Insurance Co. of North America v. Aberdeen Insurance Services, Inc.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

No. 99-20721
_______________

INSURANCE COMPANY OF NORTH AMERICA, Surety for Maitland
Brothers Company and as Assignee and Equitable suborgee of
the claims of Maitland Brothers Company; MAITLAND BROTHERS
CO, by its Trustee in Bankruptcy Maryleen Thomas,

Plaintiffs - Counter Defendants -
Appellants - Cross-Appellees,

VERSUS

ABERDEEN INSURANCE SERVICES, INC; ET AL,

Defendants,

ABERDEEN INSURANCE SERVICES, Inc; ST ANDREWS
INSURANCE SERVICES, INC.,

Defendants-Cross Defendants-
Appellees-Cross-Appellees,

VERSUS

INDEMNITY MARINE ASSURANCE CO LTD; COMPAGNIE D'ASSURANCES
MARITIMES AERIENNES ET TERRESTRES; ASSURANCES GENERALES DE
FRANCE IART; SPHERE DRAKE INSURANCE PLC; COMMERCIAL UNION
ASSURANCE COMPANY; THE TOKIO MARINE & FIRE INSURANCE CO (UK)
LTD; THE YORKSHIRE INSURANCE CO LTD; NORTHERN ASSURANCE CO
LTD; TERRA NOVA INSURANCE CO; ASSICURAZIONI GENERALI; ATLAS
ASSURANCE CO LTD; THE SCOTTISH LION INSURANCE CO LTD; FOLKSAM
INTERNATIONAL INSURANCE CO (UK) LTD; AEGON INSURANCE COMPANY
(UK) LIMITED; SKANDIA MARINE INSURANCE COMPANY (UK) LIMITED,

Defendants - Counter Claimants -
Appellees - Cross-Appellants.

_________________________

Appeals from the United States District Court
for the Southern District of Texas, Houston
_________________________
June 25, 2001
Before JOLLY, MAGILL* and BENAVIDES, Circuit Judges.

MAGILL, Circuit Judge:

In January 1997, Appellants Insurance Company of North

America ("INA") and Maitland Brothers Company ("Maitland")

brought suit against Aberdeen Insurance Services, Inc.

("Aberdeen") and various London Underwriters (the "Underwriters")

in federal district court, seeking coverage under an insurance

policy issued by Aberdeen to Offshore Diving and Salvage, Inc.

("Offshore"), a Maitland subcontractor. The Underwriters filed a

counterclaim, alleging Appellants brought their suit in bad

faith. After an eight-day trial, a jury entered a special

verdict, deciding in favor of INA and Maitland. However, the

district court concluded that there was insufficient evidence to

support the jury's findings as to some of the questions that

formed the special verdict. Therefore, the court entered

judgment as a matter of law under which INA and Maitland received

no damages, but denied the Underwriters' motion for judgment as a

matter of law on their counterclaim. Maitland and INA appeal the

district court's partial reversal of the jury's findings and

judgment in favor of the Underwriters. The Underwriters cross-

appeal the district court's denial of their motion for judgment

as a matter of law on their counterclaim. Because we conclude

*
Circuit Judge of the Eighth Circuit, sitting by
designation.

2
that the district court erred insofar as it overruled the jury's

verdict, we reverse the district court's partial grant of

judgment as a matter of law for the Underwriters and affirm the

district court's denial of the Underwriters' motion for judgment

as a matter of law on their counterclaim.

I.

A. The DOE Contract

In November 1993, the United States Department of Energy

(the "DOE") contracted with Maitland to construct a pipeline from

the Strategic Petroleum Reserve at Bryan Mound, Texas to the Gulf

of Mexico. As part of the contract between the DOE and Maitland

(the "DOE Contract"), the DOE required Maitland to maintain

comprehensive general liability and third party property damage

insurance, naming the United States as an additional insured. In

addition, the DOE required that its Contracting Officer receive

thirty days advance written notice, by mail, of any changes in,

or cancellation of, such insurance policies. The DOE Contract

also contained the Federal Acquisition Regulations (the "FAR")

applicable to the project. One of these FAR, titled "Insurance

- Work on a Government Installation" ("FAR 47"), required

Maitland to maintain certain types of insurance, certify that the

required insurance had been obtained, and provide at least thirty

days notice of cancellation. Additionally, FAR 47 stated: "The

Contractor shall insert the substance of this clause, including

3
this paragraph (c), in subcontracts under this contract that

require work on a Government installation." The DOE Contract

also provided that Maitland was fully responsible for all acts

and omissions of its subcontractors. Appellant INA was the

surety under the performance and payment bonds issued to Maitland

pursuant to the DOE Contract's requirements.

