Keller Fdn Inc, et al v. Wausau Undwr Ins Co

Filing

PUBLISHED OPINION FILED. [08-50253 Reversed and Rendered] Judge: WG , Judge: EMG , Judge: PRO Mandate pull date is 12/10/2010 [08-50253]

Keller Fdn Inc, et al v. ase: 08-50253 Document: 00511299197 C Wausau Undwr Ins Co

Page: 1 Date Filed: 11/19/2010

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IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED
November 19, 2010 N o . 08-50253 Lyle W. Cayce Clerk

K E L L E R FOUNDATIONS, INC.; SUNCOAST POST-TENSION, L.P., fo r m e r ly known as Keller Suncoast L.P., P la in t if f s ­ A p p e lle e s , v. W A U S A U UNDERWRITERS INSURANCE CO., D e fe n d a n t ­ A p p e lla n t .

A p p e a l from the United States District Court for the Western District of Texas

B e fo r e GARWOOD, GARZA, and OWEN, Circuit Judges. P R I S C I L L A R. OWEN, Circuit Judge: W a u s a u Underwriters Insurance Co. (Wausau) appeals the district court's ju d g m e n t holding Keller Foundations, Inc. and Suncoast Post-Tension, L.P. (c o lle c t iv e ly , Keller Companies) are entitled to defense and indemnity under a c o m m e r c ia l general liability policy Wausau issued to Travis International, Inc., fr o m whom the Keller Companies acquired certain assets. Because the Keller C o m p a n ie s agreed to assume liability for the particular losses in question and e x p lic it ly excluded the Wausau policy from the asset transfer, we reverse.

Dockets.Justia.com

Case: 08-50253 Document: 00511299197 Page: 2 Date Filed: 11/19/2010

No. 08-50253 I K e lle r Foundations entered into a purchase agreement with Travis I n t e r n a t io n a l , Inc. (Travis) to purchase certain assets and assume certain lia b ilit ie s from Suncoast Post-Tension, Inc. (Old Suncoast), a Travis subsidiary. After the sale, Old Suncoast changed its name to Travis International Partners, L .P ., while the purchasing company, Keller Suncoast, L.P., changed its name to S u n c o a s t Post-Tension, L.P. (New Suncoast). T h e purchase agreement transferred all of the assets of Old Suncoast to N e w Suncoast except for the "Excluded Assets," which included "all . . . in s u r a n c e policies" other than certain employment benefit plans. The purchase a g r e e m e n t further provided that New Suncoast would "assume and agree to p e r fo r m , pay and discharge when due the Assumed Obligations," and defined " A s s u m e d Obligations" as: o t h e r than the Retained Obligations and other than liabilities and o p e r a tio n s attributable to operations of Seller after the Closing Date . . . , all liabilities and obligations of Seller whether fixed, accrued, c o n t in g e n t or otherwise, known or unknown, arising prior to, by r e a s o n of, or after the consummation of the transactions contemplated b y the Transaction Documents including obligations and liabilities . . . (b) arising under any Assumed Contract, . . . (d) for all services a n d products provided by Seller including obligations and liabilities u n d e r warranties arising under contract or law, (e) arising under any a p p lic a b le law including bulk sale laws . . . . H o w e v e r , the purchase agreement also stated that "Seller shall retain and be s o le ly responsible for all Retained Obligations," which included specific lawsuits lis t e d in the agreement, as well as other defined liabilities. W a u s a u provided Old Suncoast with general liability insurance coverage. Old Suncoast's Wausau policy included a non-assignment clause providing, " Y o u r rights and duties under this policy may not be transferred without our w r it t e n consent except in the case of death of an individual named insured." Old

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No. 08-50253 S u n c o a s t never requested that Wausau transfer coverage under the policy to N e w Suncoast. A fte r the sale took place, several lawsuits were filed in Texas, California, a n d Florida for defects and property damage allegedly arising from Old S u n c o a s t 's work prior to the asset purchase and during the term of the Wausau in s u r a n c e policy. While the suits named various Suncoast Post-Tension entities a s defendants, the Keller Companies assumed the defense of all of them c o n s is t e n t with its assumption of liabilities in the purchase agreement. The K e lle r Companies notified Wausau of the lawsuits, but Wausau refused to p r o v id e coverage. As a result, the Keller Companies brought suit against

