United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS August 5, 2003
For the Fifth Circuit
Charles R. Fulbruge III
Clerk
No. 01-10324
MEDICAL CARE AMERICA, INC.,
Plaintiff-Appellant,
VERSUS
NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH, PENNSYLVANIA,
Defendant-Appellee.
Appeal from the United States District Court
For the Northern District of Texas
Before WIENER, BENAVIDES, and DENNIS, Circuit Judges.
JAMES L. DENNIS, Circuit Judge:
Following a precipitous decline in stock value, shareholders
sued (among others) the director and officers of a Texas
corporation formed through merger. After the suit settled, the
corporation sued its insurer for coverage under its directors and
officers liability policy. At issue was whether the policy covered
the directors and officers’ post-merger wrongful acts that were the
same as or related to their pre-merger wrongful acts. A jury
1
concluded that there was no coverage. The corporation now appeals
the district court’s pretrial grant of partial summary judgment,
its rulings on three motions for judgment as a matter of law at the
close of the evidence, and its judgment on the verdict. We AFFIRM.
I.
A.
In the Summer of 1992, Medical Care International, Inc.
(“MCI”) and Critical Care America (“CCA”) announced that they would
merge to become wholly owned subsidiaries of a new company, Medical
Care America, Inc. (“Medical Care”). The companies issued
statements trumpeting expectations for Medical Care’s increased
earnings. On August 3, 1992, they filed a joint proxy-prospectus
with the Securities and Exchange Commission (“SEC”) and sent copies
of the filing to their shareholders. The merger became final on
September 9, 1992, at which time the directors of MCI and CCA
became the directors of Medical Care.
In anticipation of the merger, Medical Care’s risk management
director, Theresa Major-Gable, consulted Larry Waldie, an insurance
broker employed by Marsh & McLennan, Inc. (“Marsh”), about
purchasing directors and officers (“D&O”) liability insurance for
Medical Care “going forward” from the date of the merger. In
conjunction with this consultation, Medical Care appointed Marsh
its exclusive agent of record. Acting on Medical Care’s behalf,
Waldie solicited quotes from several insurance companies, including
National Union Fire Insurance Company (“National Union”). Major-
2
Gable subsequently instructed Waldie to bind National Union’s
quote. On September 4, 1992, National Union sent Waldie a letter
that represented a temporary conditional binder outlining its
agreement to provide Medical Care with $10 million worth of D&O
coverage from September 9, 1992, to September 9, 1993. The
temporary conditional binder conditioned coverage on National
Union’s receipt, review, and acceptance of certain information from
Medical Care, including a completed application. It explained that
the policy would be issued with ten endorsements, including one for
“prior acts as of September 9, 1992.”1 Waldie summarized the
temporary conditional binder in a separate binder (“Binder”) he
sent to Major-Gable on September 15, 1992. The Binder indicated
that the policy would exclude “all prior acts prior to policy
inception date.” On September 28, 1992, Medical Care satisfied the
conditions of the temporary conditional binder.
B.
The pre-merger expectations for Medical Care proved overly
optimistic, and on September 25, 1992, the new company announced
flat earnings. The announcement caused share value to plummet over
50% in one day, at which point the New York Stock Exchange
suspended trading of Medical Care stock. In response, at least 15
1
Prior to the merger, CCA maintained D&O insurance through the
Chubb Group of Insurance Companies. Its coverage continued through
September 9, 1992. It also purchased a “runoff” policy that
extended the reporting period for claims regarding pre-merger acts.
MCI had no D&O coverage for acts prior to September 9, 1992.
3
shareholder class action lawsuits were filed against Medical Care,
CCA, MCI, and the directors and officers. The lawsuits were
consolidated into a single action in the United States District
Court for the Northern District of Texas. The consolidated suit
alleged violations of §§ 10(b)and 20(a) of the Securities Exchange
Act of 19342 and of SEC Rule 10b-5.3 The complaint alleged that the
defendants made misrepresentations and failed to make necessary
disclosures in public statements and filings.
On January 30, 1993, National Union issued the D&O liability
policy that Medical Care had applied for the previous September.
