US Risk LLC v. Chubb Global Syndicate 2488

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

U.S. RISK LLC, )

)

Plaintiff/Counter-Defendant, )

)

VS. ) CIVIL ACTION NO.

)

CHUBB GLOBAL MARKETS ) 3:20-CV-2134-G

SYNDICATE 2488, )

)

Defendant/Counter-Plaintiff. )

MEMORANDUM OPINION AND ORDER

Before the court are the parties’ cross-motions for summary judgment.

Plaintiff U.S. Risk, LLC (“U.S. Risk”) moves for summary judgment on its

declaratory judgment claims and the defendant’s counterclaims. Defendant Chubb

Underwriting Agencies Limited for and on behalf of Syndicate 2488 (“CUAL”) moves

for summary judgment on its counterclaims for breach of contract, breach of fiduciary

duty, and negligence, and on U.S. Risk’s declaratory judgment claims. Additionally,

U.S. Risk has moved to strike the affidavit of Thomas Beazley (“Beazley”). CUAL

relies on this affidavit to establish damages as an element of its counterclaims. The

court will therefore address that motion in this order as well.

For the reasons discussed below, the cross-motions for summary judgment are

GRANTED IN PART and DENIED IN PART. U.S. Risk’s motion on CUAL’s

contract and negligence counterclaims is GRANTED. U.S. Risk’s motion on the

remaining claims is DENIED. CUAL’s motion on its counterclaim for breach of

fiduciary duties is GRANTED IN PART on the ground that U.S. Risk owed a

fiduciary duty to CUAL, but DENIED IN PART as to the remaining elements of

that counterclaim. Additionally, CUAL’s motion on U.S. Risk’s declaratory claims is

GRANTED.

I. BACKGROUND

The issue in this suit is whether U.S. Risk improperly underwrote an

employment liability insurance policy on CUAL’s behalf. See Defendant Chubb

Underwriting Agencies Limited for and on Behalf of Syndicate 2488’s Motion for

Summary Judgment (“CUAL’s Motion for Summary Judgment”) (docket entry 60)

¶¶ 1-2; Plaintiff’s Motion for Summary Judgment and Statement of Undisputed

Material Facts in Support Thereof (“U.S. Risk’s Motion for Summary Judgment”)

(docket entry 62) at 2-3. U.S. Risk is a United States-based limited liability

company that was authorized to underwrite various types of insurance polices on

CUAL’s behalf. Amended Complaint Against Chubb Underwriting Agencies by U.S.

Risk (“U.S. Risk’s Amended Complaint”) (docket entry 38) ¶ 3. CUAL is an

England-based limited liability company that acts as the managing agent of Syndicate

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2488, “an unincorporated Lloyd’s insurance syndicate authorized as an eligible

surplus lines insurer in the State of Texas.” Defendant Chubb Underwriting Agencies

for and on Behalf of Syndicate 2488’s Amended Answer to Plaintiff’s Amended

Complaint and Amended Counterclaim (“CUAL’s Amended Answer and

Counterclaim”) (docket entry 58) ¶ 47.

In 2013, U.S. Risk and CUAL entered into an agreement known as the

Binding Authority Agreement (“BAA”), which authorized U.S. Risk to underwrite

various classes of commercial insurance, including employment practices liability

insurance. See U.S. Risk’s Amended Complaint ¶¶ 9-10; CUAL’s Amended Answer

and Counterclaim ¶¶ 9-10. This agreement was renewed for a term dating June 1,

2017, to June 1, 2018. See U.S. Risk’s Amended Complaint ¶ 9; CUAL’s Amended

Answer and Counterclaim ¶ 9.

In September 2016, a substance abuse treatment center in California known as

Passages Malibu PHP, LLC, or Grasshopper House, LLC, (collectively, “Passages”)

applied for employment practices liability insurance with U.S. Risk through a broker.

See U.S. Risk’s Motion for Summary Judgment at 7-10; Defendant’s Brief in Support

of its Motion for Summary Judgment (“CUAL’s Brief in Support”) (docket entry 61)

¶ 7. U.S. Risk assigned William Duvall (“Duvall”) to act as the underwriter for

Passages’ account to review this application (“September 2016 application”) and to

quote pricing and other terms. U.S. Risk’s Motion for Summary Judgment ¶ 14. In

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the September 2016 application, Passages provided a claims history for fourteen

lawsuits, including the following information:

Cynthia Begazo v. Passages Malibu PHP, LLC et al., LASC

Case No.: BC 595150. Ms. Begazo filed her Complaint in

September 2015 alleging claims of age discrimination,

disability discrimination, retaliation, and wrongful

termination amongst others. Ms. Begazo is represented by

Carney Shegerian of Shegerian & Associates. Gordon &

Rees is currently defending the action that is set for trial

beginning on September 12, 2016. Defense fees and costs

billed to date total $58,384.65 and there are currently

fees/costs that are work in progress.

Defendant Chubb Underwriting Agencies Limited for and on Behalf of Syndicate

2488’s Sealed Appendix in Support of its Motion for Summary Judgment (“CUAL’s

Appendix to Motion”) (docket entry 63) at 000390 (September 2016 application).

U.S. Risk did not request additional information regarding the Begazo suit or any

other suit listed in the September 2016 application. See id. at 000280-284 (Duvall’s

deposition). U.S. Risk quoted coverage for Passages based on the September 2016

application, but no policy was issued. CUAL’s Brief in Support ¶ 10; see also CUAL’s

Appendix to Motion at 000294-297 (Duvall’s deposition).

Passages submitted a second application for employment practices liability

insurance on March 22, 2017 (“March 2017 application”). See U.S. Risk’s Amended

Complaint ¶ 13; CUAL’s Brief in Support ¶ 12. The March 2017 application

included supplemental forms for eight of the lawsuits identified in the September

2016 application, including the Begazo suit. See CUAL’s Appendix to Motion at

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000449-707. On the Begazo suit’s supplemental claim form, Passages indicated that

the “motion for summary adjudication was successful and limited cause of action

went to trial.” CUAL’s Appendix to Motion at 000488. The March 2017

application also noted the Begazo suit was still “in suit” when the application was

completed. Id. But the March 2017 application did not include the result of the

“limited cause of action [that] went to trial.” See id. In fact, a jury had returned a

verdict in favor of Begazo and against Passages on March 3, 2017. Id. at 000395.

The jury had awarded Begazo $1,829,160 almost three weeks before Passages

submitted the March 2017 application to U.S. Risk. See id.

Duvall, the underwriter assigned to Passages’ account, reviewed the March

2017 application, but he did not recall asking for more information about the Begazo

suit or any other lawsuit pending against Passages. Id. at 000299-301. U.S. Risk

once again quoted coverage to Passages, but a policy was not issued. See id. at

000708-712; 000713-721. U.S. Risk later offered an updated quote to Passages

which reflected an increase in premiums, but again no policy was issued. See

Plaintiff’s Appendix in Support of its Motion for Summary Judgment (“U.S. Risk’s

Appendix to Motion”) (docket entry 62:2-62:31) at 000991-992.

Then, in June 2017, Passages submitted a third application (“June 2017

application”) to bind a policy effective June 14, 2017. CUAL’s Brief in Support ¶ 16;

CUAL’s Appendix to Motion at 000713-715; 000722-726. U.S. Risk issued an

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employment practices liability insurance policy to Passages (hereinafter, “the policy”

or “the Passages policy”), which was effective from June 14, 2017, through November

12, 2018. See U.S. Risk’s Amended Complaint ¶¶ 16-17; CUAL’s Amended Answer

and Counterclaim ¶ 16; CUAL’s Appendix to Motion at 000787.

Subsequently, by August 2018, four of Passages’ former employees had

individually filed suit against Passages (hereafter, “the four lawsuits”). See U.S. Risk’s

Amended Complaint ¶¶ 20-22; CUAL’s Brief in Support ¶ 20. The four lawsuits

alleged various employment law claims, and barring an effective defense, the policy

would cover these lawsuits because they arose during the policy’s term. See CUAL’s

Amended Answer and Counterclaim ¶ 72; see also CUAL’s Appendix to Motion at

000733-737 (CUAL’s internal coverage report). The first lawsuit was filed by

Maureen Fahey (“Fahey”), Passages’ former senior vice president. CUAL’s Appendix

to Motion at 000734. Fahey alleged violations of the California Labor Code,

retaliation, wrongful termination, discrimination on the basis of sex, and sexual

harassment. Id. The second suit was filed by John Zeller (“Zeller”), Passages’ former

chief financial officer and Fahey’s husband. Id. at 000734-735. Zeller alleged

violations of the California Labor Code, retaliation, wrongful termination,

defamation, and gender discrimination based on his association with Fahey. Id. The

third suit was filed by Suzanne Schuda (“Schuda”), Passages’ former director of

quality and informatics, and she alleged violations of the California Labor Code,

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retaliation, wrongful termination, discrimination on the basis of sex and age, and

sexual harassment. Id. at 000735-736. Last, the fourth employment liability suit

was a counterclaim raised by Carolyn Hazuka (“Hazuka”) when Passages filed suit

against Hazuka for embezzlement and other property claims. See id. at 000736.

