Storebrand Insurance Co. U.K., Ltd. v. Employers Insurance of Wausau

UNITED STATES COURT OF APPEALS
For the Fifth Circuit

No. 97-41112

STOREBRAND INSURANCE COMPANY U.K., LIMITED,
Plaintiff-Appellant,

VERSUS

EMPLOYERS INSURANCE OF WAUSAU,
A MUTUAL COMPANY,
Defendant-Appellee.

Appeal from the United States District Court
For the Southern District of Texas

May 7, 1998

Before POLITZ, Chief Judge, REYNALDO G. GARZA, and DENNIS, Circuit
Judges.

REYNALDO G. GARZA, Circuit Judge:

This is an appeal from the United States District Court for

the Southern District of Texas, Galveston Division, the Honorable

Samuel B. Kent, presiding. The district court granted summary

judgment in favor of the Defendant-Appellee, Employers Insurance of

Wausau (“Wausau”), and dismissed with prejudice the claims of the

Plaintiff-Appellant, Storebrand Insurance Company (“Storebrand”).

Storebrand appealed, and the matter now lies before this circuit.

Background

In December of 1991, the Texas Workers’ Compensation Insurance

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Facility (“the Facility”), Texas’ insurer of last resort, issued a

liability policy to Stafftek, Inc. (“Stafftek”), a staff leasing

company. Pursuant to the Texas Insurance Code, the Facility chose

Wausau to service the policy. This policy contained an Alternate

Employer Endorsement extending coverage to “all clients” of

Stafftek.

In February of 1992, Stafftex, Inc. (“Stafftex”), a staff

leasing company, entered into an employee leasing contract (“the

Contract”) with Texas Drydock, Inc. (“TDI”), a ship maintenance and

repair company. The Contract was subsequently assigned by Stafftex

to its sister company, Stafftek. The Contract provided that

Stafftek and TDI would be considered to be joint employers of the

leased employees and that Stafftek would obtain insurance coverage

protecting Stafftek and TDI from risks arising from this

arrangement, including the possibility of a lawsuit from an injured

employee. The aforementioned Wausau insurance policy covered this

arrangement, because TDI was a client of Stafftek. Storebrand

provided general liability insurance to TDI.

On February 12, 1992, Sylvester Dickey (“Dickey”), an employee

of Stafftek under the control and direction of TDI, was injured

while working on a barge.1 Dickey filed a lawsuit against TDI,

though he later amended his complaint to include Stafftek and

Stafftex as defendants. He brought claims under the Longshore and

1
Dickey was originally hired by TDI in 1987, but in 1990, TDI
required all hourly employees to enter into employment contracts
with Stafftek. Such employees continued in their original jobs
with TDI while Stafftek performed administrative employer
functions, such as payroll.

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Harbor Workers’ Compensation Act (“LHWCA”), 33 U.S.C. §901, et

seq., and asserted claims of negligence. Over the course of the

years of litigation, Dickey again amended his complaint, in a

manner which suggested to Wausau that Dickey alleged that Stafftek

alone was his employer.2 Dickey never alleged a third-party claim

under §905(b) of the LHWCA. Wausau alleges that this fact, among

others, led them to believe that there would be no §905(b)

employers’ liability, and Wausau analyzed its risk exposure

accordingly.

The case went to mediation. Based on the analysis of Wausau’s

attorney, W. Robins Brice (“Brice”), the Facility , through Wausau,

offered $300,000 to settle Dickey’s claims. Dickey would not

accept less than $500,000. TDI argued that the Facility should pay

the full amount. In the end, Wausau paid $300,000, and Storebrand

paid $200,000, the difference between what Wausau paid and Dickey’s

demands. Storebrand did not appeal the Facility’s decision to the

Texas Department of Insurance or any other body. Instead, it filed

suit against Wausau.

Storebrand filed suit against Wausau, in the Galveston

Division of the Southern District of Texas, asserting causes of

action for negligence, gross negligence, breach of the duty of good

faith and fair dealing (“bad faith”), violations of Texas Insurance

Code Article 21:21 and the Texas Deceptive Trade Practices Act

(“DTPA”), and common law indemnification. Storebrand sued in its

2
While TDI filed a motion for summary judgment on the
employment issue during the course of the Dickey litigation, it was
never decided upon.

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individual capacity and as the subrogee of TDI. The parties filed

cross-motions for summary judgment. The district court granted

summary judgment in favor of Wausau, though it disagreed with

Wausau’s contention that the district court lacked jurisdiction

over this matter. Storebrand’s claims were dismissed with

prejudice. Storebrand timely appealed, on the Article 21:21 and

DTPA issues, and on Stowers3 claims. The matter now lies before

this panel.

Standard of Review

The standard of review for the granting of a motion for

summary judgment is de novo. BellSouth Telecommunications, Inc. v.

Johnson Bros. Group, 106 F.3d 119, 122 (5th Cir. 1997); Guillory v.

Domtar Industries, Inc., 95 F.3d 1320, 1326 (5th Cir. 1996).

Summary judgment is warranted when “the pleadings, depositions,

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact.” FED.R.CIV.P. 56(c); Celotex v. Catrett, 477 US 317,

322 (1986).

Analysis

The first issue to be dealt with is the issue of subject

matter jurisdiction. Wausau argued at the district court level

that the district court did not have subject matter jurisdiction

3
A Stowers claim is based on the holding in Stowers Furniture
Co. v. American Indem. Co., 15 S.W.2d 544 (Tex.Comm’n.App. 1929,
holding approved), an issue to be defined and discussed later.