Endorsement #7 of the policy provided:
In consideration of the premium charged, it is hereby
understood and agreed that this policy only provides
coverage for Loss arising from claims for alleged
Wrongful Acts occurring on or after September 9, 1992 and
prior to the end of the Policy Period and otherwise
covered by this policy. Loss(es) arising out of the same
or related Wrongful Act(s) shall be deemed to arise from
the first such same or related Wrongful Act.
By letter dated January 27, 1993, National Union denied coverage
for the claims asserted in the class action based on the related
acts language of the second sentence of Endorsement #7. On March
9, 1993, the class action plaintiffs filed an amended complaint.
National Union restated its denial of coverage by letter dated May
2
15 U.S.C. §§ 78j(b), 78t(a).
3
17 C.F.R. § 240.10b-5.
4
21, 1993, repeating its reliance on Endorsement #7.4
The shareholder suit was settled in principle pursuant to
court-ordered mediation for $60 million and the full release of all
claims asserted against the defendants. Medical Care advised
National Union of the settlement, asking it to reconsider its
denial of coverage and to participate in the settlement, which had
not yet been funded or approved by the court. National Union
reiterated its previous position. After the district court
approved the settlement, the $60 million was paid to the class
action plaintiffs and the claims against Medical Care, MCI, CCA,
and their respective officers and directors were released. In
February 1995, the defendants entered into an agreement that
allocated responsibility for the $60 million settlement among five
of the six defendants. Under that agreement, Medical Care owed a
contribution to the settlement but its directors and officers, who
were separate defendants in the shareholder suit, did not.5 In May
1996, however, the defendants revised their allocation agreement,
requiring Medical Care’s directors and officers to contribute $10
million to the settlement.6 Because Medical Care had indemnified
4
Meanwhile, in September of 1994, Medical Care was acquired by
Columbia/HCA Healthcare Corporation.
5
The agreement allocated sums as follows: MCI, $13.4 million;
the directors of MCI, $10 million; CCA, $13.4 million; the
directors of CCA, $10 million; and Medical Care, $13.4 million.
6
The revised agreement allocated sums as follows: MCI, $10
million; the directors of MCI, $10 million; CCA, $10 million; the
directors of CCA, $10 million; Medical Care, $10 million; and the
5
its directors and officers, it ultimately bore responsibility for
that $10 million.
C.
Medical Care filed the present lawsuit in November 1996 after
National Union denied coverage under the D&O policy. It stated
claims for breach of contract, breach of the duty of good faith and
fair dealing, and violations of the Texas Insurance Code.7 The
district court granted in part and denied in part the parties’
competing motions for summary judgment. Of relevance to this
appeal, the court ruled for Medical Care in holding that “the
binder agreements are the controlling contracts of insurance at
issue in this case”; ruled against Medical Care in finding that
there was a triable issue as to whether National Union was estopped
from relying on the related acts exclusion; and ruled for National
Union in dismissing with prejudice Medical Care’s extracontractual
claims.
Medical Care’s remaining claim for breach of contract was
tried to a jury. At the close of the evidence, both parties filed
motions for judgment as a matter of law (“JMOL”). The court denied
Medical Care’s motion in toto. Of relevance here, it held that
Medical Care had not shown that it was due coverage as a matter of
law. The court granted National Union’s motion in part, ruling
directors of Medical Care, $10 million.
7
Tex. Ins. Code art. 21.21.
6
that the insurance contract included a “related acts” exclusion and
that National Union was not equitably estopped from relying on that
“related acts” exclusion. The jury returned a take-nothing verdict
for Medical Care, finding that Medical Care proved that its
directors and officers had incurred loss arising from the
shareholders’ claims about their alleged wrongful acts occurring on
or after September 9, 1992, and that Medical Care had indemnified
its directors and officers for such loss. The jury found, however,
that National Union proved that all the directors’ and officers’
wrongful acts occurring after September 9, 1992, were the same as
or related to wrongful acts occurring prior to September 9, 1992.
After the court denied its motion for a new trial and its
renewed motion for JMOL, Medical Care appealed.
