12 (citation omitted). Berkley argues that Lennar requires
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prejudice to be considered as a fact issue, and cannot be decided as a matter of
law. The court in Lennar did not issue a broad pronouncement that prejudice
must always be considered a question of fact. 5 See Lennar, 413 S.W.3d at 756.
Despite Berkley’s contention, Lennar did not change Texas law to prevent
courts from ruling that post-verdict notice could be considered prejudice as a
matter of law.
We agree with the reasoning and analysis regarding prejudice provided
by the court in Berkley I and are not persuaded that Lennar prevents a ruling
of prejudice as a matter of law. 6 Further, Berkley has presented no evidence
that would create a genuine dispute of material fact regarding prejudice.
Accordingly, we hold that on this record—because notice through Wortham
was insufficient and Philadelphia did not receive notice until after the jury
verdict, causing it to lose “valuable rights”—Philadelphia was prejudiced as a
matter of law. Hence, we AFFIRM the district court’s grant of summary
judgment in favor of Philadelphia on the issue of prejudice.
C. Costs
Berkley lastly argued that the district court’s $9,504.00 award for
premiums paid on the supersedeas bond should not be allowed because they
are not specifically listed in 28 U.S.C. § 1920. It is true that these costs are not
listed in § 1920, but Federal Rule of Appellate Procedure 39 does provide that
“premiums paid for a supersedeas bond or other bond to preserve rights
5 There, Lennar, a homebuilder, remediated homeowners for water damage repairs
under an umbrella policy issued by Markel American Insurance Company (Markel) without
Markel’s consent. Lennar, 413 S.W.3d at 751−52. Markel argued it was prejudiced because
“had Lennar stonewalled the homeowners, fewer repairs would have been made.” Id. at 756.
The court stated that this was a question of fact. Id. The court made no prohibitions from
finding prejudice as a matter of law in this or any context. See id. at 751−66.
6 The court in Berkley I did not grant summary judgment in favor of Philadelphia on
this issue because fact issues existed and because Philadelphia’s motion for summary
judgment did not address the “late notice” ground. Berkley I, 690 F.3d at 352 n.22.
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pending appeal” are taxable in the district court. Fed. R. App. P. 39(e)(3). The
Seventh Circuit has explained that Rule 39 was passed after § 1920, and
therefore, Rule 39(e)’s express authorization of these costs is binding on district
courts. Republic Tobacco Co. v. N. Atl. Trading Co., 481 F.3d 442, 448 (7th Cir.
2007). We agree. As Rule 39 expressly authorizes that costs for premiums on
supersedeas bonds pending appeal are taxable in the district court, we
AFFIRM the grant of these costs in favor of Philadelphia.
III. CONCLUSION
In sum, we AFFIRM the district court on each issue.
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