Twin City Fire Insurance Co. v. Oceaneering International, Inc. et al
ORDER ADOPTING 40 Memorandum and Recommendations, GRANTING 24 MOTION for Summary Judgment , DENYING 26 MOTION for Judgment on the Pleadings and Supporting Memorandum Judgment.(Signed by Judge Gray H Miller) Parties notified.(rkonieczny, 4)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
TWIN CITY FIRE INSURANCE CO.,
INC., et al.,
CIVIL ACTION NO. H-16-666
MEMORANDUM OPINION & ORDER
Pending before the court is the Magistrate Judge’s Memorandum and Recommendation (the
“M&R”) (Dkt. 40) recommending that the plaintiff’s motion for summary judgment (Dkt. 24) be
granted and that the defendants’ motion for judgment on the pleadings (Dkt. 26) be denied. Having
considered the motions, related briefing, and exhibits (Dkts. 24, 26, 28-32, 34-35, 38), the M&R
(Dkt. 40), defendants’ objections (Dkt. 41), plaintiff’s response to defendants’ objections (Dkt. 42),
as well as other relevant materials in the record, the court is of the opinion that defendants’
objections should be OVERRULED and the M&R should be ADOPTED IN FULL.
Oceaneering International Inc. ("Oceaneering") purchased a directors and officers defense
policy (“D&O policy”) from the plaintiff. Dkt. 24-2, Ex. A-1. The policy covered, among others,
Oceaneering’s directors and officers as insured persons. Id. In June 2014, an Oceaneering
shareholder filed a derivative action on behalf of Oceaneering against the current directors and one
former director for granting themselves excess compensation. Dkt. 24-2, Ex. A-3. Oceaneering filed
a claim for coverage of the derivative action under the D&O policy, which, reserving rights, the
plaintiff agreed to cover with regard to defense costs only. Dkt. 24-2, Ex. A-2, Ex. A-5. The
plaintiff in the derivative action made a settlement demand that consisted mostly of disgorgement
of the alleged excess compensation, and the defendants to that suit made a settlement counteroffer.
Dkt. 28-1, Ex. B-2, Ex. B-3. The plaintiff here then filed suit, seeking a declaration that it does not
owe indemnity coverage under the D&O policy for any settlement reached in the derivative action.
The Magistrate Judge treated the defendants’ motion for judgment on the pleadings as a
motion for summary judgment pursuant to Federal Rule of Civil Procedure 12(d). Dkt. 40 at 9-10.
Regarding the coverage dispute, the Magistrate Judge decided that any part of the settlement that
covered disgorgement of excess compensation did not constitute a covered loss under the policy.
Id. at 17. The Magistrate Judge refrained from determining what portion of the proposed settlement
is in the nature of disgorgement. Id. at 21.
II. LEGAL STANDARD
For dispositive matters, the court “determine(s) de novo any part of the magistrate judge’s
disposition that has been properly objected to.” See Fed. R. Civ. P. 72(b)(3). “The district judge
may accept, reject, or modify the recommended disposition; receive further evidence; or return the
matter to the magistrate judge with instructions.” Id. “When no timely objection is filed, the court
need only satisfy itself that there is no clear error on the face of the record in order to accept the
recommendation.” Fed. R. Civ. P. 72(b), Advisory Comm. Note (1983). For non-dispositive
matters, the court may set aside the magistrate judge’s order only to the extent that it is “clearly
erroneous or contrary to law.” Fed. R. Civ. P. 72(a).
Motion for Summary Judgment
A court shall grant summary judgment when a “movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(c). “[A] fact is genuinely in dispute only if a reasonable jury could return a verdict for
the non-moving party.” Fordoche, Inc. v. Texaco, Inc., 463 F.3d 388, 392 (5th Cir. 2006). The
moving party bears the initial burden of demonstrating the absence of genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2552 (1986). If the party meets its
burden, the burden shifts to the non-moving party to set forth specific facts showing a genuine issue
for trial. Fed. R. Civ. P. 56(e). The court must view the evidence in the light most favorable to the
non-movant and draw all justifiable inferences in favor of the non-movant. Envtl. Conservation Org.
v. City of Dall., Tex., 529 F.3d 519, 524 (5th Cir. 2008).
The defendants filed objections to the M&R (Dkt. 41). In summary, the defendants contend
that the Magistrate Judge incorrectly concluded that payments in the nature of disgorgement are
uninsurable as a matter of law, misapplied and improperly extended In re TransTexas Gas
Corporation, 597 F.3d 298, 309 (5th Cir. 2010), and failed to interpret the D&O policy as a whole
in determining that the exception to the “personal profit” exclusion did not restore coverage . Dkt.
41. These are all arguments considered and discussed by the Magistrate Judge in the M&R, and the
court reviewed the Magistrate Judge’s rationale and conclusions as expressed in the M&R de novo
and ADOPTS them in full.
The defendants’ objections (Dkt. 41) are OVERRULED, and the M&R (Dkt. 40) is hereby
ADOPTED IN FULL. The plaintiff’s motion for summary judgment (Dkt. 24) is GRANTED and
defendants’ motion for judgment on the pleadings (Dkt. 26) is DENIED.
Signed at Houston, Texas on March 29, 2017.
Gray H. Miller
United States District Judge
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