B. The Offshore Subcontract

On November 16, 1994, Maitland entered into a contract (the

"Subcontract") with Offshore, under which Offshore was to provide

diving services in connection with Maitland's construction of the

pipeline. Prior to signing the Subcontract, Maitland's

comptroller, Peter Comly, discussed insurance requirements with

Offshore and spoke to Offshore's insurer, Aberdeen. After the

parties signed the Subcontract, Aberdeen sent Maitland a

certificate of insurance confirming that Maitland was an

additional insured on Offshore's policies, that the required

insurance was in effect, and that Maitland would be provided

thirty days notice prior to cancellation of Offshore's insurance.

Paragraph One of the Subcontract stated: "[t]he Sub-contractor

assumes with respect to the General contractor all of the

obligations which the General contractor owes to the owner under

the contract and all of the contract documents forming part of

the contract for the DOE Contract . . . ."

4
C. Offshore's Insurance

Aberdeen was the domestic broker for Offshore's

comprehensive general liability and property damage insurance

policy (the "Cover Note"). The Underwriters subscribed to the

security on the Cover Note. Offshore paid the bulk of the Cover

Note through a premium financing agreement with Premium Finance

Specialists, Inc. ("PFS") that required Offshore to pay PFS in

monthly installments. Offshore failed to make its scheduled

premium payments to PFS, so, on January 3, 1995, PFS issued

Offshore a Note of Intent to Cancel. The Cover Note was canceled

effective January 15, 1995. Maitland received no notice of the

cancellation.

D. The Accident

On March 2, 1995, Offshore's anchors struck a portion of the

pipeline, breaking it into two sections.1 On March 6, Peter

Comly telephoned Aberdeen to inform it of the pipe break. He

explained that Maitland was responsible for the repairs and asked

Aberdeen to investigate. On March 7, Aberdeen sent a notice of

cancellation to Maitland, indicating that the Cover Note had been

cancelled effective January 15, 1995 due to Offshore's failure to

pay its premiums. The Underwriters denied coverage of the loss

1
An earlier, unrelated break had taken place on February 6,
1995.

5
in an April 3, 1995 letter stating that the accident "was outside

the policy period and therefore of no concern to Underwriters."

E. Repair of the Pipeline

After receiving the Underwriters' April 3 letter, Maitland

contacted INA, its insurer, for financial assistance in repairing

the pipeline. The DOE informed Maitland that under the DOE

Contract, Maitland was responsible for its subcontractors'

performance and thus was responsible for the delays caused by the

March 2 accident. Maitland devised a repair plan, which the DOE

approved. Maitland attempted repairs until mid-July, when INA

became dissatisfied with Maitland's repair efforts and removed it

from the job. INA hired J. Ray McDermott ("McDermott") to

complete the repairs. On July 30, 1995, McDermott struck the

pipeline, causing additional damage. McDermott billed

approximately $2.2 million for its work, of which INA paid

$700,000 for work prior to the July 30 pipe break. Subsequently,

INA, McDermott, and McDermott's insurer entered into a negotiated

settlement (the "McDermott Settlement"), in which they

apportioned the damage caused by Offshore's March 2 break and

McDermott's July 30 break, concluding that $769,000 of

McDermott's work was related solely to repairing Offshore's

break.

When the contract between Maitland and the DOE was not

timely completed, the DOE was entitled under the contract to

6
assess liquidated damages of $5400 per day against Maitland.

Following completion of the project, INA and the DOE entered into

a settlement agreement under which the DOE assessed liquidated

damages of $615,000 (the "DOE Settlement").

F. The Proceedings Below

In January 1997, INA and Maitland sued Aberdeen and the

Underwriters, alleging that: (1) Maitland was an additional

insured entitled to coverage under Offshore's Cover Note; (2) the

Cover Note required that the Underwriters give Maitland thirty

days notice prior to cancellation; and (3) the January 15, 1995

cancellation of the Cover Note was ineffective as to Maitland

because the Underwriters failed to provide the required notice.

The Underwriters counterclaimed, alleging that Appellants' suit

was baseless and brought in bad faith.

