Interstate Fire & Casualty Company v. Catholic Diocese of El Paso
FINDINGS OF FACT AND CONCLUSIONS OF LAW. The parties have 14 days from the date of this Order to provide supplemental briefing as to whether or not they shall recover prejudgment and post-judgment interest. Further directives within Order.. Signed by Judge David C Guaderrama. (mc4)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
EL PASO DIVISION
INTERSTATE FIRE & CASUALTY
CATHOLIC DIOCESE OF EL PASO,
CATHOLIC DIOCESE OF EL PASO,
INTERSTATE FIRE & CASUALTY
FINDINGS OF FACT AND CONCLUSIONS OF LAW
A non-jury trial of this cause was scheduled to commence on June 24, 2013 (ECF No.
29). Thereafter, the parties jointly moved to continue the trial setting for mid-August. See Joint
Mot. to Continue 2, ECF No. 30. Upon reviewing the parties' joint motion as well as the parties'
pretrial filings in accordance with Local Court Rules 16(e) and (f) of the Western District of
Texas and the Court's orders, the Court concluded that with all counsels' agreement, this matter
could be evaluated more thoroughly and expeditiously upon written submissions.' The Court,
having considered all pleadings heretofore filed herein, the pre-trial filings, the trial briefs,
1 See Tex. A&MResearch Found, v. Magna Transp., Inc., 338 F.3d 394, 399 n.l (5th Cir. 2003)
(notingthat no party objected to the district court conducting a trial on written submissions).
including the parties' joint exhibit list,2 the joint stipulation of facts, the arguments of counsel,
and the applicable law, hereby enters its findings of fact and conclusions of law pursuant to Rule
52 of the Federal Rules of Civil Procedure.
Nature of the Case
The case arises from an insurance coverage and apportionment dispute concerning the
settlement of an underlying suit. Plaintiff Interstate Fire & Casualty Company seeks a
declaration that it has no duty to indemnify the insured and, in the alternative, that the underlying
settlement be apportioned and allocated based on the responsibility of the named defendants in
the underlying suit. Likewise, Defendant Catholic Diocese of El Paso seeks judgment declaring
that Plaintiff Interstate Fire & Casualty Company has a duty to indemnify and alleges breach of
contract, violation of the Texas Deceptive Trade Practices Act and the Texas Insurance Code,
and breach of duty of good faith.
II. Findings of Fact3
Plaintiff/Counter-Defendant Interstate Fire & Casualty Company ("Interstate") is an
Illinois corporation with its principal place of business in Illinois.
Defendant/Counter-PlaintiffCatholic Diocese of El Paso (the "Diocese") is a religious
organization situated in El Paso County, Texas.
The Insurance Policies
Interstate issued policies of excess indemnity insurance to the Diocese covering policy
periods from February 5, 1979, through April 1, 1986.
2 The parties submitted ajoint exhibit list and jointly filed their exhibits. Neither party disputes
the admissibility of any of the exhibits.
3 The Court's findings are largely based on the parties' joint stipulation offacts. See Joint Facts,
ECF No. 24.
The Interstate Indemnity Policy provides a total of $4,800,000 of reimbursement
coverage to the Diocese in excess of $200,000 paid by the Diocese under its self-insured
retention obligation and its primary indemnity coverage through Lloyd's of London
("Lloyd's"). See Trial Exs. 1-3.
The Interstate Indemnity Policy is a "follow form" excess indemnity policy that
incorporates the provisions of the immediate underlying policy subject to exclusions. See
Trial Ex. 3, at 3 [hereinafter Interstate Policy].
The above policies list the Roman Catholic Diocese of El Paso and the Bishop of the
Roman Catholic Diocese of El Paso and His Successors as named insureds.
The insuring agreement for the Interstate Indemnity Policy provides that:
To indemnify the insured for the amount of loss which is in excess of the
applicable limits of liability of the underlying insurance inserted in column
II of item 4 in the declarations; provided that this policy shall apply only
to those coverages for which a limit of liability is inserted in column I;
provided further that the limit of the company's liability under this policy
shall not exceed the applicable amount inserted in column I.
The provisions of the immediate underlying policy are incorporated as a
part of this policy except for any obligation to investigate and defend and
pay for costs and expenses incident to the same, the amount of the limits
of liability, any "other insurance" provision and any other provisions
therein which are inconsistent with the provisions of this policy.
See Interstate Policy 3.
The term "loss" is defined by endorsement number four in the Interstate policy. See
Interstate Policy 10. The endorsement defines the term "loss" as follows:
[S]um paid as damages in settlement of a claim or in satisfaction of a
judgment for which the insured is legally liable, after making deductions
for all recoveries, salvages and other insurances (whether recoverable or
not) other than the underlying insurance and excess insurance purchased
specifically to be in excess of this policy. . . including] investigation,
adjustment, defense or appeal costs, and expenses, costs and expenses
incident to any of the same, notwithstanding that the underlying insurance
may provide insurance for such costs and expenses.
See Interstate Policy 10.
Pursuant to the provisions of "the immediate underlying policy"—that is, Lloyd's
policy—the term "occurrence" is defined as follows:
[A]n accident or a happening or event or a continuous or repeated
exposure to conditions which unexpectedly and unintentionally results in
personal injury, or damage to property during the policy period. All such
exposure to substantially the same general conditions existing at or
emanating from one location shall be deemed one occurrence.
AccordInterstate Policy 3, with Trial Ex. 2, at 16 [hereinafter J.A. Lloyd Policy].
C. The Diocese's Relationship with Other InvolvedParties
The allegations of the underlying lawsuit are against Defendants the Diocese, the
Brothers of the Christian Schools ("NOSF"), and Brother Samuel F. Martinez, F.S.C.
The allegations of the underlying lawsuit are alleged to have occurred at Cathedral High
School in El Paso, Texas.
At the time of the underlying lawsuit, the Diocese owned Cathedral High School
The Diocese entered into annual contracts with the NOSF to supply brothers to teach and
act as administrators at Cathedral High. See Trial Ex. 4 [hereinafter Diocese Contract].
With respect to Cathedral High, the contract between the Diocese and NOSF provides as
the Diocese and NOSF agree to recognize the Bishop's responsibility to
provide for Christian education of the youth of the Diocese;
the Principal of Cathedral High is appointed by NOSF;
the Principal and the Cathedral High Board are collegially responsible for
the preparation of the school's annual budget which is to be submitted to
the Principal organizes, supervises, and administers the institutional
program of Cathedral High in accordance with the philosophy and policies
defined by the Diocesan Board of Education;
the Principal hires teachers and staff in accordance with the policies of the
Diocesan Board of Education; and
the Principal, after consultation with the faculty, selects textbooks in
accordance with the standards of the Diocesan Board of Education.
Brother Martinez, F.S.C, was a member of NOSF and was not a priest within the
Brother Martinez was initially assigned by NOSF in 1972 to work as a teacher at
From 1974 to 1975, Brother Martinez was named by NOSF as the Assistant Principal of
In 1976, Brother Martinez was appointed by NOSF to be the Principal of Cathedral High.
