TIG Insurance v. Sedgwick James of Washington

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

m 01-20235

_______________

TIG INSURANCE COMPANY AND SAFETY LIGHTS SALES & LEASING, INC.,

Plaintiffs-Appellants,

VERSUS

SEDGWICK JAMES OF WASHINGTON AND LUMBERMENS MUTUAL CASUALTY CO.,

Defendants-Appellees.

_________________________

Appeal from the United States District Court

for the Southern District of Texas

_________________________

January 9, 2002

Before SMITH and EMILIO M. GARZA, Circuit the insurance seller’s certificate of insurance

Judges, and CUMMINGS,* District Judge. added Safety Lights as an additional insured

but disclaimed the power to alter an underlying

JERRY E. SMITH, Circuit Judge: insurance policy. The parties agree that the

certificate of insurance’s express limitations

The district court dismissed TIG Insurance combine with the policy’s terms to bar

Co. (“TIG”) and Safety Lights Sales & coverage contractually. Agreeing with the

Leasing Co.’s (“Safety Lights”) claims to district court that TIG and Safety Lights also

recover for the costs of defending a lawsuit; failed to provide summary judgment evidence

sufficient to support claims for estoppel,

mutual mistake, fraudulent misrepresentation,

*

District Judge of the Northern District of or negligent misrepresentation, we affirm.

Texas, sitting by designation.

I. requesting, within fifteen days, a certificate of

Lumbermens Mutual Casualty Insurance insurance (“COI”) that should evidence “waiv-

Company (“Lumbermens”) issued two general er of subrogation and additional insured in

liability insurance policies to Corporate favor of Safety Lights.”

Express, Inc. (“Corporate Express”).

Sedgwick James of Washington (“Sedgwick”) In February 1997, Sedgwick issued a COI

brokered the general liability contracts among to Safety Lights. The top of the certificate

Corporate Express, its subsidiaries, and stated, “This certificate is issued as a matter of

Lumbermens. information only and confers no rights upon

the certificate holder. This certificate does not

Corporate Express is the parent corporation amend, extend, or alter the coverage afforded

of Corporate Express Delivery Systems, Inc. by the policies below.” The certificate

(“Corporate Express Delivery”), which owns erroneously listed Safety Lights as an

several delivery companies, including U.S. De- additional insured under Policy 362.1

livery Systems (“U.S. Delivery”), Vianet, Inc.

(“Vianet”), and United Transnet, Inc. (“United In June 1997, U.S. Delivery hired Guy

Transnet”). Sedgwick issued two insurance Wright, an independent contractor, to deliver

policies to Corporate Express and its a steel plate to Safety Lights’s premises.

subsidiaries. Policy No. 5AA 038 362-00 Wright was injured when the plate was

(“Policy 362”) originally covered United dropped on his hand during unloading. Wright

Transnet. An endorsement added Corporate sued Safety Lights. TIG, as Safety Lights’s

Express Delivery, U.S. Delivery, and Vianet as insurer, defended, incurring defense costs of

named insureds. Policy 362 is the only $38,650.02, and settled for $235,000.

Lumbermens policy that covers U.S. Delivery

for general liability; that policy does not pro-

vide any additional insured coverage.

Corporate Express and its non-delivery, 1

On appeal, Safety Lights argues that

service companies were covered under Policy Sedgwick issued a confirmation of placement (an

No. 5AA 038 300-01 (“Policy 300”), which insurance binder) for policies 300 and 362 that

excluded Corporate Express Delivery from stated the general liability policy would be “subject

coverage but did provide additional insured to the policy terms, conditions, limitations, and

coverage “where required by written or oral exclusions” of specified Corporate Express

contract” with respect to “liability arising out policies, each of which included an additional

of your [the named insured’s] operations on insured clause. Safety Lights, however, failed to

premises owned or rented by or to you [the raise this point in the cross-motions for summary

judgment, so we do not consider it. See Estate of

named insured].”