Following an eight-day trial, the jury found for INA and

Maitland on their claims against the Underwriters, concluding

that: (1) Maitland and Offshore agreed in the Subcontract that

Maitland would be an additional insured under the Cover Note; (2)

Maitland and Offshore agreed in the Subcontract that thirty days

notice of cancellation would be given to Maitland before

cancellation would be effective as to Maitland; (3) Maitland was

obligated to insert the substance of Clause 47 of the DOE

Contract (containing FAR 47) into the Subcontract; (4) the

Subcontract inserted the substance of Clause 47 of the DOE

7
Contract; (5) the Underwriters agreed in the Cover Note to

provide thirty days advance written notice of cancellation to

Maitland; (6) the Underwriters failed to give thirty days written

notice to Maitland prior to cancellation of the Cover Note; (7)

Maitland incurred a loss that was covered and payable under the

Cover Note; (8) Maitland faced potential liability to the DOE for

the damages caused by Offshore to the pipeline, and Appellees

entered into a reasonable, prudent, good-faith settlement with

the DOE to resolve that potential liability; (9) Appellants

incurred damages in the amount of $3,827,798.76 in settling with

the DOE; (10) Maitland presented Aberdeen, the Underwriters'

actual or apparent agent, with a claim for damages arising out of

the March 2, 1995 pipeline break; and (11) the Underwriters

denied Maitland's claim. The jury also found for Maitland and

INA on the Underwriters' counterclaim, concluding that Appellants

did not bring suit in bad faith or for purposes of harassment.

On June 30, 1999, the district court entered an order

finding that there was sufficient evidence to support the jury's

conclusions that: (1) Maitland and Offshore agreed in the

Subcontract that Maitland would be an additional insured under

the Cover Note; (2) Maitland and Offshore agreed in the

Subcontract that thirty days notice of cancellation would be

given to Maitland before cancellation would be effective as to

Maitland; (3) the Underwriters failed to give thirty days written

notice to Maitland prior to cancellation of the Cover Note; and

8
(4) Maitland incurred a loss that was covered and payable under

the Cover Note. However, the court also concluded that there was

insufficient evidence to support the jury's findings that: (1)

the Subcontract inserted the substance of Clause 47 of the DOE

Contract (which contained FAR 47); (2) the Underwriters agreed in

the Cover Note to provide thirty days advance written notice of

cancellation to Maitland; (3) Maitland faced potential liability

to the DOE for the damages caused by Offshore to the pipeline;

(4) Appellants incurred damages in the amount of $3,827,798.76 in

settling with the DOE; (5) Maitland presented Aberdeen, the

Underwriters' actual or apparent agent, with a claim for damages

arising out of the March 2, 1995 pipeline break; and (6) the

Underwriters denied the claim. The district court went on to

find as a matter of law that the Subcontract did not incorporate

by reference the substance of Clause 47 of the DOE Contract.

Finally, the court found that the Cover Note did not provide

coverage for liquidated damages. Based on these findings, the

court entered judgment that INA and Maitland receive no damages

from the Underwriters, and denied as moot the Underwriters'

motion for judgment as a matter of law on their counterclaim.

INA and Maitland appeal from the judgment of the district

court partially reversing the jury's findings. The Underwriters

appeal the district court's denial of their motion for judgment

as a matter of law on their counterclaim, as well as the court's

upholding of the jury's finding that Maitland suffered a loss

9
that was covered by Offshore's Cover Note.

II.

We review the district court's ruling on a motion for

judgment as a matter of law de novo, viewing all evidence in the

light most favorable to the verdict. Baltazor v. Holmes, 162

F.3d 368, 373 (5th Cir. 1998). All evidence and reasonable

inferences are viewed in favor of the nonmoving party. Id. If

the facts and inferences point so strongly and overwhelmingly in

favor of the moving party that reasonable jurors could not arrive

at a contrary verdict, the court properly granted the motion.

Robertson v. Bell Helicopter Textron, Inc., 32 F.3d 948, 950-51

(5th Cir. 1994). If there is substantial evidence – that is,

evidence of such quality and weight that reasonable and fair-

minded jurors might reach a different conclusion – then the court

should have denied the motion. Id. at 951.

III.

A. Notice of Cancellation

Appellants contend that the Underwriters were required to

provide Maitland with thirty days notice prior to the

cancellation of Offshore's Cover Note, and that the failure to do

so renders the cancellation ineffective as to Maitland. The

district court rejected the findings of the jury, which were

consistent with Appellants' contention. As neither the

Subcontract nor the Cover Note contains an express requirement

10
that the Underwriters provide Maitland with advance notice of

cancellation, Appellants advance several theories in support of

their argument that such notice was required.

First, Appellants assert that Article 24.17 of the Texas

Insurance Code imposed a statutory notice obligation upon the

Underwriters.2 Tex. Ins. Code Art. 24.17 (2001). Article 24.17

requires a premium finance company to issue a written notice of

intent to cancel for payment default to the insured prior to

mailing a notice of cancellation to the insurer. Id. Art.

24.17(c). Specifically, Article 24.17 provides, in pertinent

part: "All . . . contractual restrictions providing that the

insurance contract may not be cancelled unless notice is given to

a . . . third party apply where cancellation is effected under

this section." Id. Art. 24.17(e).