Brother Martinez was at Cathedral High for a total of thirteen years. During that time
period, Brother Martinez reported to his provincial and to the Cathedral High Board. He
also reported to the Bishop of El Paso, Texas, in connection with the annual school
During his tenure at Cathedral High, Brother Martinez allegedly molested ten (10) young
NOSF and Brother Martinez are not named as insureds under the above policies. All
parties concede that the Diocese, NOSF, and Brother Martinez have never asserted that
NOSF and/or Brother Martinez are insureds under Interstate or Lloyd's policies.
D. The Underlying Lawsuit
In 2009, J.A. and his wife D.A. filed a lawsuit ("Texas lawsuit") in the County Court of
El Paso, Texas. The case was subsequently non-suited and re-filed in the First Judicial
District, County of Santa Fe, New Mexico (the "New Mexico lawsuit") before Judge
A.M. was added as a plaintiff to the New Mexico lawsuit. See J.A. et al. v. NOSF, Inc.,
et al, No. D-101-CV-2009-03538 (Santa Fe Dist. Ct., N.M. Oct. 30, 2009).
The Diocese, NOSF, and Brother Martinez are identified as party-defendants in the New
J.A. and A.M. sought the recovery of damages for alleged sexual abuse and molestation
while they were students at Cathedral High in El Paso, Texas; D.A. sought damages for
loss of consortium.
Plaintiffs alleged the following causes of action in the New Mexico lawsuit: (i) battery;
(ii) failure to warn and negligent hiring, retention, and supervision; (iii) negligence; (iv)
negligent and intentional infliction of emotional distress; and (v) vicarious liability. See
Trial Ex. 5 [hereinafter N.M. Lawsuit Compl.].
J.A. alleged that the sexual abuse and molestation occurred in 1982.
A.M. alleged that the sexual abuse and molestation occurred in 1978.
Both J .A. and A.M. alleged that they never informed their parents, the police, or anyone
associated with the Diocese about the alleged abuse.
The parties concede that there is no evidence that shows that the Diocese had actual
knowledge that Brother Martinez sexually abused any minors until approximately 1990.
During Brother Martinez's tenure at Cathedral High, there were no claims of abuse.
After Brother Martinez left Cathedral High, there have been at least ten (10) claims of
sexual abuse by former students. The names of all ten individuals, who alleged to have
been abused by Brother Martinez, were listed as witnesses for plaintiffs in the New
Mexico lawsuit. If the New Mexico lawsuit had proceeded to trial, the witnesses were
expected to testify about their experiences concerning Brother Martinez's sexual abuse.
In the New Mexico lawsuit, NOSF asserted that it was aware of only one prior allegation
of sexual abuse involving Brother Martinez. The instance of sexual abuse was allegedly
performed prior to Brother Martinez coming to El Paso, Texas, to serve as the Principal
at Cathedral High. If the New Mexico lawsuit had proceeded to trial, a brother of NOSF
was expected to testify that he fired Brother Martinez because of an incident that
occurred at a school in Louisiana in the 1970s. Moreover, the brother would testify that
he believed that it was not appropriate for Brother Martinez to work in a school with
boys, and that he "would never [have] hire[d] him." J. Facts 6. NOSF further intended to
assert that it never informed the Diocese of the incident or information.
William Foote, a psychologist from Albuquerque performed a psychological examination
of J.A. Based on his evaluation, Dr. Foote concluded that J.A. had a great risk of
committing suicide. The psychologist employed by the Diocese could not dispute J.A.'s
It was also revealed by the parties that the Diocese had previously been sued in two other
cases involving allegations of abuse by Brother Martinez. The first case is styled John
Doe Iv. NOSF, Inc., Diocese ofEl Paso et ah, No. 2003-847 (346th Dist. Ct, El Paso
Cnty., Tex. March 4, 2003) (hereinafter John Doe /). The named defendants are as
follows: De Salle Christian Brothers, the Catholic Diocese, Samuel F. Martinez, NOSF,
Inc., and Armando X. Ochoa. John Doe /settled for approximately $1,000,000. Of that
amount, NOSF agreed to pay $900,000, and the Diocese through its insurance carrier,
Lloyd's, agreed to pay $100,000.
Another case, filed in 2004 in El Paso County, Texas, is styled John Doe v. NOSF, Inc.,
Diocese ofEl Paso et al, No. 2004-2256 (Cnty. Ct. at Law No. 5, El Paso Cnty., Tex.
May 21, 2004) [hereinafter John Doe //]. The named defendants are as follows: the
Catholic Diocese of El Paso, NOSF, Inc., Samuel F. Martinez, and Armando X. Ochoa.
John Doe II settled for approximately $1,000,000. Of that amount, NOSF agreed to pay
$700,000, and the Diocese agreed to pay $300,000, of which Lloyd's, its underlying
insurance carrier, agreed to pay $60,000.
After John Doe II reached a settlement agreement, the Diocese learned that the funds
used by NOSF came out of the Brother's Retirement Fund. In September 2011, NOSF
informed the Diocese that they were financially unable to contribute to a settlement and
had no insurance coverage.
Plaintiffs J.A., D.A., and A.M. and their counsel were aware of the settlement amounts
reached in the John Doe I and John Doe II cases.
E. Mediation ofthe Underlying Suit
Pursuant to a court order, the parties of the New Mexico lawsuit were required to attend
mediation before January 2012. Mediation was held in El Paso, Texas, on December 19,
Prior to mediation, on December 14, 2011, the Diocese received a demand from counsel
for J.A. and A.M. The settlement demand for A.M. was $1,500,000 and the settlement
for J.A. and his wife was $4,500,000. See Trial Ex. 6 [hereinafter Settlement Demand].
Prior to mediation, NOSF represented to the Diocese and to plaintiffs' counsel that NOSF
was financially unable to contribute to a settlement for any of the named plaintiffs in the
New Mexico lawsuit. The Diocese sent Father Tony Celino and Father Rick Matty to
New Orleans, Louisiana, in an attempt to confirm NOSF's inability to pay.
At the onset of mediation, the Diocese and NOSF were situated in separate rooms.
At mediation, the Diocese negotiated with A.M.'s counsel and settled the case for
$400,000. A mediated settlement agreement was prepared and signed on December 19,
2011. See Trial Ex. 7 [hereinafter A.M. Agreement]. A formal settlement agreement and
release was executed on December 21, 2011, a copy of which is designated as Exhibit 8
(hereinafter A.M. Settlement Agreement). The agreement and release provided, inter
alia, that the following be released and discharged: (i) the Diocese, Most Reverend
Armando X. Ochoa, and all of the Diocese's related entities, officers, attorneys,
employees, and priests; (ii) NOSF and its related entities, officers, attorneys, employees,
and brothers; and (iii) Brother Martinez. See A.M. Settlement Agreement 3.
At mediation, the Diocese negotiated with J.A. and D.A.'s counsel and settled the claims
asserted against the Diocese for $1.2 million.
A mediated settlement agreement between the Diocese and J.A. and D.A.'s counsel was
prepared and handwritten on December 19, 2011. See Trial Ex. 9 [hereinafter J.A. &
After the Diocese reached a settlement agreement with the plaintiffs, NOSF requested the
Diocese to assist in negotiating a release of NOSF from J.A.'s claims.
