Jamestown Insurance Company v. Wendell Reeder

Case: 12-20437 Document: 00512116901 Page: 1 Date Filed: 01/17/2013
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
January 17, 2013
No. 12-20437
Summary Calendar Lyle W. Cayce
Clerk
JAMESTOWN INSURANCE COMPANY, RRG,
Plaintiff-Appellee,
versus
WENDELL REEDER,
Doing Business as Clarksville Oil & Gas Company, Limited,
Defendant-Appellant.
Appeal from the United States District Court
for the Southern District of Texas
No. 4:11-CV-1112
Before SMITH, PRADO, and HIGGINSON, Circuit Judges.
JERRY E. SMITH, Circuit Judge:*
Wendell Reeder appeals a summary judgment that Jamestown Insurance
*
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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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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Company, RRG (“Jamestown”), has no duty to defend or indemnify him in two
underlying state-court lawsuits. We affirm.
I.
Reeder purchased, from Jamestown, commercial general liability policies
that covered an “occurrence”—that is, “accident”—causing bodily injury, per-
sonal and advertising injury, or property damage. In November 2010, Reeder
tendered to his insurance agent filings from two Texas state-court proceedings
and stated his intention to “fil[e] a claim against my liability insurance policy
covering these lawsuits.” Seeking to establish that it had no duty to defend or
indemnify, Jamestown filed this declaratory-judgment action pursuant to 28
U.S.C. § 2201. The district court granted summary judgment to Jamestown.
A.
In 2004, Reeder sued an array of business partners in Wood County,
Texas, state court (the “Wood County suit”). In March 2006, the Wood County
defendants filed the first of numerous counterclaims against Reeder alleging a
variety of causes of action. In the trial that followed, Reeder took nothing but
was found liable to several of the Wood County defendants; the trial court
entered its amended final judgment in March 2008. Reeder appealed unsuc-
cessfully to the Texas Court of Appeals,1 but the Texas Supreme Court granted
review and reversed, rendering a take-nothing judgment in Reeder’s favor.2
B.
While the Wood County litigation was wending its way through the state
1
See Reeder v. Wood Cnty. Energy L.L.C., 320 S.W.3d 433 (Tex. App.SSTyler 2010).
2
Reeder v. Wood Cnty. Energy, LLC, No. 10-0887, 2012 WL 3800231 (Tex. Aug. 31,
2012), reh’g pending.
2
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No. 12-20437
courts, some Reeder-affiliated entities sued several of the Wood County defen-
dants in Red River County, Texas (the “Red River County suit.”) The Red River
County defendants filed a counter-petition that included a third-party claim
against Reeder for fraudulently transferring property to avoid paying the Wood
County judgment. The record contains no evidence concerning subsequent pro-
ceedings or establishing the current status of the Red River County suit.
II.
We review a summary judgment de novo, ‘using the same stan-
dard as that employed by the district court under Rule 56.’ Ker-
stetter v. Pac. Scientific Co., 210 F.3d 431, 435 (5th Cir. 2000). Sum-
mary judgment is appropriate ‘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).
Newman v. Guedry, 2012 U.S. App. LEXIS 26205 (5th Cir. Dec. 21, 2012).
Because federal jurisdiction is based on diversity of citizenship, we look to the
substantive law of the forum state, Texas.3
III.
The district court found that Jamestown had no duty to defend or indem-
nify Reeder in Wood County, because “none of the counterclaims [by the Wood
County defendants] fall within the definition of occurrence or raise any claim
arising from property damage.”4 We affirm on the alternate ground, proffered
by Jamestown in a separate motion for summary judgment, that Reeder’s mate-
3
See Erie R.R. Co. v. Tompkins, 304 U.S. 64,78 (1938); Tex. Indus., Inc. v. Factory Mut.
Ins. Co., 486 F.3d 844, 846 (5th Cir. 2007).