Martineau v. ARCO Chem. Co., 203 F.3d 904,

913 (5th Cir. 2000) (refusing to consider

U.S. Delivery is a subsidiary of Corporate limitations argument that party failed to raise at

Express Delivery and insured only under Poli- summary judgment); Hinsley v. Boudloche (In re

cy 362. One of U.S. Delivery’s subsidiaries, Hinsley), 201 F.3d 638, 645 (5th Cir. 2000)

Vianet, did business with Safety Lights, which, (refusing to consider plaintiff’s arguments for

in March 1996, sent a letter to Vianet, tolling limitations where she had not raised it at

summary judgment).

2

II. (1986), the non-movant must come forward

TIG and Safety Lights sued Sedgwick and with “specific facts” showing a genuine factual

Lumbermens in state court, and Lumbermens issue for trial. FED. R. CIV. P. 56(e); Mat-

removed to federal court. In the amended sushita Elec. Indus. Corp. v. Zenith Radio,

complaint, plaintiffs sought a declaration that 475 U.S. 574, 587 (1986). Conclusional alle-

defendants were obligated to defend and in- gations and denials, speculation, improbable

demnify the Wright suit. In the alternative, inferences, unsubstantiated assertions, and le-

plaintiffs sought reformation of Policy 362 to galistic argumentation do not adequately sub-

conform to the “intent of the parties” and pro- stitute for specific facts showing a genuine is-

vide coverage for Safety Lights. Plaintiffs also sue for trial. SEC v. Recile, 10 F.3d 1093,

alleged violations of the Texas Insurance 1097 (5th Cir. 1993).

Code, Texas Deceptive Trade Practices Act,

breach of contract, fraudulent and negligent III.

misrepresentation, breach of the duty of good TIG asserts that Sedgwick’s COI should

faith and fair dealing, and fraud. The parties obligate Lumbermens because Sedgwick acted

moved for summary judgment on all claims. as Lumbermens’s agent. Although laying out

the agency relationship will aid us in resolving

The court granted summary judgment for other matters, TIG mistakenly assumes that

Sedgwick and Lumbermens on the agency merely establishing an agency relationship will

claims, plea for reformation, and claims of mis- create liability for Lumbermens. Lumbermens

representation. TIG and Safety Lights appeal delegated the power to issue COI’s to

that judgment. Sedgwick, but those COI’s could not alter the

underlying policy’s terms or create liability.

The same standards for summary judgment Because the COI expressly disclaims any

bind us and the district court. McDaniel v. power to alter the underlying policy, and the

Anheuser-Busch, Inc., 987 F.2d 298, 301 (5th parties agree that Lumbermens withheld from

Cir. 1993). Summary judgment is appropriate Sedgwick the power to alter policies,

only if “the pleadings, depositions, answers to Sedgwick’s issuance of the COI did not create

interrogatories, and admissions on file, togeth- coverage.

er with the affidavits, if any,” when viewed in

the light most favorable to the non-movant, A.

“show that there is no genuine issue as to any Texas law classifies insurance sellers into

material fact.” Anderson v. Liberty Lobby, three categoriesSSbrokers, soliciting agents,

Inc., 477 U.S. 242, 249-50 (1986). A dispute and recording agents. A seller can have an

about a material fact is “genuine” if the agency relationship with both the insurer and

evidence is such t hat a reasonable jury could insured. McKillip v. Employers Fire Ins. Co.,

return a verdict for the non-moving party. Id. 932 S.W.2d 268, 270 (Tex. App.SSTexarkana

at 248. The court must draw all justifiable 1996, no writ). Regardless of the agency re-

inferences in favor of the non-moving party. lationship, the agent’s actual or apparent au-

Id. at 255. Once the moving party has initially thority to perform a task can create vicarious

shown “that there is an absence of evidence to liability. Duzich v. Marine Office of Am.

support the non-moving party’s cause,” Celo- Corp., 980 S.W.2d 857, 865 (Tex.

tex Corp. v. Catrett, 477 U.S. 317, 325 App.SSCorpus Christi 1998, writ denied).