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over this matter because Storebrand had not exhausted its

administrative remedies. The district court rejected this

argument, and Wausau argued it again before this circuit. We agree

with the district court.

The district court described the law on this matter as being

“in flux.” The district court pointed out that in Northwinds

Abatement Inc. v. Employers Ins. of Wausau, 69 F.3d 1304, 1310-11

(5th Cir. 1995), this circuit held that the exhaustion of

administrative remedies doctrine did not apply in cases involving

tort claims against a company member of the Facility, because the

relevant administrative bodies do not have the authority to

adjudicate tort actions or to award damages.

Wausau cited two recent Texas court of appeals decisions for

the contention that one must pursue and exhaust all administrative

remedies even when extra-contractual damages are sought. See Metro

Temps, Inc. v. Texas Workers’ Compensation Ins. Facility, 949

S.W.2d 534, 535 (Tex.App.--Austin 1997, no writ); Producers

Assistance Corp. v. Employers Ins. of Wausau, 934 S.W.2d 796, 800

(Tex.App.--Houston [1st Dist.] 1996, no writ). These cases are

distinguishable, because they involve insureds who should have

exhausted their remedies, while Storebrand is not an insured and

was not a participant in the Facility. Judge Kent held that the

Texas law on this is at best unsettled, and that this circuit’s

reasoning in Northwinds governs.4 We agree, and affirm Judge Kent

4
Indeed, in his decision, Judge Kent considered and rejected
one of the cases cited by Wausau as authority on this point, and
pointed out that the Texas Supreme Court has not spoken on this

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on this point.

The next issue is whether Wausau’s actions were in violation

of the Texas Insurance Code or Deceptive Trade Practices Act. The

district court held that they were not. The district court stated

that the predicate for recovery on these claims is the same as that

required for bad faith causes of action. Higginbotham v. State

Farm Mut. Auto Ins. Co., 103 F.3d 456, 460 (5th Cir. 1997). Such

a cause of action exists “when the insurer has no reasonable basis

for denying or delaying payment of a claim or when the insurer

fails to determine or delays in determining whether there is any

reasonable basis for denial.” Id. at 459 (citing Arnold v.

National County Mut. Fire. Ins. Co., 725 S.W.2d 165, 167 (Tex.

1987). Also, it should be noted that under the Texas Insurance

Code, the Facility is the insurer, not Wausau, because Wausau

merely serviced the policy. Northwinds, 69 F.3d at 1306. As such,

Wausau cannot be held liable for general claims of breach of good

faith and fair dealing, only for the Insurance Code and DTPA

claims. See Id. at 1311.

The district court held that Wausau’s actions passed muster

under the standard set forth by Northwinds and Higginbotham with

regard to the Insurance Code and DTPA claims. Judge Kent held that

there was a reasonable basis for Wausau to offer a maximum of

$300,000 to settle the Dickey case, based on the analysis of its

attorneys regarding the value of the claim. Also, the district

court considered it reasonable that Wausau believed it did not have

specific issue.

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potential liability for TDI under §905(b), because Dickey never

asserted a claim against TDI under §905(b) and Wausau believed the

statute of limitations had passed on this issue.5 We agree with

the reasoning and decision of the district court on this issue, and

we see no reversible error on this point.

Storebrand contends that the district court erred in finding

that Wausau acted in good faith and thus was immune from liability

under Article 21:21 and the DTPA. Storebrand’s claims complain of

unfair claims settlement practices. As such, they do not sound in

fraud, nor do they claim fraud or misrepresentation. Instead, they

are essentially statutory bad faith claims. We have already stated

that we believe Wausau’s actions were reasonable. Similarly, we do

not see any evidence of bad faith. Wausau did not lie to

Storebrand or TDI, it merely acted on its analysis of what was

appropriate to be paid out in this matter, and its analysis was not

unreasonable. We find no reversible error with regard to this

issue.

Storebrand also appeals the dismissal of its Stowers claim.

The Stowers doctrine is a very old and venerable doctrine in Texas

law. Under Stowers, an insurer is required to exercise the degree

of care and diligence when responding to settlement demands within

5
Storebrand argued in its brief that the §905(b) claim could
relate back to the original filing, under a Texas court of appeals
case called Bradley v. Etessam, 703 S.W.2d 237, 240 (Tex.App.--
Dallas 1985, writ ref’d n.r.e.). We do not pass on this issue,
given that it is peripheral to this case, does not affect the
reasonability analysis given the totality of facts in this case,
and because our court is not bound by a singular decision of one
Texas court of appeals regarding a completely different case and
set of facts.

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policy limits which an ordinary and prudent person would exercise

in managing his own business. Stowers, 15 S.W.2d at 547. If the

insurer does not exercise that degree of care and diligence, “an

insured may recover from his insurer the entire amount of a

judgment in excess of policy limits rendered against him...”

Ecotech Int’l Inc. v. Griggs & Harrison, 928 S.W.2d 644, 646

(Tex.App.--San Antonio 1996, writ denied).

Storebrand does not prevail under the terms of the Stowers

doctrine. First, Wausau’s actions were not unreasonable, and they

were not imprudent. Also, no judgment was made against TDI,

because the matter was settled in mediation. Further, the insurer

in this case is the Facility, and Wausau should not be made liable

as an insurer in this context. On this issue, the district court

was correct in finding in favor of Wausau, as it did elsewhere. We

find no reversible error in Judge Kent’s decision, and we affirm.

Conclusion

Given the foregoing, we find no reversible error in Judge

Kent’s decision. Accordingly, we AFFIRM the decision of the

district court granting summary judgment in favor of Wausau in this

matter.

AFFIRMED.

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