II.
We review summary judgment de novo, following the same
standard applied by the district court.8 Summary judgment is
appropriate only if the movant demonstrates that there are no
genuine issues of material fact and that it is entitled to a
judgment as a matter of law.9
8
GeoSouthern Energy Corp. v. Chesapeake Operating Inc., 274 F.3d
1017, 1020 (5th Cir. 2001).
9
Fed. R. Civ. P. 56(c).
7
We also review judgment as a matter of law de novo.10 JMOL is
appropriate when “a party has been fully heard with respect to an
issue and there is no legally sufficient evidentiary basis for a
reasonable jury to have found for that party with respect to that
issue.”11 In reviewing the record, we draw all reasonable
inferences in favor of the nonmovant, make no credibility
determinations, and do not weigh the evidence.12 We give credence
to evidence supporting the movant only if it “is uncontradicted and
unimpeached, at least to the extent that that evidence comes from
disinterested witnesses.” If, after reviewing the evidence in this
manner, “the facts and inferences point so strongly and
overwhelmingly in favor of one party that the Court believes that
reasonable men could not arrive at a contrary verdict, granting of
[JMOL] is proper.”13 But “if there is substantial evidence opposed
to [JMOL], that is, evidence of such quality and weight that
reasonable and fair-minded men in the exercise of impartial
judgment might reach different conclusions, [JMOL] should be
10
Deffenbaugh-Williams v. Wal-Mart Stores, Inc., 188 F.3d 278,
285 (5th Cir. 1999).
11
Fed. R. Civ. P. 50(a)(1).
12
Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150
(2000).
13
Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir. 1969)
(en banc), overruled on other grounds by Gautreaux v. Scurlock
Marine, Inc., 107 F.3d 331 (5th Cir. 1997) (en banc).
8
denied.”14
III.
A.
The parties agree that under Texas law an insurance binder
provides coverage according to the terms and provisions of the
ordinary form of the contemplated policy.15 In this case, the
Binder expressly states that the policy would exclude coverage of
“all prior acts prior to policy inception date,” but it is silent
as to coverage of subsequent acts that are related to the prior
acts. At issue is whether the ordinary form of prior acts
endorsement used in D&O policies contains language excluding
coverage of subsequent related acts.16 At the close of evidence,
the district court granted a partial JMOL for National Union on
this issue, finding as a matter of law that Endorsement #7, the
prior acts endorsement containing related acts language that was
14
Id. (“A mere scintilla of evidence is insufficient to present
a question for the jury.”).
15
See Great Am. Ins. Co. of N.Y. v. Maxey, 193 F.2d 151, 152
(5th Cir. 1951) (“The terms and provisions which control in the
construction of the coverage afforded by a binder are those
contained in the ordinary form of policy usually issued by the
company at the time upon similar risks.” (further citation
omitted)); Ranger County Mut. Ins. Co. v. Chrysler Credit Corp.,
501 S.W.2d 295, 298 (Tex. 1973) (“As long as a binder is in effect,
the insured may look to the form of the contemplated policy for
coverage, duration, cancellation, and other terms.” (further
citation omitted)).
16
Under Texas law, National Union bore the burden of
establishing that a policy exclusion applies. See Tex. Ins. Code
art. 21.58(b); see also Guaranty Nat’l Ins. Co. v. Vic Mfg. Co.,
143 F.3d 192, 193 (5th Cir. 1998).
9
used in the policy issued to Medical Care in January 1993, “was the
standard form normally or ordinarily issued by National Union” in
its D&O liability policies. The consequence of this ruling under
Maxey and Ranger County was to make the related acts exclusion a
term of the Binder. We agree that National Union met its burden
under Rule 50(a) and that JMOL was appropriate on this issue.