3

An insurance seller acts as a broker when a waiver, or change a term or condition of an

potential insured approaches the insurance insurance policy . . .”).

seller and the insurance seller only submits an

application to the insurance agency. McKillip, The district court correctly categorized

932 S.W.2d at 270. If the insurance seller has Sedgwick as a soliciting agent, relying on the

contact only with the buyer, the seller is a agency agreement between Sedgwick and

broker. Id.; Employers Cas. Co. v. Mireles, Lumbermens to reach this conclusion. The

520 S.W.2d 516, 520 (Tex. Civ. App.SSSan agency agreement authorized Sedgwick to so-

Antonio 1975, writ ref’d n.r.e.). licit insurance on behalf of Lumbermens but

permitted Sedgwick to bind Lumbermens only

An insurance seller acts as a soliciting agent “to the extent specific authority [was] granted

when the seller contacts the insured but the in the schedule(s) attached.” Under Policy

seller lacks the power to modify, change, or 362, Sedgwick had the authority to issue

waive the terms of the policy. TEX. INS. CODE COI’s and binders but lacked the authority to

ANN. art. 21.04 (Vernon Supp. 2001); Macca- modify the policy itself.

bees Mut. Life Ins. Co. v. McNiel, 836 S.W.2d

299, 231-32 (Tex. App.SSDallas 1992, writ On appeal, TIG argues that Lumbermens

denied). The soliciting agent has limited actual granted Sedgwick the power to issue COI’s.

authority to make representations on behalf of The certificates of insurance, however, ex-

the insurance company. Maccabees, 836 pressly state that they do not modify the un-

S.W.2d at 231-32. derlying insurance policy. The COI’s comport

with the agency agreement; Lumbermens

A recording agent solicits insurance, has the granted Sedgwick the power to solicit and ne-

power to write policies of insurance, binds the gotiate but not to bind. The district court

insurer on risks, and collects premiums on be- properly categorized Sedgwick as a soliciting

half of the insurer. TEX. INS. CODE ANN. art agent.

21.14 (Vernon Supp. 2001); Maccabbees, 836

S.W.2d at 231-32. The recording agent is B.

closest to the principal, and his actions will al- TIG contends that, regardless of the

ways bind the principal. Lexington Ins. Co. v. statutory category in which Sedgwick falls,

Buckingham Gate, Ltd., 993 S.W.2d 185, 198 Lumbermens granted Sedgwick the actual

(Tex. App.SSCorpus Christi 1999, pet. authority to bind the principal. A soliciting

denied). agent’s misrepresentations can create liability

for the principal if the agent acts with actual or

If the insurance seller is not a broker, apparent authority. Celtic Life Ins. Co. v.

soliciting agent, or recording agent, the seller Coats, 885 S.W.2d 96, 98 (Tex. 1994). To

falls into the catch-all category of the insurer’s confer actual authority, the principal must

agent. TEX. INS. CODE. ANN. art. 21.02 (Ver- intentionally confer the authority, explicitly

non Supp. 2001); Maccabees, 836 S.W.2d at allow the agent to believe that it has the

232. Sellers in this category lack the power to authority, or carelessly permit the agent to

modify the terms of a policy. TEX. INS. CODE believe it has the authority. Spring Garden

art. 21.02 (stating that this article “does not 79U, Inc. v. Stewart Title Co., 874 S.W.2d

authorize an agent to . . . alter, amend, modify, 945, 948 (Tex. App.SSHouston [1st Dist.]

4

1994, no writ). Sedgwick’s power to do so. Sedgwick did not

have the power to obligate Lumbermens con-

Lumbermens did not do any of those things. tractually. We must still consider, however,

The agency agreement prohibits Sedgwick whether the Sedgwick’s actions in issuing the

from modifying the policy. Although Lumber- COI, pursuant to delegated authority, support

mens permitted Sedgwick to issue COI’s, the TIG’s disguised estoppel or straightforward

COI’s state that they will not alter the terms of mutual mistake arguments.

the underlying policy. The terms of the agency

agreement and COI make plain that Sedgwick IV.

lacked the actual power to modify Policy 362. TIG makes two possible claims against

