TIG Insurance v. Aon Re, Inc.

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
March 13, 2008

No. 05-11450 Charles R. Fulbruge III
Clerk

TIG INSURANCE CO.,

Plaintiff–Appellant,
v.

AON RE, INC.,

Defendant–Appellee.

Appeal from the United States District Court
for the Northern District of Texas

Before GARWOOD, DENNIS, and OWEN, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
TIG Insurance Company has sued its broker, Aon Re, Inc., for failing to
provide complete information to a reinsurer with whom TIG negotiated a
reinsurance treaty. The treaty was rescinded as a result of the incomplete
information, and TIG asserts causes of action against Aon Re for negligence,
negligent misrepresentation, breach of fiduciary duty, and common-law
indemnity. TIG appeals the district court’s summary judgment that TIG take
nothing. We affirm.
 No. 05-11450

I
In recounting the summary judgment evidence, the facts will be stated in
the light most favorable to TIG.1 TIG provided workers’ compensation insurance
policies to employers nationwide, and it reinsured policies issued by other
insurance companies, which included reinsurance business assumed from
Virginia Surety Company. TIG’s general practice was to retain liability for
individual workers’ compensation claims up to a cap of $1 million and to
purchase excess loss reinsurance to cover claims exceeding that amount.
TIG retained Aon Re, Inc. to act as its agent or intermediary in soliciting
and negotiating proposals for reinsurance. TIG provided Aon Re with
information regarding TIG’s workers’ compensation business, including the
relevant Virginia Surety historical loss data. Aon Re used this information to
prepare a package of underwriting information to send to representatives of
various reinsurance companies. In May 1998, Aon Re sent an information
packet to WEB Management LLC, an underwriter that was acting as an agent
for United States Life Insurance Co. (U.S. Life). In Aon Re’s May 5, 1998 cover
letter to WEB, Aon Re stated that the Claims Diskette contained “Virginia
Surety [loss data] since 1994.” In accordance with TIG’s policies, Aon Re
provided a copy of the packet to TIG for its files in May 1998. It is disputed
whether this packet included the diskettes.
In June 1998, Aon Re representatives met with TIG representatives to
discuss quotes Aon Re had received. TIG expressed interest in WEB’s quote on
behalf of U.S. Life as well as in proposals received from reinsurer Swiss Re, with
whom TIG was dealing directly. At this time, concerns were expressed by TIG
representatives that the data Aon Re had received from TIG and had sent to the

1
See Breen v. Tex. A&M Univ., 485 F.3d 325, 331 (5th Cir. 2007) (“In determining
whether summary judgment is appropriate, we view all of the evidence in the light most
favorable to the non-moving party and draw all reasonable inferences in its favor.”).

2
 No. 05-11450

reinsurance market was incomplete. TIG’s vice president in charge of its
workers’ compensation division reviewed a May 13, 1998 letter from TIG’s
actuary criticizing the quality of Aon Re’s reinsurance submission, and
specifically commented in an email on June 19, 1998 that he “want[ed] to make
sure the data AON sent to the market [was] good” because WEB’s quote was “out
of line on the low side” compared to the Swiss Re quote and quotes from other
reinsurers.
Regardless of these concerns, TIG accepted U.S. Life’s bid on June 29,
1998, and coverage was bound effective April 1, 1998. The reinsurance treaty
subsequently signed by TIG on October 6, 1998 and by WEB on U.S. Life’s behalf
on November 12, 1998 applied to losses occurring in the three year period
commencing April 1, 1998, subject to the treaty being cancelled at any time by
TIG. TIG cancelled the reinsurance treaty on January 1, 1999 prospectively, but
the treaty continued in force to cover claims arising out of losses that occurred
between April 1, 1998 and January 1, 1999.
U.S. Life stopped paying claims under the reinsurance treaty in the
summer of 2001 because an audit of TIG’s operations had not been completed
and TIG had not provided requested information. TIG demanded arbitration
under the terms of the treaty, claiming outstanding payments in the amount of
nearly $9 million were due, and proceedings commenced. Aon Re was not a
party to the arbitration.
On February 21, 2003, in its preliminary position statement in the
arbitration, U.S. Life stated for the first time that it had the right to rescind the
reinsurance treaty because Aon Re had provided it with “materially incomplete”
loss data by omitting “the loss data for the entire Virginia Surety segment,”
which comprised a significant portion of TIG’s insurance business. TIG disputed
the assertions that the data was missing and that it was material, but the
arbitration panel found in favor of U.S. Life and specifically stated in its findings

