IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 00-20120
ALMA DeLEON, Individually and as Administrator
of The Estate of Melissa Morales,
Plaintiff-Appellant,
versus
LLOYD'S LONDON, CERTAIN UNDERWRITERS; ET AL,
Defendants,
LLOYD'S LONDON, CERTAIN UNDERWRITERS; COLIN M. OWEN,
Defendants-Appellees.
Appeals from the United States District Court
for the Southern District of Texas
July 18, 2001
Before REYNALDO G. GARZA, HIGGINBOTHAM, and SMITH, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
A corporation elected to self insure under Texas workers’
compensation laws. As part of its opt-out from the protections of
workers’ compensation, the company purchased from Lloyd’s, London
insurance upon the life of its employees, payable to itself. An
employee was fatally injured in the course of work, and her
representative obtained a substantial sum in settlement of a claim
that the death was caused by the company’s negligence. Lloyd’s paid
the policy proceeds to the corporation. The representative of the
deceased employee later learned of the life insurance and filed
this suit against Lloyd’s, seeking the policy proceeds.
This is a diversity case and we apply the Texas law of
insurable interest, ultimately affirming summary judgment in favor
of Lloyd’s, London. We conclude that under Texas law Lloyd's was
obligated to pay the proceeds of the policy and discharged its
obligation by paying the proceeds to the named beneficiary. We also
conclude that the named beneficiary, lacking an insurable interest,
held the proceeds in trust for the benefit of the estate of the
insured employees.
I
In 1991, National Convenience Stores, Inc. purchased an
accidental death insurance policy from Certain Underwriters at
Lloyd's, London through its broker, Ronald H. Seaborg and his
company, International Accident Facilities, Inc.1 The policy
provided benefits of $250,000 for each insured person, defined as
the officers and employees of NCS. The proceeds were payable to NCS
upon the accidental death of any Texas NCS employee that occurred
within the scope and course of employment.
Melissa Morales worked for NCS as a clerk in one of its Stop-
n-Go convenience stores. On April 19, 1992, a robber stabbed
1
We will refer to both Ronald H. Seaborg and his company,
International Accident Facilities, Inc., as "Seaborg."
2
Morales to death at her store. On July 7, 1992, Lloyd's paid the
policy proceeds to NCS.
Alma DeLeon, the administrator of Morales's estate, filed suit
against NCS in Texas state court. Within six months NCS settled
with DeLeon, paying $1,050,000.00 to the estate in exchange for a
comprehensive release from liability. NCS did not disclose the
existence of its policy with Lloyd's. Only after settling with NCS
did DeLeon learn of NCS's policy with Lloyd's.
On September 10, 1996, DeLeon filed suit in the United States
District Court for the Southern District of Texas against Lloyd's
and Seaborg, seeking to recover the policy benefits. Jurisdiction
rested on diversity of citizenship. Seaborg and Lloyd's each filed
a third-party complaint, claiming over against NCS. The court
stayed the action pending resolution of Tamez v. Certain
Underwriters at Lloyd's, London,2 a case in state court involving
virtually the same defendants and similar facts. When the Tamez
case was decided, the district court lifted the stay.
After various amended complaints, cross-claims, and counter-
claims, DeLeon decided not to pursue an action against NCS.
Lloyd's, in turn, decided not to pursue its cross-claim against
NCS. In short, Lloyd's became the only defendant. The district
court granted summary judgment in favor of Lloyd's, and DeLeon
appeals that judgment.
2
999 S.W.2d 12 (Tex. App. - Houston 1998).
3
II
DeLeon contends that the district court erred in granting
summary judgment on her breach of contract claim.3 We review a
district court's grant of summary judgment de novo. Summary
judgment is appropriate where no genuine issue of material fact
exists and the moving party is entitled to judgment as a matter of
law.4 The Court must accept the evidence of the nonmoving party and
draw all reasonable inferences in favor of that party.5 In this
diversity action, we review de novo the district court's
interpretation of state law.6
III
DeLeon first contends that Lloyd's is collaterally estopped
from arguing that NCS was the lawful beneficiary of the policy. She
argues that Tamez is binding upon this Court. A federal court must
accord a state-court judgment the preclusive effect it would enjoy
under the law of the state in which the judgment was rendered.7
3
DeLeon does not appeal the grant of summary judgment on her
conversion claim.