Lumbermens: (1) The COI should obligate

C. Lumbermens to pay for the Wright litigation;

TIG contends that even if Sedgwick acted and (2) the COI proves that Policy 362

as a soliciting agent without actual authority, included a mutual mistake and the court

Sedgwick had the apparent authority to modify should reform Policy 362. Both theories seek

Policy 362. A person who seeks to bind a to establish Lumbermens’s liability despite the

principal based on the agent’s apparent express terms of Policy 362 and the COI.

authority must show that the principal acted in

such a way that a reasonably prudent person A.

would believe the agent could bind the Estoppel cannot modify the express terms

principal. Biggs v. United States Fire Ins. Co., of an insurance policy. Tex. Farmers Ins. Co.

611 S.W.2d 624, 629 (Tex. 1981). The v. McGuire, 744 S.W.2d 601, 602-03 (Tex.

principal must visibly confer authority for the 1988). When a COI expressly incorporates

agent to perform a range of tasks that include the terms of a policy, the policy trumps the

the disputed action. Ames v. Great S. Bank, terms of the COI.3 TIG cites cases from

672 S.W.2d 447, 450 (Tex. 1984). If the Alaska, Illinois, Massachusetts, New York,

agent acts with apparent authority, it will bind and Ohio that permitted insureds to recover

the principal, regardless of the agent’s actual under the terms of the COI. Most of these

authority. Biggs, 611 S.W.2d at 629. jurisdictions do not read COI’s as modifying

Misrepresentations made when negotiating the the underlying insurance policy but, instead,

terms of a policy can fall within the scope of enforce the COI’s under an estoppel theory.

the agent’s apparent authority.2

3

TIG, however, did not present any evidence Wann v. Metropolitan Life Ins. Co., 41

that Lumbermens visibly had granted S.W.2d 50, 51-52 (Tex. Comm’n App. 1931);

Sedgwick the power to add additional in- Granite Constr. Co. v. Bituminous Ins. Co., 832

S.W.2d 427, 429 (Tex. App.SSAmarillo 1992, no

sureds. The only visible sign identified by

writ). Similarly, when determining whether an in-

either partySSthe COISSexpressly disclaimed surer has a duty to defend the insured, Texas

courts will look only to the policy and to the

allegations of the complaint. McCarthy Bros. Co.

2

Celtic, 885 S.W.2d at 98-99 (finding that v. Continental Lloyds Ins. Co., 7 S.W.3d 725, 728

agent’s actions bound insurer because reasonable (Tex. App.—Austin 2000, no writ); Katerndahl v.

third person would have believed that agent had State Farm Fire and Cas. Co., 961 S.W.2d 518,

power to explain policy during negotiations). 522 (Tex. App.SSSan Antonio 1998, no writ).

5

E.g., Dumenric v. Union Oil Co., 606 N.E.2d Second, Carly List, an account manager for

230, 233-34 (Ill. Ct. App. 1992). The Texas Sedgwick, stated that, after the Wright

Supreme Court has foreclosed us from litigation, some Lumbermens employees

following them, so we now must consider worried that Policy 362 might contain an

whether Texas courts can extend coverage additional insured clause. This does not speak

beyond the terms of the policy indirectly, to whether, before issuing the policy, Lumber-

through the doctrine of mutual mistake, mens intended for Policy 362 to include an

despite the Texas Supreme Court’s prohibition additional insured clause. Secondhand

of directly extending coverage. speculation after the fact does not create a fact

question regarding the actual content of the

B. insurance contract ; nor should such

TIG argues that the absence of a blanket speculation create a fact question about

additional insured provision in Policy 362 was Lumbermens’s beliefs when it issued Policy

the result of a mutual mistake among Lumber- 362.

mens, Sedgwick, and Corporate Express. To

prevail in this claim, TIG must prove (1) the Finally, List testified that the terms and

content of the antecedent agreement and conditions for United Transnet’s policy

(2) the subsequent mutual mistake when (“Policy 362”) were intended to be identical to

reducing it to writing. Cherokee Water Co. v. those of Policy 300 (which contained an addi-

