there is a reason why rules of construction often are almost usually tend to have latin names attached to them that's because there are long standing rules tested through the iterative process that we call the common law that process is not does not simply result in the creation or examination of the continued by taliban rules of destruction but their scope application their limits were here today because the trial court invented a new rule of construction that could not have been anticipated and which is unwise and which will cause problems in the future with its content if it's continued to be applied in other cases in this case the parties file cross motions arguing over the applicability of an exclusion exclusion j concerning the change of control in the ensure that the words ensure underwrites for particular insured and if there's a change of control there's an exclusion which provides that for future claims then underwriters will not be responsible even though they will continue to be responsible for previous claims now the question was whether the insured claim was whether they insured or covered against claims arising after stanford financial group was placed in receivership and thus after the receiver came to hold the stock and associated voting rights of stanford financial group the court concluded that  exclusion j was ambiguous and that both parties had offered reasonable interpretations now usually the ambiguous language would be construed against the insurer under the doctrine of contra preference them in the in the case with the consumer insurance contract but the trial court found that stanford financial group it assumed was of a sophisticated insured and at this point the court should have denied the defendant's motion for summary judgment there was a factual dispute as to the scope of the application of the exclusion jette the parties would have been left to offer evidence that would be typical in that circumstance but instead of doing that the court as soon that stanford was a sophisticated surety held that texas courts would limit the sophisticated insured exception just in that they would apply but they would limit it to only cases where there is evidence that the specific language shoe was negotiated the court even conjectured that it appeared underwriters had drafted exclusion j failing to draw the evidence you know from the evidence inferences in the light most favorable to the nonmoving part of the court rationale for the sophisticated insured exception and nowhere says it's limited to the specific language as we know it's called the sophisticated insured exception not the sophisticated insured and negotiated provision exception it focuses on the on the sophistication and bargaining power of the insurer in that case we cannot say the court cannot say that this holding was predictive of what texas court would hold no texas court federal or state has ever and rejected it and gone nor has any circuit of appeal six circuit court of appeals in this country adopted this limitation on the sophisticated insured exception to specific provisions that were negotiated in that sense  as a case of first impression as was the case below but we didn't realize it until the court issued its order the question any argument on the phone tell your reply brief that in the to there was no motion to strike that in the court considered that it is the basis for the decision now and therefore it's probably at this point that was kind of it's in the question but the court did decide on the ground yes that's the first argument  put in an affidavit on the reply brief it was not objected to there was no motion striking the court relied on it and and it's opinion that there was different evidence that was put in the motion for reconsideration after the court announced his reasoning that the sophisticated ensured exceptional wouldn't apply unless there was specific evidence that the specific policy language had been negotiated but i do something i don't understand actually did the the assets that allen stanford held all the assets of the corporation and every right attendant to those assets so he received the voting stock and he received every right attended to the voting stock now if you look  as they would want to vote or did he vote in the best interest of preserving the assets what is his to duty and well let me just make clear stanford financial group had one shareholder allen stanford right he was incarcerated and he had there was no indication ever that he had any indication or any right to object in any way to whatever the receiver did he attempted to at times and he was never successful though the receiver is as we say as the business court has said stepped into the shoes of allen stanford that's what i'm trying to understand that in this particular context and this is not my first stanford case by any means and i'm trying to understand that in this context if he has this right to vote how is that exercised to clear in this record right now ok well the the all i can say is i don't know the mechanics of how he would vote all i know is that he was handed the shares of receiver he was by court order given all rights attendant all property including those shares as a receiver and he has exercised that power time and again now the mechanics of how to do that for instance how he canceled certain leases or sold certain property he has exercised panoply of rights in connection with property that was handed over to him and saying if this is simply a different risk this is not risk that lloyd's undergo that is correct your honor if you  talk about how to construe this particular thank you just in talking about the rights in the phone this is simply a different risk this is i believe your honor is correct that that's the reason for the it was rather they were willing to ensure a only