4
See Fed. R. Civ. P. 56(c); Geoscan, Inc. v. Geotrace Techs.,
Inc., 226 F.3d 387, 390 (5th Cir. 2000).
5
See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,
475 U.S. 574, 585-87 (1986).
6
See McGruder v. Will, 204 F.3d 220, 222 (5th Cir. 2000).
7
See 28 U.S.C. § 1738 (2001); Gammage v. West Jasper Sch. Bd.
of Educ., 179 F.3d 952, 954 (5th Cir. 1999).
4
Under Texas law, the party seeking to invoke collateral estoppel
must establish that (1) the facts sought to be tried in the second
action were fully and fairly tried in the earlier suit; (2)those
facts were essential to the judgment in the first suit; and (3) the
parties were cast as adversaries in the first suit.8 Although
DeLeon was not a party in Tamez, she may still assert offensive,
non-mutual collateral estoppel. Texas recognizes this variant of
collateral estoppel, provided that the party against whom
collateral estoppel is now asserted was either a party or in
privity with a party in the first suit.9 Lloyd's was a party in the
Tamez case.
In Tamez, the families of two deceased NCS employees sued
Lloyd's, NCS, and Seaborg for benefits from the same Lloyd's
coverage at issue here. The trial court denied the plaintiffs'
motion for partial summary judgment and granted the defendants'
motions for summary judgment.10 The Texas Court of Appeals affirmed
in part and reversed in part, finding that NCS lacked an insurable
interest in the lives of its employees under Texas common law and
that NCS was not a proper beneficiary under Article 3.51-6 § 3 of
8
In re Miller, 156 F.3d 598, 602 (5th Cir. 1998).
9
See Logan v. McDaniel, 21 S.W.3d 683, 687-88 (Tex. App. -
Austin 2000).
10
Tamez, 999 S.W.2d at 13-14.
5
the Texas Insurance Code.11 These findings were essential to its
partial reversal of the summary judgment order,12 and, according to
the record, they were fully and fairly litigated.
The court also implicitly found that the estates of the
deceased employees were proper beneficiaries under Article 3.51-6
§ 3. Issues decided implicitly in a prior judgment have collateral
estoppel effect if they were essential to that judgment.13 The
provision of the Texas Insurance Code at issue in Tamez and here
requires payment to the person insured, his designated
beneficiaries, or his estate.14 The Tamez court found that NCS
employees were the persons insured under the policy, that the
deceased employees could not designate beneficiaries, and that NCS
was not the proper beneficiary of the policy.15 Implicit in the
court's opinion, therefore, was the conclusion that the estates of
the deceased employees were proper beneficiaries, a finding
necessary to the judgment of the Tamez court.
Lloyd's argues that Tamez lacks preclusive bite for two
reasons. First, that the Tamez decision was not a final judgment.
11
Id. at 19, 20-21.
12
See id. at 20-22.
13
See Van Dyke v. Boswell, O'Toole, Davis & Pickering, 697
S.W.2d 381, 384-85 (Tex. 1985); 18 James Wm. Moore et al., Moore's
Federal Practice § 132.03[4][c] (3d ed. 1998).
14
See Tex. Ins. Code Ann. art. 3.51-6 § 3.
15
See Tamez, 999 S.W.2d at 19-21.
6
Second, that DeLeon's "wait and see" attitude ought to bar resort
to this equitable doctrine. Both arguments lack merit.