Two disinterested witnesses testified that National Union’s
standard practice, like that of the industry, was to use related
acts language in prior acts endorsements. Lawrence Waldie, the
insurance broker who served as Medical Care’s agent, testified that
Endorsement #7 was in a form that was the “customary and normal
form of a prior acts endorsement issued by National Union” and
other carriers writing D&O policies under similar circumstances.17
Hence, he was not surprised that it contained related acts
language. On the contrary, he agreed that Endorsement #7 was the
type of prior acts endorsement that he had anticipated when he
wrote out the Binder in September 1992. He testified that he had
no recollection of ever negotiating a prior acts endorsement that
did not contain related acts language on behalf of any client with
either National Union or any other insurer. Furthermore, he could
not recall ever seeing a D&O policy with a prior acts endorsement
17
Although Waldie also testified that D&O policies written by
different companies often used different verbiage, he explained
that “probably 80 to 90 percent of the terms and conditions would
be very, very similar as far as the exclusion and the basic
insuring agreements.”
10
that did not contain related acts language. Indeed, he was not
aware that any such policy was available in the industry.
Anthony Codding testified similarly. Codding, a former
assistant division manager of National Union’s D&O division, was
involved in underwriting between 5000 and 8000 D&O policies at
National Union. He testified that in his experience National Union
had never used a prior acts endorsement that did not include
related acts language. He explained that, based on his experience,
he would interpret a reference in a binder to a prior acts
endorsement to mean that the subsequently issued policy would
include a prior acts endorsement containing related acts language.
In sum, he testified that the standard form used in 1992 by
National Union for prior acts endorsements contained language “such
as the second sentence of endorsement number 7"–that is, related
acts language.
Through Codding, Medical Care introduced evidence that
National Union had seven different forms of prior acts endorsements
available for use by its underwriters. One of these did not
contain related acts language. Codding testified, however, that he
could not recall a time when National Union had used that lone
form. He explained that “[i]t is not a standard endorsement” and
is not “ordinarily and customarily used by National Union on D&O
policies.”
In addition to Waldie and Codding, Elliot Rothman appeared on
behalf of National Union as an expert witness in the area of D&O
11
liability insurance. Rothman testified that the standard industry
practice was to include related acts language in prior acts
endorsements.18
Medical Care offered no evidence to contradict the testimony
of Waldie, Codding, or Rothman. Instead, it argued that the lone
endorsement form that did not contain related acts language and the
testimony that all D&O policies were different and subject to
negotiation created a triable issue about the scope of coverage
under the Binder. But neither piece of evidence supports a
reasonable inference that the customary and standard form of D&O
liability insurance issued by National Union did not contain
related acts language. There is no evidence that National Union
ever used the lone endorsement form that does not contain related
acts language. And there is no evidence that National Union ever
issued a D&O policy with a prior acts endorsement that did not
contain related acts language. Indeed, Codding testified that he
could not recall a single instance when a broker or client
negotiated the related acts language out of a prior acts
endorsement.
After carefully reviewing the record, we conclude that the
evidence and inferences point so strongly and overwhelmingly in
18
Robert Lang, an expert in the area of D&O insurance law, also
testified that in 20 years of practice he had only seen D&O
policies that used prior acts exclusions that contained related
acts language. Because National Union is one of his principal
clients, Lang cannot be considered a disinterested witness.
12
favor of a finding that National Union’s standard prior acts
endorsement normally or ordinarily used in its D&O liability
policies contained related acts language that JMOL in National
Union’s favor is warranted.
B.
Medical Care asserts that National Union was equitably
estopped from relying on the related acts language to deny
coverage. Under Texas law, a plaintiff relying on the doctrine of
equitable estoppel must show:
(1) a false representation or concealment of material
facts; (2) made with knowledge, actual or constructive,
of those facts; (3) with the intention that it should be
acted on; (4) to a party without knowledge or means of
obtaining knowledge of the facts; (5) who detrimentally
relies on the representations.19
“The burden of proving an estoppel and the essential elements
thereof is on the party asserting it and the failure to prove any
one or more of the elements is fatal.”20 At the close of evidence,
the district court granted a partial JMOL for National Union on the
applicability of equitable estoppel to the case. The court
concluded that Medical Care had presented legally insufficient
evidence to establish the first or fourth elements. Because no
facts or inferences support a finding of those two elements, we
19
Johnson & Higgins v. Kenneco Energy, 962 S.W.2d 507, 515-16
(Tex. 1998) (citing Schroeder v. Texas Iron Works, Inc., 813 S.W.2d
483, 489 (Tex. 1991)).
