National Union Fire Ins. Co. v. Willis

• Decision Date: 25 June 2002
• Docket Number: No. 01-20723.,01-20723.
• Citation: 296 F.3d 336
• Parties: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Plaintiff-Counter Defendant-Appellee, v. Mark A. WILLIS, Defendant-Counter Claimant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

296 F.3d 336

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Plaintiff-Counter Defendant-Appellee, v. Mark A. WILLIS, Defendant-Counter Claimant-Appellant.

No. 01-20723.

United States Court of Appeals, Fifth Circuit.

June 25, 2002.

Diane M. Giariglia, Jeffrey R. Parsons, David A. Clark (argued), Beirne, Maynard & Parsons, Houston, TX, for National Union Fire Ins. Co. of Pittsburgh, PA.

John M. Zavitsanos (argued), Ahmad, Zavitsanos & Anaipakos, Houston, TX, for Willis.

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

Before DUHÉ, DeMOSS and CLEMENT, Circuit Judges.

DeMOSS, Circuit Judge:

Appellant, Mark A. Willis (Willis), brought this appeal asking this Court to reverse the district court's granting of summary judgment in favor of appellee, National Union Fire Insurance Company of Pittsburgh, PA (National Union). The district court found that Willis was not entitled to coverage under a directors, officers, and corporate liability insurance policy issued by National Union to EqualNet Communications Corporation (EqualNet) of which Willis was an officer. We affirm.

BACKGROUND

National Union brought an action against Willis, who was an officer and director of EqualNet, seeking a declaratory judgment that Willis was not entitled to coverage under any of three directors, officers, and corporate liability insurance policies issued by National Union to EqualNet. The first policy covered the time period of March 8, 1998, to March 9, 1999 (1998 policy). The second policy covered the time period of March 8, 1999, to March 8, 2000 (1999 policy). The third policy covered the time period of March 8, 2000, to March 8, 2001 (2000 policy). EqualNet intervened.

A United States magistrate judge granted summary judgment in favor of National Union. Furthermore, the district court granted National Union's motion to dismiss Willis' counterclaims for extra-contractual liability. Thereafter, EqualNet dismissed its intervention and is not a party to the present appeal.

This appeal stems from a cause of action brought by CyberServe, Inc., WSHS Enterprises, Inc., and William Stuart (collectively "CyberServe") on September 21, 1998, against EqualNet, Netco Acquisition L.L.C., Willis, and Willis Group L.L.C. in the 215th District Court of Harris County, Texas. The action asserted claims against Willis for fraud, fraud in the inducement, statutory fraud in a stock transaction, tortious interference with a contract, and conspiracy. In addition, claims for breach of contract and quantum meruit were alleged against EqualNet and the Willis Group. The plaintiffs filed their fourth amended petition in March 2000, adding a claim for negligent misrepresentation against Willis, the Willis Group, and EqualNet. The added negligent misrepresentation claim was based on the same alleged misrepresentations underlying the fraud, fraudulent inducement, and statutory fraud claims. Furthermore, the factual basis of the fourth amended petition was the same as that used in the original petition.

Notably, National Union was first notified of the lawsuit by EqualNet on February 29, 2000. The first time Willis notified National Union of the lawsuit was by letter dated May 11, 2000. National Union denied coverage and declined to advance defense costs to Willis because, in accordance with paragraph 7 of the policies, the claims were not timely reported. Willis and EqualNet did not dispute that they failed to notify National Union of the CyberServe lawsuit during the 1998 policy period. Willis, however, argued that he was not required to give notice of a lawsuit unless a claim asserted against him was covered by the terms of the policy.

Therefore, Willis asserted that he was not required to notify National Union until after the fourth amended petition was filed in March 2000. The three previously amended petitions, according to Willis, asserted intentional torts that fell within the policy exclusion for claims "arising out of, based upon, or attributable to the committing in fact of any criminal or deliberate fraudulent act." As a result, Willis claimed that his May 11, 2000, notification to National Union was timely to provide coverage under the 2000 policy.