Hazuka was Passages’ environmental programs coordinator, and she alleged violations

of the California Labor Code, violation of the Fair Employment and Housing Act,

sexual harassment, and wrongful termination in response to Passages’ suit against her.

Id. at 000737.

CUAL defended Passages against these four suits pursuant to its understanding

of its duty to defend under California law. See CUAL’s Brief in Support ¶ 22; see also

CUAL’s Appendix to Motion at 000776-777. Despite Passages omitting the Begazo

verdict on its applications, CUAL did not attempt to rescind the policy. See U.S.

Risk’s Motion for Summary Judgment ¶ 67. Ultimately, CUAL paid $2,000,000, the

policy limit, to defend and settle the four lawsuits. See CUAL’s Amended Answer

and Counterclaim ¶ 73; see also CUAL’s Appendix to Motion at 000781 (Beazley’s

declaration).

U.S. Risk filed its original complaint on August 11, 2020. See U.S. Risk’s

Original Complaint (docket entry 1). On October 13, 2020, CUAL filed its original

answer and counterclaim to U.S. Risk’s original complaint. See Defendant Chubb

Underwriting Agencies Limited for and on Behalf of Syndicate 2488’s Answer,

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Affirmative Defenses and Counterclaim to Plaintiff’s Complaint (docket entry 7).

Additionally, on October 13, 2020, CUAL filed a motion to dismiss. See Defendant

Chubb Underwriting Agencies Limited for and on Behalf of Syndicate 2488’s Motion

to Dismiss under Rule 12(b)(6) (docket entry 9). U.S. Risk filed its original answer

to CUAL’s counterclaim on November 3, 2020. See Plaintiff’s Answer to Defendant’s

Counterclaim (docket entry 12). On November 3, 2020, U.S. Risk also filed a

response to CUAL’s motion to dismiss. See Plaintiff’s Suggestions in Opposition to

Defendant’s Motion to Dismiss (docket entry 13). CUAL filed a reply in support of

its motion to dismiss on November 17, 2020. See Defendant Chubb Underwriting

Agencies Limited for and on Behalf of Syndicate 2488’s Reply Brief in Support of

Motion to Dismiss under Rule 12(b)(6) (docket entry 14). On December 15, 2020,

the court denied CUAL’s motion to dismiss. See Electronic Order (docket entry 15).

On June 29, 2021, U.S. Risk filed an unopposed motion for leave to file an

amended complaint. See Unopposed Motion for Leave to File Amended Complaint

with Suggestions in Support (docket entry 36). The court granted U.S. Risk’s

motion on June 29, 2021, see Order Granting Motion for Leave to File Amended

Complaint (docket entry 37), and U.S. Risk filed its amended complaint on the same

day, see U.S. Risk’s Amended Complaint. On July 19, 2021, CUAL filed an answer

to U.S. Risk’s amended complaint. See Defendant Chubb Underwriting Agencies for

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and on Behalf of Syndicate 2488’s Amended Answer and Counterclaim to Plaintiff’s

Amended Complaint (docket entry 39).

Then, on February 22, 2022, CUAL filed an opposed motion for leave to file

an amended counterclaim. See Defendant’s Partially Opposed Motion for Leave to

Amend Counterclaim and Opposed Motion for Leave to Designate Experts and

Supporting Brief (docket entry 52). U.S. Risk filed its response to CUAL’s motion

on March 7, 2022, see Plaintiff’s Suggestions in Opposition to Defendant’s Partially

Opposed Motion for Leave to Designate Experts (docket entry 54), and CUAL filed

its reply in support of its motion on March 9, 2022, see Defendant’s Reply

Supporting its Partially Opposed Motion for Leave to Amend Counterclaim and

Designate Experts (docket entry 56). The court granted CUAL’s motion for leave to

file an amended counterclaim on March 10, 2022. See Order on Motion for Leave to

Amend Counterclaim and Opposed Motion for Leave to Designate Experts (docket

entry 57). CUAL filed its amended answer and counterclaim to U.S. Risk’s amended

complaint on March 10, 2022. See CUAL’s Amended Answer and Counterclaim. On

March 11, 2022, U.S. Risk filed its answer to CUAL’s amended counterclaim. See

Plaintiff’s Answer to Defendant’s Amended Counterclaim (“U.S. Risk’s Answer to

Amended Counterclaim”) (docket entry 59).

As of the date of the amended pleadings, U.S. Risk seeks a declaration that:

(1) the Passages policy provided no coverage for the four lawsuits; (2) U.S. Risk fully

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discharged its contractual duties under the BAA; and (3) CUAL voluntarily paid

Passages for the four lawsuits. U.S. Risk’s Amended Complaint ¶¶ 27-36. In

response, CUAL asserts counterclaims for breach of contract, breach of fiduciary

duties, and negligence. CUAL’s Amended Answer and Counterclaim ¶¶ 44-83.

CUAL contends that by writing the Passages policy, U.S. Risk breached the BAA and

its fiduciary duties, and U.S. Risk also negligently performed its duties under the

BAA. Id.

On March 15, 2022, CUAL and U.S. Risk filed cross-motions for summary

judgment. See CUAL’s Motion for Summary Judgment; U.S. Risk’s Motion for

Summary Judgment. On April 5, 2022, CUAL and U.S. Risk both responded to the

other party’s motions. See CUAL’s Response; U.S. Risk’s Response. Both parties

filed reply briefs on April 26, 2022. See CUAL’s Reply; U.S. Risk’s Reply. The

motions are ripe for decision.

II. ANALYSIS

A. Objections to the Summary Judgment Evidence

U.S. Risk argues that some of the evidence presented by CUAL will be

inadmissible at trial and is therefore not properly considered on a motion for

summary judgment. The court will first consider this objection.

Specifically, U.S. Risk argues that Beazley’s declaration is without foundation

and amounts to an impermissible lay opinion. Response of the Plaintiff to

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Defendant’s Motion for Summary Judgment (“U.S. Risk’s Response”) (docket entry

64) at 3.1 U.S. Risk contends that Beazley’s declaration is CUAL’s only evidence of

damages in this suit, and if the declaration is excluded, CUAL could not succeed on

its counterclaims. Id. CUAL disputes that Beazley’s declaration includes

impermissible lay opinion because the declaration demonstrates that Beazley’s role in

handling financial lines claims “allows him to appreciate what costs are reasonable to

defense employment practices lawsuits in California.” Chubb Underwriting Agencies

Limited for and on behalf of Syndicate 2488's Reply in Support of its Motion for

Summary Judgment (“CUAL’s Reply”) (docket entry 73) ¶ 32.

Non-expert witnesses may testify in the form of opinions or inferences in

limited circumstances under Federal Rule of Evidence 701. Rule 701 only applies

“[i]f the witness is not testifying as an expert[.]” FED. R. EVID. 701. In other words,

“a person may testify as a lay witness only if his opinions or inferences do not require

any specialized knowledge and could be reached by any ordinary person.” Doddy v.

Oxy USA, Inc., 101 F.3d 448, 460 (5th Cir. 1996) (citing Brady v. Chemical

Construction Corporation, 740 F.2d 195, 200 (2nd Cir. 1984)).

1 Citations to U.S. Risk’s Response are generally to specific paragraphs,

but the response brief is not consistently numbered until page 3, and the objection to

Beazley’s deposition is made before the paragraphs are consistently numbered. See

U.S. Risk’s Response at 3.

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Non-expert testimony must be “based on personal perception, must be one

that a normal person would form from those perceptions, and must be helpful to the

[fact finder].” Texas A&M Research Foundation v. Magna Transportation, Inc., 338 F.3d

394, 403 (5th Cir. 2003) (internal citations omitted). The witness must have

“personalized knowledge of the facts underlying the opinion and the opinion must

have a rational connection to those facts.” Mississippi Chemical Corporation v.

Dresser-Rand Company, 287 F.3d 359, 373 (5th Cir. 2002). Rule 701 allows

employees to testify on matters that relate to their business affairs, including industry

practices and pricing, without qualifying as an expert. Texas A&M Research

Foundation, 338 F.3d at 403 (citing Tampa Bay Shipbuilding & Repair Company v. Cedar

Shipping Company, Ltd., 320 F.3d 1213, 1223 (11th Cir. 2003)).

Beazley, according to his declaration, is a financial claims adjuster for Chubb

Services U.K. Limited and Chubb European Group. CUAL’s Appendix to Motion at

000779-782 (Beazley’s declaration). Beazley handles financial lines claims involving

Chubb European Group SE and its affiliates, including CUAL, and he specifically

worked on Passages’ claims relating to the four lawsuits. Id. at 000779. Because

Beazley’s declaration is based on his personal knowledge of the four lawsuits and

experience handling similar claims through his employment, id. at 000779-782,

Beazley does not need to be qualified as an expert and the court will consider his

declaration as summary judgment evidence.

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B. Evidentiary Burdens on Motion for Summary Judgment

Summary judgment is proper when the pleadings and evidence on file show

that no genuine issue exists as to any material fact, and that the moving party is

entitled to judgment as a matter of law. FED. R. CIV. P. 56(a). “[T]he substantive

law will identify which facts are material.” Anderson v. Liberty Lobby, Inc., 477 U.S.

242, 248 (1986). The movant makes such a showing by informing the court of the

basis of its motion and by identifying the portions of the record which reveal there

are no genuine material fact issues. See Celotex Corporation v. Catrett, 477 U.S. 317,

323 (1986).