3
 No. 05-11450

of fact that Aon Re, as TIG’s agent, had omitted the information regarding the
Virginia Surety historical loss data.
The arbitrators determined that U.S. Life was entitled to rescind the
treaty with regard to the Virginia Surety segment of TIG’s business, that the
treaty was “void ab initio” to that extent, but the remainder was valid and
enforceable. The arbitration panel issued a final award that directed TIG to
return to U.S. Life $4,720,836 plus interest of $661,910, for claims that U.S. Life
had previously paid for Virginia Surety claims, and U.S. Life was required to
return to TIG a premium of $6,443,103 plus $1,872,793 of interest. Therefore,
because of the rescission of the Virginia Surety-related portion of the
reinsurance treaty, TIG owed U.S. Life $5,382,746 and U.S. Life owed TIG
$8,315,896, with the net result that U.S. Life paid TIG $2,933,150.
TIG filed the instant lawsuit against Aon Re on June15, 2004, claiming
negligence, negligent misrepresentation, breach of fiduciary duty, and seeking
common-law indemnity. TIG also sought declaratory relief contending that Aon
Re was obligated to reimburse and indemnify TIG for unreinsured liability. TIG
also requested attorneys’ fees. TIG filed a partial summary judgment motion
asserting that Aon Re should be collaterally estopped from litigating issues
resolved in the arbitration proceeding. Aon Re filed a summary judgment
motion contending that (1) TIG’s negligence, negligent misrepresentation, and
breach of fiduciary claims were barred by statutes of limitations; (2) the
discovery rule does not apply to defer accrual of these causes of action; and
(3) TIG’s common-law indemnity claim fails as a matter of law. The district
court denied TIG’s partial summary judgment motion on the collateral estoppel
issue and granted Aon Re’s summary judgment motion on the statute of
limitations, discovery rule, and common law indemnity issues. The district court
determined that it was unnecessary to address the other issues presented in the
motions, and the court entered judgment that TIG take nothing.

4
 No. 05-11450

TIG now appeals the denial of its partial summary judgment motion and
the summary judgment in Aon Re’s favor. Because we affirm the district court’s
summary judgment on the statute of limitations, discovery rule, and common-
law indemnity issues, we do not reach the other issues.
II
We review a grant of summary judgment de novo, applying the same
standard as the district court.2 Summary judgment should be rendered if the
pleadings, discovery, admissions, “and any affidavits, if any, show that there is
no genuine issue as to any material fact and that the movant is entitled to a
judgment as a matter of law.”3
III
We first consider limitations. Both parties agree that Texas law governs
this issue. Negligence and negligent misrepresentation claims must be brought
“not later than two years after the day the cause of action accrues,”4 and breach
of fiduciary duty claims must be brought “not later than four years after the day
the cause of action accrues.”5 As we have noted, TIG filed this suit on June 15,
2004.
Under Texas law, the question of when a cause of action accrues is a
matter of law for the court to decide,6 and “a cause of action accrues when a
wrongful act causes some legal injury, even if the fact of injury is not discovered

2
Id.
3
FED. R. CIV. P. 56(c).
4
TEX. CIV. PRAC. & REM. CODE § 16.003(a); see also KPMG Peat Marwick v. Harrison
Cty. Housing Fin. Corp., 988 S.W.2d 746, 750 (Tex. 1999); HECI Exploration Co. v. Neel, 982
S.W.2d 881, 885 (Tex. 1998).
5
TEX. CIV. PRAC. & REM. CODE § 16.004(a)(5) (“A person must bring suit on the
following actions not later than four years after the day the cause of action accrues: . . . breach
of fiduciary duty.”).
6
Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566-67 (Tex. 2001).