20
Barfield v. Howard M. Smith Co. of Amarillo, 426 S.W.2d 834,
838 (Tex. 1968).
13
agree that JMOL for National Union was appropriate as to this
issue.
Medical Care asserts that National Union concealed the true
scope of the prior acts endorsement by omitting from its binder any
reference to related acts. As we discussed above, the
uncontroverted evidence shows that the Binder indicated that the
policy would include a prior acts endorsement; that a prior acts
endorsement used in the context of a D&O policy would normally and
ordinarily be understood to contain related acts language; and that
National Union’s standard prior acts endorsement normally and
ordinarily contained related acts language. There is no positive
evidence that National Union misrepresented or concealed coverage
terms. Because the evidence points so strongly and overwhelmingly
in favor of National Union, we conclude that a jury could not
reasonably infer that National Union had anything to conceal,
intended to conceal anything, or in fact concealed anything from
Medical Care. Because Medical Care failed to establish the first
element of equitable estoppel, summary judgment was appropriate.
Furthermore, under Texas law, “[a] party claiming an estoppel
must have used due diligence to ascertain the truth of the matters
upon which he relies in acting to his detriment.”21 There is no
evidence that Medical Care or any of its representatives made any
inquiry of Marsh or National Union as to either the scope or effect
21
Barfield, 426 S.W.2d at 838.
14
of the prior acts endorsement. Nor is there evidence that Medical
Care lacked the means to make such an inquiry or was somehow
prevented from doing so. On the contrary, Waldie testified that he
encouraged Major-Gable to contact him with questions about the
Binder. In short, our review of the record reveals that it cannot
reasonably be inferred that Medical Care used due diligence to
ascertain the scope or effect of the prior acts endorsement or that
Medical Care lacked the means of obtaining knowledge of the extent
of the prior acts exclusion. Thus, Medical Care also failed to
establish the fourth element of equitable estoppel, further
demonstrating that summary judgment was warranted.22
C.
At the close of evidence, Medical Care moved for JMOL on the
issue of whether the policy provided coverage for the shareholders’
claims of wrongdoing on the part of the company’s directors and
officers. It argued that JMOL was appropriate because the
shareholder suit alleged wrongful acts occurring on or after the
22
Medical Care argues that it had no reason to make further
inquiry into the scope of the coverage because it had requested
going forward coverage and the Binder only indicated that the
policy would exclude coverage for prior acts. Medical Care’s
argument is premised on an unfounded assumption about the meaning
of the Binder. Considering that insurance binders by design only
summarize a policy to be issued, Medical Care’s assumption about
the scope of coverage offered by its $10 million insurance policy
cannot reasonably be said to have constituted the exercise of due
diligence. Moreover, Waldie, Medical Care’s agent, testified that
he fully anticipated that the policy would contain a related acts
exclusion. Hence, Medical Care cannot establish detrimental
reliance.
15
merger;23 such acts were covered by the policy; and such acts were
not related to prior wrongful acts so as to be excluded by the
prior acts endorsement. The district court denied the motion.
On appeal, Medical Care does not directly challenge the
sufficiency of the evidence supporting the verdict. Instead, it
presents a legal argument for indemnification coverage. Its
argument, however, rests on faulty premises. First, it is not
true, as Medical Care contends, that the coverage issue must be
resolved by looking at the allegations of the underlying
shareholders suit. Under well-established Texas law, an insurer’s
duty to defend its insured is determined by considering the
allegations in the underlying litigation in the light of the policy
provisions.24 But National Union had no duty to defend Medical Care
by express provision of the policy.25 Instead we must look to the
rule governing an insurer’s duty to indemnify its insured. Under
Texas law, this duty depends on the actual facts of the underlying
23
The shareholders made alternative allegations. The other
alternative was that the statements were materially false and
misleading when made.
24
Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387
S.W.2d 22, 24 (Tex. 1965).