Once the movant makes this showing, the nonmovant must then direct the

court’s attention to evidence in the record sufficient to establish that there is a

genuine issue of material fact for trial. Id. at 323-24. To carry this burden, the

opponent must do more than simply show “some metaphysical doubt as to the

material facts.” Matsushita Electric Industrial Company, Ltd. v. Zenith Radio Corporation,

475 U.S. 574, 586 (1986). Instead, it must show that the evidence is sufficient to

support a resolution of the factual issue in its favor. Anderson, 477 U.S. at 249. All

of the evidence must be viewed, however, in a light most favorable to the motion’s

opponent. Id. at 255 (citing Adickes v. S.H. Kress & Company, 398 U.S. 144, 158-59

(1970)).

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The court cannot, however, in the absence of proof “assume that the

nonmoving party could or would prove the necessary facts.” Little v. Liquid Air

Corporation, 37 F.3d 1069, 1075 (5th Cir. 1994) (per curiam) (en banc) (citing Lujan

v. National Wildlife Federation, 497 U.S. 871, 889 (1990) (“It will not do to ‘presume’

the missing facts because without them the affidavits would not establish the injury

that they generally allege.”)). Further, when conflicting evidence is presented, the

court is not permitted to make credibility determinations regarding the evidence. See

Lindsey v. Prive Corporation, 987 F.2d 324, 327 (5th Cir. 1993).

In reviewing cross-motions for summary judgment, courts examine “each

party’s motion independently” and view “the evidence and inferences in the light

most favorable to the non-moving party.” JP Morgan Chase Bank, N.A. v.

DataTreasury Corporation, 823 F.3d 1006, 1011 (5th Cir.) (quoting Morgan v. Plano

Independent School District, 589 F.3d 740, 745 (5th Cir. 2009), cert. denied, 561 U.S.

1025 (2010)), cert. denied, -- U.S. --, 137 S. Ct. 501 (2016).

C. Breach of Contract Claim

To establish a breach of contract claim under Texas law, a claimant must show:

“(1) the existence of a valid contract; (2) performance or tendered performance by

the [claimant]; (3) breach of contract by the defendant; and (4) damages sustained

by the [claimant] as a result of the breach.” Mullins v. TestAmerica, Inc., 564 F.3d

386, 418 (5th Cir. 2009). The parties do not dispute the first two elements. See

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CUAL’s Amended Answer and Counterclaim ¶¶ 52-53; see also U.S. Risk’s Answer to

Amended Counterclaim ¶¶ 5-6. Accordingly, only the latter two elements are

disputed, and the court will first determine whether U.S. Risk breached the contract.

CUAL contends that U.S. Risk breached the BAA by failing to obtain a

completed application within thirty days of issuing the policy to Passages. CUAL’s

Brief in Support ¶ 47. According to CUAL, U.S. Risk bound coverage based on

either Passages’ March 2017 or June 2017 applications. Id. Because the March 2017

application was completed more than thirty days before the policy’s effective date

and the June 2017 application was missing information, U.S. Risk breached the

BAA’s underwriting requirements. Id. Further, U.S. Risk breached the BAA by

binding the policy without “five years of loss experience,” including the Begazo

verdict. Id. ¶ 48. By U.S. Risk’s vice president’s admission, the policy would have

not been issued had U.S. Risk known of the outcome of the Begazo suit. CUAL’s

Appendix to Motion at 000729 (Jacob’s October 2018 email). In an email from U.S.

Risk’s vice president Crystal Jacobs (“Jacobs”) to CUAL’s attorney, Jacobs admitted:

“Had we known that they had an actual judgment/settlement on the [Begazo] matter,

we would have declined the risk.” Id.

In its own motion, U.S. Risk contends that the BAA does not require U.S.

Risk to independently investigate applications for employment practices liability

insurance. Memorandum of Law in Support of Plaintiff’s Motion for Summary

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Judgment (“U.S. Risk’s Brief in Support”) (docket entry 62:1) at 7. Additionally,

U.S. Risk argues that the underwriting guidelines are not part of the contract and as

guidelines they relate to only the pricing of the insurance policy, which U.S. Risk

correctly took into consideration in issuing the policy. Id. at 9-11.

To determine the parties’ rights and obligations under a contract, the court

looks to the terms of the contract. The court will first consider whether the

underwriting guidelines are a part of the BAA; then it will address the cross-motions

on the breach of contract claim.

1. Rights and Obligations Under the BAA

As a threshold matter, U.S. Risk is incorrect when it contends that the

underwriting guidelines are not a part of the BAA. U.S. Risk argues that any failure

to obtain a completed application is not a breach of the BAA because it would breach

the underwriting guidelines, which are separate from the BAA. U.S. Risk’s Brief in

Support at 9-11. To support this theory, U.S. Risk relies on Zimmerman v. H.E. Butt

Grocery Company, 932 F.2d 469, 471 (5th Cir.) (per curiam), cert. denied, 502 U.S. 984

(1991), for the proposition that guidelines are not part of contracts “when the parties

have not expressly agreed that the procedures contained in these materials are

binding.”2

2 Additionally, Zimmerman is factually and legally distinguishable because

the issue in Zimmerman is whether an employee manual constituted a contract in an

at-will employment relationship. 932 F.2d at 471. The Fifth Circuit held that

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This reliance is misplaced because the BAA incorporates the underwriting

guidelines, making it a part of the BAA. See CUAL’s Appendix to Motion at

000001-122 (the BAA). There are three main sections of the BAA: the BAA, see id.

at 000023-62, the BAA’s schedule, see id. at 000004-22, and the underwriting

guidelines, see id. at 000063-122. The BAA’s schedule “forms part of and

incorporates by reference [the BAA],” id. at 000004, and for the “BASIS FOR THE

CALCULATION OF GROSS PREMIUMS” and “DEDUCTIBLES AND/OR

EXCESSES,” the schedule requires policies to follow the “[u]nderwriting guidelines

attached.” See id. at 000006. The attached guidelines are incorporated by reference

into the contract, including the completed application requirement for employment

liability insurance policies. Id. at 000107. U.S. Risk cannot reasonably assert that it

“did not expressly agree that guidelines as to pricing terms would become part of the

contract,” U.S. Risk’s Brief in Support at 10, when the BAA requires U.S. Risk to

“[c]ompliance, or attempted compliance, with guidelines for discipline and discharge

found in its employee manual should not be turned against an employer as evidence

that it treated the manual as a contract.” Id. at 472. By contrast, there is a written

contract in this case, and merely calling a portion of that contract “guidelines” does

not invoke the same “Catch-22” policy concerns that the Fifth Circuit was concerned

with in Zimmerman. See id. (“[I]f an employer follows the guidelines in disciplining or

discharging an employee, the employee could argue that the employer thereby treated

the manual as a contract; but if an employer does not follow the guidelines, then the

employee could excoriate the employer for failing to follow guidelines that it

represented it would follow.”).

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follow the “[u]nderwriting guidelines attached.” CUAL’s Appendix to Motion at

000006.

Therefore, under the BAA, U.S. Risk was obligated to obtain “[a] completed

application signed and dated within thirty dates of the effective date,” see id. at

000107, for employment practices liability policies. The court will next address

whether U.S. Risk fulfilled this obligation.

2. Whether U.S. Risk Obtained a Completed Application

As stated above, CUAL contends that U.S. Risk did not obtain a completed

application from Passages within thirty days of the policy’s effective date. CUAL’s

Brief in Support ¶ 47. The June 2017 application was incorporated into the policy,

see CUAL’s Appendix to Motion at 000819-21, and the application was dated June

13, 2017, the day before the policy’s inception. See id. at 000787. Additionally, the

June application was not complete because the application required details if the

applicant marked “yes” to question 28. See id. at 000723 (June 2017 application).

Passages had marked “yes” in response to whether it had “[i]n the past 5 years . . .

been the subject of any suit . . . in connection with charges of discrimination or

harassment[.]” Id. The application instructed the applicant that “[a]ny ‘Yes’

responses must be accompanied by details.” Id. CUAL argues that if U.S. Risk

required Passages to follow the application’s instructions, U.S. Risk would have

discovered that the Begazo lawsuit resulted in a $1,829,160 verdict against Passages

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for employment-related claims. CUAL’s Brief in Support ¶ 52. Alternatively, CUAL

contends that U.S. Risk impermissibly relied on information from the March 2017

application, which included incomplete information about the Begazo suit3 and other

claims against Passages. Id. ¶ 51. If U.S. Risk bound the policy under the March

2017 application, it would be a violation of the BAA’s requirement of a completed

application within 30 days of the policy’s effective date. Id.

In turn, U.S. Risk argues that it properly quoted coverage for Passages in

March 2017. U.S. Risk’s Response ¶ 58. At that time, U.S. Risk had a completed

application and at least five years of loss history. Id. When U.S. Risk bound the

policy in June 2017, Passages had completed the September 2016, March 2017, and

June 2017 applications plus eight supplemental claim forms, none of which contained

the Begazo verdict. Id. ¶ 17. U.S. Risks argues that it was entitled to rely on

Passages’ representations in the applications because Passages was obligated to: (1)

notify U.S. Risk or its brokers “if any significant change”4 occurred before a policy

3 At the time the March 2017 application was filled out, the Begazo suit

had gone to trial, and the jury had returned a verdict against Passages for over $1.8

million dollars. See CUAL’s Appendix to Motion at 000395. But the Begazo court

had not yet entered a final judgment. CUAL’s Reply ¶ 12.