The parties amended the J.A. & D.A. Agreement to include Defendants NOSF and
The J.A. & D.A. Agreement states that the "Diocese ... agrees to pay $1,200,000 for full
settlement of all claims." Id. The agreement was signed by all representatives for the
plaintiffs, Diocese, NOSF, and Brother Martinez. Id.
At the conclusion of mediation, NOSF informed the Diocese that it would contribute
$110,000 towards the total settlements reached by the Diocese in the New Mexico
F. Settlement Agreement and Sums Paid in the Underlying Suit
A formal settlement agreement and release was executed on January 17, 2012, a copy of
which is designated as Exhibit 10 (hereinafter Settlement Agreement and Release). The
agreement and release provided, inter alia, that the following be released and discharged:
(i) the Diocese, Most Reverend Armando X. Ochoa, and all of the Diocese's related
entities, officers, attorneys, employees, and priests; (ii) NOSF and its related entities,
officers, attorneys, employees, and brothers; and (iii) Brother Martinez. See Settlement
Agreement & Release 3. The formal agreement states that all of the above defendants
entered into the agreement and that "Defendant Diocese agrees to pay" the settlement
amount. Id. at 2.
NOSF paid the Diocese $110,000 on January 17, 2012.
After January 18, 2012, but before January 25, 2012, the Diocese paid the full settlement
sum of $1,200,000.
The Diocese seeks to recover $ 1,200,000 from Interstate less the sum of $ 110,000
contributed by NOSF.
The Diocese learned sometime in 2012, through another case filed in New Mexico
against NOSF, that NOSF had insurance coverage.
G. Lloyd's Agreement to Pay Policy Limits ConcerningJ.A. and A.M. 's Settlements
The underlying insurance carrier for both J.A. and A.M.'s claims is Lloyd's of London.
The abuse asserted by J.A. occurred during the period of time covered by Interstate and
Lloyd's policies. Interstate's indemnity policy covering J.A.'s claim is designated as
Exhibit 3. Lloyd's indemnity policy covering J.A.'s claim is designated as Exhibit 2.
The allegations of abuse asserted by A.M. occurred during the period of time that was
exclusively covered by Lloyd's policy. Lloyd's indemnity policy covering A.M.'s claim
is designated as Exhibit 1 (hereinafter A.M.'s Indemnity Policy).
Prior to mediation, the Diocese was advised by Lloyd's counsel that Lloyd's would pay
its policy limits on J.A. and A.M.'s claims. Lloyd's reimbursed the Diocese for both J.A.
and A.M.'s claims.
Lloyd's did not maintain that there was any apportionment required, nor did it dispute its
liability for J.A. and A.M.'s settlement sums.
H. Demands on Interstatefor Reimbursement
On December 15, 2011, prior to mediation, counsel for the Diocese sent a copy of J.A.
and A.M.'s settlement demands to counsel for Interstate.
Counsel for the Diocese, Francis Ainsa and David Driscoll, requested that counsel for
Interstate acknowledge that Interstate will indemnify the Diocese for a settlement within
the policy limits. Counsel for the Diocese also requested that Interstate send a
representative to the mediation scheduled for December 19, 2011. A copy of the
Diocese's written request is designated as Exhibit 11 (hereinafter Diocese Letter Dated
Counsel for Interstate, D. Bradley Dickinson, responded to the December 15, 2011, letter
via electronic communication on December 16,2011. See Trial Ex. 12 [hereinafter
Interstate Letter Dated Dec. 16, 2011]. In pertinent part, counsel for Interstate responded
that Interstate's "policies of insurance are indemnity, not general liability, policies." Id.
at 1. Counsel further stated that "the policies of indemnity insurance do not impose a
legal obligation upon [Interstate] to participate in or fund any settlement until such time
as the Diocese resolves the matter and submits the same for reimbursement." Id. Mr.
Dickinson informed counsel for the Diocese that an Interstate representative will attend
the mediation on December 19, 2011, in El Paso, Texas, for "the purpose of remaining
current on the status of [the] negotiations." Id.
On December 16, 2011, counsel for the Diocese replied to Mr. Dickinson's response. See
Trial Ex. 13 [hereinafter Diocese Reply].
On December 19, 2011, Mr. Dickinson attended the mediation in El Paso, Texas, on
behalf of Interstate. Prior to entry of actual settlement, Interstate's representative was
asked to leave.
At the conclusion of mediation, by letter dated December 21, 2011, counsel for the
Diocese again sought reimbursement of the sum of $1,000,000 from Interstate, a copy of
which is designated as Exhibit 14 (hereinafter Diocese Reimbursement Claim). Therein,
counsel for the Diocese did not inform Interstate that the Diocese has obtained releases
for NOSF and Brother Martinez nor did the Diocese inform Interstate that NOSF had
agreed to pay the Diocese the sum of $110,000.
On January 25, 2012, Interstate requested that the Diocese provide copies of the
settlement documentation to consider the request for reimbursement. See Trial Ex. 16.
On February 14, 2012, the Diocese provided Interstate with copies of the settlement
documentation reflecting the release of the Diocese, NOSF, and Brother Martinez. See
Trial Ex. 18 [hereinafter Diocese Letter Dated Feb. 14, 2012]. Therein, the Diocese
conveyed that NOSF contributed $110,000 toward the settlement amount.
On March 30, 2012, Interstate requested that the Diocese provide an explanation
regarding the $110,000 payment by NOSF and inquired as to an apportionment of the
settlement between the three released parties—that is, the Diocese, NOSF, and Brother
Martinez. See Trial Ex. 19.
On April 11, 2012, the Diocese informed Interstate that there was no apportionment of
the settlement among the released parties and the $110,000 payment by NOSF was not
included in the request for reimbursement. See Trial Ex. 20. On April 12, 2012, the
Diocese informed Interstate that although the NOSF settlement check solely referenced
the J.A. settlement, the payment was for both the J.A. and A.M. settlements. The letter
also reiterated that there was no apportionment undertaken of the settlement in the J.A.
case among the three defendants released or the NOSF payment. See Trial Ex. 22
[hereinafter Diocese Letter Dated April 12, 2012].
Any finding of fact which may also constitute a conclusion of law shall be deemed a
conclusion of law, and any conclusion of law which may also constitute a finding of fact
shall be deemed a finding of fact.
Conclusions of Law
As a preliminary matter, this Court concludes that it has subject matter jurisdiction over
this action pursuant to 28 U.S.C. § 1332, as the parties are completely diverse and the amount in
controversy exceeds $75,000. Venue is also proper pursuant to 28 U.S.C. § 1391(b)(2).
B. Choice ofLaw
It is undisputed by the parties that this Court sits in diversity jurisdiction. Confirming
that this Court sits in diversity jurisdiction, and noting that Texas is the forum state in this matter,
the Court applies Texas law as interpreted by the Texas state courts. See Ingalls Shipbuilding v.
Fed. Ins. Co., 410 F.3d 214, 230 (5th Cir. 2005); Mid-Continent Cas. Co. v. Swift Energy Co.,
206 F.3d 487, 491 (5th Cir. 2000). The Court's primary obligation is to make an Erie guess as to
how the Texas Supreme Court would decide the question before us. See Am. Int 7 Specialty
Lines Ins. Co. v. RentechSteel LLC, 620 F.3d 558, 564 (5th Cir. 2010).
