Stadium Motorcars, LLC v. Fed. Ins. Co., CIVIL ACTION NO. H-18-1920
| Decision Date | 15 May 2019 |
| Docket Number | CIVIL ACTION NO. H-18-1920 |
| Parties | STADIUM MOTORCARS, LLC et al., Plaintiffs, v. FEDERAL INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Southern District of Texas |
Stadium Motorcars, LLC and Central Houston Motorcars, LLC sued their insurer, Federal Insurance Company, in state court, alleging that Federal Insurance wrongfully denied coverage for an arbitration award entered against them in favor of a former employee. Stadium and Central were insured under a Federal Insurance policy covering losses from certain employment claims. Chris Singleton sued Stadium and Central for wrongful termination and breach of contract. Singleton nonsuited the litigation and then filed an arbitration claim against Stadium and Central, asserting the same causes of action. Stadium and Central gave Federal Insurance notice of the lawsuit and the nonsuit, but not of the subsequent arbitration. After Singleton prevailed in the arbitration, Stadium and Central sought payment from Federal Insurance for the award. Federal Insurance declined coverage based on Stadium and Central's failure to give timely notice of the arbitration, a condition precedent to coverage.
Federal Insurance moved for summary judgment that the arbitration award was not covered because Stadium and Central had failed to give notice of the arbitration until after the award issued and after the Policy and the Extended Reporting Period had both expired, and because the lack of notice prejudiced Federal Insurance. (Docket Entry No. 18). Stadium and Central responded and cross-moved for summary judgment, arguing that because Federal Insurance had received notice of Singleton's lawsuit, that was sufficient; the after-the-award notice of the arbitration did not prejudice Federal Insurance; and, alternatively, Federal Insurance had no right to notice because the reservation-of-rights letter it sent during Singleton's litigation created a disqualifying conflict of interest. (Docket Entry Nos. 20, 21, 30, 31).
Based on a careful review of the pleadings; the motions, responses, and reply; the record; counsels' arguments; and the applicable law, the court grants Federal Insurance's motion for summary judgment and denies Stadium and Central's cross-motion. Final judgment is separately entered. The reasons are explained in detail below.
Stadium and Central own and operate car dealerships in Houston. (Docket Entry No. 18 at 5). They were insured under a claims-made Employment Practices Liability Policy, No. 8209-4299, issued by Federal Insurance, effective from January 2016, to January 2017. (Id. at 2, 7-8). Federal Insurance agreed to "pay, on behalf of [Stadium and Central], Loss on account of any Employment Claim first made against [Stadium and Central] during the Policy Period, or the Extended Reporting Period if applicable." (Docket Entry No. 18-1). The Policy defined "Loss" as "the amount which [Stadium and Central] become[] legally obligated to pay as a result of any [Employment] Claim." (Id. at 24). Stadium and Central had to give written notice of "any Claim" "as soon as practicable," and in any event before the Extended Reporting Period expired in January 2018. (Id. at 11; Docket Entry No. 18 Ex.1 at 8).
In February 2016, Central hired Singleton to manage its collision center. (Docket Entry No. 18 at 2). Singleton alleged that he discovered that Stadium and Central were fraudulently billing auto insurers and reported that to his supervisor. (Id.). Singleton contended that he was fired in retaliation. In June 2016, Singleton sued Stadium and Central in Texas state court for breach of contract and wrongful termination. (Id. at 4; Docket Entry No. 20 at 1).
Stadium and Central notified Federal Insurance of Singleton's lawsuit in August 2016. (Docket Entry No. 18 at 6; Docket Entry No. 20 at 1). Federal Insurance responded that the lawsuit appeared to present a covered claim and exercised its Policy right to provide counsel to defend Stadium and Central. (Docket Entry No. 18 at 6-8).
In November 2016, Federal Insurance issued a reservation-of-rights letter confirming that Singleton's lawsuit was a covered claim timely reported. (Id. at 8). Federal Insurance honored Stadium and Central's decision to choose their own defense counsel and defend "at least through a ruling on the dispositive motion—subject to Federal [Insurance's] reservation of rights." (Id. at 9). Federal Insurance reserved the right to decline coverage based on the Policy and stated that Stadium and Central's obligations, including to communicate and cooperate, remained in effect. (Id.).
In March 2017, Singleton voluntarily dismissed his complaint. Stadium and Central informed Federal Insurance of the nonsuit. Federal Insurance administratively closed the claim as "no loss," agreeing to reopen it if Singleton filed another claim. (Id. at 10).