4 CUAL’s Appendix to Motion at 000387 (September 2016 application);

000454 (March 2017 application).

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was issued, and (2) “not omit or suppress or misstate any material facts[.]”5 U.S.

Risk’s Response ¶¶ 16-17.

The BAA chose Texas law to interpret the contract, CUAL’s Appendix to

Motion at 000010, and the parties do not dispute that Texas law governs the BAA.

See CUAL’s Brief in Support ¶ 27; U.S. Risk’s Response ¶ 37. Under Texas law,

contract interpretation is purely a legal issue when the contract is not ambiguous.

Gonzalez v. Denning, 394 F.3d 388, 392 (5th Cir. 2004) (citing Empire Fire & Marine

Ins. Company v. Brantley Trucking, Inc., 220 F.3d 679, 681 (5th Cir. 2000)). “[O]nly

when there is a choice of reasonable interpretations of the contract is there a material

fact issue concerning the parties’ intent that would preclude summary judgment.”

Gonzalez, 394 F.3d at 392 (quoting Amoco Production Company v. Texas Meridian

Resources Exploration, Inc., 180 F.3d 664, 669 (5th Cir.1999)). A court’s “primary

objective is to ascertain and give effect to the parties’ intent as expressed in the

instrument.” James Construction Group, LLC v. Westlake Chemical Corporation, 650

S.W.3d 392, 403 (Tex. 2022) (quoting URI, Inc. v. Kleberg County, 543 S.W.3d 755,

763 (Tex. 2018)). To determine the parties’ intent, courts construe contracts to give

effect to each of its terms and to avoid rendering any term meaningless. Gonzalez,

394 F.3d at 392.

5 Id. at 000724 (June 2017 application) (cleaned up).

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In doing so, courts first must determine whether a contract’s meaning is

ambiguous. “Whether a contract is ambiguous is a question of law for the court to

decide by looking at the contract as a whole in light of the circumstances present

when the contract was entered.” National Union Fire Insurance Company of Pittsburgh,

PA v. CBI Industries, Inc., 907 S.W.2d 517, 520 (Tex. 1995). A written contract is

ambiguous if its language “is subject to two or more reasonable interpretations,” but

the contract is not ambiguous if it is “so worded that it can be given a definite or

certain legal meaning.” Id. Mere disagreement between the parties about the correct

interpretation of the term will not render the term ambiguous; nor will it transform

the issue of law into an issue of fact. D.E.W., Inc. v. Local 93, Laborers’ International

Union of North America, 957 F.2d 196, 199 (5th Cir. 1992) (citations omitted).

Further, “[t]he language of a contract must be read in the light cast by industry

practice in which it arises.” APS Capital Corporation v. Mesa Air Group, Inc., 580 F.3d

265, 271 (5th Cir. 2009).

Notably, the parties do not contend that the BAA is ambiguous. Instead, the

parties dispute what a “completed application” constitutes. See Plaintiff’s Reply in

Support of its Motion for Summary Judgment (“U.S. Risk’s Reply”) (docket entry

70) ¶ 35; CUAL’s Reply ¶ 8. U.S. Risk argues that because Passages CEO Pax

Prentiss signed and answered all the questions in the June 2017 application, the

application was “completed.” U.S. Risk’s Reply ¶¶ 35-36. CUAL contends that the

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signed June 2017 application was not “completed” because there was missing

information that is “responsive to [the application’s] question 28[.]” CUAL’s Reply

¶ 8. Question 28 asks if the applicant has been the subject of an employment-related

lawsuit, and because Passages had claims against it, the application instructed that it

must be “accompanied by details,” which would include the Begazo verdict and

updated information on the other pending claims from the March 2017 application.

See id.; see also CUAL’s Appendix to Motion at 000723.

The BAA does not define what the term “completed application” means. In

fact, the September 2016 and March 2017 applications are on different forms than

the June 2017 application. Compare CUAL’s Appendix to Motion at 000384-390

(September 2016 application) and 000451-454 (March 2017 application), with

CUAL’s Appendix to Motion at 000722-724 (June 2017 application). The

September 2016 and March 2017 applications were submitted on an Admiral

Insurance Company Proposal form, see id. at 000384-390, 000451-454, whereas the

June 2017 application was submitted on a U.S. Risk form, see id. at 000722-724.

The Admiral Insurance Company form instructs applicants to fill out a supplemental

claim form or provide the following claims information by attachment: date the

claim was first made, claimant’s name, the allegation, the claim’s current status, the

demand amount, any settlement, and attorneys fees. Id. at 000386, 000453. By

contrast, the U.S. Risk form only requires that “[a]ny ‘Yes’ responses must be

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accompanied by details.” Id. at 000723. There are no specific requirements for

providing claims details according to the U.S. Risk application form. See id. Thus,

Passages could provide the claim details in any manner, including the extensive

supplemental claim forms from the March 2017 application and other information

U.S. Risk had on file when writing the policy.

Nothing in the BAA suggests that U.S. Risk could not use information it

gathered in previous applications. See generally CUAL’s Appendix to Motion at

000001-121 (the BAA). The only requirements for an application under the BAA are

that it be “completed” and that the form “be agreed by [CUAL] prior to use[.]” Id. at

000031. And when the BAA was renewed on June 1, 2017, between the March and

June 2017 applications, the only relevant change to the BAA was that “[a]ll accounts

to be submitted to lead underwriter for approval.” U.S. Risk’s Motion for Summary

Judgment ¶ 8.6 There is no evidence suggesting that U.S. Risk’s application form was

inadequate for not giving specific requirements or supplemental forms for claims

6 U.S. Risk contends that it offered to submit Passages’ application for

approval, but CUAL waived its rights to do so. U.S. Risk’s Motion for Summary

Judgment ¶ 46. Jacobs, U.S. Risk’s vice president, had emailed a CUAL affiliate,

Oxford Insurance Brokers, on June 19, 2017. U.S. Risk’s Appendix to Motion at

000999. U.S. Risk contends that CUAL declined to review Passages’ application and

waived its right to check the application. U.S. Risk’s Motion for Summary Judgment

¶ 46. CUAL does not dispute this point, but there is no reply to Jacob’s email in the

record that would support U.S. Risk’s claim that CUAL “waived” its ability to

complain about the Passages policy’s underwriting. The BAA also does not support

that CUAL waived any rights in this suit by not reviewing the policy in June 2017.

See generally CUAL’s Appendix to Motion at 00001-121 (the BAA).

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history. Although CUAL does not argue that the U.S. Risk form used for the June

2017 application is objectionable, the U.S. Risk form does not have an area for

Passages, or any applicant, to include loss information on the application itself. See

CUAL’s Appendix to Motion at 000722-726. Because the BAA did not require U.S.

Risk to obtain applications in any particular format, the court concludes that U.S.

Risk fulfilled its obligations under the BAA with the June 2017 application and the

previous applications it had on file. See CUAL’s Appendix to Motion 000001-121

(the BAA).

This conclusion is consistent with the court’s goal to give contractual terms

“their plain, ordinary meaning unless the [contract] itself shows that the parties

intended the terms to have a different, technical meaning.” American National General

Insurance Company v. Ryan, 274 F.3d 319, 323 (5th Cir. 2001) (citing Puckett v. U.S.

Fire Insurance Company, 678 S.W.2d 936, 938 (Tex. 1984)). Webster’s Dictionary

defines “complete” as “possessing all necessary parts[.]” Complete, WEBSTER’S THIRD

NEW INTERNATIONAL DICTIONARY, (3rd ed. 1986).

Here, Passages answered all of the questions on the June 2017 application and

had provided loss information to U.S. Risk throughout its three applications. See

CUAL’s Appendix to Motion at 000723, 000384-390 (September 2016 application),

000451-454 (March 2017 application). CUAL advocates for the court to interpret

the “completed” requirement to include an accurate loss history, which would have

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necessarily included the Begazo verdict. See CUAL’s Response ¶¶ 13-16; see also

CUAL’s Reply ¶ 6. But the BAA does not require that U.S. Risk obtain an accurate

loss history because the BAA only requires U.S. Risk to obtain “[a] completed

application[.]” See id. at 000107. While the BAA’s underwriting guidelines require

five year loss history to offer terms and pricing, id. at 000107, there is no obligation

for U.S. Risk to verify that the information furnished in the applications is accurate,

see id.

Between the June 2017 application and the supplemental claim forms from the

March 2017 application, U.S. Risk had the necessary information to write the policy.

The BAA’s underwriting guidelines look at the following factors to determine pricing

and terms of employment practices liability insurance: industry, claims history,

location, human resources and risk management procedures. CUAL’s Appendix to

Motion at 000107. U.S. Risk had all of the necessary information between the

March 2017 and June 2017 applications. Thus, U.S. Risk had a “completed”

application when it bound the policy, even if Passages did not provide an accurate

loss history.