The test for finality here is "whether the conclusion in
question is procedurally definite."16 Courts are to consider whether
"the parties were fully heard, [whether] the court supported its
decision with a reasoned opinion [and whether] the decision was
subject to appeal or was in fact reviewed on appeal."17
The two holdings urged to be transportable are that (1) NCS
lacked an insurable interest in the lives of its employees, and (2)
that the estates of the deceased employees are proper beneficiaries
under the policy. There is no indication that the parties in Tamez
failed to receive a full hearing on these issues. The court's
analysis of the merits of these questions was also thorough and
reasoned. Its judgment has the same conclusive effect on the
parties as the final judgment of a lower court.18 The disputed
findings were undoubtedly the "last word" of the Tamez court on
these matters.19 Lloyd's first argument fails.
16
Van Dyke, 697 S.W.2d at 385 (quoting Restatement (Second)
of Judgments § 13, cmt. g (1982)).
17
Id. (quoting Restatement (Second) of Judgments § 13, cmt.
g (1982)).
18
See Partee v. Phelps, 840 S.W.2d 512 (Tex. App. - Dallas
1992).
19
See Restatement (Second) of Judgments § 13, cmt. a (1982).
7
Lloyd's second argument is that courts are reluctant to apply
offensive collateral estoppel where the plaintiff adopts a "wait
and see" attitude, in the hope that the first action by another
plaintiff will result in a favorable judgment.20 The difficulty here
is that the theory has no factual legs. Lloyd's points to no
specific dilatory tactics on the part of DeLeon. Indeed, the
district court stayed this case pending resolution of Tamez.
We conclude that Lloyd's is collaterally estopped from trying
again whether: (1) NCS has an insurable interest in the lives of
its employees, and (2) the estates of the deceased employees of NCS
are proper beneficiaries of the policy. As DeLeon is a deceased
employee of NCS, she is a proper beneficiary of the policy.
DeLeon makes one additional argument based on Tamez. She notes
that the Tamez court found in favor of the plaintiffs on their
breach of contract claim, that Lloyd's was obligated to pay them
directly, in reversing the trial court's summary judgment in favor
of Lloyd's.21 We disagree. As we read it, this essential holding
was only a repudiation of the trial court's reasoning. The trial
court apparently had adopted Lloyd's argument that plaintiffs
stated no claim for breach of contract because "the policy was
lawful and NCS was the proper beneficiary."22 A Texas court of
20
See Parkland Hosiery Co. v. Shore, 439 U.S. 322, 330 (1979).
21
See Tamez, 999 S.W.2d at 21.
22
Id.
8
appeals can not affirm a summary judgment on grounds not argued
before the trial court.23 Consequently, the Tamez court was
constrained to reverse, despite other potentially adequate bases
for affirming summary judgment on the claim for breach of
contract.24 Collateral estoppel then does not support DeLeon's
breach of contract claim.
More to the point, the Tamez court found that "[t]here was no
contractual relationship between [plaintiffs] and Lloyd's."25 Under
Tamez, DeLeon lacked privity with Lloyd's and Lloyd's did not
breach its contract by paying the proceeds to NCS.
DeLeon replies that the contract should be reformed to include
DeLeon as the lawful beneficiary of the policy. Whether Tamez also
implicitly precludes reformation, given its express finding that
there was no contractual relationship between the plaintiffs and
the insurer, is not clear. This interpretation taxes the preclusive
effect of an implicit holding and, while it is not without force,
we are reluctant to rest there. We turn to the merits of
reformation under Texas law.
23
See Maley v. 7111 Southwest Freeway, Inc., 843 S.W.2d 229,
234 (Tex. App. - Houston 1993).
24
For instance, summary judgment may have been appropriate
because plaintiffs were not named beneficiaries of the policy and
were therefore not in privity with Lloyd's. See discussion, infra.
25
Tamez, 999 S.W.2d at 21.
9
IV
DeLeon argues that because reformation is the appropriate
remedy for a violation of Article 3.51-6 § 3 of the Texas Insurance
Code, she states a claim for breach of contract, so reformed.