In April 2017, Singleton filed an arbitration claim against Stadium and Central, asserting the same causes of action he raised in the state-court litigation. Stadium and Central did not inform Federal Insurance of the arbitration. In February 2018, the arbitrator ruled in favor of Singleton,awarding him $334,992 in damages. (Id.). In March 2018, after the award issued, Stadium and Central notified Federal Insurance and demanded payment. (Id. at 10-11).
Federal Insurance declined coverage based on the failure to give timely notice of the arbitration. (Docket Entry No. 18 at 11). This lawsuit, and the cross-motions for summary judgment, followed. (Docket Entry Nos. 1, 18, 19, 20, 21). The parties dispute whether Stadium and Central satisfied the Policy's condition precedent for timely notice; whether Federal Insurance was prejudiced because notice of the arbitration was not given until after the arbitrator issued the award; and whether Federal Insurance's reservation-of-rights letter waived its right to receive notice and to defend the arbitration.
"Summary judgment is appropriate only if there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Vann v. City of Southaven, Miss., 884 F.3d 307, 309 (5th Cir. 2018) (quotation omitted); FED. R. CIV. P. 56(a). "A genuine dispute of material fact exists when the 'evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Burrell v. Prudential Ins. Co. of Am., 820 F.3d 132, 136 (5th Cir. 2016) (quoting Savant v. APM Terminals, 776 F.3d 285, 288 (5th Cir. 2014)). The moving party "always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
"Where the non-movant bears the burden of proof at trial, 'the movant may merely point to the absence of evidence and thereby shift to the non-movant the burden of demonstrating . . . that there is an issue of material fact warranting trial.'" Kim v. Hospira, Inc., 709 F. App'x 287, 288 (5thCir. 2018) (quoting Nola Spice Designs, L.L.C. v. Haydel Enters., Inc., 783 F.3d 527, 536 (5th Cir. 2015)). While the party moving for summary judgment must demonstrate the absence of a genuine issue of material fact, it does not need to negate the elements of the nonmovant's case. Austin v. Kroger Tex., L.P., 864 F.3d 326, 335 (5th Cir. 2017). A fact is material if "its resolution could affect the outcome of the action." Aly v. City of Lake Jackson, 605 F. App'x 260, 262 (5th Cir. 2015) ). "If the moving party fails to meet [its] initial burden, the motion [for summary judgment] must be denied, regardless of the nonmovant's response." Pioneer Expl., L.L.C. v. Steadfast Ins. Co., 767 F.3d 503, 511 (5th Cir. 2014) (quotation omitted).
"When the moving party has met its Rule 56(c) burden, the nonmoving party cannot survive a summary judgment motion by resting on the mere allegations of its pleadings." Duffie v. United States, 600 F.3d 362, 371 (5th Cir. 2010); see Forsyth v. Barr, 19 F.3d 1527, 1533 (5th Cir. 1994) (). The nonmovant must identify specific evidence in the record and articulate how that evidence supports that party's claim. Willis v. Cleco Corp., 749 F.3d 314, 317 (5th Cir. 2014). "This burden will not be satisfied by 'some metaphysical doubt as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by only a scintilla of evidence.'" Jurach v. Safety Vision, LLC, 642 F. App'x 313, 317 (5th Cir. 2016) (quoting Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th Cir. 2005)). The court draws all reasonable inferences in the light most favorable to the nonmoving party. In re Katrina Canal Breaches Litig., 495 F.3d 191, 205-06 (5th Cir. 2007).
Federal Insurance argues that the arbitration award is not covered because Stadium and Central failed to report the arbitration to Federal Insurance "as soon as practicable," or even within the Policy's Extended Reporting Period. (Id.). Stadium and Central argue that their August 2016 notice of Singleton's lawsuit was enough because the lawsuit and the subsequent arbitration were "Related Claims" and therefore "deemed a single Claim." (Docket Entry No. 30; Docket Entry No. 18, Ex.1 at 10, 11). The parties' dispute is one of Policy interpretation, which is a question of law.
Texas law governs. Volvo Fin. Servs. v. Williamson, 910 F.3d 208, 211 (5th Cir. 2018) (citing Huss v. Gayden, 571 F.3d 442, 449-50 (5th Cir.2009)); TEX. INS. CODE Art. 21.42. Texas courts interpret "insurance policies 'using ordinary rules of contract interpretation.'" Nassar v. Liberty Mut. Fire Ins. Co., 508 S.W.3d 254, 257-58 (Tex. 2017) (quoting Tanner v. ...
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