Additionally, the court declines U.S. Risk’s invitation to hold that a

“completed application” is the equivalent of a signed application because the BAA

requires “a completed application signed and dated within thirty days of the effective

date.” CUAL’s Appendix to the Motion 000107 (emphasis added). This would run

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afoul of Texas law and render the term “signed” meaningless if the BAA required a

“[signed] application signed and dated[.]” See Gonzalez, 394 F.3d at 392 (“In

construing a contract under Texas law, courts must examine and consider the entire

writing and give effect to all provisions such that none are rendered meaningless.”).

To further support the court’s conclusion, the court considers the BAA in light

of industry practices. See APS Capital Corporation, 580 F.3d at 271. To support its

motion for summary judgment, U.S. Risk’s experts have testified that the June 2017

application was “completed” by insurance industry standards. Supplemental

Appendix in Support of Plaintiff’s Motion for Summary Judgment (docket entry 75)

at 001491, 001508, 001740-43. U.S. Risk’s first expert Donald W. Bendure

(“Bendure”) testified in his deposition that the June 2017 application was completed

although “[U.S. Risk] got different information at different times. There were

actually three applications filled out . . . Loss information was there. The claims

history was there. The location was there. The resources manuals were there. The

five years of loss experience was actually seven[.]” Id. at 001491 (Bendure’s

deposition). In the commercial insurance industry, Bendure testified, “completed

generally means signed and dated.” Id. at 001508. U.S. Risk’s other expert, Olie R.

Jolstad (“Jolstad”) similarly testified that “when an underwriter receives an

application which is missing requested information,” it is industry practice for the

underwriter to proceed “if the underwriter deems that the information that’s missing

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isn’t necessary to what it needs . . . or the underwriter can still proceed with binding

coverage[.]” Id. at 001741 (Jolstad’s deposition). Jolstad also testified that the June

2017 application is completed “even though [ ] there is language that says a yes

response must be accompanied by details[.]” Id. at 001743-1744.

CUAL does not offer rebuttal expert testimony, and only attacks the credibility

of U.S. Risk’s experts. See CUAL’s Reply ¶¶ 7-8. CUAL contends that Jolstad

testified that missing information from the June 2017 application “was not material

to the application.” Id. n.3. CUAL cites to the Jolstad deposition, but at no point

did Jolstad testify that the Begazo verdict was immaterial when issuing the Passages

policy. See Supplemental Appendix in Support of Defendant’s Response to U.S.

Risk’s Motion for Summary Judgment (docket entry 77) at 000929-30. Instead,

Jolstad affirmed that “[w]hen an underwriter receives an application which is missing

requested information . . . the underwriter under the terms of the BAA can simply

decide not to get that information in order to have a completed application[.]” Id. at

000930. Jolstad testified that the BAA did not require U.S. Risk underwriters to

obtain the missing information, and Passage’s failure to provide missing information

was grounds for rescission. See id. at 000930, 935. This position is not

“self-contradicting and illogical,” as CUAL contends, because the there are two

separate contracts at issue with different obligations. See id. Passages’ omissions or

- 27 -

misrepresentations in acquiring the policy does not necessarily mean that U.S. Risk

violated the BAA.

For the reasons discussed above, the court concludes that U.S. Risk did not

breach the BAA by issuing the Passages policy. Because interpretation of a

unambiguous contract is purely a legal issue, Gonzalez, 394 F.3d at 392, there is no

genuine issue of material fact and U.S. Risk is entitled to judgment as a matter of

law. Additionally, the court does not need to reach the causation element to dispose

of this claim. Therefore, the court grants U.S. Risk’s motion for summary judgment

on the breach of contract claim and denies CUAL’s cross-motion on the same claim.

D. Tort Claims and the Economic Loss Rule

Next the court will address CUAL’s tort claims, but first the court must

consider if the economic loss rule bars those claims. As U.S. Risk argues, “Texas

does not recognize a cause of action for negligent breach of contract.” U.S. Risk’s

Reply ¶ 41. The rule U.S. Risk alludes to is better known as the economic loss rule.

The court must consider this issue first because if Texas law bars CUAL’s tort claims

as a matter of law, U.S. Risk would be entitled to summary judgment on those

claims.

The economic loss rule “precludes recovery in tort for economic losses resulting

from a party’s failure to perform under a contract when the harm consists only of the

economic loss of a contractual expectancy.” Chapman Custom Homes, Inc. v. Dallas

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Plumbing Company, 445 S.W.3d 716, 718 (Tex. 2014) (per curiam). The economic

loss rule does not bar all tort claims when there is a contractual dispute, as “there is

not one economic loss rule broadly applicable throughout the field of torts, but

rather, several more limited rules that govern recovery of economic losses in selected

areas of the law.” Sharyland Water Supply Corporation v. City of Alton, 354 S.W.3d

407, 415 (Tex. 2011) (quoting Vincent R. Johnson, The Boundary-Line Function of the

Economic Loss Rule, 66 WASH. & LEE L. REV. 523, 534 (2009)). Accordingly,

application of the rule depends on a case-by-case analysis. McCaig v. Wells Fargo Bank

(Texas), N.A., 788 F.3d 463, 474 (5th Cir. 2015) (citing LAN/STV v. Martin K. Eby

Construction Company, 435 S.W.3d 234, 235 (Tex. 2014)).

Contracts may form duties in either contract or tort, or both simultaneously.

Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986). When a party

seeks damages for breach of a contractual duty, as opposed to a duty imposed by law,

tort damages are unavailable. Southwestern Bell Telephone Company v. DeLanney, 809

S.W.2d 493, 494-95 (Tex. 1991). In those cases, losses are more appropriately

addressed though breach of contract claims than tort. Sharyland Water Supply

Coporation, 354 S.W.3d at 418. Any claim based on allegations that a party failed to

perform duties subsumed in a contract cannot support a negligence claim. Springs

Window Fashions Division, Inc. v. Blind Maker, Inc., 184 S.W.3d 840, 868 (Tex. App. –

Austin 2006, pet. granted, judgm’t vacated w.r.m.). In sum, the economic loss rule

- 29 -

bars negligence claims “when there would be no basis for relief if the parties had not

entered into a contract and both parties’ performance had been rendered

gratuitously.” Correct RX Pharmacy Services, Inc. v. Cornerstone Automation Systems,

L.L.C., 945 F.3d 423, 429 (5th Cir. 2019).

Texas courts have recognized, however, that the economic loss rule does not

preclude tort claims that are independent of a contract. See Formosa Plastics

Corporation USA v. Presidio Engineers & Contractors, Inc., 960 S.W.2d 41, 46-47 (Tex.

1998). This includes claims for “negligent misrepresentation, legal or accounting

malpractice, breach of fiduciary duty, fraud, fraudulent inducement, tortious

interference with contract, nuisance, wrongful death claims related to loss of support

from the decedent, business disparagement, and some statutory causes of action[.]”

Sharyland Water Supply Corporation, 354 S.W.3d at 418-19 (citations omitted).

When determining whether to apply the rule, a court must consider the duty’s

source, whether the duty arose solely out of the contract or the common law, and the

nature of the remedy sought. Formosa Plastics Corporation, 960 S.W.2d at 45 (quoting

Crawford v. Ace Sign, Inc., 917 S.W.2d 12, 12 (Tex. 1996) (per curiam)). A tort claim

must have an independent legal duty and independent injury, which are discrete

requirements. Correct RX Pharmacy Services, Inc., 945 F.3d at 429 (citing D.S.A., Inc.

v. Hillsboro Independent School District, 973 S.W.2d 662, 663 (Tex. 1998) (per

curiam)).

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The court will first consider whether CUAL’s fiduciary duty claim is barred by

the economic loss rule. For the sake of this threshold inquiry, the court assumes that

U.S. Risk owed CUAL fiduciary duties.

Fiduciary duties, under Texas law, are independent from contractual duties.

See James J. Flanagan Shipping Corporation v. Del Monte Fresh Produce N.A., Inc., 403

S.W.3d 360, 365-66 (Tex. App. – Houston [1st Dist.] 2013, no pet.). In Flanagan,

the court held that a breach of fiduciary duty claim was not precluded by the

economic loss rule because the contractual duties at issue were independent of the

fiduciary duties. Id. Flanagan was a shipping corporation that contracted to provide

stevedoring services to the defendant Del Monte, a produce company. Id. at 362.

After performance issues arose, a Flanagan employee named Bradford began

influencing Del Monte to replace Flanagan with Bradford’s former employer. Id. at

363. In doing so, Bradford provided Flanagan’s proprietary information that enabled

the other company to out-bid Flanagan and receive the next contract with Del

Monte. Id. In relevant part, Flanagan sued Del Monte for encouraging Bradford’s

breach of fiduciary duty. Id. at 364.

The economic loss rule did not apply to Flanagan’s claim because the fiduciary

duty owed by Bradford to Flanagan was independent of the stevedoring contract

between Del Monte and Flanagan. Id. at 366. Flanagan’s injury was likewise

independent because Flanagan lost the bid to renew the stevedoring contract, which

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is outside the scope of the expired stevedoring contract. See Flanagan, 403 S.W.3d at

366. Flanagan was seeking lost profits that it would have earned had Del Monte not

tortiously encouraged Bradford to disclose Flanagan’s proprietary information, which

is distinct from typical expectation damages in contract claims. See id. Flanagan

could not claim loss profits for the renewal contract on the theory that Del Monte

breached the expired contract; therefore, the injury is also independent from the

contract. See id.