Article 24.17(e) offers no support for Appellants' claim

that the Underwriters were obligated to provide advance notice of

cancellation. It merely provides that any contractual provision

2
The Underwriters argue that Appellants failed to raise this
issue before the district court and thus should be foreclosed
from raising it on appeal. We note that Appellants neither
requested a jury instruction based on Article 24.17 nor objected
to the lack of such an instruction. Furthermore, Appellants also
failed to raise the issue in a motion for directed verdict or to
argue that Article 24.17 should preclude the district court from
granting Underwriters' motion for judgment as a matter of law.
However, Appellants did present testimony and argument at trial
regarding the application of Article 24.17, and the court
admitted the text of the statute into evidence for the jury's
consideration. Accordingly, although Appellants may have waived
this issue, we assume arguendo that it was raised sufficiently
before the district court.

11
requiring notice of cancellation to a third party remains in full

force and effect notwithstanding the additional notice

requirements imposed upon premium finance companies by Article

24.17. Thus, if the Underwriters were under a contractual

obligation to provide notice to Appellants prior to cancelling

Offshore's Cover Note, Article 24.17(e) simply would confirm that

this obligation exists even where the cancellation occurs

pursuant to a premium finance company's termination for

nonpayment of premiums. Conversely, if the Underwriters had no

such contractual notice obligation, Article 24.17 would not

create an independent notice requirement. Accordingly,

Appellants' argument that the Underwriters had an independent

statutory obligation to provide Maitland notice prior to

cancelling Offshore's policy fails.

Appellants next argue that the Underwriters' duty to provide

advance notice of cancellation was created by the incorporation

language in Paragraph 1 of the Subcontract between Maitland and

Offshore, which states: "[t]he Sub-contractor assumes with

respect to the General Contractor all of the obligations which

the General contractor owes to the owner under the [DOE

Contract]." Appellants argue that this clause incorporated the

provisions of the DOE Contract requiring thirty-day notice of

cancellation into the Subcontract by reference. Appellants

identify two provisions in the DOE Contract that arguably were

incorporated into the Subcontract, thereby imposing a duty to

12
provide Maitland with notice of cancellation: (1) FAR 47,

entitled "Insurance - Work on a Government Installation"; and (2)

Section 16.0 of the DOE contract, entitled "Insurance."

FAR 47 inserts 48 C.F.R. § 52.228-5 into the DOE Contract

verbatim, stating, in pertinent part:

(a) The Contractor shall . . . maintain during the
entire performance of this contract, at least the kinds
and minimum amounts of insurance required in the
schedule or elsewhere in the contract.
(b) . . . The policies evidencing required insurance
shall contain an endorsement to the effect that any
cancellation or any material change adversely affecting
the Government's interest shall not be effective . . .
until 30 days after the insurer or the Contractor gives
written notice to the Contracting Officer, whichever
period is longer.
(c) The Contractor shall insert the substance of this
clause, including this paragraph (c), in subcontracts
under this contract that require work on a Government
installation. . . .

Despite their failure to insert the text of FAR 47 into the

Subcontract, Appellants argue that the incorporation language in

Paragraph 1 inserted the substance of FAR 47, including the

thirty-day notice requirement. Generally, Federal Acquisition

Regulations "should be incorporated by reference to the maximum

practical extent." 48 C.F.R. § 52.102-1(a). However, it is clear

that unlike other Federal Acquisition Regulations, FAR 47 must be

"inserted" into certain contracts. See id. § 28.310(a) ("The

contracting officer shall insert the clause at 52.228-5,

Insurance - Work on a Government Installation, in solicitations

and contracts when a fixed-price contract is contemplated, the

13
contract amount is expected to exceed the simplified acquisition

threshold, and the contract will require work on a Government

installation.") (emphasis added). This specific requirement

supersedes the general principle that Federal Acquisition

Regulations may be incorporated by reference, and is at odds with

Appellants' argument that FAR 47 may be inserted automatically

into a contract via a general incorporation clause.3

Furthermore, FAR 47 itself contains the independent requirement

that "[t]he Contractor shall insert the substance of this clause

. . . in subcontracts under this contract." Id. § 52.228-5(c).

The plain meaning of these provisions contradicts Appellants'

argument that FAR 47 was incorporated into the Subcontract by

reference. Therefore, the district court correctly concluded

that the Subcontract did not incorporate FAR 47 as a matter of

law, and thus FAR 47 created no obligation for the Underwriters

to provide Maitland notice before cancelling Offshore's

insurance.

However, we agree with Appellants' alternative argument that

Section 16 of the DOE Contract imposed a duty upon the

Underwriters to provide notice of cancellation. Section 16

states, in pertinent part:

3
We also note that the DOE Contract itself contains the
entire text of FAR 47, rather than incorporating it by reference,
as Appellants contend is permissible.