As we explained, Tamez held that NCS did not have an insurable
interest in the lives of its employees.26 A putative beneficiary
only has an insurable interest in the life of another where the
beneficiary is "(1) so closely related by blood or affinity that he
wants the other to continue to live, irrespective of the monetary
considerations; (2) a creditor; [or] (3) one possessing a
reasonable expectation of pecuniary benefit or advantage from the
continued life of another."27 Although NCS claimed to fall into the
third category, the Tamez court found otherwise.28
Where an insurer pays the proceeds of a policy to a
beneficiary having no insurable interest, Texas courts have
26
Tamez, 999 S.W.2d at 19; see also Stillwagoner v. Travelers
Ins. Co., 979 S.W.2d 354, 360-62 (Tex. App. - Tyler 1998); Cheeves
v. Anders, 28 S.W. 274 (Tex. 1894).
27
Tamez, 979 S.W.2d at 17 (quoting Drane v. Jefferson
Standard Life Ins. Co., 161 S.W.2d 1057, 1058-59 (Tex. Comm. App.
1942)); see also Stillwagoner, 979 S.W.2d at 361. This doctrine is
animated by two policy considerations: "(1) that no inducement
should be offered to one person to take the life of another; and
(2) that no one should be permitted to wager on the continuation of
a human life." Stillwagoner, 979 S.W.2d at 360.
28
As one Texas court has stated, "[t]he mere existence of an
employer/employee relationship is never sufficient to give the
employer an insurable interest in the life of the employee."
Stillwagoner, 979 S.W.2d at 361.
10
consistently held that a constructive trust is the appropriate
remedy.29 As the Tamez court stated, "a person with no insurable
interest will hold the proceeds of a policy as trustee for the
benefit of those persons entitled by law to receive it."30 Texas
courts have refrained from invalidating a policy for want of an
insurable interest to avoid a windfall to insurers at the expense
of lawful beneficiaries. Instead, they require insurers to pay the
policy proceeds to the beneficiary named in the policy.31 As the
Texas Supreme Court stated in 1894,
[I]t is no concern of the insurer as to who gets the
proceeds, except to see that it is paid to the proper
parties, under its agreement. It is simply required to
perform its contract, and the law will dispose of the
money according to the rights of the parties.32
Once the named beneficiary is paid, Texas applies the equitable
remedy of constructive trust to provide an avenue of recovery for
a lawful beneficiary.33
Article 3.51-6 § 3 provides that "all benefits under any group
or blanket accident and sickness policy shall be payable to the
29
See, e.g., Tamez, 999 S.W.2d at 15-16; Stillwagoner, 979
S.W.2d at 360.
30
Tamez, 999 S.W.2d at 15; see also Wilke v. Finn, 39 S.W.2d
836, 838-39 (Tex. Comm. App. 1931).
31
See Cheeves, 28 S.W. at 275-76.
32
Id. at 275.
33
See Tamez, 999 S.W.2d at 15-16 & n.1; Stillwagoner, 979
S.W.2d at 358.
11
person insured, or to his designated beneficiary or beneficiaries,
or to his estate."34 As the Tamez court found, the policy here is
a group accident policy and therefore governed by Article 3.51-6 §
3.35 The Tamez court also determined that an NCS employee, and not
NCS itself, was the "person insured" under the policy.36 Where, as
here, an NCS employee is deceased at the time the policy benefits
mature, the proceeds can be paid under the statute to either "his
designated beneficiary or estate."37 Morales was not given the
opportunity to designate her own beneficiary in this case.38 As the
court in Tamez determined, the deceased employee's estate was
therefore a proper beneficiary under the policy.39
Relying primarily on the Texas case, American National
Insurance Co. v. Foster,40 DeLeon invokes the general principle that
when a policy provision is invalid as contrary to the Insurance
34
Tex. Ins. Code. Ann. art. 3.51-6 § 3 (2001).
