Facility Ins. Corp. v. Employers Ins. of Wausau

• Citation: 357 F.3d 508
• Decision Date: 14 January 2004
• Docket Number: No. 03-50335.,03-50335.
• Parties: FACILITY INSURANCE CORPORATION, Plaintiff-Appellee, v. EMPLOYERS INSURANCE OF WAUSAU, A Mutual Company, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

357 F.3d 508

FACILITY INSURANCE CORPORATION, Plaintiff-Appellee, v. EMPLOYERS INSURANCE OF WAUSAU, A Mutual Company, Defendant-Appellant.

No. 03-50335.

United States Court of Appeals, Fifth Circuit.

January 14, 2004.

COPYRIGHT MATERIAL OMITTED

Edward J. Tuddenham (argued), Austin, TX, for Plaintiff-Appellee.

David Paul Blanke, Spikes Kangerga, Spencer Freeman Smith, Vinson & Elkins, Austin, TX, Marie Roach Yeates (argued), Vinson & Elkins, Houston, TX, for Defendant-Appellant.

Appeal from the United States District Court for the Western District of Texas.

Before SMITH, BARKSDALE and CLEMENT, Circuit Judges.

CLEMENT, Circuit Judge:

This case is a breach of contract dispute in which Facility Insurance Company ("FIC") seeks to recover monies that it, and its predecessors, paid to Employers Insurance of Wausau ("Wausau"). Wausau argues that FIC is not suing on an open account, so the statute of limitations bars FIC's contract claim. In the alternative, Wausau argues that the disputed contract provision unambiguously establishes that Wausau complied with the contract. We reject both arguments, and accordingly affirm the district court's ruling.

FACTS AND PROCEEDINGS

FIC is the successor in interest to the Texas Workers Compensation Assigned Risk Pool ("Pool"). In 1953, the Texas Legislature created the Pool as an unincorporated association of workers' compensation insurers. The Pool acted as the insurer of last resort for Texas employers who could not obtain workers' compensation insurance in the private market. Texas law required all workers' compensation insurance carriers to participate in the Pool in proportion to their individual level of Texas business.

The Pool contracted with several of its member insurance companies — including Wausau — to provide a variety of services for the Pool. These servicing companies issued policies, collected premiums, adjusted claims, and improved the insureds' workplace safety through accident prevention measures. The accident prevention measures were also referred to as "loss control services."

In 1989, the State Board of Insurance (the "Board") amended the Pool's contract with its servicing companies. Specifically, the Board amended Paragraph X of the Pool's Rules and Regulations ("Rule X"), entitled "Administration of the Fund." Rule X set forth that the servicing companies would receive 10.0 percent of the premiums as compensation for their services to the Pool. The 1989 amendment to Rule X added a provision stating that one-fifth of the 10.0 percent compensation should be designated for loss control services (i.e., 2.0 percent of the total premiums). Rule X stated that "[t]he shares of premium to which the Servicing Company shall be entitled" included a "Loss Control Services Factor" equivalent to 2.0 percent. In the preamble to this amendment ("Preamble"), the Board stated the following:

The amended rules and regulation incorporates changes made in Board Order 51959, dated December 22, 1987, a 10% reduction in servicing carrier fees to be effective on and after 12:01 a.m., April 1, 1990, and a requirement that at least two points of the servicing carrier share of premium be used to provide accident prevention services effective April 1, 1990.

In October 1992, the Board again amended Rule X to reduce the "Loss Control Services Factor" from 2.0 percent to 1.4 percent.

During 1990, representatives from the Pool, the Board, and Wausau expressed in writing that each one understood that the 2.0 percent loss control services factor meant that servicing companies must devote 2.0 percent of the premium to loss control activities. Between April 1990 and November 2001, Wausau received a total of $7,909,004 in loss control services fees, but only expended $5,382,894 on actual accident prevention measures. Wausau treated the difference between the loss control services factor that Rule X specified, and the amount that Wausau actually spent on accident prevention services — $2,526,110 — as general revenue.