14
 The Contractor shall maintain, at his expense,
Workmen's Compensation, Liability Insurance, and all
other insurance as provided below. Provisions shall be
made for thirty (30) days advance written notice by
mail to the Contracting Officer of any changes in or
cancellation of any such insurance.

Appellants argue that this provision, which obligated Maitland to

provide for written notice to the DOE, in combination with

Paragraph 1 of the Subcontract, obligated Offshore to provide for

written notice to Maitland. The Underwriters respond that

Offshore was not aware of the notice requirement when it signed

the Subcontract, so no such duty existed. Alternatively, the

Underwriters claim that even if Section 16 obligated Offshore to

provide for advance notice, it imposed no duty upon the insurer

to provide notice of cancellation.

It is well settled that where a contract is incorporated by

reference into a subcontract, the subcontractor is conclusively

presumed to undertake the work subject to the conditions and

limitations of the prime contract. Hartwell v. Fridner, 217 S.W.

231, 235 (Tex. Civ. App. 1919). Furthermore, "[e]ach contracting

party owes a duty to the other party to read and know the

contents of the contract before each one signs it." Kaplan v.

Bernard Lumber Co., 710 S.W.2d 737, 740 (Tex. App. 1986).

Accordingly, when Offshore entered into the Subcontract, in which

the first paragraph contained a clause incorporating by reference

the terms of the DOE Contract, it is presumed to have knowingly

assumed duties under the DOE Contract. Therefore, we reject the

15
Underwriters' argument that Offshore had no duty to provide for

written notice to Maitland simply because Offshore allegedly was

unaware of its duties under the DOE Contract.

The Underwriters' second contention, that Section 16 imposes

no duty upon the insurer, is also flawed. Section 16 of the DOE

Contract imposed a duty upon Maitland to provide for notice of

cancellation, and Paragraph 1 of the Subcontract transferred that

duty to Offshore. The Underwriters' witnesses testified, and the

district court found, that the Cover Note's notice provision

automatically required the Underwriters to provide notice to

third parties if Offshore entered into a written contract

requiring such notice. Thus, because the Subcontract

incorporated Section 16 of the DOE Contract by reference, causing

Offshore to assume the duty of making provisions for notice of

cancellation to Maitland, the Cover Note's notice provisions

automatically required the Underwriters to provide notice to

Maitland.

We conclude that the district court erroneously relied on

Maitland's failure to insert the substance of FAR 47 into the

Subcontract in holding that the Underwriters had no duty to

provide notice of cancellation. Instead, we hold that Section 16

of the DOE Contract provided an independent basis for imposing

upon Offshore, and thus upon the Underwriters through the Cover

Note, the duty to provide notice to Maitland. Accordingly,

because the Subcontract incorporated Section 16 of the DOE

16
Contract by reference, the Underwriters had a duty to provide

Maitland with thirty days notice prior to cancellation of

Offshore's policy. We therefore reinstate the jury's finding

that the Underwriters had such a duty.

B. Coverage

Since the Underwriters' failure to provide the required

notice to Maitland before cancelling Offshore's Cover Note

renders the cancellation ineffective as to Maitland, we next must

address whether Offshore's Cover Note covered Maitland's loss,

and whether the Underwriters thus were obligated to compensate

Appellants for the loss. The district court upheld the jury's

finding that the Cover Note provided coverage for Maitland's

loss. However, the court rejected the jury's determination that

Maitland faced potential liability to the DOE and entered into a

settlement to resolve that liability.

Although the district court treated the issues of coverage

and potential liability separately, the issues are in fact

closely related. In arguing that there was no coverage for

Maitland's loss, the Underwriters contend that Maitland must be

"legally liable" for a DOE claim before there is a loss that the

Underwriters are obligated to pay, and that many liability

insurance policies require either that a claim be made or a suit

for damages be brought before insurer liability is triggered.

See 7 Couch on Ins. §§ 103:14-15 (3d ed. 1998). Since the DOE

never made a claim against Maitland, the Underwriters argue that

17
their liability on the policy was not triggered. We disagree.

The authority the Underwriters cite for the proposition that

a "claim" is required to trigger liability merely states that

"many policies of liability insurance" have such a requirement,

but it does not address whether the Cover Note has such a

requirement. The Cover Note states, in pertinent part:

This insurance is to indemnify or pay on behalf of
the Insured(s) . . . all sum(s) they may be liable or
obligated and/or responsible to pay as damages or by
reason of the liability being imposed upon the insured
whether it be assumed, under contract or otherwise,
arising out of the operation(s) of the Insured
worldwide (emphasis added).

