IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 1, 2009
No. 06-51683 Charles R. Fulbruge III
Clerk
XL SPECIALTY INSURANCE COMPANY,
Plaintiff–Appellee,
v.
FINANCIAL INDUSTRIES CORPORATION,
Defendant–Appellant.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:06-CV-356
Before DAVIS, STEWART, and OWEN, Circuit Judges.
PER CURIAM:*
This case involves a dispute between XL Specialty Insurance Company
(XL) and its insured, Financial Industries Corporation (FIC). XL issued a
claims-made management liability policy to FIC that required as a condition
precedent to payment that FIC notify XL of any claim “as soon as practicable
after it is first made.” During the coverage period, two parties filed suit against
FIC in Texas state court for breach of contract and fraud. FIC notified XL seven
months after the suit was filed but within the policy’s coverage period. Both
*
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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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.
No. 06-51683
parties stipulate that the notification breached the policy’s prompt-notice
provision but that this breach did not prejudice XL.
XL sought a declaratory judgment in federal district court that the policy
did not cover FIC’s claims. The district court granted summary judgment,
holding that, under Texas law, an insurer was not required to demonstrate
prejudice from late notice to avoid coverage on a claims-made policy. FIC
appealed and we certified the following determinative question to the Supreme
Court of Texas: Must an insurer show prejudice to deny payment on a claims-
made policy, when the denial is based upon the insured’s breach of the policy’s
prompt-notice provision, but the notice is nevertheless given within the policy’s
coverage period? See XL Specialty Ins. Co. v. Fin. Indus. Corp., 259 F. App’x
675, 678 (5th Cir. 2007).
The Supreme Court of Texas has since answered that question in the
affirmative. See Fin. Indus. Corp. v. XL Specialty Ins. Co., No. 07-1059, 2009
Tex. LEXIS 109, at *5 (Tex. Mar. 27, 2009). The court recognized that the
“inherent benefit of a claims-made policy is the insurer’s ability to close its books
on a policy at its expiration and thus to attain a level of predictability
unattainable under standard occurrence policies.” Id. at *4 (citation and
quotation marks omitted). Because FIC’s late notice was still within the policy
coverage period, the court concluded that XL “was not denied the benefit of the
claims-made nature of its policy” and therefore “could not deny coverage based
on FIC’s immaterial breach of the policy’s prompt-notice provision.” Id.
Because, under Texas law, XL was required to show prejudice resulting from
FIC’s late notice and it is undisputed that no such prejudice exists, XL is not
entitled to summary judgement.
Accordingly, we VACATE the district court’s grant of summary judgment
to XL and REMAND for further proceedings consistent with this court’s opinion.
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