5
 No. 05-11450

until later, and even if all resulting damages have not yet occurred.”7 The
Supreme Court of Texas has also said that “[a] cause of action generally accrues,
and the statute of limitations begins to run, when facts come into existence that
authorize a claimant to seek a judicial remedy.”8
TIG contends that it did not suffer a legal injury and could not seek a
judicial remedy against Aon Re until the arbitration decision rescinded the
reinsurance treaty with regard to the Virginia Surety claims, which occurred on
May 5, 2004. TIG contends in the alternative that its causes of action accrued
in February 2003, when U.S. Life first asserted a right to rescind the treaty
based on Aon Re’s misrepresentations. Aon Re contends, and the district court
found, that TIG’s causes of action accrued in June 1998, when TIG and U.S. Life
consummated the reinsurance treaty.
The Texas Supreme Court’s decision in Murphy v. Campbell9 is dispositive.
In that case, an accounting firm gave faulty tax advice to its client. The Texas
court held that “[a] person suffers legal injury from faulty professional advice
when the advice is taken.”10 Although the court in that case applied the
discovery rule, as we will discuss below, it concluded that a cause of action
accrues, even when the discovery rule applies, as soon as the claimant knows or
is put on notice that the advice is faulty, which may be well before a third party
takes any adverse action against the plaintiff. The Texas court said, “a taxpayer
may know his advice was faulty long before he receives a deficiency notice. For
example, if a taxpayer sought other opinions upon receipt of an audit notice, or
even earlier, the information obtained might put him on notice that the advice

7
S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996).
8
Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex.
1998).
9
964 S.W.2d 265 (Tex. 1997).
10
Id. at 270.

6
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he received was wrong.”11 In that case the cause of action accrued at the latest
when the IRS sent a deficiency notice.12 Accordingly, limitations could
commence to run well before the IRS notified the taxpayer of its contention that
additional tax was owed.
TIG acted on Aon Re’s representations that complete data regarding
Virginia Security had been provided to U.S. Life’s agent when TIG accepted U.S.
Life’s proposal and entered into the reinsurance treaty. U.S. Life similarly relied
on Aon Re’s representations to it that the historical loss data was complete when
in fact Aon Re omitted the Virginia Security data. A legal injury to TIG occurred
on the date the treaty with U.S. Life became binding because that agreement
was impaired from the outset by Aon Re’s misrepresentations. U.S. Life had the
right to rescind because of those misrepresentations. Additionally, TIG’s
liabilities for claims made under Virginia Surety policies were accruing from the
date the treaty was consummated, but because of Aon Re’s conduct, the treaty
afforded TIG inadequate coverage for those claims, and they remained TIG’s
obligations.
TIG argues that if it had sued Aon Re before U.S. Life sought to rescind
the reinsurance treaty, Aon Re would have contended there were no damages,
and therefore, TIG would have had no meaningful judicial remedy. The
Supreme Court of Texas expressly rejected a similar argument in Murphy v.
Campbell.13 One of the dissenters in that case had contended that “‘[t]here is no
need for an accountant to be subject to a malpractice claim if the Tax Court
concludes that his client does not owe additional taxes and the accountant’s

11
Id. at 271.
12
Id. at 272 (concluding that “the deficiency notice . . . marked the latest date on which
their malpractice action could have accrued”).
13
Id. 273.