35
Tamez, 999 S.W.2d at 20-21; see also Tex. Ins. Code Ann.
art. 3.51-6 § 1(a)(1)-(6) (2001) (defining the parameters of
"group insurance" for purposes of the Texas Insurance Code).
36
Id. at 20.
37
Tamez, 999 S.W.2d at 20.
38
See id. at 20; Stillwagoner, 979 S.W.2d at 363.
39
Tamez, 999 S.W.2d at 20-21.
40
130 S.W.2d 287 (Tex. Comm. App. 1939).
12
Code,41 the statute is read into the conflicting policy provision.42
As we understand her argument, reformation of the policy would
render the Morales estate the beneficiary. The estate's
representative could then sue Lloyd's on the policy.
Language in a recent Texas Court of Appeals decision offers
some support for reformation as a possible remedy for violating
Article 3.51-6 § 3,43 but the Tamez case is contrary. The Tamez
court, in reversing the grant of summary judgment, found a
constructive trust theory simultaneously holding that the
plaintiffs had no contractual relationship with the insurer,
characterizing the plaintiffs as third-party claimants.44 These
statements are at odds with a reformed contract.
The text of Article 3.51-6 § 3 provides little guidance.
Nothing in the statute indicates whether reformation is
41
As the Texas Supreme Court noted, "the policy provision in
question must be disregarded in arriving at a conclusion, and the
terms of the statute must be read into the policy as constituting
terms of the contract which the parties made at the time the policy
issued." Id. at 290.
42
See id.
43
See Stillwagoner, 979 S.W.2d at 363-64. Although the
Stillwagoner court cited the language from Foster cited above, it
did not actually reform a policy that contravened Article 3.51-6 §
3 in lieu of imposing a constructive trust. That court merely found
that summary judgment in favor of the employer was inappropriate.
Moreover, that court recognized that, "[i]f insurance benefits are
paid to a beneficiary without an insurable interest, the
beneficiary holds the proceeds for the benefit of those entitled by
law to receive them." Id. at 358.
44
See Tamez, 999 S.W.2d at 21.
13
contemplated. Nor is there an express textual linkage between the
statute and the common-law insurable interest doctrine.
The role of section 3 becomes clearer with section 1 of the
same provision of the Insurance Code. Article 3.51-6 § 1(a)(1)
describes "group accident and health insurance" as a "policy issued
to an employer or trustees of a fund established by an employer,
who shall be deemed the policyholder, insuring employees of such
employer for the benefit of persons other than the employer."45 The
Tamez court interpreted this language to mean that group insurance
must be for the benefit of persons other than the employer.46
Section 1(a)(1) of the Insurance Code therefore parallels at this
point the common law insurable interest doctrine. Although not all
forms of group accident and health insurance insure the life of the
employee, the group accidental death policy in this case runs afoul
of both the insurable interest doctrine and Article 3.51-6 §
1(a)(1).
Section 1(a)(1) of the statute precludes recovery by an
employer under these circumstances and section 3 defines the proper
beneficiaries of a group or blanket accident and sickness policy.
Section 3 articulates three general categories of beneficiaries who
may receive the proceeds of such a policy: (1) the person insured,
45
Tex. Ins. Code. Ann. art. 3.51-6 § 1(a)(1) (2001) (emphasis
added).
46
Tamez, 999 S.W.2d at 20-21.
14
(2) his designated beneficiaries, and (3) his estate. Like section
1(a)(1), section 3 echoes the tenets of the common law insurable
interest doctrine. As the Tamez court observed, Article 3.51-6 § 3
"impliedly does prohibit employers from benefitting [from group
policies] in that it provides for payment of proceeds to the person
insured or to his designated beneficiary."47 Sections 1(a)(1) and
3 therefore jointly codify and clarify the insurable interest
doctrine in the context of group accident and sickness insurance.