Here, as in Flanagan, CUAL alleges that U.S. Risk breached a duty that is

independent of the BAA. CUAL claims that U.S. Risk violated fiduciary duties that

U.S. Risk owed as its agent, a relationship created by both the common law and the

parties’ agreement. Although the BAA sets certain forth fiduciary duties for

U.S. Risk, see CUAL’s Appendix to Motion at 000027-28, 40, had the BAA not

existed and U.S. Risk written polices gratuitously for CUAL, U.S. Risk would still

have owed fiduciary duties to CUAL as its principal. See RESTATEMENT (THIRD) OF

AGENCY § 8.08, cmt. (e) (2006) (“A person who gratuitously assents to acting as an

agent acts as a fiduciary within the scope of the agency relationship.”). CUAL’s

injury is also independent of the BAA because CUAL seeks the amount it paid to

Passages for the claims in the four lawsuits, not the commission paid pursuant to the

BAA. See CUAL’s Amended Answer and Counterclaims ¶ 78. Therefore, the

economic loss rule does not bar CUAL’s fiduciary duty claim.

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The court will next consider whether CUAL’s negligence claim is barred by the

economic loss rule. Unlike any fiduciary duty owed by U.S. Risk, there is no duty

independent of the BAA for U.S. Risk to write the Passages policy. See DeLanney,

809 S.W.2d at 494-95 (when the duty solely arose from a contractual obligation to

publish advertisement, there is only a breach of contract claim); see also Jim Walter

Homes, 711 S.W.2d at 618 (when the only injury was that parties to a construction

contract did not get the house they contracted for, there is only a breach of contract

claim).

This is case is similar to Colbert v. Wells Fargo Bank, N.A., 850 Fed. Appx. 870,

877 (5th Cir. 2021) (per curiam). In Colbert, the plaintiffs asserted a negligence

claim against Wells Fargo, claiming the bank failed to correct misleading statements

about the plaintiffs’ loan and use reasonable care when providing information to the

plaintiffs. Id. at 876. The Fifth Circuit held that because “[t]he source of any duty

owed by Wells Fargo is its mortgage contract with Plaintiffs,” these duties “do not

arise from a separate common-law duty and would not give rise to liability

independent of the fact that contract exists between the parties.” Id. at 877 (internal

citations omitted).

Similarly, CUAL claims U.S. Risk negligently performed its duties under the

BAA. CUAL’s Amended Answer and Counterclaim ¶ 82. The BAA is the source of

the relationship and duties, and typically under Texas law, the economic loss rule

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precludes negligent-performance claims unless the negligence caused physical harm to

persons or tangible things. See DeLanney, 809 S.W.2d at 495, n.2 (citing W. PAGE

KEETON, ET. AL, PROSSER AND KEETON ON THE LAW OF TORTS § 92 (5th ed. 1984));

see also Montgomery Ward & Company v. Scharrenbeck, 204 S.W.2d 508, 510 (Tex.

1947) (holding that when a repairman caused a house to burn down, the repairman

was liable in tort for negligently burning down the house and contract for failure to

repair the water heater). Without the BAA, there would be no duty that would give

rise to a negligence claim. See, e.g., Torrington Company v. Stutzman, 46 S.W.3d 829,

837 (Tex. 2000) (citing RESTATEMENT (SECOND) OF TORTS § 314 (1965) (“Texas law

generally imposes no duty to take action to prevent harm to others absent certain

special relationships or circumstances.”). Therefore, the economic loss rule bars

CUAL’s negligence claim.

Accordingly, U.S. Risk’s motion for summary judgment on the negligence

claim is granted because CUAL’s claim is barred as a matter of law, and CUAL’s

motion is denied. The court will next address the parties’ cross-motions on the

remaining tort claim.

E. Breach of Fiduciary Duties

In their cross-motions for summary judgment, U.S. Risk and CUAL each argue

they are entitled to summary judgment on CUAL’s breach of fiduciary duty claim.

To succeed on a breach of fiduciary duty claim, a claimant must prove the following

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three elements: (1) the existence of a fiduciary duty, (2) the breach of that duty, and

(3) an injury to the principal or benefit to the agent caused by the agent’s breach.

Lundy v. Masson, 260 S.W.3d 482, 501 (Tex. App. – Houston [14th Dist.] 2008, no

pet.) (citing Jones v. Blume, 196 S.W.3d 440, 447 (Tex. App. – Dallas 2006, pet.

denied)); Punts v. Wilson, 137 S.W.3d 889, 891 (Tex. App. – Texarkana 2004, no

pet.). Here, the parties contest all three elements. Accordingly, the court will first

address whether a fiduciary duty exists between the parties.

1. Whether a Fiduciary Relationship Existed

The existence of a fiduciary duty is a question of law. National Plan

Administrators, Inc. v. National Health Insurance Company, 235 S.W.3d 695, 700 (Tex.

2007) (citing Meyer v. Cathey, 167 S.W.3d 327, 330 (Tex. 2005) (per curiam)). An

agency relationship imposes certain fiduciary duties on the parties, although not all

contractual obligations give rise to fiduciary duties. National Plan, 235 S.W.3d at

700, 702. Courts applying Texas law take all aspects of the agency relationship into

consideration when determining the nature and scope of the fiduciary duties between

the parties. Id. at 700; see also Johnson v. Brewer & Pritchard, P.C., 73 S.W.3d 193,

202-03 (Tex. 2002) (holding that the scope of an attorney’s fiduciary duties to his

firm is limited by professional ethics).

U.S. Risk argues that it did not owe fiduciary duties to CUAL for several

reasons, which the court finds unconvincing. First, U.S. Risk argues that there is no

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duty for U.S. Risk to investigate the representations Passages made in its application.

U.S. Risk Brief in Support at 11-13. This argument goes to whether U.S. Risk

breached a fiduciary duty by not investigating Passages’ representations on its June

2017 application instead of the existence of a fiduciary duty issue. See id. at 11.

Second, U.S. Risk argues that the Texas court of appeals’ opinion in Pacheco precludes

a fiduciary duty between an agent and insurer. Id. But U.S. Risk’s reliance on

Pacheco is misplaced.

Pacheco does not hold, as U.S. Risk contends, that an agent never has a

fiduciary duty to make an independent investigation into an insured’s application.

See Banner Life Insurance Company v. Pacheco, 154 S.W.3d 822, 831 (Tex. App. –

Houston [14th Dist] 2005, no pet.). Instead, Pacheco is limited to its facts.

Pacheco, an insurance agent, sold a life insurance policy to Thomas Cherry

(“Cherry”), who was shortly thereafter diagnosed with stage-four cancer. Id. at 824-

25. When Cherry died, Banner Life sued Pacheco for the policy limit because

Pacheco did not inquire about Cherry’s health when he personally delivered the

policy. Id. at 824-25, 831. The Pacheco jury found that the Pacheco did not breach

his fiduciary duty to Banner Life. Id. at 831. On appeal, the Pacheco court held that

the evidence “undisputably shows that [the insured] was not diagnosed with cancer”

when the policy was issued, so Pacheco could not have discovered that Cherry had

cancer. Id. While the Pacheco court held there was a fiduciary duty between Pacheco

- 36 -

and Banner Life, as agent and principal, the court concluded there was sufficient

evidence to support that Pacheco did not breach a fiduciary duty to the insurance

company. Id. But Pacheco does not hold that insurance agents are not fiduciaries for

insurance companies under Texas law. See id. Instead, Pacheco recognizes this

relationship. Id.

Next, U.S. Risk argues that National Plan precludes the existence of a fiduciary

duty. U.S. Risk’s Reply ¶ 40. In National Plan, the Supreme Court of Texas noted

that “a contractual obligation does not generally rise to a fiduciary duty,” and then

held that no duty existed between the parties. National Plan, 235 S.W.3d at 702.7

But National Plan is not dispositive because the Court’s holding is limited to the

contract at issue. See id. at 703. The Court held that it would not “impose a general

fiduciary duty on [the defendant] when the parties expressly agreed that [the

defendant] could take actions that would be in violation of such a duty.” Id.

Whereas, here, the BAA does not “expressly agree[]” to allow U.S. Risk to engage in

actions that would violate a fiduciary duty. Contrary to U.S. Risk’s arguments,

7 U.S. Risk’s reply brief cites to National Plan for the proposition that

courts cannot impose fiduciary duties in a business transaction unless an informal

relationship existed before the agreement. U.S. Risk’s Reply ¶ 40. National Plan does

not discuss a pre-existing relationship factor, although the Court did do so in

Schlumberger Technology Corporation v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997). To

the extent that National Plan discusses “an arms-length business transaction,” the

Court does so only to illustrate that if the plaintiff wished to have an exclusivity

agreement with the defendant, it had the freedom of contract to do so. See National

Plan, 235 S.W.3d at 702-03.

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National Plan holds that the scope of an agent’s fiduciary duties is defined by “not

only the nature and purpose of the relationship, but also agreements between the

agent and principal.” See id. at 700. But National Plan does not preclude U.S. Risk’s

fiduciary duty towards CUAL. See id.