The Cover Note thus contains broad language, providing

coverage where the insured becomes "liable or obligated and/or

responsible to pay as damages." The Cover Note's broad language

distinguishes this case from the case law cited by the

Underwriters, which deals with policies providing coverage where

the insured has "become legally liable" or "legally obligated to

pay as damages." See Continental Oil Co v. Bonanza Corp., 706

F.2d 1365, 1374 (5th Cir. 1983); Data Specialties, Inc. v.

Transcontinental Ins. Co., 125 F.3d 909, 911 (5th Cir. 1997). It

is uncontroverted that Offshore was responsible for damage to the

pipeline as a result of the March 2 break, and that Section 21 of

the DOE Contract held Maitland "fully responsible for all acts

and omissions of [its] subcontractors." The DOE repeatedly

stated that it held Maitland responsible for the actions of its

subcontractors and for the delays caused by the March 2 break.

18
Accordingly, there was sufficient evidence in the record for the

jury to find that Maitland was "responsible to pay" for the

damages caused by Offshore, and thus that Offshore's Cover Note

covered Maitland's loss. Therefore, the district court correctly

denied the Underwriters' motion for judgment as a matter of law

on the coverage issue.

However, after determining that Offshore's Cover Note

provided coverage for Maitland's loss, the district court found

that there was insufficient evidence to support the jury's

findings that Maitland faced potential liability to the DOE as a

result of the damage caused by Offshore and that Maitland entered

into a settlement to resolve that liability. We disagree with

the district court's conclusion.

In support of its holding, the district court stated that

there was no evidence from any Maitland witness that the DOE ever

claimed that Maitland was responsible for the March 2, 1995

pipeline damage. However, at trial Appellants introduced a

letter from the DOE dated March 9, 1995, holding Maitland

responsible for its subcontractors' actions. Appellants also

introduced a July 6, 1995 letter, holding Maitland responsible

for the delays caused by the March 2, 1995 incident. These

letters contradict the district court's conclusion that the DOE

never claimed Maitland was responsible for the March 2 damage.

Moreover, the Cover Note's broad language, indemnifying Maitland

for all sums it "may be liable or obligated and/or responsible to

19
pay as damages," combined with the DOE Contract provision holding

Maitland "fully responsible for all acts and omissions of [its]

subcontractors," provides ample basis for the jury's conclusion

that Maitland was potentially liable to the DOE. Thus, we hold

that the district court erred in concluding that Maitland had no

potential liability to the DOE, and reinstate the jury's finding

to the contrary.

Appellants next contend that the district court erred in

finding that Maitland and/or INA did not enter into a reasonable,

prudent, and good-faith settlement with the DOE. Under Texas

law, where an indemnitee enters into a settlement with a third

party, it may recover from the indemnitor only upon a showing

that potential liability existed, and that the settlement was

reasonable, prudent, and in good faith under the circumstances.

Transamerica Ins. Co. v. Avenell, 66 F.3d 715, 721 n.15 (5th Cir.

1995). The settling indemnitee need not prove actual liability

to the third party before recovering from the indemnitor. Id.

Appellants identify two settlements that could have formed

the basis for the jury's conclusion that Maitland and/or INA

entered into a settlement of Maitland's potential liability, (1)

the McDermott Settlement and (2) the DOE Settlement. The

Underwriters respond that because the DOE was not a party to the

McDermott Settlement, it did not constitute a settlement of

Maitland's potential liability to the DOE for Offshore's pipeline

20
break. Underwriters further argue that the DOE Settlement

provides no basis for liquidated damages for two reasons: (1)

because Offshore's Cover Note did not cover the liquidated

damages resolved by the DOE Settlement; and (2) the liquidated

damages were not related to the pipeline damage caused by

Offshore.

We agree with the Underwriters that the McDermott Settlement

does not form the basis for indemnity; the DOE was not a party to

the McDermott Settlement, and thus the settlement could not have

resolved Maitland's potential liability to the DOE. However, we

disagree with the Underwriters' argument that the damages

resolved by the DOE Settlement were not related to the Offshore

pipeline damage. Indeed, the DOE's July 6, 1995 letter

explicitly holds Maitland responsible for the delay caused by the

March 2 pipeline break. Accordingly, whether the DOE Settlement

satisfies the requirement of a reasonable, prudent, good-faith

settlement of Maitland's potential liability to the DOE depends

upon whether the Offshore Cover Note provided coverage for

liquidated damages. If so, Appellants have met the requirement

for indemnification under Texas law.

The Underwriters, citing this Court's decision in Data

Specialties, contend that liquidated damages are not recoverable

under the Cover Note. In Data Specialities, the plaintiff

electrical contractor ("DSI") was hired to reconstruct an

electrical system at a manufacturing facility in Texas. 125 F.3d

21
at 910. In the course of DSI's work, a short circuit resulting

in an explosion caused property damage to the electrical system.