Under Texas law, insurance policies are interpreted using the same rules that apply to
contracts in general. See Valmont Energy Steel, Inc. v. Commercial Union Ins. Co., 359 F.3d
770, 773 (5th Cir. 2004). When interpreting a contract, a court's primary concern is to give
effect to the intentions of the parties as expressed in the instrument. See Schneider Nat7 Transp.
Ford Motor Co., 280 F.3d 532, 537 (5th Cir. 2002). The policy must be considered as a whole
with each provision given effect and meaning. See Valmont Energy Steel, Inc., 359 F.3d at 773.
If a policy is worded so that it can be given a definite or certain legal meaning, then it is not
ambiguous, and a court should construe the contract as a matter of law. See Am. Mfrs. Mut. Ins.
Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex. 2003).
C. Policy Coverage Disputes Pursuant to Texas Law
The burden to establish coverage under an insurance policy rests with the insured. See
Guar. Nat'IIns. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998) (citing Telepakv. United
Servs. Auto. Ass'n, 887 S.W.2d 506, 507 (Tex. Civ. App.—San Antonio 1994, writ denied)); see
also Emp'rs Cas. Co. v. Block, 744 S.W.2d 940, 944 (Tex. 1988), overruled inpart on other
grounds, State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996). The burden to
establish the applicability of the exclusions under an insurance policy rests with the insurer. See
Guar. Nat'l, 143 F.3dat 193.
In Texas, insurance settlement amounts are allocated based on the "concurrent causes"
doctrine. See CooperIndus. LLC v. Am. Int'lSpecialty LinesIns. Co., 350 F. App'x 876, 878
(5th Cir. 2009) (per curiam) (unpublished) (citing Comsys Info. Tech. Servs., Inc. v. Twin, 130
S.W.3d 181, 198 (Tex. App.—Houston 2003, pet. denied) (applying the doctrine to claims
arising from the deaths of two employees)). Under the doctrine of concurrent causes, when
covered and non-covered perils combine to create a loss, the insured is entitled to recover that
portion of the damage caused solely by the covered peril. SeeAllison v. Fire Ins. Exchange, 98
S.W.3d 227, 258 (Tex. App.—Austin 2002, no pet.); State Farm Fire & Cas. Co. v. Rodriguez,
88 S.W.3d 313, 320-21 (Tex. App.—San Antonio 2002, pet. denied). The doctrine of
concurrent causation is not an affirmative defense or an avoidance issue. See Allison, 98 S.W.3d
at 258. Because the insured can recover only for covered events, the burden of segregating the
damage attributable solely to the covered event is a coverage issue for which the insured carries
the burden of proof. See Rodriguez, 88 S.W.3d at 321. The insured is not required to establish
the amount of damages with mathematical precision, but there must "be some reasonable basis
upon which the [trier of fact's] finding rests." Id.; see Enserch Corp. v. ShandMorahan & Co.,
952 F.2d 1485, 1494 (5th Cir. 1992). The doctrine of concurrent causation is not limited to cases
involving property damage; it also applies to cases involving personal injury. See Commercial
Union Ins. Co. v. Roberts, 1 F.3d 86, 88 (5th Cir. 1993) (applying the doctrine to a case
involving sexual molestation).
The trier of fact may make an appropriate allocation of the settlement between covered
and uncovered claims. See Enserch, 952 F.2d at 1494-95. That is, "[i]n a dispute between an
insurer and its insured concerning an underlying settlement that may have included both covered
and non-covered claims under the insurance policy, it is appropriate for the district court to make
findings necessary to apportion the settlement between damages that the insurer owes and
damages for which the insured has a duty to pay." See Am. Int7 Specialty Lines Ins. Co. v. ResCare, Inc., 529 F.3d 649, 656 (5th Cir. 2010) (citing Enserch, 952 F.2d at 1494). Nevertheless,
the district court's job is not to retry the underlying suit. Id.
The allocation of claimant's damages is based on evidence upon which the settlement of
the underlying suit is based. See Enserch, 952 F.2d at 1494. As such, the trier of fact "can
consider any facts that could have been considered in the underlying lawsuit itself." Res-Care,
529 F.3d at 656 (quoting Enserch, 952 F.2d at 1494) (internal citations and quotations omitted).
However, circuit precedent does not limit the district court to evidence admissible at trial. Id.
("The [insured] contends that Enserch necessarily limited the district court to considering only
the evidence that would have been admissible at trial.... We do not agree with such a narrow
reading of our Enserch decision."). Any evidence that is "truly relevant" is admissible at the
allocation trial. See id.
"It is important to remember that the goal of the allocation trial is not to
conduct a fiill blown retrial of the merits of the underlying plaintiffs claims, but rather to
determine what portion of the settlement was reasonably intended to concern claims covered by
the policy at issue." Id. at 657. Accordingly, district courts are afforded "considerable leeway in
deciding what facts are truly relevant to the apportionment decision, [thereby, preventing] a full
blown retrial of the underlying lawsuit." Id. at 656 (emphasis added). "The effect of this
'leeway' is to expand, not contract, the [court's] discretion in considering apportionment
evidence." Id. at 657.
In viewing the evidence, courts must conduct an inquiry as to "how the parties viewed the
merits of the plaintiff[s'] claims at the time of the settlement." Id. (citing 1 Allan D. Windt,
Insurance Claims & Disputes § 6:31 (5th ed. 2008)); accord! Allan D. Windt, Insurance Claims
& Disputes § 6:31 (6th ed. 2013) ("The actual merit of each plaintiffs claims against the insured
is not directly relevant. The only question should be how the parties to the settlement viewed the
relative merits of the plaintiffs claims at the time of the settlement...."). To determine a
reasonable allocation from viewpoint of the settling insured, "all information is potentially
relevant," including but not limited to "internal memoranda, correspondence between the insurer
and the insured, communications with the injured party, investigative reports and statements, and
even assessments of how sympathetic the plaintiffs would be at trial." Res-Care, 529 F.3d at 657
& n.12 (holding that "in any post facto analysis of settlement claims, if the district court is able
to make an allocation of the settlement amount, it should accept whatever evidence is available
regarding the intent behind the settlement decision" (citing Am. HomeAssurance Co. LibbeyOwens-FordCo., 786 F.2d 22, 31 (1st Cir. 1986))).
The Court begins its analysis with the language of the insurance policy. The Interstate
Policy unambiguously states by endorsement that the insured is the "Roman Catholic Diocese of
El Paso [and] The Most Reverend Raymundo Pena, Bishop and His Successors." Interstate
Policy 7. Accordingly, as the parties concede, the Interstate Policy unambiguously provides
coverage for the "Roman Catholic Diocese of El Paso [and] The Most Reverend Raymundo
Pena, Bishop and His Successors." Id. NOSF and Brother Martinez are not expressly listed as
insureds under the policy and the named insured, the Diocese, sets forth no evidence that either
NOSF or Brother Martinez are deemed insureds under the Interstate Policy. Rather, both
Interstate and the Diocese agree that NOSF and Brother Martinez are not covered under the
Interstate Policy. Thus, any payment made by the Diocese on behalf of the persons or entities
not listed as an insured may not be subject to reimbursement pursuant to the Interstate Policy of
excess indemnity coverage.