W a u s a u in Texas state court, alleging breach of contract, violation of the Texas I n s u r a n c e Code, and breach of the duty of good faith and fair dealing. The K e lle r Companies sought indemnity for the damages assessed in the underlying s u it s , as well as reimbursement for the cost of defending the actions. W a u s a u removed the case to federal court, where the parties consented to t r ia l by magistrate. The parties filed cross-motions for summary judgment, and t h e magistrate judge denied Wausau's motion and granted the Keller C o m p a n ie s ' motion in part. The magistrate held that Wausau's coverage

t r a n s fe r r e d from Old Suncoast to New Suncoast either as a chose in action with t h e general transfer of all assets in the purchase agreement or by operation of la w . The transfer of the coverage thus obligated Wausau to defend and

in d e m n ify New Suncoast and the Keller Companies in the underlying lawsuits. T h e magistrate further held that the non-assignment clause in the policy did not p r o h ib it such post-loss assignments. Wausau timely appealed.

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No. 08-50253 II W e review a magistrate judge's grant or denial of summary judgment de n o v o , applying the same standard as the district court.1 Summary judgment is a p p r o p r ia te if "the pleadings, the discovery and disclosure materials on file, and a n y affidavits show that there is no genuine issue as to any material fact and t h a t the movant is entitled to judgment as a matter of law." 2 III W a u s a u challenges the magistrate judge's holding that insurance coverage for the Keller Companies' losses constituted a "chose in action" that w a s transferred as part of the general catch-all transfer of "all other assets" in t h e purchase agreement between Old Suncoast and New Suncoast. Wausau a r g u e s that the non-assignment clause in the insurance policy barred the t r a n s fe r of the policy without prior approval by Wausau. The Keller Companies c o n t e n d that Texas courts would not enforce such a non-assignment clause for lo s s e s that took place prior to the transfer of the coverage. We agree with W a u s a u that the non-assignment clause bars any assignment of the coverage w it h o u t Wausau's approval, rendering invalid any transfer that might have t a k e n place. A c c o r d in g to Couch on Insurance, "the great majority of courts adhere to t h e rule that general stipulations in policies prohibiting assignments thereof e x c e p t with the consent of the insurer apply only to assignments before loss, and d o not prevent an assignment after loss."3 These courts reason that "[t]he

p u r p o s e of a no assignment clause is to protect the insurer from increased

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Cavalier ex rel. Cavalier v. Caddo Parish Sch. Bd., 403 F.3d 246, 250 (5th Cir. 2005). FED. R. CIV. P. 56(c). 3 COUCH ON INSURANCE § 35:7 (Westlaw 2010).