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 No. 05-11450

advice was sound.’”14 The court held otherwise, reasoning, “[w]hen alleged
malpractice claims are not brought within a reasonable period after they are
discovered or should have been discovered, accountants are severely prejudiced
in mounting their defense: witnesses often cannot be located or have forgotten
critical facts and documents frequently are misplaced or destroyed.”15 The court
concluded that if accrual of a cause of action were deferred “for prolonged and
indeterminate periods of time, the policy of repose underlying the statute of
limitations is undermined.”16 The proper course, the Texas court explained in
Murphy v. Campbell, is to abate the claimant’s negligence suit until any
proceedings involving third parties are commenced and resolved.17 The court
recognized that it may take a considerable period of time for a plaintiff to resolve
issues with third parties. But requiring a plaintiff to sue when its cause of
action accrued will foreclose “‘the specter of litigating decade-old-claims.’”18
The Texas court thus held that even in cases in which the discovery rule
applies, as it did in Murphy v. Campbell, a cause of action accrues when the
alleged wrong has caused a legal injury, “however slight[].”19 In the present
case, TIG could have sued Aon Re at any time from June 1998 and
simultaneously pursued a declaratory judgment or other action against U.S. Life

14
Id. (quoting 964 S.W.2d at 276 (ABBOTT, J., dissenting)).
15
Id.
16
Id.
17
Id. (“While it may be necessary to abate a malpractice suit pending resolution of a
dispute with the taxing authority, we view that procedure as preferable to holding that
limitations on a plaintiff’s claim begins to run when plaintiff decides it should.”).
18
Id. (quoting a brief filed by an amicus curiae).
19
Id. (“As in all discovery rule cases, a cause of action accrues when the plaintiff knows
or reasonably should know that he has been legally injured by the alleged wrong, however
slightly.”).

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to clarify or determine the validity or extent of coverage of the treaty. TIG was
legally injured because of the impairment of the treaty.
The Texas Supreme Court’s decision in Johnson & Higgins of Texas, Inc.
v. Kenneco Energy, Inc.20 is not inconsistent with Murphy v. Campbell.21 The
issue in that case was “whether, in a suit by an insured against its agent for
negligent breach of the agent’s duty to obtain insurance, the injury-producing
event was the denial of coverage by the insurance company, or the final
resolution of the coverage dispute by the courts.”22 The court held that the
earlier date obtained. There was no contention in that case, however, that the
plaintiff’s suit against its agent accrued when the agent made
misrepresentations to the plaintiff and the plaintiff entered into a contract in
reliance on those misrepresentations.
The district court did not err in holding that TIG’s causes of action for
negligence, negligent misrepresentation, and breach of fiduciary duty accrued
in June 1998.
IV
TIG contends that the discovery rule applies to its negligence, negligent
misrepresentation, and breach of fiduciary claims. As a preliminary matter, Aon
Re argues that TIG waived this issue by not pleading it. While Texas state
procedure may require specific reference to the discovery rule in pleadings,
“federal law governs the pleading requirements of a case in federal court.”23 The

20
962 S.W.2d 507 (Tex. 1998).
21
964 S.W.2d 265 (Tex. 1997).
22
Johnson & Higgins of Texas, Inc., 962 S.W.2d at 514.
23
Wellborn v. Sears, Roebuck & Co., 970 F.2d 1420, 1425 (5th Cir. 1992) (quoting
Simpson v. James, 903 F.2d 372, 375 (5th Cir. 1990)) (quotations omitted).

9
 No. 05-11450

discovery rule need not be specifically pleaded in federal court.24 “[U]nder Rule
8 of the Federal Rules of Civil Procedure, it is enough that the plaintiff plead
sufficient facts to put the defense on notice of the theories on which the
complaint is based.”25 The facts pleaded by TIG gave sufficient notice to Aon Re
that TIG might assert that the discovery rule applies.
Under Texas law, the discovery rule is an exception to the general rule
that a cause of action accrues when a wrongful act causes some legal injury.26
When applied, the discovery rule “defer[s] accrual of a cause of action until the
plaintiff knew or, exercising reasonable diligence, should have known of the facts
giving rise to a cause of action.”27 The determination of whether the discovery
rule applies to a particular cause of action is a question of law.28
Prior to the Texas Supreme Court’s decisions in Computer Associates
International, Inc. v. Altai, Inc.29 and S.V. v. R.V.,30 the reasoning that supported
the Texas courts’ “decisions to apply the discovery rule in particular cases was
‘diverse, somewhat inconsistent, and often overly broad.’”31 The Texas Supreme
Court “attempted to bring predictability and consistency to [its] jurisprudence

