Keller Foundations, Inc. v. Wausau Underwriters Ins. Co.

Decision Date19 November 2010
Docket NumberNo. 08-50253,08-50253
PartiesKELLER FOUNDATIONS, INC.; Suncoast Post-Tension, L.P., formerly known as Keller Suncoast L.P., Plaintiffs-Appellees, v. WAUSAU UNDERWRITERS INSURANCE CO., Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

James Leon Cornell, Jr. (argued), Cornell & Pardue, Houston, TX, for Plaintiffs-Appellees.

Catherine L. Hanna (argued), Eric Scott Peabody, Hanna & Plaut, L.L.P., Austin, TX, for Defendant-Appellant.

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

Before GARWOOD, GARZA and OWEN, Circuit Judges.

OWEN, Circuit Judge:

Wausau Underwriters Insurance Co. (Wausau) appeals the district court's judgment holding Keller Foundations, Inc. and Suncoast Post-Tension, L.P. (collectively, Keller Companies) are entitled to defense and indemnity under a commercial general liability policy Wausau issued to Travis International, Inc., from whom the Keller Companies acquired certain assets. Because the Keller Companies agreed to assume liability for the particular losses in question and explicitly excluded the Wausau policy from the asset transfer, we reverse.

I

Keller Foundations entered into a purchase agreement with Travis International, Inc. (Travis) to purchase certain assets and assume certain liabilities from Suncoast Post-Tension, Inc. (Old Suncoast), a Travis subsidiary. After the sale, Old Suncoast changed its name to Travis International Partners, L.P., while the purchasing company, Keller Suncoast, L.P., changed its name to Suncoast Post-Tension, L.P. (New Suncoast).

The purchase agreement transferred all of the assets of Old Suncoast to New Suncoast except for the "Excluded Assets," which included "all ... insurance policies" other than certain employment benefit plans. The purchase agreementfurther provided that New Suncoast would "assume and agree to perform, pay and discharge when due the Assumed Obligations," and defined "Assumed Obligations" as:

other than the Retained Obligations and other than liabilities and operations attributable to operations of Seller after the Closing Date ..., all liabilities and obligations of Seller whether fixed, accrued, contingent or otherwise, known or unknown, arising prior to, by reason of, or after the consummation of the transactions contemplated by the Transaction Documents including obligations and liabilities ... (b) arising under any Assumed Contract, ... (d) for all services and products provided by Seller including obligations and liabilities under warranties arising under contract or law, (e) arising under any applicable law including bulk sale laws ....

However, the purchase agreement also stated that "Seller shall retain and be solely responsible for all Retained Obligations," which included specific lawsuits listed in the agreement, as well as other defined liabilities.

Wausau provided Old Suncoast with general liability insurance coverage. Old Suncoast's Wausau policy included a non-assignment clause providing, "Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured." Old Suncoast never requested that Wausau transfer coverage under the policy to New Suncoast.

After the sale took place, several lawsuits were filed in Texas, California, and Florida for defects and property damage allegedly arising from Old Suncoast's work prior to the asset purchase and during the term of the Wausau insurance policy. While the suits named various Suncoast Post-Tension entities as defendants, the Keller Companies assumed the defense of all of them consistent with its assumption of liabilities in the purchase agreement. The Keller Companies notified Wausau of the lawsuits, but Wausau refused to provide coverage. As a result, the Keller Companies brought suit against Wausau in Texas state court, alleging breach of contract, violation of the Texas Insurance Code, and breach of the duty of good faith and fair dealing. The Keller Companies sought indemnity for the damages assessed in the underlying suits, as well as reimbursement for the cost of defending the actions.

Wausau removed the case to federal court, where the parties consented to trial by magistrate. The parties filed cross-motions for summary judgment, and the magistrate judge denied Wausau's motion and granted the Keller Companies' motion in part. The magistrate held that Wausau's coverage transferred from Old Suncoast to New Suncoast either as a chose in action with the general transfer of all assets in the purchase agreement or by operation of law. The transfer of the coverage thus obligated Wausau to defend and indemnify New Suncoast and the Keller Companies in the underlying lawsuits. The magistrate further held that the non-assignment clause in the policy did not prohibit such post-loss assignments. Wausau timely appealed.

