Citigroup Inc. v. Fed. Ins. Co.

• Decision Date: 05 August 2011
• Docket Number: No. 10–20445.,10–20445.
• Citation: 649 F.3d 367
• Parties: CITIGROUP, INC., as successor in interest to Associates First Capital Corporation, Plaintiff–Appellant–Cross–Appellee,v.FEDERAL INSURANCE COMPANY; Twin City Fire Insurance Company; Chubb Atlantic Indemnity, Ltd.; Steadfast Insurance Company; SR International Business Insurance Company, Ltd., Defendants–Appellees,St. Paul Mercury Insurance Company, Defendant–Appellee–Cross–Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

649 F.3d 367

CITIGROUP, INC., as successor in interest to Associates First Capital Corporation, Plaintiff–Appellant–Cross–Appellee,

v.FEDERAL INSURANCE COMPANY; Twin City Fire Insurance Company; Chubb Atlantic Indemnity, Ltd.; Steadfast Insurance Company; SR International Business Insurance Company, Ltd., Defendants–Appellees,St. Paul Mercury Insurance Company, Defendant–Appellee–Cross–Appellant.

No. 10–20445.

United States Court of Appeals, Fifth Circuit.

Aug. 5, 2011.

Benjamin B. Klubes, Victoria Holstein–Childress, Andrew L. Sandler (argued), BuckleySandler, L.L.P., Washington, DC, Charles W. Schwartz, Skadden, Arps, Slate, Meagher & Flom, L.L.P., Houston, TX, for Plaintiff–Appellant–Cross–Appellee.

Julianna Ryan, Melinda B. Margolies (argued), Brian Sher, Kaufman, Borgeest & Ryan, L.L.P., Valhalla, NY, Gary Joseph Siller, Strasburger & Price, L.L.P., Houston, TX, for Defendant–Appellee–Cross–Appellant.David Michael Gische (argued), Marcus Bradley Holladay, Troutman Sanders, L.L.P., Washington, DC, Fred Lee Butler, Adams & Reese, L.L.P., Randall Carroll Owens, Wright, Brown & Close, L.L.P., Houston, TX, Louis C. LaCour, Jr., Adams & Reese, L.L.P., New Orleans, LA, Darius Nariosang Kandawalla (argued), Sabrina Haurin, Bailey Cavalieri, L.L.C., Columbus, OH, for Defendants–Appellees.Alexander David Hardiman, Anderson Kill & Olick, P.C., New York City, for Amicus Curiae.Appeals from the United States District Court for the Southern District of Texas.Before SMITH and STEWART, Circuit Judges.^*CARL E. STEWART, Circuit Judge:

Associates First Capital Corporation (Associates) purchased integrated risk policies from Certain Underwriters of Lloyd's of London (Lloyd's), the primary insurer, and nine excess insurers. Pursuant to the integrated risk policies, Citigroup, Inc. (Citigroup), as successor-in-interest to Associates, timely notified the insurers of two actions filed within the policy period and made claims for coverage. Initially, all of the insurers denied coverage, but later, Lloyd's settled with Citigroup. The excess insurers continued to deny coverage, and Citigroup filed suit. After the parties filed motions for summary judgment, the district court dismissed Citigroup's claims for coverage. We AFFIRM and DISMISS as moot the cross-appeal of excess insurer St. Paul Mercury Insurance Company.

I.

In July 1999, Associates, a nationwide consumer lender, purchased integrated risk policies from ten insurers that provided a total of $200 million in coverage. The policies were arranged in three layers. Associates' primary policy, issued by Lloyd's, provided $50 million in coverage. Once Associates incurred a covered loss exceeding the $50 million of primary coverage from Lloyd's, it could access $25 million in excess coverage from National Union Fire Insurance Company of Pittsburgh (National Union) and $25 million in excess coverage from Starr Excess Liability Insurance International, Ltd. (Starr), known as the “Secondary Layer.” The third layer, or “Quota Share Layer,” provided an additional $100 million of coverage, and was shared among seven additional insurers as follows: Ace Bermuda Insurance, Ltd. (Ace), $25 million; Federal Insurance Company (Federal), $17 million; Chubb Atlantic Indemnity (Chubb), $17 million; Twin City Insurance Company (Twin City), $17 million; St. Paul Mercury Insurance Company (St. Paul), $10 million; Steadfast Insurance Company (Steadfast), $9 million; SR International Business Insurance Company (SR), $5 million.