24
Id.
25
Id. (quoting Simpson, 903 F.2d at 375) (quotations omitted).
26
S.V. v. R.V., 933 S.W.2d. 1, 8 (Tex. 1996) (“R.’s claims are therefore barred unless she
is entitled to an exception to the legal injury rule.”); Computer Assocs. Int’l, Inc. v. Altai, Inc.,
918 S.W.2d 453, 455 (Tex. 1996).
27
HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998) (citing Computer
Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex.1996)).
28
Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex. 1990).
29
918 S.W.2d 453 (Tex. 1996).
30
933 S.W.2d 1 (Tex. 1996).
31
HECI, 982 S.W.2d at 886 (quoting S.V., 933 S.W.2d at 5-6).

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in this area” in Altai and S.V.32 The court “articulated two unifying principles
that generally apply in discovery rule cases. They are that the nature of the
injury must be inherently undiscoverable and that the injury itself must be
objectively verifiable.”33
Importantly, the Texas court explained that whether the discovery rule
applies is determined categorically:
[The Supreme Court of Texas] explained in Altai that the
applicability of the discovery rule is determined categorically.
Although the particular injury in Altai may not have been
discovered, it was the type of injury that generally is discoverable
by the exercise of reasonable diligence: “While some trade secret
misappropriations might not be quickly discovered, this isolated fact
does not alter the reality that, in most cases, trade secret
misappropriation generally is capable of detection within the time
allotted for bringing such suits.”34
That is because “[s]tatutes of limitations are not directed to the merits of any
individual case[;] they are a result of legislative assessment of the merits of cases
in general.”35
“An injury is inherently undiscoverable if it is by nature unlikely to be
discovered within the prescribed limitations period despite due diligence.”36 The
injury in this case, the consummation of an agreement between TIG and U.S.
Life that was based on incomplete underwriting data, is not inherently
undiscoverable because it is the type of injury that could have been discovered

32
Id.
33
Id. (citing Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex.1996);
S.V., 933 S.W.2d at 6).
34
Id. (quoting Altai, 918 S.W.2d at 457).
35
S.V., 933 S.W.2d at 6.
36
Id. at 7.

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by the exercise of reasonable diligence.37 An entity in TIG’s circumstances has
numerous sources from which it could determine whether accurate information
was sent to one with whom it was negotiating a contract. A starting point is the
company’s own files. Another source is the party with whom it is about to
contract. Inquiry could be made to determine or confirm the facts and
assumptions on which the bargain was to be based.
In the present case, there was summary judgment evidence that TIG’s vice
president in charge of its workers’ compensation division sent an internal email
before accepting U.S. Life’s bid, stating, “I want to make sure the data AON sent
to the market is good.” A red flag had been raised because U.S. Life’s bid was
so low. The TIG vice-president claims that he instructed an employee in TIG’s
actuarial department to follow up on this concern, but Washburn testified that
he did not recall that conversation. While fact questions exist as to exactly what
follow-up occurred, the evidence exemplifies that TIG’s injury is not,
categorically, the type of injury that is inherently undiscoverable.
Nor was TIG relying on Aon Re for expertise that TIG did not possess. The
discovery rule has been applied under Texas law to malpractice claims against
accountants and attorneys because “the very reason to seek expert advice is that
tax matters are often not within the average person’s common knowledge.”38
Professional malpractice, such as erroneous tax advice, “is inherently

37
See Armstrong v. Am. Home Shield Corp., 333 F.3d 566, 570 (5th Cir. 2003) (“We find
that the profitability of a corporate division, and the source of information which underlies a
cost quotation, are precisely the types of information that a seller involved in a substantial
business transaction would seek to discover and could discover through the exercise of
reasonable diligence.”); Martinez Tapia v. Chase Manhattan Bank, N.A., 149 F.3d 404, 409 (5th
Cir. 1998) (“The investor who seeks to blame his investment loss on fraud or misrepresentation
must himself exercise due diligence to learn the nature of his investment and the associated
risks.”).
38
Murphy, 964 S.W.2d at 271.