Effective January 1, 1991, the Texas Legislature terminated the Pool and replaced it with a new insurer of last resort, the Texas Workers Compensation Insurance Facility ("Facility"). The Facility assumed all of the assets and liabilities of the Pool, including its servicing company contracts, and continued operating in the same manner. On December 31, 1993, the Facility stopped writing policies, but did continue to service the workers' compensation claims that had accrued under the policies it had written prior to that date.¹

In 1997, the Texas Legislature authorized the unincorporated association of insurers which constituted the Facility to sell the assets and liabilities of the Facility to a private insurance company, the Facility Insurance Corporation ("FIC"). The former members of the Facility became shareholders of FIC's parent corporation. By statute, FIC was "to be considered a continuation of the [F]acility" with the right to "enforce all contract and statutory rights of the [F]acility under any servicing company arrangements." Texas Acts (1997), 75th Leg., ch. 594, § 1.06(b). After the sale of the Facility, FIC acted as the insurer on the existing policies, and Wausau continued to service those policies pursuant to the servicing contract that it originally entered into with the Pool.

The Pool, the Facility, and later FIC, paid the servicing companies fees by establishing a running account of mutual credits and debits. The transactions were tracked by a "bordereau"² and operated as follows: each quarter a servicing company would file a report (a bordereau) with the Pool (or its successor) listing thousands of premium transactions and claim payments that the servicing company handled during the preceding quarter. These amounts were tallied up on the bordereau to arrive at a net amount that the Pool owed to the servicing company as its servicing fee. Although the bordereaux never specified the percentage of the fee applicable towards loss control services, the fee did in fact include an amount for loss control services under the terms of Rule X.

The servicing fees that the Pool (and its successors) paid to the servicing companies were not final. The servicing companies would make adjustments to claims that had already been processed. These claim adjustments would affect the premium amount collected, and in turn the premium amount affected the past servicing fees charged. Consequently, the Pool and the servicing companies revised and corrected past bordereau entries on subsequent bordereaux. These adjustments accordingly affected the amount of fees for loss control services credited to the servicing companies.

In 1994, the last Facility policy expired. Yet Wausau continued to make adjustments, collect corresponding premiums from insureds, and enter corrections on subsequent premium bordereaux. In October 1997, Wausau processed the last premium transaction on the open account. The last adjustment to the premium and servicing fee portion of the bordereaux occurred in November 1997. On November 5, 2001, FIC closed the premium and servicing fee portion of the bordereau account.

In November 2001, FIC sued Wausau in Texas state court to recover the loss control services fees that Wausau did not expend in loss control services. Wausau timely removed the case to federal court based on diversity jurisdiction. Texas law governs the dispute.

On cross motions for summary judgment, the district court concluded that (1) the statute of limitations does not bar FIC's claim because it is a suit on an open account, and (2) Rule X required Wausau to spend the full amount of loss control services fees on loss control services. The court entered judgment against Wausau for the amount Wausau collected in loss control services fees but did not spend on loss control services, $2,526,110. These two dispositive issues are now before this Court. For the reasons set forth below, we affirm the district court's judgment.

STANDARD OF REVIEW

The standard of review for a district court's grant of summary judgment is de novo. Gowesky v. Singing River Hosp. Sys., 321 F.3d 503, 507 (5th Cir.2003). Summary judgment is only appropriate if the evidence shows that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Gowesky, 321 F.3d at 507.

DISCUSSION

I. Standing

As a threshold matter, Wausau argues that FIC lacks standing to sue Wausau because even if Wausau breached the servicing contract, FIC has not suffered any breach of contract damages. Wausau bases this argument on the fact that the predecessors to FIC were merely "conduits" for the member insurance companies, who were the actual insurers of last resort. Wausau argues that only those member companies have standing to sue for any contract breach.

Wausau's argument is without merit. Texas law provides an unincorporated association the right to sue and be sued in its own name without joining all of its members. TEX. CIV. STAT.CODE ANN. art. 6133 (Vernon 2003).³ When an association does so, it asserts the collective rights of its members. Accordingly, the Facility could seek redress for an injury to its members. Just as the Facility could seek redress for an injury to its members when an insured fails to pay a premium, see, e.g., Sunbeam Environmental Services Inc. v. TWCIF, 71 S.W.3d 846 (Tex.App. — Austin 2002, no writ), so also could the Facility seek redress when the servicing companies did not perform their duties in conformity with Rule X. The Facility thus had standing. When FIC bought the assets of the Facility, FIC bought the rights to pursue the Facility's causes of action. FIC has standing to sue Wausau.

II. Statute of Limitations

An important issue before this Court is whether the statute of limitations has expired for FIC to bring suit against Wausau. Under Texas law, a party must bring suit for breach of contract within four...