U.S. Risk also cites Schlumberger to support its contention that Texas law does

not recognize a fiduciary duty without a preexisting relationship. U.S. Risk’s Reply

¶ 40. The Texas Supreme Court in Schlumberger declined to impose fiduciary duties

based on confidential relationships in a business transaction unless the relationship

existed “prior to, and apart from, the agreement made the basis of the suit.”

Schlumberger Technology Corporation v. Swanson, 959 S.W.2d 171, 177 (Tex. 1997)

(citing Transport Insurance Company. v. Faircloth, 898 S.W.2d 269, 280 (Tex. 1995)).

But CUAL does not contend that U.S. Risk owes fiduciary duties based on a

confidential relationship; instead, CUAL’s claims rest solely on formal fiduciary

- 38 -

duties, not informal.8 See CUAL’s Brief in Support ¶ 32; CUAL’s Amended Answer

and Counterclaim ¶¶ 76-78.

For its part, CUAL contends that the BAA creates a formal fiduciary

relationship because the contract creates an agency agreement between U.S. Risk and

CUAL. CUAL Brief in Support ¶ 32. U.S. Risk was undisputedly authorized to

write insurance policies for CUAL, which means U.S. Risk was an agent of CUAL.

Id. ¶¶ 32-34. In “every transaction made on behalf of its principal,” an agent owes a

“duty of good faith and fair dealing.” American Indemnity Company v. Baumgart, 840

S.W.2d 634, 639 (Tex. App. – Corpus Christi 1992, no writ). Further, U.S. Risk

8 There are two types of fiduciary relationships in Texas law: formal

fiduciary relationships that arise as a matter of law and informal fiduciary

relationships, otherwise known as “confidential relationships.” McAfee, Inc. v. Agilysys,

Inc., 316 S.W.3d 820, 829 (Tex. App. – Dallas, 2010, no pet.). Formal fiduciary

relationships encompass relationships such as agency and partnerships. Kinzbach Tool

Company v. Corbett-Wallace Corporation, 160 S.W.2d 509, 513 (Tex. 1942)

(principal/agent); Johnson v. Peckham, 120 S.W.2d 786, 787 (Tex. 1938) (partners).

Informal fiduciary relationships arise when “one person trusts in and relies on

another, whether the relation is a moral, social, domestic, or purely personal one.”

Schlumberger, 959 S.W.2d at 176.

- 39 -

agreed to abide by a duty of loyalty and care in the BAA.9 CUAL’s Appendix to

Motion at 000027-28, 40.

Applying National Plan, the court concludes as a matter of law that there was a

fiduciary relationship between U.S. Risk and CUAL. See National Plan, 235 S.W.3d

at 702-03. The BAA undisputedly created an agent-principal relationship between

the parties that allowed U.S. Risk to write insurance policies for CUAL. See generally

CUAL’s Appendix to Motion a 000001-121 (the BAA). Agents have long been

considered the fiduciaries of their principals under Texas law. See Kinzbach Tool

Company v. Corbett-Wallace Corporation, 160 S.W.2d 509, 513 (Tex. 1942). And more

specifically, Texas courts recognize that insurance agents owe fiduciary duties to the

insurer. See, e.g., Hartford Casualty Insurance Company v. Walker County Agency, Inc.,

808 S.W.2d 681, 687-88 (Tex. App. – Corpus Christi-Edinburg 1991, no writ);

Southland Lloyd’s Insurance Company v. Tomberlain, 919 S.W.2d 822, 831 (Tex. App. –

Texarkana 1996, writ denied).

9 “The Coverholder [U.S. Risk] shall not take any step(s) or undertake

any act(s) or omit to do anything in relation to the services to be provided by it

under the [BAA], including failing to act fairly to insured’s, which is likely to be

detrimental to the reputation of the Underwriters.” CUAL’s Appendix to Motion at

000027-28. “The Coverholder [U.S. Risk] must act in what it believes to be the

interests of the Underwriters and ensure that it has no actual or potential conflicts of

interest with the Underwriters which may impair the Coverholder’s performance of

its duties under the [BAA].” Id. at 000040.

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Under the “nature and purpose of the relationship” along with the

“agreement[] between the agent and principal,” National Plan, 235 S.W.3d at 700,

U.S. Risk owed fiduciary duties to CUAL. The BAA expressly requires U.S. Risk to

abide by a duty of loyalty and care when acting as CUAL’s agent. See CUAL’s

Appendix to Motion 000027-28, 40. Additionally, U.S. Risk’s officers recognized

this duty of loyalty and care in writing insurance policies on CUAL’s behalf. Randall

Goss (“Goss”), U.S. Risk’s CEO, agreed in his deposition that it was U.S. Risk’s

understanding that it had “whatever authority and discretion to ask questions and

gather information as it sees to be prudent when making its decision as to whether or

not to offer terms of coverage[.]” Id. at 000356-57. Goss further testified that

“there’s an expectation that our underwriters do a good job.” Id. at 000359. The

underwriter for the Passages’ account, Duvall, agreed that U.S. Risk underwriters are

the “eyes and ears” of CUAL in writing policies. Id. at 000277.

As a matter of law, a principal-agent relationship existed between CUAL and

U.S. Risk. The BAA authorized U.S. Risk to write insurance policies on its behalf,

and U.S. Risk does not dispute that it was CUAL’s agent. Within the scope of the

BAA, the court concludes that U.S. Risk owed fiduciary duties to CUAL.

2. Breach of Fiduciary Duty

Regarding the breach element, CUAL argues it is entitled to summary

judgment because U.S. Risk wrote the Passages policy without a complete loss

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history. CUAL’s Brief in Support ¶¶ 41-44. Passages had listed the Begazo suit in

both the September 2016 and March 2017 applications, and in the March 2017

application, which was submitted after the Begazo trial, Passages stated some issues

were tried but omitted the result of the trial. Id. ¶ 43. When Passages signed the

June 2017 application, U.S. Risk did not ask for an update on any outstanding

claims, including the outcome of the Begazo trial. See CUAL’s Appendix to Motion at

000310-312. U.S. Risk’s underwriter did not look at the court’s docket to determine

whether a verdict or judgment had been entered. Id. at 000289-290 (Duvall’s

deposition). CUAL contends that had U.S. Risk asked for an update on the Begazo

trial, it would have learned that judgment had been entered against Passages in the

amount of $2,267,369.16 plus interest. CUAL’s Brief in Support ¶ 43. Instead, U.S.

Risk bound the Passages policy without obtaining an application with an accurate

loss history. Id. According to an email written by U.S. Risk’s vice president Jacobs,

U.S. Risk would have declined the risk had it known of the Begazo judgment.

CUAL’s Appendix to Motion at 000729-730 (Jacob’s October 2018 email). Because

U.S. Risk did not take measures to discover the adverse verdict, CUAL argues that

U.S. Risk breached its fiduciary duty by placing its own pecuniary interest over

CUAL’s to collect a commission.10 CUAL’s Reply ¶¶ 27-28.

10 There is no citation to the record that supports CUAL’s assertion that

U.S. Risk prioritized its interest in the commission over CUAL’s interest of writing

suitable policies.

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Although CUAL provides ample evidence of what U.S. Risk could have done

to obtain an accurate loss history when writing this policy, CUAL’s motion falls short

of the summary judgment burden. Considering the evidence in the light most

favorable to U.S. Risk, see Anderson, 477 U.S. at 249, a reasonable juror could find

that U.S. Risk did not breach its fiduciary duty when it wrote the Passages policy. A

reasonable trier of fact could find, for example, that U.S. Risk reliance on Passages’

application was not a breach of its fiduciary duties owed to CUAL because U.S. Risk

misunderstood that the Begazo suit “had been let out on summary judgment.” See

CUAL’s Appendix to Motion at 000729 (Jacob’s October 2018 email). Therefore,

there is a genuine issue of material fact on the issue of breach, and CUAL’s motion is

denied.

Because the court examines “each party’s motion independently,” DataTreasury

Corporation, 823 F.3d at 1011, on cross-motions for summary judgment, the court

now turns to U.S. Risk’s motion regarding the breach element.

In its briefing, U.S. Risk does not specifically address the breach element. But

U.S. Risk argues that it has the right to rely on “the truthfulness of the answers given

by an insurance applicant[.]” U.S. Risk’s Brief in Support at 13 (citing Commercial

Life Insurance v. Lone Star Life Insurance, 727 F. Supp. 467, 471 (N.D. Ill. 1989)). U.S.

Risk also attempts to distinguish this case from several Texas intermediate court

opinions relied upon by CUAL. U.S. Risk’s Response ¶¶ 40-42. U.S. Risk argues

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that because it did not commit specific acts, CUAL cannot succeed on its fiduciary

duty claim. Id. The court construes U.S. Risk’s reliance on these factual differences

as an argument that U.S. Risk could not have breached its fiduciary duties under

Texas law. These cases, however, do not support U.S. Risk’s motion for summary

judgment and instead support the conclusion that there is a genuine issue of material

fact on the breach element of this claim. The court will address two of these cases to

illustrate why a fact issue exists on the breach element.