4
The district court limited its conclusion to “property damage,” because Reeder did not
argue in the district court, nor does he contend here, that any of the counterclaims arose from
“bodily injury” or “personal and advertising injury.”
3
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rial breach of the policy’s notice provision extinguished any duty to defend.5
Additionally, we have no need to reach the merits of whether Jamestown has a
duty to indemnify Reeder in the Wood County suit, because intervening events
have rendered the issue moot.
A.
Reeder’s insurance policy required him to notify Jamestown “as soon as
practicable of any ‘occurrence’ . . . which may result in a claim” and to “[i]mmedi-
ately” send Jamestown “any . . . legal papers received in connection with the
claim or ‘suit’. . . .” Reeder did not tender notice to Jamestown until fifty-six
months after the Wood County defendants had filed their first counterclaim and
more than thirty-one months after the trial court had entered final judgment
against Reeder.6 That delay was a breach of the notice provision as a matter of
law. See Klein v. Century Lloyds, 275 S.W.2d 95, 97 (Tex. 1955). Jamestown,
however, is excused from performance of its duty to defend only if it was “actu-
ally prejudiced” by Reeder’s delayed notice.7
In Texas, “[t]he failure to notify an insurer of a default judgment against
its insured until after the judgment has become final and nonappealable
5
“[I]t is an elementary proposition, and the supporting cases too numerous to cite, that
this court may affirm the district court’s judgment on any grounds supported by the record.”
Palmer v. Waxahachie Indep. Sch. Dist., 579 F.3d 502, 506 (5th Cir. 2009) (internal citation
omitted).
6
Although Reeder claims to have provided oral notice to his local insurance agency
before the November 2010 tender, in Texas oral notice does not satisfy a contractual provision
requiring written notice. See Sparks v. Aetna Life & Cas. Co., 554 S.W.2d 228, 230 (Tex. Civ.
App.—Dallas, 1977, no writ). Moreover, even assuming arguendo that oral notice is sufficient,
there is no evidence that Reeder provided any notice “as soon as practicable” or “immediately.”
See Klein v. Century Lloyds, 275 S.W.2d 95, 97 (Tex. 1955) (holding that, as a matter of law,
a thirty-two-day delay in notice was not “as soon as practicable”).
7
Hanson Prod. Co. v. Ams. Ins. Co., 108 F.3d 627, 630 (5th Cir. 1997) (citing Hernandez
v. Gulf Grp. Lloyds, 875 S.W.2d 691, 692 (Tex. 1994)).
4
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prejudices the insurer as a matter of law.”8 The Texas Supreme Court has not
directly addressed the question whether an insured’s failure to notify an insurer
of an appealable final judgment is similarly prejudicial. Making an Erie guess,9
we conclude that Reeder’s delay prejudiced Jamestown.
“[I]f [Jamestown] had received notice” while the Wood County suit was
pending in the trial court, “it could have undertaken [Reeder]’s defense and min-
imized its insured’s liability.”10 Reeder ultimately minimized his liability by suc-
cessfully obtaining a reversal in the Texas Supreme Court. One of the purposes
of a notice provision, however, is to allow an insurer “to form an intelligent
estimate of its rights and liabilities before it is obliged to pay.” 13 COUCH ON INS.
§ 186:22 (2003) (emphasis added). Reeder’s choice to litigate the Wood County
matter unilaterally for more than four years before notifying Jamestown pre-
vented it from making such an estimate, from helping Reeder prevail in the trial
court, or from exercising its option to settle with the Wood County defendants
—perhaps for less than the cost of Reeder’s attorney’s fees. Because Reeder’s
delayed tender thwarted the recognized purposes of the notice provisions, see
Harwell, 896 S.W.2d at 174, Jamestown was actually prejudiced and had no duty
to defend Reeder in Wood County.
B.