According to the plain language of the Interstate Policy, "[t]he provisions of the
immediate underlying policy [i.e. Lloyd's Indemnity Policy] are incorporated as a part of this
" Interstate Policy 3. Likewise, the immediate underlying policy provides that a
claim is covered if the Diocese suffered an "ultimate net loss" on accountof personal injuries or
property damage that arose from an "occurrence" during the policy period, through adjudication
or compromise. See id. at 16. The policyalso provides that the phrase"ultimate net loss" means
the "total sum which the Assured [i.e. the Diocese] becomes obligated to pay" including costs
associated with "litigation, settlement [and] suitswhich are paid as a consequence of any
occurrence covered hereunder." Id. Further, the underlying agreement states that the
underwriters agree, subjectto certain limitations provided in the agreement, "to indemnify the
Assured [i.e. the Diocese] for all sums which the Assured shall be obligated to pay by reason of
the liability imposed upon the Assured or assumed by the Named Assured under contract or
agreement." Id. at 14. Similarly, Interstate defines "loss" as the "sums paid as damages in
settlement of a claim or in satisfaction of a judgment for which the insured [i.e. the Diocese] is
legally liable ...." Interstate Policy 3.
While the parties stipulate that "occurrence" is defined as an "accident or happening or
event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally
results in personal injury [ ] or damage to property," Interstate asserts that the allegations of
sexual molestation and abuse attributed to Brother Martinez and NOSF's claims cannot satisfy
the definition of "occurrence" under the policy because Brother Martinez and NOSF's claims
constitute "intentional and knowing conduct." Interstate Opening Br. 2, ECF No. 37. The
Diocese does not dispute this contention; instead it maintains that the settlement amount paid by
the Diocese does not cover claims attributed to Brother Martinez or NOSF. Diocese Opening Br.
3, ECF No. 38. Correspondingly, the Diocese contends that the term "loss" is at issue because
here the Diocese claims the settlement amount paid by the Diocese was solely to settle claims for
which it is legally liable. See id. at 2. Irrespectively, both parties concede that if the settlement
amount were to include claims attributed to Brother Martinez or NOSF, the Diocese would not
be permittedto seek reimbursement pursuant to the relevant insurance policies,
Upon considering the parties' dispute as to whether the Diocese's settlement agreement is
covered under the Interstate Policy, the Court observes a small, yet noteworthy distinction
between the parties' arguments. While Interstate contends that the Diocese is not entitled to
reimbursement because the settlement agreement includedclaims against Brother Martinez and
NOSF, the Diocese alleges that notwithstanding this fact, the settlement amount only covers
those claims asserted against the Diocese. Though Interstate alleges that Brother Martinez and
NOSF's claims appear to be settled, the parties do not present any evidence nor can the Court
find any evidence that the claims asserted against NOSF and Brother Martinez were released
because a sum of money was paid to plaintiffs on their behalf. As such, the Court finds that
settlement of the underlying suit does not necessarily indicate that a monetary value is attached
to each individual claim. In accord, the Court reviews relevant evidence concerning the claims
made against NOSF and Brother Martinez to "determine what portion of the settlement was
reasonably intended to concern claims covered by the policy at issue." Cooper Indus., 350 F.
App'x at 878 (internal citations and quotations omitted).
Here, the parties of the underlying suit were ordered to participate in mediation by the
presiding state court judge. Upon being informed of the court-ordered mediation, counsel for
Interstate responded in a letter dated December 16, 2011, that its policies "contain a provision
providing for cooperation with the insurance carriers." Interstate Letter Dated Dec. 16, 2011, 1.
Also therein, Interstate stated it "will have a representative attend the mediation in El Paso for
the purpose of remaining current on the status of [the Diocese's] negotiations." See id. The
parties, counsel for the respective parties, and counsel for Interstate, Mr. Dickinson, attended the
mediation. During the course of mediation, counsel for Interstate was asked to make some
commitments on the part of Interstate regarding reimbursement prior to settlement; however,
counsel for Interstate declined to make any such commitment. Consequently, the Diocese asked
Interstate's counsel to go into a separate room. A settlement agreement was entered by the
parties shortly thereafter.4
Even though counsel for Interstate was not physically present at the time the parties initially
decided to enter into the settlement agreement, the Interstate Policy specifically states that Interstate "at
During the initial stages of mediation, the Diocese and NOSF and their respective counsel
were in separate rooms. Specifically, the Diocese was in one room and NOSF was in a separate
room. See Diocese Summ. of Dep. 3, ECF No. 35 ("During the [m]ediation[,] the Diocese of El
Paso was in a separate room from the Christian Brothers and Brother Samuel Martinez."). Based
on the above facts and the relevant evidence, the Diocese initially agreed to settle its claims for
$1.2 million. See id. When the plaintiffs of the underlying suit decided to accept the settlement
amount from the Diocese and, correspondingly, dismiss the claims asserted against the Diocese,
NOSF requested the Diocese to assist in negotiating a release for NOSF. See id. at 4; Interstate
Summ. of Dep. 7, ECF No. 36 ("Q[:] Did NOSF ever specifically request the Diocese to
negotiate a release of NOSF from the claims of J.A. and A.M.? A[:] Yes."). Though the Diocese
had already achieved settlement with respect to its claims, evidenced by the informally prepared
handwritten J.A. & D.A. Agreement, NOSF and Brother Martinez endeavored to also be released
from the claims asserted against them. See id.
All parties of the underlying suit entered into a handwritten settlement agreement which
provides that "[t]he Diocese of El Paso agrees to pay $1,200,000[J in full settlement of all
claims" in the underlying suit. J.A. & D.A. Agreement 1. The agreement further provides that
presumably5 the plaintiffs ofthe underlying suit "agrees [sic] to accept the sum of money "and
to dismiss their case.*" See id. The agreement states that the monetary sum "shall be paid on or
its own option may" "participate in the investigation, settlement or defense of any claim or suit against the
insured." Interstate Policy 5. Given that the purpose of mediation is to assist the out-of-court settlement
of a dispute, it is unclear as to why counsel for Interstate agreed to be absent from the settlement
discussions when Interstate expressly reserved the right to be present in settlement discussions in its
policy. See id.; see also Jay Grenig, 1 Alt. Disp. Resol. § 4:1 (3d ed.) (West 2013) (citing Tom Arnold, A
Practical How-To Guide for Mediators and Attorneys, in II Alternative Dispute Resolution; How to Use
It to Your Advantage 581, 588 (1994)). Though Interstate alleges that it was unaware of the fact that the
Diocese was attempting to settle the underlying suit, the Court finds that Interstate's position is curious
given the very nature of mediations.
5 Considering the nature ofthe underlying suit, the Court concludes that the redactions ofthe
J.A. & D.A. Agreement are the names of the plaintiffs in the underlying suit.
before [March 31, 2012]." Id. On the left side of the page, a corresponding asterisk (*) is
followed by the caption: "ON APRIL 1, 2012 AGAINST ALL DEFENDANTS." Id. Only the
signatures of counsel for NOSF immediately follow the above caption on the left side of the
page. The Diocese alleges that this discrepancy is due to the fact that the handwritten settlement
agreement originally provided that the settlement sum was being paid by the Diocese in
exchange for dismissing those claims asserted solely against the Diocese. See Diocese Opening
Br. 9. But, an asterisk was added at the conclusion of mediation to also include dismissal of the
claims against NOSF and Brother Martinez. See id. The Diocese alleges that at this time,
however, there was no intention that any part of the $1.2 million was foreordained as payment
for claims against NOSF or Brother Martinez. See Interstate Summary of Dep. 7 (Q[:] There
was no agreement reached prior to the settlement with the plaintiffs as to what amount the NOSF
was going to pay. Is this correct? A[:] That's correct. Q[:] Okay. So this came about after the
settlement had actually been reached? A[:] Yes."). Interstate has not presented any evidence to
dispute the Diocese's contention.