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No. 08-50253 lia b ilit y , and after events giving rise to the insurer's liability have occurred, the in s u r e r 's risk cannot be increased by a change in the insured's identity." 4 T e x a s courts, however, diverge from this majority and enforce nona s s ig n m e n t clauses even for assignments made post-loss. For example, in Texas F a r m e r s Insurance Co. v. Gerdes, a Texas court of appeals held that a nona s s ig n m e n t clause barred the post-loss assignment by a third-party beneficiary o f her benefits under an insurance policy.5 There, Sally Gerdes was injured in a car accident with the insured, Bernardo Saldano. Gerdes assigned her right t o benefits under Saldano's policy to a chiropractic clinic where she received t r e a t m e n t s . The insurance company paid the benefits to Gerdes, who never paid t h e clinic. The clinic then brought suit against the insurance company.6 After r e c o g n iz in g that "[n]on-assignment clauses have been consistently enforced by T e x a s courts," the court held that the non-assignment clause applied to Gerdes a n d that Gerdes's transfer of her rights under the insurance policy had no e ffe c t .7 Similarly, in Texas Pacific Indemnity Co. v. Atlantic Richfield Co., a n o t h e r Texas court of appeals relied on a non-assignment clause to invalidate a post-loss assignment, holding that "[i]n the absence of a successful attack upon
Id.; see also N. Ins. Co. of N.Y. v. Allied Mut. Ins. Co., 955 F.2d 1353, 1358 (9th Cir. 1992) (applying California law); Imperial Enters., Inc. v. Fireman's Fund Ins. Co., 535 F.2d 287, 290-92 (5th Cir. 1976) (applying Georgia law); Peck v. Pub. Serv. Mut. Ins. Co, 114 F. Supp. 2d 51, 56 (D. Conn. 2000) (citing 3 COUCH ON INSURANCE § 35.7 (3d ed. 1999) and holding that a post-loss assignment "in no way increased the insurer's risks or obligations"); Int'l Rediscount Corp. v. Hartford Accident & Indem. Co., 425 F. Supp. 669, 672-73 (D. Del. 1977) (applying Delaware law); Conrad Bros. v. John Deere Ins. Co., 640 N.W.2d 231, 237-38 (Iowa 2001) (holding that non-assignment clauses only applied to pre-loss assignments, and that the prohibition of post-loss assignments would be "in contravention of public policy and the general purpose of indemnity contracts"); Pilkington N. Am., Inc. v. Travelers Cas. & Sur. Co., 861 N.E.2d 121, 129 (Ohio 2006) ("[T]he chose in action as to the duty to indemnify is unaffected by the anti-assignment provision when the covered loss has already occurred.").
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880 S.W.2d 215, 219 (Tex. App.--Fort Worth 1994, writ denied). Id. at 217. Id. at 218, 219.

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No. 08-50253 t h e anti-assignment clause, Texas Pacific was entitled to have the trial court e n fo r c e it."8 A d d it io n a lly , in Conoco, Inc. v. Republic Insurance Co., this court, applying T e x a s law, enforced a non-assignment clause to invalidate a post-loss a s s ig n m e n t and held that the assignee lacked standing to bring a claim against t h e insurance company.9 There, Bonanza Corp., the insured, had assigned to C o n o c o the rights to any insurance proceeds Bonanza might collect from R e p u b lic Insurance Co. for the sinking of one of Bonanza's vessels.1 0 Conoco t h e n brought suit against Republic Insurance to recover those proceeds. Republic argued that Conoco lacked standing to bring suit because the nona s s ig n m e n t clause in the policy invalidated Bonanza's assignment of its rights.11 W e agreed, recognizing that "Texas law permits the enforcement of noa s s ig n m e n t clauses in insurance policies." 1 2 G iv e n these precedents, we believe that Texas courts would enforce the n o n -a s s ig n m e n t clause in the Wausau policy. Thus, no transfer of the insurance c o v e r a g e for the pre-acquisition losses could have been valid without the consent o f Wausau, and it is undisputed that Wausau never consented to such a transfer. Nor can the Keller Companies circumvent the non-assignment clause by c a s t in g the transfer of the insurance coverage as the transfer of a "chose in a c t io n ." In Conoco, we rejected the argument that the non-assignment clause h a d no effect on the assignment of "proceeds" of insurance rather than a "claim

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846 S.W.2d 580, 583 (Tex. App.--Houston [14th Dist.] 1993, writ denied). 819 F.2d 120, 124 (5th Cir. 1987). Id. at 121. Id. at 123-24. Id. at 124.

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No. 08-50253 o r demand."1 3 We called the distinction "specious," stating that "[Conoco] cannot e n l a r g e Bonanza's boots by putting the label `proceeds' on its claim. Words c a n n o t change a plugged nickel into a silver dollar."1 4 The Texas Pacific court h e ld likewise, rejecting the argument that the policy limited only assignments o f "interests" in the policy and not "fully matured claims based upon the P o lic y ."1 5 The distinction the Keller Companies seek is the same as that rejected in Conoco and Texas Pacific Indemnity. We also reject the Keller Companies' contention that Wausau must show p r e ju d ic e in order to enforce the non-assignment clause. The Keller Companies r e ly on Hernandez v. Gulf Group Lloyds, a Supreme Court of Texas case in v o lv in g a clause in an insurance contract requiring the insured to obtain c o n s e n t prior to settling any claims.1 6 Applying the "fundamental principle of c o n t r a c t law" that only material breach of a contract would excuse the other p a r ty from performance, the court held that a breach of the settlement-withoutc o n s e n t clause would only be material if the insurance company could show that it had been prejudiced by the breach.1 7 This same requirement for a showing of p r e ju d ic e has also been extended to clauses requiring prompt notice of a claim.18 H o w e v e r , unlike settlement-without-consent and notice-of-claim clauses, Texas c o u r ts did not require a showing of prejudice in either Gerdes or Texas Pacific,