The district court also concluded that Jamestown has no duty to indemnify
in Wood County. During the pendency of this appeal, the Texas Supreme Court
rendered its take-nothing judgment in Reeder’s favor. See Reeder, 2012 WL
8Harwell v. State Farm Mut. Auto Ins. Co., 896 S.W.2d 170, 174 (Tex. 1995) (citing Lib-
erty Mut. Ins. Co. v. Cruz, 883 S.W.2d 164, 165 (Tex. 1993)).
9
See Keen v. Miller Envtl. Grp., Inc., 2012 U.S. App. LEXIS 25218, at *5-6 (5th Cir.
Dec. 10, 2012).
10
Id.
5
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3800231, at *8. Reeder urges us to abstain from declaring rights and obligations
until all underlying state-court litigation is at an end. Bearing in mind the pur-
poses of the Declaratory Judgment Act, however, we conclude that the decision
of the Texas Supreme Court is sufficiently final so as to render the indemnity
issue moot, because “there is nothing . . . to indemnify.”11
IV.
The district court held that Jamestown had no duty to defend or indemnify
Reeder in the Red River County suit. We agree.
A.
In determining whether there is a duty to defend, Texas courts follow the
so-called “eight-corners rule,” under which “an insurer’s duty to defend is deter-
mined solely by the facts alleged in the [underlying] petition and the terms of the
policy.” Colony Ins. Co. v. Peachtree Constr., Ltd., 647 F.3d 248, 253 (5th Cir.
2011). Although the pleadings are to be construed liberally in favor of cov-
erage,12 “the duty to defend arises only when the facts alleged in the [underlying
suit], if taken as true, would potentially state a cause of action falling within the
terms of the policy.” Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523,
528 (5th Cir. 2004).
The policy insured Reeder against an “occurrence,” that is, an “accident.”
The defendants in the Red River County suit accused Reeder only of intention-
ally initiating a fraudulent transfer of property to remove it from the reach the
Wood County creditors. The district court concluded that those facts constitute
11
PPI Tech. Servs. v. Liberty Mut. Ins. Co., No. 12-40189, 2012 WL 5950943, at *9 (5th
Cir. Nov. 29, 2012); see also Royal Ins. Co. of Am. v. Quinn-L Capital Corp., 960 F.2d 1286,
1289 (5th Cir. 1992).
12
See Cont’l Cas. Co. v. Consol. Graphics, Inc., 646 F.3d 210, 212-13 (5th Cir. 2011).
6
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allegations of an “intentional act that cannot qualify as an occurrence,” and
Reeder does not contend otherwise. Therefore, we affirm the district court’s
holding that Jamestown has no duty to defend in the Red River County suit.
B.
Reeder’s chief complaint on appeal is that the district court erred by con-
flating the duties to defend and indemnify, which are “distinct and separate”
under Texas law. D.R. Horton-Tex., Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740,
743 (Tex. 2009) (internal citations omitted). Whereas the duty to defend
depends only on the “factual allegations the pleadings and the terms of the pol-
icy,” the duty to indemnity “depends on the facts proven.” Id. at 744. Therefore,
the absence of a duty to indemnify does not necessarily follow from the absence
of a duty to defend: “[I]t may be necessary to defer resolution of indemnity
issues until after the underlying third-party litigation is resolved because cov-
erage may turn on facts actually proven in the underlying lawsuit.” Id. at 745
(citing Farmers Tex. Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d. 81, 84 (Tex. 1997)
(emphasis added)).
Where, however, no facts developed in an underlying suit can transform
intentional conduct into an accident, “the same reasons that negate the duty to
defend likewise negate any possibility the insurer will ever have a duty to
indemnify.” Id. (quoting Griffin, 955 S.W.2d at 84). Because the Red River
counter-plaintiffs allege only intentional conduct, no subsequent factual develop-
ment can transform a fraudulent transfer into an “occurrence.” See id. (clarify-
ing Griffin). Therefore, a declaratory judgment that Jamestown has no duty to
indemnify Reeder in the Red River County suit is appropriate.
AFFIRMED.
7