Id. The explosion was caused by a defective circuit breaker for

which DSI was not responsible. Id. DSI hired another electrical

contractor to repair the damage, and sought reimbursement for the

repair expenses under its commercial general liability ("CGL")

policy. Id. When the insurer denied coverage, DSI brought suit,

arguing that it was contractually obligated to repair the damage,

and that because there was property damage, the CGL policy

afforded coverage. Id. This Court held that the CGL policy did

not cover a contractual obligation triggered by an event for

which DSI was not at fault. Id. at 913.

The crucial difference between Data Specialties and this

case is that, unlike DSI, Maitland was at fault for the damage to

the pipeline caused by Offshore. Through the DOE Contract,

Maitland assumed responsibility for the acts and omissions of its

subcontractors, and thus was liable to the DOE for Offshore's

tortious conduct. Maitland therefore seeks coverage for

contractual damages incurred as a result of conduct for which it

was responsible.

The Underwriters next argue that this Court should not

recognize liability for contractual damages here because the

parties did not intend the Cover Note to afford coverage for

contractual risks, citing Trinity Industries, Inc. v. Insurance

Co. of North America, 916 F.2d 267 (5th Cir. 1990), and Bender

22
Shipbuilding & Repair Co. v. Brasileiro, 874 F.2d 1551 (11th Cir.

1989). However, neither Trinity nor Bender applies to this case.

In Trinity, this Court held that an insured's builder's risk

policy did not cover an arbitration award against the insured for

repairs to correct its defective workmanship. 916 F.2d at 269.

In reaching its decision, the Trinity court specifically

distinguished cases holding that coverage existed where defective

workmanship resulted in an accident. Id. at 270; see, e.g., Dow

Chem. Co. v. Royal Indem. Co., 635 F.2d 379 (5th Cir. 1981). In

Bender, the Eleventh Circuit held that a builder's risk policy

did not cover a liquidated damages settlement against an insured

for delayed construction of a dry dock. 874 F.2d at 1561.

However, as in Data Specialities, the insured in Bender was not

responsible for the damage to the dry dock that caused the

delays. Rather, the delay resulted from storm damage to the dry

dock during construction. Id. at 1553. Here, Maitland was

responsible for the damage to the pipeline which directly caused

the delay in its completion. Thus, the liquidated damages

awarded against Maitland were a direct consequence of the March 2

pipeline break and are covered by the Cover Note, which provided

coverage for "all other direct or indirect or consequential

losses arising from or occasioned by the Insured's operations."

Cover Note at Subsection I, ¶ B (emphasis added). Therefore, we

conclude that the jury had sufficient evidence upon which to base

its finding that the Cover Note covered Maitland's liquidated

23
damages, and reverse the district court's holding to the

contrary.

C. Claim Requirement

Appellants assert that the district court erred in

concluding that Maitland failed to make a claim to the

Underwriters for damages and that, as a result, the Underwriters

did not deny a claim. Appellants alternately contend that (1) no

claim was required, (2) Offshore's claim met the claim

requirement, and (3) Maitland did in fact make a claim.

With respect to Appellants' first argument, the Cover Note

specifically required that "in the event of any occurrence which

may result in loss, damage and/or expense for which this Assurer

may become liable, the Assured will use due diligence to give

prompt notice thereof. . . ." This language refutes Appellants'

contention that no claim was required.

However, notice to the insurer of an incident or occurrence

creating potential liability need not be made by the insured.

P.G. Bell Co. v. United States Fid. & Guar. Co., 853 S.W.2d 187,

192 (Tex. App. 1993). It is uncontroverted that Offshore made a

claim on the Cover Note, which satisfies the requirement of

prompt notice of the Offshore pipeline break. Furthermore,

Appellants presented evidence that Peter Comly, Maitland's

comptroller, contacted Aberdeen and informed it of the accident

and that Maitland was responsible under the DOE contract for

Offshore's acts and omissions. Accordingly, there was ample

24
evidence in the record upon which the jury could have relied in

reaching its conclusion that Maitland satisfied the Cover Note's

notice requirement. The district court thus erred in holding

that Maitland did not make a claim.