The formal Settlement Agreement and Release was executed on January 17, 2014. The
release provides that it is entered between J.A. and D.A. (the Plaintiffs) and the Diocese, NOSF,
and Brother Martinez (collectively, the Defendants). See Settlement Agreement & Release 1.
"The purpose of the Settlement Agreement and Release is to achieve a full and complete
settlement of all claims and causes of action presently set forth or which could have been
asserted [in the underlying suit]." Id. at 2. By entering this agreement, Defendants "do not
acknowledge liability or responsibility for the causes of action ... but specifically deny liability
and responsibility." Id. In consideration of the release, "Defendant Diocese agrees to pay to the
[Plaintiffs $1.2 million on or before January 19, 2012]." Id. The section concerning the terms of
the release provides that:
Plaintiffs completely and unconditionally release and forever discharge the
following persons and entities:
a. Defendant [Diocese], Most Reverend Armando X. Ochoa, and all of
Defendant [Diocese's] related entities, officers, attorneys, employees,
b. Defendant NOSF  and all of its related entities, officers, attorneys,
employees, and brothers; [and]
c. Brother  Martinez.
The above-mentioned persons and entities are unconditionally released
and forever discharged from any and all claims
Id. at 3. While NOSF, Brother Martinez and their respective counsel did not sign the Settlement
Agreement and Release, the agreement clearly provides that all claims and parties in the
underlying suit, irrespective as to whether NOSF or Brother Martinez contributed to the
settlement amount, are settled and released. See id. at 2-3.
Having considered the parties' contentions, the Court finds that the language set forth in
the Settlement Agreement and Release is unambiguous as to which claims are settled and
released. The language plainly states that the named defendants in the underlying suit are
"unconditionally released and forever discharged from any and all claims, demands, damages,
costs, expenses, causes of action or suits set forth in the [underlying lawsuit]... whether known
or unknown, at law or in equity, that could have been, but which were not asserted in the
[underlying lawsuit]." Id. at 3. Giving effect to all contractual provisions, and ensuring that
none will be rendered meaningless, the Court finds that the Settlement Agreement and Release
settles all claims asserted in the underlying suit, including the claims asserted against NOSF and
Brother Martinez. While the Diocese contends that the claims asserted against NOSF and
Brother Martinez were not settled, rather released, the plain terms of the agreement provide
otherwise. Furthermore, the Court notes that the Diocese does not dispute the terms as expressed
in the Settlement Agreement and Release. As such, the Court concludes that the underlying
settlement includes covered and non-covered claims. While all claims have been settled, it is not
presumed that a monetary value is attributed to each individually settled claim nor do we find
any rule of law that requires a plaintiff to receive compensation from a released defendant who
settles his claim for zero dollars.6 In accord, it is necessary to allocate the settlement between
damages that the insurer owes and damages for which the insured has a duty to pay.
ii. Allocation of Claimant's Damages
The Court now determines "what portion of the settlement was reasonably intended to
concern claims covered by the policy at issue." See Res-Care, 529 F.3d at 657 (emphasis
added). In making that determination, the Court views the merits of the plaintiffs' claims at the
time of the settlement of the underlying suit from the viewpoint of the settling insured. See id.
Viewing the Settlement Agreement and Release, the Court observes that the formal
agreement does not apportion the damages with respect to each claim or party. Although the
Settlement Agreement and Release articulates that the Diocese agrees to pay $ 1.2 million, the
agreement does not expressly state or imply that the $1.2 million is intended to cover those
6 See Kinch v. BigLots Stores, Inc., Civ. A. No. 807CV121-EAJ, 2008 WL 660289, at *1 (M.D.
Fla. Mar. 6, 2008) (acknowledging that "[t]he joint proposal for settlement stated that Plaintiffs would
dismiss all claims against Big Lots upon payment of a total dollar amount to Plaintiffs[; however,]
Defendant notified Plaintiffs that it was accepting the settlement offer of zero dollars that was apportioned
to [one of Defendant's employees] but was rejecting the offer as to [Defendant's other employee]."); see
also DeNardo v. Rodriguez, No. 92C-02-026, 1993 WL 81319, at *1 (Del. Sup. Ct. Feb. 12, 1993) qff'd
sub nom., De Nardo v. Rodriguez, 630 A.2d 1102 (Del. 1993) ("The estate claim under the survival
statute was settled for zero damages."); In re Peter J. Schmidt Co., Inc., No. 92-695, 1993 WL 157721, at
*2 (Bankr. D. Del. Mar. 29, 1993) ("Schmitt concludes Sandridge's claim is finally settled at zero, and
that the December 10 order bars Sandridge from attempting a second time to recover upon that claim.").
damages resulting from the claims against NOSF and Brother Martinez. Since the underlying
settlement agreement specifically denies any liability, the Court begins its inquiry with the
underlying mediation. The parties concede that prior to mediation, the plaintiffs in the
underlying suit made a settlement demand of $4.5 million to the Diocese. Based on the
stipulated facts, it appears that only the Diocese was aware of the settlement demand because
NOSF and Brother Martinez represented to the Diocese and to plaintiffs' counsel they were
unable to financially contribute to a settlement. Although the settlement demand was only
addressed to the attorney for the Diocese, that demand was not accepted. Nevertheless, the
Diocese was of the opinion that there was a "reasonable probability that, if the case [were to go]
to trial, a jury would award damages against the Diocese  in excess of policy limits." See
Diocese Letter Dated Dec. 15, 2011, 1.
Subsequently, the parties participated in a court-ordered mediation. The Diocese, NOSF,
and Brother Martinez were in separate rooms during mediation. See Summ. of Dep. 3-4;
Diocese Opening Br. 8. As asserted by the Diocese, the Diocese initially settled its claims for
$1.2 million. NOSF and Brother Martinez were not involved in the amount negotiated by the
Diocese. Only after it reached a settlement agreement with respect to its claims did the Diocese
assist in acquiring a release for its co-defendants NOSF and Brother Martinez. See Diocese
Summ. of Dep 4; Interstate Summ. of Dep. 7. Although Interstate was informed of the mediation
and had a representative attend the mediation, Interstate does not dispute these contentions.
Nonetheless, a release of NOSF and Brother Martinez did not increase or decrease the settlement
amount. Given the fact that the Diocese was willing to pay $1.2 million for its claims regardless
as to whether or not the plaintiffs would release the other co-defendants, the question is whether
the Diocese paid any money to settle the claims asserted against NOSF and Brother Martinez.
See Diocese Opening Br. 20 ("The uncontradicted testimony of Bishop Ochoa, Fr. Celino and,
especially, Mario Martinez establish that the Diocese had already agreed to pay $1,200,000 to
settle the plaintiffs' claims against the Diocese when NOSF asked to be released.").