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Id. Id.

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Tex. Pac. Indem. Co. v. Atl. Richfield Co., 846 S.W.2d 580, 584 (Tex. App.--Houston [14th Dist.] 1993, writ denied) (citing Conoco, 819 F.2d at 124).
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875 S.W.2d 691, 692 n.1 (Tex. 1994). Id. at 692-93.

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See Hanson Prod. Co. v. Ams. Ins. Co., 108 F.3d 627, 630-31 (5th Cir. 1997) (citing Hernandez, 875 S.W.2d at 693); PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630, 636-37 (Tex. 2008).

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No. 08-50253 a n d the Keller Companies have failed to cite any cases indicating that Texas c o u r ts intended the Hernandez rule to override these cases. Hence, we do not b e lie v e Texas courts would require a showing of prejudice here. IV W a u s a u also challenges the magistrate judge's alternative holding that the p o lic y covering Old Suncoast transferred by operation of law when the Keller C o m p a n ie s acquired the assets of Old Suncoast. The question of whether

in s u r a n c e coverage for pre-acquisition liabilities transfers by operation of law to a purchasing company who assumed those liabilities by contract is one of first im p r e s s io n for Texas courts. T h e Keller Companies argue that Texas courts would follow Northern I n s u r a n c e Co. of New York v. Allied Mutual Insurance Co., a Ninth Circuit case t h a t held that insurance coverage for pre-acquisition losses transferred by o p e r a t io n of law when the liabilities in question were transferred by operation o f law.1 9 In Northern Insurance, the asset purchase agreement specified that all lia b ilit y for the selling company's pre-acquisition activities would remain with t h e selling company, as would any contracts that required consent to assign, in c lu d in g the insurance policy covering the liabilities at issue.2 0 Nevertheless, t h e court applied California's rule of product-line successor liability, which p r o v id e s that a purchaser of substantially all assets of a firm assumes the o b lig a t io n for product liability claims arising from pre-acquisition activities.21 T h e court held that both the liability for the pre-acquisition activities and the in s u r a n c e coverage for that liability transferred by operation of law to the

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955 F.2d 1353, 1358 (9th Cir. 1992). Id. at 1355-56. Id. at 1357.

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No. 08-50253 a c q u ir in g company.2 2 The court disregarded the insurance policy's non-

a s s ig n m e n t clause, which prevented assignment of the policy without consent. The court reasoned that non-assignment clauses were enforceable because a s s ig n m e n t s could "alter drastically the insurer's exposure depending on the n a t u r e of the new insured," and this rationale "vanishes when liability arises fr o m presale activity," since the characteristics of the successor would not affect t h a t risk.2 3 S u b s e q u e n t decisions by California state courts raise questions as to the v a lid it y of the Northern Insurance rule even in California. At least one

C a lifo r n ia court of appeals has rejected outright the Northern Insurance rule.24 M o r e o v e r , the California Supreme Court has refused to extend the Northern I n s u r a n c e rule to instances where the successor corporation assumed liability by c o n t r a c t, as opposed to by operation of law.2 5 In such situations, the court has h e ld that any rights the successor might have in insurance coverage for those lia b ilit ie s must also come from the contract between the parties.26 O t h e r courts have also rejected the Northern Insurance rule where the a c q u ir in g company assumes liability through contract. In Pilkington North A m e r ic a , Inc. v. Travelers Casualty & Surety Co., the Ohio Supreme Court r e je c t e d the idea that coverage should follow liability, holding that, where

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Id. at 1355-56. Id. at 1358.