Appellants also challenge the district court's determination

that the Underwriters did not deny Maitland's claim. The court

based this finding on its conclusion that Maitland did not make a

claim, thus holding that the Underwriters could not have denied a

claim. However, the record supports Appellants' contention that

the Underwriters did in fact deny Maitland's claim. Appellants

presented a fax from the Underwriters to Aberdeen indicating that

the Cover Note had been cancelled and that the claims were

outside the policy period, as well as Aberdeen's letter to Peter

Comly attaching the Underwriters' fax, which stated that the

claims based on Offshore's pipeline damage were "of no concern to

Underwriters." This evidence provides ample support for the

jury's finding that the Underwriters denied Maitland's claim. In

light of our holding that there was sufficient evidence in the

record to support the jury's finding that Maitland did make a

claim on the Cover Note, as well as the evidence presented by

Appellants that the Underwriters denied Maitland's claim, we

conclude that the district court erred in holding that the Cover

Note did not obligate the Underwriters to compensate Maitland for

its loss.

D. Damages

25
 The Underwriters assert that the district court erred in

denying their motion for judgment as a matter of law concerning

the reasonableness of Maitland's repair efforts and Appellants'

attempt to segregate damages between the February 6 and March 2

pipeline breaks. In reviewing a district court's denial of a

motion for judgment as a matter of law, we must uphold the

verdict unless there was no legally sufficient evidentiary basis

for a reasonable jury to find as it did. Fed.R.Civ.P. 50(a)(1);

Hiltgen v. Sumrall, 47 F.3d 695, 700 (5th Cir. 1995).

Applying this standard, we conclude that there is ample

evidence in the record to support the jury's conclusion that

Maitland's attempts at repair were reasonable and made in good

faith. The repair strategies were discussed with and approved by

the DOE. In short, the Underwriters have failed to demonstrate

that Maitland's repairs were unreasonable, imprudent, or made in

bad faith, under the circumstances that existed at the time the

repairs were attempted. Accordingly, we affirm the district

court's denial of the Underwriters' motion for judgment as a

matter of law as to the reasonableness of Maitland's repair

efforts.

The Underwriters also contend that in calculating their

damages, Appellants did not properly segregate the repair costs

associated with the February 6, 1995 pipeline break from the

repair costs incurred as a result of the March 2 Offshore break.

26
In support of their segregation of damages, Appellants offered

the testimony of witnesses who examined every invoice and

described how each applied to the repairs of the March 2 pipeline

break.

The Underwriters cite numerous cases in support of the

proposition that recovery cannot be had for damages that are

speculative or conjectural in nature. See, e.g., Texas

Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276,

279 (Tex. 1994); A.B.F. Freight Sys., Inc. v. Austrian Import

Serv. Inc., 798 S.W.2d 606, 615 (Tex. App. 1990). However, these

cases are inapposite to the situation here. For instance, in

Teletron, the court held that the plaintiff's claim for lost

profits was speculative in light of its inability to produce a

working model of the product. 877 S.W.2d at 281. Similarly, in

A.B.F. Freight Systems, the plaintiff admitted there was no way

of segregating the damaged goods and presented no objective facts

in support of its estimated damages. 798 S.W.2d at 615.

The Underwriters correctly note that "damages must be

ascertainable in some manner other than by mere speculation or

conjecture, or by reference to some fairly definite standard,

established experience, or direct inference from known facts."

Richter, S.A. v. Bank of Am. Nat'l Trust & Sav. Ass'n, 939 F.2d

1176, 1188 (5th Cir. 1991) (citing Berry Contracting, Inc., v.

Coastal States Petrochemical Co., 635 S.W.2d 759, 761 (Tex. App.

1982)). In this case, Appellants based their damages

27
segregation testimony on the established experience of Derf

Maitland, Maitland's president, in the construction industry and

the day-by-day itemization of charges contained in the various

invoices from International Diving and Consulting Services

("International Diving"). Mr. Maitland also testified that he

was positive that everything International Diving did on the

project was related to the March 2 pipeline break. Viewing the

evidence in the light most favorable to the verdict, Maitland

presented sufficient evidence to support the jury's damages

verdict.

Finally, Maitland and INA appeal the district court's

holding that there was no evidence to support the jury's verdict

that the amount of damages Appellants incurred in settling with

the DOE was $3,827,798.76. Although it concluded that the jury

properly resolved the issues of Maitland's segregation of damages

and reasonable repair efforts, the district court nonetheless

overturned the jury's verdict as to the amount of damages based

on its conclusion that there was no evidence that Maitland or INA

settled with the DOE. In light of our holding that Maitland and

INA entered into a settlement with the DOE arising from the

damage caused to the pipeline by Offshore and the resultant delay

in completion of the project, we hold that the district court

erred in overturning the jury's verdict solely based on its

belief that no such settlement existed.

IV.

28
 Because we find that substantial evidence supported the

jury's verdict in this case, we REVERSE the district court's

partial grant of the Underwriters' motion for judgment as a

matter of law, AFFIRM the district court's denial in part of the

Underwriters' motion, and REMAND to the district court with

instructions to enter judgment in accordance with the jury's

verdict.

29