25
It is true, as Medical Care states, that an exception to the
general rule holds an insurer to the terms of a settlement it
wrongfully refused to defend. This exception is irrelevant here
because National Union had no duty to defend Medical Care.
Furthermore, even under this exception, an insurer is “not estopped
from contesting coverage of [its] liability.” Enserch Corp. v.
Shand Morahan & Co., 952 F.2d 1485, 1493 (5th Cir. 1992)
(“[C]overage . . . cannot be created ex nihilo by estoppel.”).
16
litigation.26
Second, Medical Care argues that indemnification coverage is
required based on a selective reading of the policy. Because the
policy defines “Loss” to mean “settlements,” it argues that there
must be coverage of settlements arising from claims of alleged
wrongdoing.27 But its reading fails to account for the limitations
on the definition of “Loss” imposed by Endorsement #7, which
clearly provides that not all loss is covered. In particular, the
prior acts endorsement expressly excludes loss arising from
wrongful acts related to prior wrongful acts predating the coverage
period:
[T]his policy only provides coverage for Loss arising
from claims for alleged Wrongful Acts occurring on or
after September 9, 1992 . . . . Loss(es) arising out of
the same or related Wrongful Act(s) shall be deemed to
arise from the first such same or related Wrongful Act.
By its very terms, therefore, the policy does not cover settlements
arising from claims of alleged wrongdoing that is the same as or
related to alleged wrongdoing occurring before September 9, 1992.
Once Medical Care’s faulty premises are corrected, it is clear
26
Id. at 25.
27
The basic coverage provision of the policy provides for
coverage of “Loss arising from . . . claims”:
This policy shall reimburse [Medical Care] for Loss arising
from any claim or claims which are first made against the
Directors or Officers . . . for any alleged Wrongful Act in
their respective capacities . . . .
17
that JMOL was not appropriate because it remained to be determined
whether Medical Care incurred a “Loss,” and, if so, whether that
loss arose from wrongdoing that was related to wrongdoing occurring
before the merger. Later, of course, the jury found that Medical
Care had incurred a “Loss” but that the loss was not covered
because it arose from wrongdoing that was the same as or related to
prior wrongdoing. Because Medical Care does not challenge the
jury’s findings on appeal, it concedes that the verdict rests on a
legally sufficient evidentiary basis.
D.
Finally, Medical Care contends that the district court erred
in granting partial summary judgment for National Union and
dismissing its extracontractual claims alleging breach of the duty
of good faith and fair dealing and violation of article 21.21 of
the Texas Insurance Code.
1.
With regard to the common law claim, the parties dispute
whether National Union owed a duty of good faith under the
circumstances. Under Texas law, an insurer owes a duty of good
faith in handling its insured’s own claim of loss.28 This duty
arises from the special relationship that exists between the
28
Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456,
459 (5th Cir. 1997) (citing Arnold v. National County Mut. Fire
Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987)).
18
insurer and its insured.29 An insured, however, has no claim for
bad faith premised on the insurer’s investigation or defense of a
claim brought against it by a third party.30 This is because “an
insured is fully protected against his insurer’s refusal to defend
or mishandling of a third-party claim by his contractual and
Stowers rights,” which give rise to causes of action sounding in
contract and negligence.31
In this case, Medical Care does not allege that National Union
acted in bad faith in investigating or defending the shareholders’
claims of loss. Indeed, it admits that National Union had no duty
to defend the shareholder suit. Medical Care alleges instead that
National Union acted in bad faith in handling its own claim of loss
(i.e., reimbursement of its indemnification of the $10 million
allocated to its directors and officers following the settlement of
the shareholder suit). Its allegation concerns the relationship
between it and National Union—not between National Union and the
shareholders. Thus, we will treat Medical Care’s claim as a first-
29
Arnold, 725 S.W.2d at 167 ; see also Universe Life Ins. Co. v.
Giles, 950 S.W.2d 48, 53 n.2 (Tex. 1997) (“A first-party claim is
one in which an insured seeks recovery for the insured’s own
loss.”).