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Gen. Accident Ins. Co. of Am. v. Superior Court, 55 Cal. Rptr. 2d 781, 788 (Cal. Ct. App. 1997) ("We hold that the finding of successor liability in tort does not entitle the successor corporation, by operation of law, to the insurance coverage of its corporate predecessor. . . . The law can impose tort liability on a successor corporate entity; it cannot impose a contractual insurance relationship between an insurer and a stranger to the insurance contract.").
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Henkel Corp. v. Hartford Accident & Indem. Co., 62 P.3d 69, 73-74 (Cal. 2003).

Id. at 74 ("[W]hen liability is assumed by contract, the successor's rights are defined and limited by that contract.").

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No. 08-50253 lia b ilit y is assumed contractually, allowing indemnity to follow liability as a m a t t e r of law would interfere with the parties' ability to contract to control lia b ilit y or assign liability while preserving rights under the policy for the o r ig in a l insured.2 7 The court also noted that "if coverage were to arise by

o p e r a t io n of law and the original insured remains in operation, the limits of its c o v e r a g e available under the policy may be reduced by any indemnity payments m a d e on behalf of the additional insured," and "the insurer may be placed in the p o s it io n of defending an additional insured where there was only one under the p o lic y ."2 8 Washington and Hawaiian state courts have held similarly.2 9 W e believe that Texas courts would reject the Northern Insurance rule w h e r e , as here, the liabilities in question were assumed through a contract that a ls o specifically excluded the transfer of the insurance policy covering those lia b ilit ie s . Unlike California, Texas law does not have a product-line successor lia b ilit y rule. Texas statutes specifically provide that a purchase of all or

s u b s t a n t ia lly all of the property or assets of another corporation "does not make t h e acquiring corporation . . . responsible or liable for any liability or obligation o f the selling corporation that the acquiring corporation . . . did not expressly a s s u m e ." 3 0

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861 N.E.2d 121, 130-31 (Ohio 2006). Id. at 131.

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See Del Monte Fresh Produce (Haw.), Inc. v. Fireman's Fund Ins. Co., 183 P.3d 734, 745 (Haw. 2007) (holding that an assignment of an insurance policy by operation of law to a party who acquired liabilities through contract was inconsistent with Hawaiian law's requirement that insurance policies be subject to general rules of contract interpretation); Unigard Ins. Co. v. Leven, 983 P.2d 1155, 1164 (Wash. Ct. App. 1999) (refusing to extend the Northern Insurance rule to "nonsuccessors who voluntarily enter into partial indemnification agreements in exchange for substantial personal compensation"). TEX. BUS. CORP. ACT ANN. art. 5.10(B) (Vernon 2007); see also Griggs v. Capitol Mach. Works, Inc., 690 S.W.2d 287, 294 (Tex. App.--Austin 1985, writ ref'd n.r.e.) (rejecting the product successor theory of liability).
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No. 08-50253 M o r e o v e r , Texas's enforcement of non-assignment clauses in insurance a g r e e m e n ts for post-loss assignments further suggests that Texas courts would r e je c t the Northern Insurance rule, since the unenforceability of such a clause s e r v e d as an important factor in the Ninth Circuit's decision in Northern I n s u r a n c e .3 1 Given its focus on contracts in the insurance context, we believe T e x a s would enforce the contract between Old Suncoast and New Suncoast as w r it t e n . The purchase agreement between Old Suncoast and New Suncoast s p e c ific a lly excluded the Wausau policy covering the assumed liabilities from the t r a n s fe r of assets. The parties clearly intended for the insurance coverage to r e m a in with Old Suncoast and Travis. We see no reason why Texas courts w o u ld interfere with the parties' ability to enter into such a contract. * * *

W e REVERSE the district court's grant of partial summary judgment in favor of the Keller Companies and RENDER summary judgment in favor of W au sau .

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See N. Ins. Co. of N.Y. v. Allied Mut. Ins. Co., 955 F.2d 1353, 1358 (9th Cir. 1992).

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