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 No. 05-11450

undiscoverable.”39
TIG argues that, in a fiduciary context, the nature of the injury is
presumed to be inherently undiscoverable. TIG cites Computer Associates
International, Inc. v. Altai, Inc.40 for this proposition. In Altai, the Texas
Supreme Court observed in dicta:
We stated [in Willis v. Maverick]41 that “[f]acts which might
ordinarily require investigation likely may not excite suspicion
where a fiduciary relationship is involved,” and that absent the
discovery rule exception the client “would have to hire a second
attorney to observe the work of the first.” But the fiduciary
rationale is, in reality, a variation on the inherently undiscoverable
element. Fiduciaries are presumed to possess superior knowledge,
meaning the injured party, the client, is presumed to possess less
information than the fiduciary. Consequently, in the fiduciary
context, it may be said that the nature of the injury is presumed to
be inherently undiscoverable, although a person owed a fiduciary
duty has some responsibility to ascertain when an injury occurs.42
The Texas Supreme Court subsequently elaborated in S.V. v. R.V. that it had
twice before held that a fiduciary’s conduct was inherently undiscoverable, and
“[t]he reason underlying both decisions is that a person to whom a fiduciary duty
is owed is either unable to inquire into the fiduciary’s actions or unaware of the
need to do so.”43
We assume, without deciding, that Aon Re owed a fiduciary duty to TIG
to provide accurate information to U.S. Life and to accurately relay to TIG what
it conveyed to U.S. Life. However, the undisputed evidence reflects that TIG

39
Id.
40
918 S.W.2d at 456.
41
760 S.W.2d 642, 645 (Tex. 1988).
42
Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex.1996) (internal
citation omitted).
43
933 S.W.2d 1, 8 (Tex. 1996).

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was not relying upon Aon Re’s expertise or superior knowledge to obtain
reinsurance coverage. TIG used Aon Re as an intermediary to obtain bids from
some reinsurers, TIG negotiated directly with reinsurers to obtain bids, then
TIG would compare all the information it had received and use that information
to negotiate the most favorable agreement, either directly or indirectly through
Aon Re. TIG not only could but did audit information that Aon Re said it had
distributed to the reinsurance market to determine whether that information
was congruent with what TIG had given to Aon Re. The evidence reflects that
TIG was not unaware of the need to inquire into what information Aon Re was
distributing. This is highlighted by TIG’s concerns when the U.S. Life bid was
considerably lower than expected. Because TIG’s injury was not inherently
undiscoverable, the district court did not err in determining that the discovery
rule is inapplicable to TIG’s negligence, negligent misrepresentation, and breach
of fiduciary claims.
V
TIG contends that the district court erred in determining that its common-
law indemnity claim fails as a matter of law. TIG seeks to recover the uninsured
liabilities attributable to the Virginia Surety segment of its business that it has
incurred in the past and will incur in the future and to recover the costs and
expenses it incurred arbitrating with U.S. Life. Both parties agree that Texas
law applies to the indemnification claim.
Under Texas law, common-law indemnity is extremely rare and “[o]nly a
vestige of common law indemnity remains.”44 “The only remaining vestiges of
common law indemnity involve purely vicarious liability.”45 Texas law defines

44
Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 817 (Tex. 1984), receded from on
other grounds by Barr v. Resolution Trust Corp. ex rel Sunbelt Fed. Sav., 837 S.W.2d 627, 628-
29 (Tex. 1992).
45
Aviation Office of Am., Inc. v. Alexander & Alexander of Tex., Inc., 751 S.W.2d 179,
180 (Tex. 1988) (citing Bonniwell, 663 S.W.2d at 819-20). That decision’s additional

