United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
For the Fifth Circuit September 9, 2004
Charles R. Fulbruge III
Clerk
No. 03-10949
SCOTTSDALE INSURANCE COMPANY,
Plaintiff-Counter Defendant-Appellant,
VERSUS
KRISTY WILLIAMS; ET AL.,
Defendants,
DAVANSHA SESSIONS,
Defendant-Counter Claimant-Appellee.
Appeal from the United States District Court
For the Northern District of Texas
4:02:CV-316
Before JOLLY, DAVIS and JONES, Circuit Judges.
PER CURIAM:*
We affirm the judgment of the district court essentially for
reasons stated in the district court’s thorough memorandum opinions
and orders of July 22, 2003 and August 22, 2003.
AFFIRMED.
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under
the limited circumstances set forth in 5TH CIR. R. 47.5.4.
EDITH H. JONES, Circuit Judge, dissenting:
With due respect to the able district judge and my
colleagues, and realizing that the issue of Texas law I am about to
address is close, I dissent.
The majority has bound Scottsdale to judgment in a case
concerning an injury inflicted by its insured a month after
Scottsdale terminated insurance coverage, and which judgment was
rendered by default four years post-injury and four more years
before the plaintiff sued Scottsdale to recover. I do not accept
Scottsdale’s arguments based on the statute of limitations (since
a minor was involved) or on the presumption of mailing its
termination notice to the Texas Board of Private Investigators and
Private Security Agencies (“Texas Board” or “Board”). However, the
facts here show no bad faith or even error by Scottsdale when it
refused to defend its insured after it terminated coverage for
nonpayment of premiums. Since so much time elapsed before
Scottsdale was sued on the judgment, neither the company, its
agent, nor the Texas Board maintained records to verify the formal
notification to the Board. Consequently, Scottsdale was deprived,
by the drawn-out nature of events, of the ability to preserve its
termination defense.
In a recent case, the Texas Supreme Court reiterated
that, “‘[i]n no event . . . is a judgment for plaintiff against
defendant, rendered without a fully adversarial trial, binding on
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defendant’s insurer or admissible as evidence of damages in an
action against defendant’s insurer by plaintiff as defendant’s
assignee.’” Trinity Univ. Ins. Co v. Cowan, 945 S.W.2d 819, 822
(1996) (quoting State Farm Fire v. Gandy, 925 S.W.2d 696, 714
(l996). If applied to this case, Trinity means that Scottsdale is
entitled to receive a new trial on the damages suffered by the
plaintiff. I believe Trinity is controlling, even though the
aforementioned quotation is prefaced by a statement that the state
Supreme Court “do[es] not reach Trinity’s challenge to the amount
of damages . . . except to note that it is controlled by our recent
decision in [Gandy] . . . . (Tex. 1996) (emphasis added). The
statement of the law is unequivocal, and the facts in Trinity are
virtually on point with those here — — default judgment rendered
against an insured after the insurer, notified of the claim, sends
notice and refuses to defend. In Trinity, there is no evidence of
collusion between the insured and the victim, and the fact that the
victim took an assignment of the insured’s rights against Trinity
makes no legal difference. The district court erred, I believe, in
limiting Trinity, and its predecessor Gandy, to cases in which
there is collusion between the insured and the victim.
Nonetheless, I concede that some Texas cases have held
that when an insurer wrongfully breaches its insurance contract by
refusing to defend, it waives the protection of policy provisions
that bind it to a judgment against the insured only if there was an
“actual trial.” See e.g., Struna v. Concord Ins. Services, Inc.,
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11 S.W.3d 355, 359 (Tex. Civ. App. -- Hou. [1st Dist.] 2000); Gulf
Ins. Co. v. Parker Prods. Inc., 498 S.W.2d 676, 679 (Tex. 1973);
First Nat’l Indem. Co. v. Mercado, 511 S.W.2d 354, 358 (Tex. Civ.
App. -- Austin 1974, no writ); Pioneer Cas. Co. v. Jefferson,
456 S.W.2d 410, 413 (Tex. Civ. App. -- Houston [14th Dist.] 1970,
writ ref’d n.r.e.); Gulf Ins. Co. v. Vela, 361 S.W.2d 904, 908
(Tex. Civ. App. -- Austin 1962, writ ref’d n.r.e.). However, these
cases are distinguishable for two reasons. First, none of these
cases involves: a bona fide attempt at termination for non-payment
of premiums and a covered “occurrence” a month after termination;
or a total lapse of ten years, during which the evidence critical
to the company’s proving it supplied notice to the state Board was
discarded pursuant to perfectly normal document retention policies.
None, in short, suggests that a waiver must follow from
circumstances beyond the control and foreseeability of the
insurance company. Second, there is no evidence of “wrongful”
policy termination by the company, only of ineffective termination
and the company’s failure to prove that the presumption of mailing
applies to it. Based upon the unusual circumstances here, the
waiver cases do not seem as compelling as Trinity.
In a normal failure to defend situation, the company
would have been permitted to prove that it, indeed, sent prompt
notice of cancellation to the Board in one of two ways: (1) the
insured, having received an adverse judgment only two years after
the occurrence, could have sued, or assigned its suit to the
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victim; or (2) the victim could have sued immediately after
receiving the judgment. The company would then have been able to
contest, in a timely fashion, not only the judgment, but also the
fact of coverage. For in such cases, “it is widely held that the
insurer may raise against the claimant any defense which would have
been available against the insured.” 7 COUCH ON INS. § 106:5 (citing
American Indem. Co. v. Solomon, 231 F.2d 853 (5th Cir. 1956).
A 50-year old Texas case, cited by neither the district
court nor the parties, holds that this usual rule did not apply
when a local ordinance required insurance to be issued to taxicab
companies that would inure to the benefit of the victims.
Pan-American Ins. v. Basso, 252 S.W.2d 505, 507 (Tex. Civ. App.--
El Paso 1952, writ ref’d). However, Basso, has recently been
distinguished because of the municipal ordinance by another Texas
court. See Jun v. Lloyds and Other Various Insurers, 37 S.W.3d
59, 63 (Tex. App. -- Austin, 2000). Moreover, there was no ques-
tion of policy termination in Basso, unlike in this case, but only
of the insured’s failure to comply with the policy’s notice and
cooperation provisions. Basso does not trump the usual rule
enabling the insurance company to raise the defenses it would have
had against the insured.
Scottsdale has been foreclosed from interposing the
defense that the policy terminated before the injury here was
inflicted. I regret that a “gotcha”-type exercise of (erroneous)
logic now also forecloses the company from compelling the plaintiff
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to submit to an adversarial trial on the damages. I respectfully
dissent.
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