The district court determined that Willis was not entitled to coverage under any of the three policies and granted summary judgment in favor of National Union. The court concluded that Willis should have given notice to National Union in 1998 when he was first made aware of circumstances that could reasonably be expected to give rise to a claim against him. National Fire Ins. Co. v. Willis, 139 F.Supp.2d 827, 835 (S.D.Tex.2001). In addition, the court concluded that the claims made in the fourth amended petition were "expressly excluded from the coverage of the policy because they allege, arise out of, are based upon, or are attributable to a pending or prior litigation or allege or derive from the same or essentially the same facts as alleged in such pending litigation." Id. Willis now appeals the district court's decision.

STANDARD OF REVIEW

Review of the district court's granting of summary judgment is de novo. Harris v. Rhodes, 94 F.3d 196, 197 (5th Cir.1996). Summary judgment may be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." FED. R.CIV.P. 56(c). All disputed facts and reasonable inferences are viewed "in the light most favorable to the nonmoving party." Duffy v. Leading Edge Prods., 44 F.3d 308, 312 (5th Cir.1995).

DISCUSSION

The issue before this Court is whether the district court erred in granting summary judgment in favor of National Union having found that Willis failed to provide timely notice of the claims or potential claims asserted against him as required by his insurance policy. This Court has clearly identified that Texas law requires an insurance policy to be construed against the insurer and in favor of the insured. See Lubbock County Hosp. Dist. v. National Union Fire Ins. Co, 143 F.3d 239, 242 (5th Cir.1998); National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991); Blaylock v. American Guarantee Bank Liab. Ins. Co., 632 S.W.2d 719, 721 (Tex.1982). As a result, an insurance policy's exceptions and limitations are construed in favor of the insured in order to avoid exclusion of coverage. Puckett v. U.S. Fire Ins. Co., 678 S.W.2d 936, 938 (Tex.1984). Furthermore, when interpreting an insurance policy, courts must consider that 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). In so doing, courts are to ensure the policy is interpreted in such a way as to give effect to each term in the contract so that none will be rendered meaningless. Lynch Props. Inc. v. Potomac Ins. Co., 140 F.3d 622, 626 (5th Cir. 1998); Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462, 464 (Tex. 1998). In addition, all provisions of the policy should be considered with reference to the whole contract so that no provision is controlling. State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex.1995).

The insurance policies at issue here are "claims-made" policies. To invoke coverage under a claims-made policy, a claim must be made against the insured during the coverage period of the policy and the insured must notify the insurer of the claim during the same period. Matador Petroleum Corp. v. St. Paul Surplus Lines Ins. Co., 174 F.3d 653, 658-59 & n. 2 (5th Cir.1999). The insured's giving notice to the insurer triggers coverage. Id. at 659. Further, under a claims-made policy, insurers may deny coverage if notice is not given timely. Id.

A. Willis' Contentions

Willis argues that he is entitled to coverage under the 2000 policy for the negligent misrepresentation claim made against him in April 2000 when CyberServe and the other plaintiffs in the underlying lawsuit filed their fourth amended petition. Willis first complains that the district court's ruling was erroneous because it misconstrued the applicable notice provisions under section 7(c) of the policy. See Willis, 139 F.Supp.2d at 832. Section 7(c) provides:

(c) If during the Policy Period or during the Discovery Period (if applicable) the Company or the Insureds shall become aware of any circumstances which may reasonably be expected to give rise to a Claim being made against the Insureds and shall give written notice to the Insurer of the circumstances and the reasons for anticipating such a Claim, with full particulars as to dates, persons, and entities invoked, then any Claim which is subsequently made against the Insureds and reported to the Insurer alleging, arising out of, based upon or attributable to such circumstances or alleging any Wrongful Act which is the same as or related to any Wrongful Act alleged or contained in such circumstances, shall be considered made at the time such notice of such circumstances was given.

According to Willis, requiring the insured to give notice of circumstances likely to give rise to a claim ignores the plain language of the insurance policy's notice requirement. Willis contends that the applicable provision "permitted but did not require Mr. Willis to give notice of any circumstances which might reasonably be expected to give rise to a claim being made against him that had not yet resulted in a claim that is covered by the policies."

Second, Willis argues that the district court misconstrued the scope of the policy's exclusions concerning pending litigation. The district court held that the negligent misrepresentation claims asserted in the fourth amended petition were excluded from coverage under exclusion clause 4(e) because "they allege, arise out of, are based upon, or are attributable to a...