Considering the viewpoint of the settling insured, the Diocese asserts that they valued the
plaintiffs' claims against the Diocese at more than $1.2 million; and that if they had proceeded to
trial, the Diocese reasonably believed that the plaintiffs would be awarded damages over the sum
of $1.2 million given the testimony that was to be elicited and the surrounding media attention.
The Diocese was advised by plaintiffs' counsel in the underlying case that he intended to call ten
former students who also alleged to have been abused by Brother Martinez during his tenure at
Cathedral High; a plaintiffs wife who would testify that her marriage was in serious trouble as a
result of the abuse her husband endured; and a psychologist for a plaintiff who would state that
there was a significant chance that the plaintiff might commit suicide. See Diocese Opening Br.
10-11; Summ. of Dep. 2-3. Aside from how sympathetic the witnesses purported to be, the
Diocese also considered the plaintiffs in the underlying case to be very credible. See Diocese
Opening Br. 11; Summ. of Dep. 3. The Diocese was also concerned about the adverse publicity
that the Diocese had received both locally and nationally concerning other sexual abuse claims
by church officials. This concern appears to have been heightened during the course of the
mediation, when the mediator—who had settled previous sexual abuse cases in Santa Fe, New
Mexico—recommended that the Diocese settle its liability for $1.2 million based on his past
experience involving cases of a similar nature. See Summ. of Dep. 3. Further, the Diocese
reflected on two past lawsuits in El Paso County, Texas, that were each settled for approximately
$1 million. While Interstate alleges that the above evidence would not be admissible in the
underlying suit if the case had proceeded to trial, the Court finds that such evidence is certainly
relevant and applicable because it evidences the factors that influenced the Diocese's decision to
settle the case against it. See Res-Care, 529 F.3d at 657. In any event, although all claims were
settled, there is no evidence that any part of the settlement amount was for the claims asserted
against NOSF and Brother Martinez.
Interstate, nonetheless, urges the Court to consider the Diocese's prior course of dealing
and find it determinative with respect to this case. Specifically, Interstate points out that in two
prior child sexual molestation cases involving the Diocese and NOSF, the NOSF paid 70 to 90
percent of each of the $1 million settlements, and the Diocese paid the remaining amount. Thus,
Interstate contends that this prior course of dealing between the Diocese and the NOSF evidences
how the two entities generally apportion responsibility for settlements. See Interstate Opening
Br. 6. Notwithstanding Interstate's contention, and after reviewing the evidence of the Diocese
and NOSF's prior settlements, the Court does not find that such evidence is determinative with
the inquiry at issue—that is, "how the parties viewed the merits of plaintiff[s'] claims at the time
ofsettlement" See Res-Care, 529 F.3d at 657 (emphasis added). There is little to no evidence
presented to the Court that the Diocese and NOSF intended to settle the claims of the underlying
suit in a similar manner to how settlements were previously apportioned. Additionally, there is
no evidence that the plaintiffs required any money on behalf of each defendant or claim before
releasing the parties and claims in the New Mexico lawsuit.
The Court observes that notwithstanding NOSF's inability to pay prior to mediation,
sometime after the initial handwritten settlement agreement was drafted by the parties, NOSF
informed the Diocese that "it could pay $110,000 toward the settlement amount." See Diocese
Letter Dated Feb. 14, 2012, 3 ("[It] was not until the day of the mediated settlement that [NOSF]
indicated that it could pay $110,000 toward the settlement amount.").7 While NOSF had
maintained that it was "essentially insolvent" during litigation and could not "contribute any
meaningful amount to any settlement that was negotiated," NOSF fortuitously sold a piece of
property affording NOSF additional funds that were not previously available. See id.; Trial Ex.
20, at 2 [hereinafter Diocese Letter Dated April 11, 2012] ("Prior to the final settlement with [the
plaintiffs, the NOSF] advised [the Diocese] that they could contribute $100,000."); Interstate
Summ. of Dep. 7 ("[A] fortuitous event occurred that the Order had sold a piece of property and
money did come on board that was not available prior to all negotiations taking place."). Even
though the Diocese intended for the $1.2 million to cover the claims asserted solely against them,
before the final settlement was reached, NOSF decided to contribute a sum of money to the
Diocese as a show of good faith. See Interstate Summ. of Dep. 6-7 ("There's a history between
[NOSF] and the Diocese  that goes back probably close to 100 years and as an indicator of
good faith [and] to assist the Diocese. ... the money was offered as a part of the settlement or
offered as a part of the amount the Diocese had agreed to pay, just to reduce out-of-pocket
money paid by the Diocese."). Thus, subsequent to mediation and prior to the final settlement,
NOSF informed the Diocese that it would contribute $110,000 to the settlement of the
underlying suit. See Diocese Letter Dated April 11, 2012, 2. Though NOSF and the Diocese did
not enter into a written contract documenting how much NOSF would contribute to the
settlement amount, NOSF orally informed the Diocese that it would pay $110, 000. See id.
Counsel for the Diocese received the check from NOSF in the amount of $110,000 on January
18, 2012, and counsel delivered the check to the Diocese. See id. ; see also Diocese Reply 1
("We will not receive any financial support for any settlement that might be negotiated.
7 See also Interstate Summary of Dep. 7 (Q[:] There was no agreement reached prior to the
settlement with the plaintiffs as to what amount the NOSF was going to pay. Is this correct? A[:] That's
correct. Q[:] Okay. So this came about after the settlement had actually been reached? A[:] Yes.").
Conversely, the [p]laintiffs [in the underlying suit] will be told that any judgment that they take
against the Christian] Brothers will be uncollectable."). The Diocese concedes that the said
check was earmarked for the underlying settlement sum. See Diocese Letter Dated April 12,
2012,1. Though the evidence supports that NOSF paid the Diocese $110,000, it is not supported
by the record that NOSF was legally responsible for said sum or thatthe parties agreed to
apportion the damages between them. Rather, it appears thatNOSF voluntarily paid the Diocese
a sum of money as a "goodwill gesture" based on a "long-time relationship" between NOSF and
the Diocese. See Interstate Summ. of Dep. 4.
Lastly, whilethe Diocese's $1,200,000 settlement was reasonably intended to concern
claims covered by the policy at issue, "Interstate is entitled to a credit of $200,000 due to the
underlying Lloyd policy of $150,000 and the self-insured retention of $50,000." See Diocese
Letter Dated Feb. 14, 2012, 2. In accordance with the terms of the insurance policies, Interstate
is liable only after the Diocese satisfies the first $200,000. Therefore, the Diocese is entitled to
recover the sum of $1,000,000, less the sum of $110,000 contributed by NOSF, from Interstate.
Reasonableness of Settlement
While counsel for Interstate attended the court-ordered mediation, the counsel for
Interstate declined to make a commitment with respect to a settlement amount and was not
present when the Diocese achieved a settlement. "'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.'" See XL Specialty Ins. Co. v. Kiewit Offshore Servs., Ltd., 513 F.3d
146, 152 (5th Cir. 2008) (quoting Ins. Co. ofN Am. v. Aberdeen Ins. Servs., 253 F.3d 878, 888
(5th Cir. 2001)); see also Transamerica Ins. 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." See Aberdeen Ins. Servs., 253 F.3d at 878. Rather as the Texas Supreme Court
and our appellate court have maintained, the indemnitee must "establish that from its standpoint
the settlement was made in good faith and was reasonable and prudent under the circumstances."