Given the overlap between the common law and statutory
regimes, violation of the insurable interest doctrine will often
imply violation of the statute. Although these statutory provisions
at times extend beyond the scope of the insurable interest
doctrine, there is considerable common ground. Like Tamez, this
case falls under the overlap, as both the common law and the
statute were violated. Since constructive trust is already
available to plaintiffs in such cases, nothing suggests that the
legislature thought plaintiffs needed additional protection.48
47
Tamez, 999 S.W.2d at 20 (emphasis in original).
48
See Tamez, 999 S.W.2d at 16-21 (discussing violation of both
insurable interest doctrine and Article 3.51-6 § 3); Stillwagoner,
979 S.W.2d at 359-63 (same); see also Coppedge v. Colonial Savs. &
Loan Ass'n, 721 S.W.2d 933, 938 (Tex. App. - Dallas 1986), writ
ref'd n.r.e. ("[W]hen the legislature creates a cause of action and
a remedy for its enforcement, that legislation is regarded as
cumulative of the common-law cause of action and remedy, unless the
statute expressly or impliedly negatives the latter."); Widgeon v.
Eastern Shore Hosp. Ctr., 479 A.2d 921, 929 (Md. 1984) (holding
that there is no need to imply a new right of action where the
common law already provides an action to remedy the violation)
15
Our conclusion is confirmed by the reality that allowing
reformation—and a later contract action—in such cases would also
create inequitable results. The plaintiff could either (1) sue the
employer under the common law, seeking a constructive trust on the
proceeds; or (2) sue the insurer on a breach-of-contract theory.49
The first option presents little difficulty, unlike a suit against
the insurer. The insurer could be required to pay the policy
proceeds twice: first, to the employer under the policy, and
second, to the plaintiff for breach of contract. Requiring Lloyd's
to pay twice would be inconsistent with the insurable interest
doctrine as applied to the group accident policy. As we have
explained, under the insurable interest doctrine, where a
constructive trust is applied, the insurer only pays what it owes
under the insurance policy. This doctrine does not impose a
(cited approvingly in City of Beaumont v. Bouillion, 896 S.W.2d
143, 147 (Tex. 1995)).
49
Double recovery by the plaintiff, by allowing it to recover
the full amount from both the employer and the insurer, is not
permitted. See Coppedge, 721 S.W.2d at 939 ("It is well-established
that an aggrieved party is entitled to only one recovery for the
same loss, even when alternative remedies exist."). Similarly, a
plaintiff could not recover from both the insurer and the employer
in successive actions. Finally, we note that the employer and
insurer can not be held jointly and severally liable for breach of
contract, as only the insurer would be in breach for having failed
to perform its part of the contract. See Pitman v. Lightfoot, 937
S.W.2d 496, 528 (Tex. App. - San Antonio 1996) ("In the law of
contracts, joint and several liability usually arises when two or
more promisors in the same contract promise the same or different
performances to the same promisee.").
16
"penalty" of double payment on the insurer for having entered into
a policy whose beneficiary lacks an insurable interest.50
This is not to say that the doctrine of insurable interest is
not enforced. The Insurance Code creates incentives to comply. The
Texas Board of Insurance Commissioners may revoke the license of an
insurer who fails to comply with the provisions of the Texas
Insurance Code.51 The threat of revocation may prompt an insurer to
think twice before drafting a policy conflicting with the Code.
Employers also are deterred from entering into policies which
violate the statute and common law, as they stand to lose both the
proceeds through constructive trust and the premiums they have paid
under the policy. In short, we remain convinced that Texas courts,
wearing their common-law hats, would not conclude that reformation
and a corresponding breach of contract action are necessary to
vindicate the objectives of both the Texas statute and common law:
that the insurer perform its contract and that the persons lacking
50
See Cheeves, 28 S.W.2d at 275-76. Compare McDonald v.