sta or not this the new t well the deal here on our believe that is correct they underwrote for the company before them based on the representations that were made to them and they did not agree that whoever might acquire the stanford financial group that they would continue to ensure their acts and who knew and they had no way to know who that would be now as it turns out after the change of control after the voting stock was handed over to the receiver there were actions taken in florida with respect to destruction of documents where the government asserted claims against individuals who did that and that was not with and that was we argue unambiguous excluded that claim that there are lots of claims prior to the time of the receivership or they continue so just to put a footnote there this is not an absolute fact or clause it didn't stop the policy it just said the policy covers and is in force for claims up through the date of that receivership but the the court should reverse the trial court for a number of reasons first limiting this the sophist to get insured except as a trial court did ignores the basis for the contra preference to rule in the sophisticated insured exception in the first place blander to actually make clear the supreme court of texas that the rule saying that you should construe ambiguities in exclusions against the insurer is the court said they're an outgrowth of the contra her friend and role but it's really indistinguishable from the contra perforate immoral it's another aspect of the contra perforate of and the court there said that the principal reason for this was that the policy is sold to consumers  was a law of louisiana and judge wisdom said that there was no purpose in following a legal platitude that has no realistic application where the insured is has counsel is represented by a broker change suggest changes or refuse to agree to language in the policy and this is especially true as is an egoless in judge was them observed where these are manuscript policies or the bar where the broker submit the language in the first instance were both of the parties craft the terms through negotiations the other problem with this rule is that it's unworkable and makes no sense because what it says as the we're going to have different rules of construction for different paragraphs depending on whether the sophisticated ensure that a broker and have power are going to power decides it's up to bill or it's not acceptable and wants a change in the go  now will this court to recognize at this point that the supposed good insured exception no texas court whatsoever his has said what you are asking us to do today i'm right yes and for that reason well for that reason we previously asked the or the specific a previously asked the texas supreme court that very question and what courts have heretofore other than supreme court of texas have assumed is that it that's and that circumstance it's a legal platitude as is judge wisdom noted but in any event the problem with this rule and one of the practical problems is if for instance a large corporation with counsel and a broker and the resources to have equal bargaining power decides that a language is acceptable and that other language it negotiates those two provisions side by side one would be under this rule this limitation that the trial court urged would be construed against the unsure where the where the party would bargain apart chose not to change the language and in the other one it would not be construed against insured so you would have different rules of construction even though the rule is is the sophisticated insured exception so it's really a focus and always has been on the sophisticated and sure well it just seems to me just because a party agrees to a particular provision doesn't mean that he didn't have some kind are in power to change yeah i think that's absolutely correct your honor i know for instance when i have no bargaining power and i enter into a contract with a large corporation they have should they're going to accept the language that is suggested or that's in the contract because they've chosen to take on that risk or that chosen that that  language the circumstance when you have the bargaining party choose not to exercise it to change the terms of the agreement when you could grab the pen when you could negotiate that there should be no distinction with that provision from a provision where you may change the language or proposed changes it is a focus on the sophistication of the insured now we made these arguments in a rule fifty nine motion which exists for this very purpose when he came and went when the the evidence that it was a year after we filed the motion he denied it in a one paragraph order saying that we're making the same arguments that we had previously respectfully we believe that was an abuse of discretion and that he should have to the texas supreme court so i can say that i would also say that when it went certify it was certified to the texas supreme court all the same arguments for its application while the court court in texas would apply it should apply or the same as those honor is well aware they will decide the case on the grounds that are necessary to decide the case and the case where we were that the circuit asked them to they actually looked at the question and they said the language is unambiguous so we wouldn't expect them to go and by the way if it was ambiguous here's what our holding would be so we can't i wouldn't say that that cuts against us i think it cuts for us having seen many opinions in the supreme court where the court will do one thing and the say we just want to make clear we don't believe in this or we have another point to make and they didn't come out and say the line was an unambiguous but by the way we would never agree to the