One case U.S. Risk discusses is Tomberlain, and U.S. Risk argues that because

Tomberlain involved an agent who prepared an application containing

misrepresentations, that U.S. Risk did not breach its fiduciary duties because it did

not prepare the June 2017 application, Passages did. See U.S. Risk’s Response ¶ 40;

see also Tomberlain, 919 S.W.2d at 831. But Tomberlain does not hold that an agent

breaches his fiduciary duty only when he prepares the application with the

misrepresentations. See Tomberlain, 919 S.W.2d at 831. Instead, the Tomberlain

court held that when an agent prepares an application with misrepresentations, there

is a factual issue whether the agent breached its fiduciary duties. Id. Tomberlain

supports that there is a fact issue in this case, not that Texas law precludes CUAL’s

fiduciary duty claim. See id.

U.S. Risk also discusses Baumgart for a similar, fact-distinguishing reason. See

U.S. Risk’s Response ¶ 41; see also Baumgart, 840 S.W.2d at 639. But as in

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Tomberlain¸ the Baumgart court merely holds that a fact issue exists whether the agent

breached his fiduciary duties to the insurance company when the agent helped

prepare a misleading insurance application. See Baumgart, 840 S.W.2d at 639-40

(“Baumgart did not negate American’s allegations . . . [we] therefore hold that the

trial court erred in granting summary judgment[.]”).11

U.S. Risk does not cite evidence in the record nor dispositive case law to

support its motion for summary judgment, and therefore, its motion for summary

judgment on the breach element of this claim is also denied.

3. Injury to Principal or Benefit to Agent

For the final element, CUAL contends that there was both a benefit to the

agent and an injury to the principal. CUAL’s Brief in Support ¶ 53. Under the

Passages policy, CUAL paid the $2 million policy limit to defend and settle the four

lawsuits. Id. CUAL was obligated to pay to defend these lawsuits because U.S. Risk

bound Passages’ employment liability insurance policy without an accurate loss

history. Id. Additionally, U.S. Risk benefitted from binding the Passages policy in

11 U.S. Risk also discusses Abetter Trucking Company v. Arizpe, 113 S.W.3d

503 (Tex. App. – Houston [1st Dist.] 2003, no pet.), and Certain Underwriters at

Lloyd’s, London v. A & D Interests, Inc., 197 F. Supp. 2d 741 (S.D. Tex. 2002), which

are similarly unpersuasive. See U.S. Risk’s Response ¶ 42. Arizpe is an appeal of a

jury verdict, and the court of appeals held there was sufficient evidence to support

the jury verdict that an independent contractor, although he owed fiduciary duties,

did not breach those duties. Arizpe, 113 S.W.2d at 512-13. And A&D Interests

denies a motion to dismiss for failure to state a claim because insurance agents owe

fiduciary duties to the insured party. A&D Interests, Inc., 197 F. Supp. 2d at 752.

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the form of a commission. CUAL’s Reply ¶ 28; see also CUAL’s Appendix to Motion

at 000007.

U.S. Risk argues that it did not proximately damage CUAL by issuing the

Passages policy. U.S. Risk’s Brief in Support at 14-25. Instead, CUAL voluntarily

chose to pay the policy amount to Passages because CUAL did not rescind the policy

or seek damages from Passages. Id. at 25-28. Notably, U.S. Risk does not dispute

that U.S. Risk benefitted from issuing the policy.

In fiduciary duty claims, there must be an injury to the principal or a benefit

to the agent. Lundy, 260 S.W.3d at 501. For the benefit inquiry, because CUAL’s

only evidence that U.S. Risk received a commission is the BAA itself, CUAL does not

meet its summary judgment burden. See CUAL’s Appendix to Motion at 000007.

Although the BAA entitles U.S. Risk to a commission, CUAL does not “cit[e] to

particular parts of materials in the record,” FED. R. CIV. P. 56 (c)(1)(A), to show that

U.S. Risk was paid a commission.

Regarding injury, a claimant must show that a breach of fiduciary duty

proximately caused the injury to the principal. See Brewer & Pritchard, P.C. v. Johnson,

7 S.W.3d 862, 868 (Tex. App. – Houston [1st Dist.] 1999) (holding there is a fact

issue whether a defendant breached his fiduciary duty and “whether any breach was a

proximate cause of damages[.]”), aff’d on other grounds, 73 S.W.3d 193 (Tex. 2002);

see also Taylor Publishing Company v. Jostens, Inc., 216 F.3d 465, 487 (5th Cir. 2000)

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(holding that parties must prove causation in breach of fiduciary duty claims).

Proximate cause is generally a question of fact. First Assembly of God, Inc. v. Texas

Utilities Electricity Company, 52 S.W.3d 482, 493 (Tex. App. – Dallas 2001, no pet.).

Here, the court concludes that a factual dispute exists whether U.S. Risk’s actions

caused CUAL’s injury and thus summary judgment is denied on this element.

In sum, CUAL’s motion for summary judgment is granted on the first element

of breach of fiduciary duty, but summary judgment is denied as to the other two

elements. CUAL is entitled to summary judgment in part on the first element

because the court concludes as a matter of law U.S. Risk owed a fiduciary duty to

CUAL. Since factual issues exist on the second and third elements, the cross-motions

for summary judgment are denied in part.

F. U.S. Risk’s Declaratory Judgment Claims

U.S. Risk seeks a declaratory judgment that: (1) the Passages policy provided

no coverage for the four lawsuits; (2) U.S. Risk fully discharged its contractual duties

under the BAA; and (3) CUAL voluntarily paid Passages for the four lawsuits. U.S.

Risk’s Amended Complaint ¶¶ 28-30, 32-33, 35. U.S. Risk and CUAL filed

cross-motions for summary judgment on all three declaratory judgment claims.

CUAL’s Brief in Support ¶ 61; U.S. Risk’s Brief in Support at 5, 14. The court has

already addressed the second claim under CUAL’s breach of contract claim, and

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because U.S. Risk does not have the standing to assert the other two, the court grants

CUAL’s motion for summary judgment on those claims.

Whether coverage exists under the Passages policy and whether CUAL

voluntarily paid Passages for the four lawsuits, are both contractual issues of the

Passages policy, not the BAA. It is undisputed that U.S. Risk is not a party to the

Passages policy. For U.S. Risk to have the capacity to litigate the Passages policy, it

would have to be a third-party beneficiary.

Under Texas law, “[a] third party may recover on a contract made between

other parties only if the parties intended to secure some benefit to that third party,

and only if the contracting parties entered into the contract directly for the third

party’s benefit.” MCI Telecommunications Corporation v. Texas Utilities Electricity

Company, 995 S.W.2d 647, 651 (Tex. 1999) (citations omitted). In determining

whether a third party can enforce a contract, the contracting parties’ intent controls.

See Corpus Christi Bank & Trust v. Smith, 525 S.W.2d 501, 503-04 (Tex. 1975).

Courts cannot create a third-party beneficiary contract by implication. MCI

Telecommunications Corporation, 995 S.W.2d at 651. There is a presumption in Texas

law that parties contracted for themselves unless it “clearly appears” that they

intended a third party to benefit from the contract. Id. (citations omitted). This

presumption is not overcome merely by the fact that the parties knew the third party

would benefit from the contract. First Bank v. Brumitt, 519 S.W.3d 95, 102 (Tex.

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2017). Incidental beneficiaries of a contract have no enforceable rights. Brunswick

Corporation v. Bush, 829 S.W.2d 352, 354 (Tex. App. – Fort Worth 1992, no writ).

“Incidental benefits that may flow from a contract to a third party do not confer the

right to enforce the contract.” Sharyland Water Supply Corporation, 354 S.W.3d at

421 (quoting South Texas Water Authority v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007)

(per curiam)).

U.S. Risk does not contend that it is a third-party beneficiary, and on the face

of the Passages policy, there is no manifest intent for it to be one. See CUAL’s

Appendix to Motion at 000783-823. Although the Passages policy was signed by

U.S. Risk’s CEO, it is only done so “[o]n behalf of Underwriters at Lloyd’s,” CUAL’s

affiliates. Id. at 000787. U.S. Risk’s commission is incidental to the Passages policy

because CUAL and Passages did not bind the policy to solely benefit U.S. Risk.

Further, there is nothing in the Passages policy that “clearly, fully and unequivocally

expresses the parties’ intent to contract directly for [U.S. Risk’s] benefit.” See First

Bank, 519 S.W.3d at 105. (internal citations and quotation marks omitted). As a

matter of law, U.S. Risk cannot assert claims based on the Passages policy, and

therefore, CUAL’s motion for summary judgment on U.S. Risk’s remaining

declaratory judgment claims is granted.

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IW. CONCLUSION

For the reasons stated above, summary judgment is GRANTED IN PART and

DENIED IN PART. U.S. Risk’s motion for summary judgment on the contract and

negligence claims is GRANTED, and CUAL’s cross-motion on those claims is

DENIED. U.S. Risk’s motion on the remaining claims is DENIED. For the

fiduciary duty claim, CUAL’s motion is GRANTED IN PART because the court

concludes as a matter of law that U.S. Risk owed CUAL fiduciary duties. The cross

motions on the remaining elements of the fiduciary duty claim are DENIED, as

genuine issues of material fact remain. Finally, CUAL’s motion for summary

judgment on U.S. Risk’s declaratory judgment claims is GRANTED.

SO ORDERED.

January 19, 2023.

Cua. Fach

A. JGE FISH

Senior United States District Judge

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