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 No. 05-11450

indemnity as “the payment of all of plaintiff’s damages by one tortfeasor to
another tortfeasor who had paid it to the plaintiff.”46
TIG contends that it faced “potential tort liability to US Life based upon
its failure to disclose to US Life the [Virginia Surety] loss experience,”47 and
“faced vicarious liability for any damages to US Life caused by Aon’s conduct.”
TIG candidly acknowledges, however, that “Aon’s tort exposure to US Life (as
well as TIG’s vicarious liability) was extinguished by the arbitration proceeding
in which US Life elected to forego its remedy of damages and pursue the
equitable remedy of rescission.” Because TIG was not vicariously liable for the
tortious conduct of Aon Re, TIG is not entitled to indemnity.
The equitable remedy of rescission granted in the arbitration placed U.S.
Life in the same position that obtained before it entered into the treaty with
regard to Virginia Surety’s obligations. U.S. Life did not suffer any loss and did
not recover any damages. TIG merely repaid payments U.S. Life had made to
reinsure claims attributable to Virginia Surety’s business. This does not give
rise to indemnity.
TIG argues that Prudential Insurance Co. v. BMC Industries, Inc.,48 a case
from the Southern District of New York, is the “single authority which squarely
presents the circumstances of this case.” In Prudential, the court noted:
Although no authority is presented for the proposition that

observation that “the innocent product retailer situation” remained subject to common-law
indemnity has been superseded by legislation providing statutory indemnity to an innocent
product retailer, see TEX. CIV. PRAC. & REM. CODE § 82.002(a).
46
Beech Aircraft Corp. v. Jinkins, 698 S.W.2d 722, 724 (Tex. App.—Houston [1st Dist.]
1985), aff’d, 739 S.W.2d 19 (Tex. 1987); see also Am. Indem. Co. v. Baumgart, 840 S.W.2d 634,
638 (Tex. App.—Corpus Christi 1992, no writ) (“Beech Aircraft Corp. v. Jinkins does not
prevent a principal from paying a claim and then seeking indemnity against its agent.”).
47
(Emphasis added).
48
113 F.R.D. 100 (S.D.N.Y. 1986).

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contribution or indemnity is available where the main claim is for
rescission alone, common sense dictates that contribution and
indemnification, usually discussed in the context of damages
actions, are also available where the defendant claims damages
based on a remedy of rescission assessed against it.49

It is our duty, however, to rule on this Texas state law issue as would the Texas
courts.50 “We will not expand state law beyond its presently existing
boundaries.”51 Because no Texas court has applied common-law indemnity to a
claim for damages sustained as a byproduct of rescission, and Texas courts have
routinely confined the availability of indemnity to those who are vicariously
liable for a tort and paid damages resulting from that tort, the district court did
not err in this regard.
Similarly, TIG’s claim for its arbitration costs are not damages that it was
required to pay to U.S. Life as a result of vicarious liability. Common-law
indemnification is not available as a means of recovering TIG’s out-of-pocket
arbitration costs under the circumstances of this case.
VI
For the foregoing reasons, we AFFIRM the judgment of the district court.

49
Id. at 103 (internal citation omitted).
50
See Erie R.R. v. Tompkins, 304 U.S. 64 (1938); Klaxon Co. v. Stentor Elec. Mfg. Co.,
313 U.S. 487, 497 (1941) (“[T]he proper function of the [] federal court is to ascertain what the
state law is, not what it ought to be.”); Barfield v. Madison County, Miss., 212 F.3d 269, 272
(5th Cir. 2000). (“If the state’s highest court has not spoken on the particular issue, ‘it is the
duty of the federal court to determine as best it can, what the highest court of the state would
decide.’”) (quoting Transcon. Gas v. Transp. Ins. Co., 953 F.2d 985, 988 (5th Cir. 1992)).
51
Barfield, 212 F.3d at 272 (quoting Rubinstein v. Collins, 20 F.3d 160, 172 (5th Cir.
1994)).

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