Forderhause, 741 S.W.2d 377, 379 (Tex. tional insured clause). Lumbermens responds

1987). TIG failed to prove the content or ex- by pointing out ambiguities in List’s affidavit

istence of an antecedent agreement. that suggest she might have been describing

ongoing negotiations rather than a final

TIG must provide summary judgment evi- agreement. Although these ambiguities might

dence that the parties “reached a definite and reduce the credibility of her testimony, List’s

explicit agreement understood in the same affidavit, on the whole, suggests a fact issue as

sense by both.” Zurich Ins. Co. v. Bass, 443 to whether Sedgwick intended for Policy 362

S.W.2d 371, 374 (Tex. App.SSDallas 1969, no to include an additional insured clause. TIG

writ). TIG had to prove that all of the parties offered some evidence that Sedgwick believed

intended to include an additional insured that Policy 362 would contain an additional

clause in Policy 362. TIG points to three insured provision.

pieces of evidence to prove Sedgwick’s intent.

TIG, however, failed to offer any summary

First, TIG directs us to correspondence be- judgment evidence about Lumbermens’s be-

tween Sedgwick and Lumbermens regarding liefs when Sedgwick issued Policy 362. TIG

the Corporate Express account. The district argues that the doctrine of mutual mistake jus-

court correctly noted, however, that this cor- tifies reforming its policy or contract with

respondence does not specifically refer to Poli- Lumbermens. Although TIG presented

cy 300 or Policy 362. It is impossible to know evidence of Sedgwick’s mistaken beliefs about

whether the letters are probative of the parties’ the contract, TIG did not provide a shred of

intent to include an additional insured clause in evidence that Lumbermens shared those be-

Policy 362. liefs. Nor did TIG present any evidence that

Sedgwick had the statutory, actual, or

6

apparent authority to change the terms of the

underlying policy for Lumbermens. B.

The elements of negligent misrepresentation

We will not reform the terms of the are (1) a representation made by the defendant

insurance policy without some proof that the in course of the defendant’s business, or in a

party with the power to do so shared an transaction in which the defendant has a

antecedent understanding. Because TIG failed proprietary interest; (2) the defendant supplied

to provide proof that the relevant parties false information for the guidance of others in

shared an antecedent agreement, its plea for their business; (3) the defendant did not

reformation must fail under Texas law. exercise reasonable care or competence in

obtaining or communication the opinion; and

V. (4) the plaintiff suffered pecuniary loss by

TIG argues that Sedgwick’s erroneous COI justifiably relying on the representation.

is a fraudulent or negligent misrepresentation. Federal Land Bank Ass’n v. Sloane, 825

The district court found that Safety Lights and S.W.2d 439, 442 (Tex. 1991). TIG did not

Corporate Express did not reasonably rely on offer any summary judgment proof that

the COI with disclaimer, and TIG failed to Sedgwick negligently or carelessly issued the

present any evidence on several crucial COI. TIG did not advance a theory about the

elements of both claims. We affirm on the relevant standard of care; it does not cite omit-

latter grounds. ted precautions or any other indicia of

negligence; it did not explain why Sedgwick,

A. rather than Corporate Express, bore the

The elements of common law fraud are burden of reading the incorporated policy.

(1) a material misrepresentation; (2) the Absent a coherent legal theory and summary

defendant knew the statement was false or judgment evidence, the district court properly

made the statement with reckless disregard for dismissed the claim.

the truth; (3) the defendant intended for the

plaintiff to rely upon the statement; and (4) the AFFIRMED.

plaintiff relied upon the statement (5) to his

detriment. DeSantis v. Wackenhut Corp., 793

S.W.2d 670, 688 (Tex. 1990). The district

court observed the absence of Sedgwick’s

fraudulent intent or reckless disregard as an al-

ternate ground of decision. TIG has never

presented any evidence that Sedgwick intend-

ed to defraud Corporate Express.

TIG presented evidence from List that

Sedgwick may have misunderstood Policy 362

to include an additional insured clause. TIG

never presented evidence that Sedgwick had

the intent to defraud. We do not need to reach

the question of reasonable reliance.

7