McDonald, 632 S.W.2d 636, 639-40 (Tex. App. - Dallas 1982)
(allowing a direct suit against an insurer who has prior notice of
a rival beneficiary possessing a valid insurable interest, yet who
continues to pay life insurance proceeds to the named beneficiary
lacking an insurable interest).
51
See Tex. Ins. Code Ann. art. 3.55 (2001); cf. Stewart Title
Guaranty Co. v. Becker, 930 S.W.2d 748, 754-55 (Tex. App. - Corpus
Christi 1996) (finding no need to imply a cause of action from the
Texas Insurance Code given that the Board has the power to punish
title insurers who fail to comply with the Code).
17
the requisite interest in the life of the insured not retain the
benefits of the policy.52
We are persuaded that DeLeon has failed to state a claim for
breach of contract action against Lloyd's. DeLeon may be able to
seek a constructive trust against NCS for the proceeds, a course
she has chosen not to pursue, and we offer no opinion on that
prospect.
V
DeLeon also contends that the district court erred in refusing
to award the Morales estate interest and attorney's fees under
Article 21.55 of the Texas Insurance Code. Article 21.55 requires
the prompt payment or resolution of claims according to a defined
timetable.53 This timetable is only triggered by the filing of a
"claim," defined as "a first party claim made by an insured or a
policyholder under an insurance policy or contract or by a
beneficiary named in the policy or contract that must be paid by
the insurer directly to the insured or beneficiary."54 The Code
52
In her reply brief, DeLeon claims that the December 10,
1999, decision by a Texas trial court in Smith v. Certain
Underwriters at Lloyd's, London, No. 96-52348, collaterally estops
Lloyd's from asserting that it is not jointly and severally liable
with NCS for the policy proceeds. This argument could have been
raised in DeLeon's opening brief and therefore may be deemed
waived. See Yohey v. Collins, 985 F.2d 222, 225 (5th Cir. 1993).
53
Tex. Ins. Code Ann. art. 21.55 §§ 3-4 (West 2001).
54
Id. at § 1(3).
18
further provides that, "where a claim is made pursuant to a policy
of insurance and the insurer liable therefor is not in compliance
with the requirements of this article," eighteen per cent interest
and attorney's fees must be paid to either "the holder of the
policy, or the beneficiary making a claim under the policy."55
Although Article 21.55 is to be liberally construed,56 by its
plain language the statutory penalties do not apply. Neither
Morales nor her estate is "named in the policy or contract" as a
beneficiary. Under the policy issued by Lloyd's, the proceeds were
to be paid to the beneficiary, NCS, upon the death of an employee.
NCS presented a "first party claim" that "must be paid by the
insurer directly to the . . . beneficiary."57 DeLeon concedes that
NCS was the named beneficiary on the policy and that NCS submitted
a claim to Lloyd's. Although reformation might operate to place the
Morales estate in the position of the policy beneficiary, we have
rejected reformation on these facts.
The legislature has framed the claim-processing deadlines of
Article 21.55 in terms of the primary relationship between the
insurer and the "named" beneficiary—not the lawful, yet unnamed
beneficiary. The statute does not readily apply to a
"claim" made by a party through the filing of a complaint in
55
Id. at § 6.
56
See id. at § 8.
57
Id. at § 1(3).
19
litigation. As one Texas court has observed, "The purpose of the
statutory deadline contained in Article 21.55 is to guarantee the
prompt payment of claims made pursuant to policies of insurance;
not to create a statutory windfall for one party or the other."58
We do not believe that Texas courts would so read Article 21.55.
VI
DeLeon also objects to the district court's refusal to enter
a judgment declaring her rights under the policy. The district
court did not abuse its discretion in refusing declaratory relief.
It decided the case on the merits by its grant of summary judgment.
We therefore AFFIRM the judgment of the district court.
AFFIRMED.
58
Daugherty v. Am. Motorists Ins. Co., 974 S.W.2d 796, 798
(Tex. App. - Houston 1998).
20