See XL Specialty Ins., 513 F.3d at 152-53 (quoting Mitchell's, Inc. v. Friedman, 303 S.W.2d
775, 779 (Tex. 1957); accord Aerospatiale Helicopter Corp. v. Universal Health Servs., Inc., 778
S.W.2d 492, 500 (Tex. App.—Dallas 1989, writ denied) (citing Pan American Gas Co. v.
Natural Gas Const. Corp., 418 S.W.2d 380, 381 (Tex. Civ. App.—Waco, 1967 writ refd n.r.e.)).
Here, there is no allegation that the $1.2 million settlement was not reasonable, prudent,
or made in good faith. Moreover, as discussed supra, the Court finds that given the evidence
against the Diocese in the underlying suit, the Diocese sufficiently established that the settlement
was made in good faith and was reasonable and prudent under the particular facts and
circumstances of the underlying suit and the factors influencing the Diocese's decision to settle
the claims against it.
iv. Defendant's Remaining Counterclaims
Apart from the declaratory judgment that both Plaintiff and Defendant seek, the Diocese
also alleges three separate but related causes of action. While the parties only briefly, if at all,
addressed the following claims in their opening and closing submissions to the Court, the Court
concisely addresses each of the claims,
Breach of Contract
A breach of a promise to pay is a breach of contract. See Barrios v. Enterprise Leasing
Co., 110 S.W.3d 185, 189 (Tex. App.—Houston 2003, no pet.), judgment rev'don other
grounds, 156 S.W.3d 547 (Tex. 2004). But a breach of contract cannot occur until a party fails
or refuses to do something he has promised to do. See Dorsett v. Cross, 106 S.W.3d 213, 217
(Tex. App.—Houston 2003, no pet.).
In this case, Counter-Defendant Interstate cannot be in breach of the contract until after
the Court has determined the amount due under the parties' insurance contract and entered a
judgment for the amount due. Because Interstate did not know what amount of the settlement
was attributable to claims not covered under the applicable indemnity policy, Interstate has not,
to date, breached the policy. In this case, the insurance contract is clearly a valid contract,
however, there has, to date, been no breach of that agreement. While Interstate is obligated to
reimburse the Diocese for a portion of the settlement amount that is covered by the indemnity
policy and advanced by the Diocese, that amount was determined in this action. Accordingly,
until this Court renders a judgment in this case which Interstate refuses to pay, no breach has
b. Violation of the Texas Deceptive Trade Practices Act and the Texas
Under Texas law, an insurer violates Section 17.46 of the Texas Debt Trade Practices Act
("DTPA") and the Texas Insurance Code for unfair settlement practices "if it has no reasonable
basis for denying or delaying payment of a claim." See Henry v. Mut. ofOmaha Ins. Co., 503
F.3d 425,429 (5th Cir. 2007) (citing Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d
456, 459 (5th Cir. 1997)). The evidence confirms that Interstate did have a reasonable basis for
initially denying and delaying coverage because the Diocese's settlement involved a potential
sum attributable to individuals and entities that were not covered by the Interstate indemnity
Violation of Duty of Good Faith
An insurer breaches its duty of good faith and fair dealing when it denies or delays a
claim without a reasonable basis and the insurer knew or should have known that no reasonable
basis to deny or delay the claim existed. See Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 55
(Tex. 1997). An insurer does not breach its duty by merely denying a claim in error. See U.S.
Fire Ins. Co. v. Williams, 955 S.W.2d 267, 268 (Tex. 1997). If there is a bona fide dispute about
the insurance company's obligations under the contract, the insurer's denial or delay does not
rise to the level of bad faith as a matter of law. See MarquisAcquisitions, Inc. v. Steadfast Ins.
Co., 409 S.W.3d 808, 814 (Tex. App.—Dallas 2013, no pet.) (citing In re Segerstrom, 247 F.3d
218, 228 (5th Cir. 2001)).
Interstate posits that it had a reasonable basis for believing that the settlement amount
paid by Diocese included claims that were not covered by Interstate's policy. The evidence sets
out the existence of a bona fide dispute. Because Interstate's liability was not reasonably clear,
the Court finds that Interstate did not breach its duty of good faith and fair dealing.
For all the forgoing reasons,
IT IS HEREBY ORDERED and DECLARED that:
The Catholic Diocese of El Paso is a named insured under Interstate Fire &
Casualty Company's policy of excess indemnity coverage;
The Brothers of the Christian Schools (NOSF) and Brother Samuel Martinez are
not named insureds under Interstate Fire & Casualty Company's policy of excess
The Catholic Diocese of El Paso entered into a written settlement agreement, with
the plaintiffs in the underlying suit, in which the Catholic Diocese of El Paso
agreed to pay $1.2 million to resolve all claims made against it in the underlying
The settlement payment by the Catholic Diocese of El Paso in the amount of
$1,200,000 was reasonable, prudent, and in good faith under the circumstances;
The Catholic Diocese of El Paso has sufficiently proved that it paid out the
amount of $1,200,000 to settle its potential liability in the underlying case, and
that the amount, subject to offsets, that exceeds $200,000 is covered under
Interstate Fire & Casualty Company's policy of excess indemnity coverage.
Because it is undisputed by the parties, any funds or monies provided to the
Catholic Diocese of El Paso by the Brothers of the Christian Schools (NOSF), to
offset the Catholic Diocese of El Paso's out-of-pocket expenses for the claims
against the Catholic Diocese of El Paso in the underlying suit, offset the amount
of the indemnity owed by Interstate Fire & Casualty Company.
Based on the Catholic Diocese of El Paso's deductible, self-insured retention, and
offset for the payment of $110,000 from the Brothers of the Christian Schools
(NOSF), Interstate Fire & Casualty Company has a duty to indemnify the
Catholic Diocese of El Paso and shall indemnify the Catholic Diocese of El Paso
the amount of $890,000.
IT IS FURTHER ORDERED that all other relief sought and not granted is DENIED.
IT IS FURTHER ORDERED that the Court shall separately consider and rule upon the
parties' entitlement to prejudgment and post-judgment interest. The parties have fourteen (14)
days from the date of this order to provide supplemental briefing as to whether or not they
shall recover prejudgment and post-judgment interest. See Tex. Fin. Code § 302.102; 28 U.S.C.
IT IS FURTHER ORDERED that the Court shall separately consider and rule upon the
parties' Attorneys' Fees and Costs and Bill of Costs. If the parties believe they are entitled to
attorneys' fees and taxable court costs, counsel for the parties SHALL submit an accounting of
its attorneys' fees within fourteen (14) days of this order. See W.D. Tex. Civ. R. 7(j); Fed. R.
Civ. P. 54(d). The Court will then render a final appealable judgment once the Court determines
if fees and costs should be awarded and the reasonableness ofsaid fees and costs.
So ORDERED and SIGNED this j( th day of March, 2014.
FID C. GUADERRAMA
UNIfTED STATES DISTRICT JUDGE
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