Citigroup, which acquired Associates on November 30, 2000, sought coverage from its insurers relating to two actions: (1) a statewide class action, filed against Associates in California Superior Court for San Francisco County on June 25, 2001, entitled Morales, et al. v. Associates First Capital Corp., et al., that alleged violations of the California Unfair Business Practices Act, fraud and deceit, negligent misrepresentation, breach of implied covenants of good faith and fair dealing, and unjust enrichment, and (2) a Federal Trade Commission (FTC) action, filed against Citigroup on March 6, 2001, that alleged that Associates violated the truth in lending statutes by misrepresenting that refinancing its customers' debts into a single loan secured by their homes would be beneficial. The insurers were timely notified of the Morales and FTC actions. Later, Citigroup entered into a settlement in these actions for $240 million plus $23 million in class counsel's fees and costs, without obtaining the consent of the carriers.

Each of the insurers initially denied coverage. However, Citigroup eventually entered into a settlement agreement with Lloyd's, pursuant to which Lloyd's paid Citigroup $15 million of its $50 million limits of liability in exchange for a release from coverage for the FTC and Morales claims. The Secondary Layer and Quota Share Layer insurers (collectively the excess insurers) continued to refuse coverage, and Citigroup filed suit in Texas state court.

Citigroup initially filed suit against each of the excess insurers. However, it settled its claims with National and Starr,¹ and its claims against Chubb Atlantic and ACE proceeded to arbitration and are stayed pending determination of this case. Accordingly, litigation proceeded with the five remaining excess insurers—Federal, Steadfast, St. Paul, SR, and Twin City. The state court action was removed to federal court, and after a brief period of discovery, Citigroup and the excess insurers filed cross-motions for summary judgment.

The district court granted summary judgment in favor of the excess insurers. Specifically, the district court held that, per the excess insurers' policies, their liability to provide coverage did not attach, i.e. they were not liable to provide Citigroup with coverage, until Lloyd's paid its full $50 million limit of liability. The district court determined that, because Citigroup settled with Lloyd's for an amount less than $50 million, Citigroup was not entitled to coverage from the excess insurers as a matter of law. In the alternative, the district court addressed Twin City's, St. Paul's, and Federal's statute of limitations claims. The district court held that Texas's four-year statute of limitations barred Citigroup's claims for coverage against Twin City and that its claims against St. Paul were barred only to the extent Citigroup seeks coverage for losses stemming from the FTC action, but not those resulting from the Morales action. The district court also held that Texas's two-year statute of limitations barred Citigroup's claims for coverage against Federal.

Citigroup appealed, and St. Paul cross-appealed, challenging the district court's holding that the Morales action claim was not time-barred.

II.

A.

This is an appeal of the district court's summary judgment in favor of the excess insurers. We review a district court's grant of summary judgment de novo. Holt v. State Farm Fire & Cas. Co., 627 F.3d 188, 191 (5th Cir.2010). Summary 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). When a party seeks summary judgment pursuant to an affirmative defense, such as a statute of limitation, the movant must establish all of the elements of the defense. Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.1986). If the movant does so, the burden shifts to the nonmovant to provide specific facts showing the existence of a genuine issue for trial. Fed.R.Civ.P. 56(c), (e). In reviewing summary judgment, “[w]e construe all facts and inferences in the light most favorable to the nonmoving party.” Dillon v. Rogers, 596 F.3d 260, 266 (5th Cir.2010) (citation and internal quotation marks omitted).

Because our jurisdiction is based on diversity, we apply the substantive law of the forum state, here, Texas. See Erie R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) . To determine Texas law, we look to decisions of the state's highest court, or in the absence of a final decision by that court on the issue under consideration, we “must determine, in [our] best judgment, how the state's highest court would resolve the issue if presented with it.” See Holt, 627 F.3d at 191. We also examine “the general rule on the issue, and the rules in other states that Texas might look to, as well as treatises and law journals.” State Farm Fire and Cas. Co. v. Fullerton, 118 F.3d 374, 378 (5th Cir.1997). We review a district court's application of state law de novo. Holt, 627 F.3d at 191.

After carefully reviewing the policies at issue in this case, we conclude that the plain language of Federal's, Steadfast's, S.R.'s, and St. Paul's policies dictates that their coverage did not attach when Citigroup settled with Lloyd's. We also conclude that Citigroup's claim against Twin City is time barred.

B.

1.

Under Texas law, the general rules of contract interpretation govern a court's review of an insurance policy. Utica Nat'l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 202 (Tex.2004). Therefore, the primary goal is to give effect to the written expression of the parties' intent. Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex.1998). If the policy language has only one reasonable interpretation, then it is not ambiguous, and courts must construe it as a matter of law. Fiess v. State Farm Lloyds, 202 S.W.3d 744, 746 (Tex.2006).

Citigroup argues that, because the excess insurers' policies have more than one reasonable interpretation, the policy language is ambiguous, and we must construe the policies strictly in favor of the insured. Thus, Citigroup urges us to apply the rule established in Zeig v. Massachusetts Bonding & Insurance Co., 23 F.2d 665 (2d Cir.1928). Zeig stands for the proposition that, if an excess insurance policy ambiguously defines “exhaustion,” settlement with an underlying insurer constitutes exhaustion of the...