surface that ensured exception so it's a two edged sword i don't believe that in a court of limited you know their motion for summary judgment it is further appropriately denied the underwriter lloyd's of london motion for summary judgment and i emphasize those two differing motions one granting one denied for the following reason  passed on it this court does have to or stiction to consider it however the larger question is whether it should exercise its discretion to consider it under the facts and circumstances of the case and when there is an alternative argument for the granting of a summary judgment that is that there's never should have been considered by the district court because it was in violation of the northern district rules of civil procedure the northern district gets to patrol its own rules doesn't it we don't we should step in  there you should have done this in your rules and that didn't seem like just as an argument just as in any other rules your honor i do believe that this court does enforce rules especially rules on replied well assuming that we didn't agree with that can you get to your merits or do you have some of the honor there has been no circumstance and which the texas supreme court has recognized as sophisticated insured exception i'm going to skip the first assumption  prayer on his request that the court properly consider the evidence that was the first assumption underwriter's makes on appeals the second assumption is that the texas court would have prior to this court rendering its decision by adopted this if is to cait it ensured exception simply set forth as a presumption in both the opening brief or underwriter stated for the purposes of this appeal underwriter presumes these sophisticated insured exception will be recognized and on reply brief they stated underwriter's address or appeal only to the narrower question of whether to district courts an accurate prediction regarding the scope and they bolded in emphasize scope of that exception under texas law presuming that the texas court would have already adopted the sophisticated insured exception before today we did we could we could assume argue endo that the supreme texas supreme court would recognize the exception and still find in your favor by determining if there's insufficient evidence of bargaining power absolutely your honor and there was no evidence that since there was actually no evidence presented that stanford was stanford financial group let alone the particular before the court that that was the case it was simply an assumption granted to the benefit of underwriters in interpretating the potential positive the law to this day however there's two different things yes this court could find in the texas law would hold the sophisticated insured exception exists i don't believe the texas law supports that and i will get to that secondarily even if it did recognize it texas courts have a long history of making coverage provisions and exclusion provisions under differing standards to this day as has been acknowledged by underwriters no texas court has adopted the sophisticated insured exception far from there being a substantial body of case law as underwriters argued there is no body of case law to assist this court under texas law to determine whether it would be accepted and if it was accepted what would its scope be unlike the other courts in the other states new jersey louisiana ohio and missouri that either a federal court or a state court has accepted the sophisticated insured texas law is very different in those circumstances the eagle leasing case was the front runner interpreted louisiana law under the civil code under that civil code some reason for the contra preferential mix action was a drafting issue who drafted the agreement and that was the genesis in one nine hundred seventy six of other cases that were following the sophisticated insured exception here however in texas texas cases it's contra profer  or as a supreme court just indicated also known as the ambiguity rule distancing itself from the pure latin there that the favor will go to the insured if they offer a reasonable position is not simply on bargaining power and on who drafted the insurance policy instead texas unlike those other states has repeatedly declared that it is the public policy of the state of texas to interpret insurance policies in such a manner that they ensure that is especially so for exclusions where texas has consistently held that a strict a very strict construction of exclusionary provisions needed to be made and if an insurance company wanted to avoid coverage under an exclusionary provision which is an issue here it could do so under plain and on ambiguous language and if it did not it could not be heard to complain the insurance was in fact covered since the fifth circuit's decision in eagle leasing interpret in louisiana civil code in one nine hundred seventy six the texas courts have had almost forty years to rethink their canons of construction or to rethink their pronouncements of public policy but instead texas courts have steadfastly it here to the canons of construction that i insured offers a reasonable interpretation of the policy provision that interpretation will control and coverage should be the policy is there any reason why we should wait in this case to that rehearing is really focused on some discrete issues within the first argument and i don't believe that the second argument would be passed on in any event i may very well be wrong in all candor on that this court has also recognize when certifying the question of in in re deepwater horizon that the texas rule derives in part in two different places and not opinion the fifth circuit used the phrase in part or partially  say that texas rule derives in part from an equal burden of power the other part of this