II

We review a magistrate judge's grant or denial of summary judgment de novo, applying the same standard as the district court.1 Summary judgment is appropriate if "the pleadings, the discovery and disclosure materials on file, and anyaffidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law."2

III

Wausau challenges the magistrate judge's holding that insurance coverage for the Keller Companies' losses constituted a "chose in action" that was transferred as part of the general catch-all transfer of "all other assets" in the purchase agreement between Old Suncoast and New Suncoast. Wausau argues that the non-assignment clause in the insurance policy barred the transfer of the policy without prior approval by Wausau. The Keller Companies contend that Texas courts would not enforce such a non-assignment clause for losses that took place prior to the transfer of the coverage. We agree with Wausau that the non-assignment clause bars any assignment of the coverage without Wausau's approval, rendering invalid any transfer that might have taken place.

According to Couch on Insurance, "the great majority of courts adhere to the rule that general stipulations in policies prohibiting assignments thereof except with the consent of the insurer apply only to assignments before loss, and do not prevent an assignment after loss."3 These courts reason that "[t]he purpose of a no assignment clause is to protect the insurer from increased liability, and after events giving rise to the insurer's liability have occurred, the insurer's risk cannot be increased by a change in the insured's identity."4

Texas courts, however, diverge from this majority and enforce non-assignment clauses even for assignments made post-loss. For example, in Texas Farmers Insurance Co. v. Gerdes, a Texas court of appeals held that a non-assignment clause barred the post-loss assignment by a third-party beneficiary of her benefits under an insurance policy.5 There, Sally Gerdes was injured in a car accident with the insured, Bernardo Saldano. Gerdes assigned her right to benefits under Saldano's policy to a chiropractic clinic where she received treatments. The insurance company paid the benefits to Gerdes, who never paid the clinic. The clinic then brought suit against the insurance company.6 After recognizing that "[n]on-assignment clauses have been consistently enforced by Texas courts," the court held that the non-assignment clause applied to Gerdes and that Gerdes's transfer of herrights under the insurance policy had no effect.7 Similarly, in Texas Pacific Indemnity Co. v. Atlantic Richfield Co., another Texas court of appeals relied on a non-assignment clause to invalidate a post-loss assignment, holding that "[i]n the absence of a successful attack upon the anti-assignment clause, Texas Pacific was entitled to have the trial court enforce it."8

Additionally, in Conoco, Inc. v. Republic Insurance Co., this court, applying Texas law, enforced a non-assignment clause to invalidate a post-loss assignment and held that the assignee lacked standing to bring a claim against the insurance company.9 There, Bonanza Corp., the insured, had assigned to Conoco the rights to any insurance proceeds Bonanza might collect from Republic Insurance Co. for the sinking of one of Bonanza's vessels. 10 Conoco then brought suit against Republic Insurance to recover those proceeds. Republic argued that Conoco lacked standing to bring suit because the non-assignment clause in the policy invalidated Bonanza's assignment of its rights.11 We agreed, recognizing that "Texas law permits the enforcement of no-assignment clauses in insurance policies." 12

Given these precedents, we believe that Texas courts would enforce the non-assignment clause in the Wausau policy. Thus, no transfer of the insurance coverage for the pre-acquisition losses could have been valid without the consent of Wausau, and it is undisputed that Wausau never consented to such a transfer.

Nor can the Keller Companies circumvent the non-assignment clause by casting the transfer of the insurance coverage as the transfer of a "chose in action." In Conoco, we rejected the argument that the non-assignment clause had no effect on the assignment of "proceeds" of insurance rather than a "claim or demand."13 We called the distinction "specious," stating that "[Conoco] cannot enlarge Bonanza's boots by putting the label 'proceeds' on its claim. Words cannot change a plugged nickel into a silver dollar."14 The Texas Pacific court held likewise, rejecting the argument that the policy limited only assignments of "interests" in the policy and not "fully matured claims based upon the Policy."15 The distinction the Keller Companies seek is the same as that rejected in Conoco and Texas Pacific Indemnity.

We also reject the Keller Companies' contention that Wausau must show prejudice in order to enforce the non-assignment clause. The Keller Companies rely on Hernandez v. Gulf Group Lloyds, a Supreme Court of Texas case involving a clause in an insurance...

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