30
See Maryland Ins. Co. v. Head Indus. Coatings and Servs.,
Inc., 938 S.W.2d 27, 27-28 (Tex. 1996); see also Giles, 950 S.W.2d
at 53 n.2 (explaining that a third-party claim is that “in which an
insured seeks coverage for injuries to a third party”).
31
Maryland Ins., 938 S.W.2d at 28-29. Under Stowers Furniture
Co. v. American Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App. 1929),
an insurer must use ordinary care in considering an offer of
settlement.
19
party claim to which the duty of good faith applies.
"[A]n insurer breaches its duty of good faith and fair dealing
by denying a claim when the insurer’s liability has become
reasonably clear."32 “Evidence that shows only a bona fide coverage
dispute does not rise to the level of bad faith.”33 Thus, “[a]s a
general rule there can be no claim for bad faith when an insurer
has promptly denied a claim that is in fact not covered.”34 Here,
the evidence overwhelmingly shows that there was a bona fide
coverage dispute, which National Union subsequently won. In the
absence of coverage, summary judgment for National Union was
appropriate as to Medical Care’s bad faith claim.
2.
Medical Care’s statutory claims arise under article 21.21
§ 16(a) of the Texas Insurance Code, which allows an individual who
has been damaged by "unfair methods of competition or unfair or
deceptive acts or practices in the business of insurance" to bring
a statutory cause of action. Medical Care alleged that National
Union engaged in four unfair or deceptive practices:
(a) National Union misrepresented the benefits of the
Policy to Medical Care and its officers and directors in
violation of [Texas Insurance Code] Art. 21.21 § 4(1).
32
State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex.
1998); see also Giles, 950 S.W.2d at 55 (“[A]n insurer will be
liable if the insurer knew or should have known that it was
reasonably clear that the claim was covered.").
33
Simmons, 963 S.W.2d at 43.
34
Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995).
20
(b) National Union made untrue and misleading statements
regarding the coverage it would provide pursuant to the
Policy, in violation of [Texas Insurance Code] Art. 21.21
§ 4(2).
(c) National Union engaged in unfair settlement practices
in violation of [Texas Insurance Code] Art. 21.21
§ 4(10).
(d) National Union misrepresented the Policy by making
untrue statement of material fact, failing to state
material facts, or making misleading statements to
Medical Care and its officers and directors in violation
of [Texas Insurance Code] Art. 21.21 § 4(11).
Each of these claims is time-barred. Article 21.21 § 16(d) imposes
a two-year limitations period on statutory claims and states that
a claim accrues when the unfair practice occurred or should have
been discovered:
All actions under this Article must be commenced within
two years after the date on which the unfair method of
competition or unfair or deceptive act or practice
occurred or within two years after the person bringing
the action discovered or, in the exercise of reasonable
diligence, should have discovered the occurrence of the
unfair method of competition or unfair or deceptive act
or practice.35
The misrepresentations of the first, second, and fourth statutory
claims allegedly occurred before coverage was denied on May 21,
1993. Likewise, the unfair settlement practices alleged in the
third statutory claim occurred before the denial of coverage. It
is self-evident that Medical Care should have discovered the
occurrence of these allegedly unfair or deceptive practices by May
35
See also Johnson & Higgins of Tex. v. Kenneco Energy, 962
S.W.2d 507, 515 (Tex. 1998) (explaining that as a general rule, a
cause of action accrues and the limitations period begins when
coverage is denied).
21
21, 1993. Therefore, because Medical Care did not sue until
November 22, 1996, over three years later, its statutory claims are
untimely.36 Summary judgment was warranted.
IV.
For the foregoing reasons, we AFFIRM the judgment.
AFFIRMED.
36
All-Tex Roofing, Inc. v. Greenwood Ins. Group, 73 S.W.3d 412
(Tex. Ct. App. 2002), to which Medical Care looks for support, is
distinguishable on the facts and on the applicable law. It does
not involve the Texas Insurance Code, a claim arising under that
code, or the particular language of the statute of limitations
imposed by that code on which our decision turns.
22
Medical Care America, Inc. v. National Union Fire Insurance Co. of Pittsburgh
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