which really sets texas apart is the rule that it is the public policy as i've stated before to provide for insurance coverage and indeed this court interpret this very exact same policy for the executives stanford pendergraph host kurt and lope the appropriate rules of construction for this exact same policy and held in favor of the executives in that decision stating that because they advanced a reasonable alternative of what and in fact a termination would be the executives interpretation would prevail now however underwriters seeks to have this court employ differing canons of construction on the exact same policy for raffaello and pro arguing no basis for the distinction of why there should be different cams of interpretation for the exact same policy being the other officers involved and acts that were committed or alleged in the way before the bankruptcy or before the that's correct date they would have been at the same time frame it is not the same time frame but it would be the same canons of interpretation which is the point i'm making as far as which ambiguities should control and again from a legal perspective there is no rational reason to change texas canons of construction there's no reason from rationale perspective to adopt a sophisticated insured cannons of construction employed by taxes have been consistent for literally decades insurance companies this insurance no this insurance companies no insurance by any reasonable measure even a giant corporation which obviously raffaello are not professional insurers are far more sophisticated about insurance coverage matters than their insured and virtually every case from a practical perspective there is also an entire kara warms that would be opened by the adoption of a sophisticated insured exception as matters currently stand all parties know what the rules of policy interpretation are and how the policies will be construed they are applied uniformly and relatively  courts interpreting policies as a matter of law they are construed by their britain terms and coverage determinations made most typically at summary judgment often as in this case on stipulated facts under sophisticated rule exception harbor nearly every coverage case at least if it involved a corporate policy holder could devolve into a required fact intensive and case specific inquiry into the insureds relative sophistication uncertainty or drain and coverage litigation and you dish will burdens would increase indeed this case highlights some of the perils in adopting that sophisticated insured exception in the case of a receivership in dissolution two individuals who happen to be employees of the company are now faced with the prospect of trying to do discovery into whether their employer was sophisticated or not what was the negotiation of this policy who even would know this information underwriters doesn't have that problem they go to their own employees or their own syndicates and find out what inquiries would determine whether a party  sophisticated is it it's gross revenues was it its profits its number of employees in this case we don't have any evidence as the court recognized whether stanford was sophisticated or not and indeed subsequent cases in the criminal court cases show it was a house of cards what guidance if any do we get from the occasional off from the stage that have recognized exception in terms of what you're talking about the degree of discovery or inquiry that's necessary and have a courtship or show that it's across the board your honor whether there is there is all sorts of a litany of questions posed in those opinions the size of the corporation whether they had specific lawyers dedicated to insurance whether they had brokers hired whether they had risk managers whether they had revenues but there has been no list of factors soon as speak that one would consider in determining whether one was a sophisticated insurer notably also in those cases in each and every one of those cases the corporate policy holder as opposed to individual insurance additional insurance were at issue this case is obviously quite different in that regard as well and again those states presumed solely that the rule applied because of unequal burdening power in the negotiation of specific policy not to the public policy on time or you finish i would like to have you talk about the earth issue at least as i see it which is whether this provision is ambiguous exclusion jay thank you and i'll turn to that now it is absolutely not ambiguous in my view and that was that was also argued using alternative bases for firming here we heard opposing counsel get up here today and say that this was a change of control provision it was not respectively that was not the words used instead of what was used was the phrase that the policy did not cover any act at a time when another entity or individual holds a majority of voting rights in financial group company notably this provision does not reference control does not reference the appointment of a receiver despite another policy entered into in the same timeframe doing so and under ters and underwriters even had the talking on a majority of the voting rights i mean why are they have talking about control because your honor there is different ways to maintain control we are not arguing that the receiver did not have control of the company due to the judicial court order of receivership however he did not have and even the receivership order carved out the legally recognized privileges of the individual allen stanford allen stanford maintained his voting rights he may not have been able to exercise them he could not override the receiver's authority that he garnered solely through the court system that is the receiver is an arm of the court for these purposes but that does not mean and in fact texas law and florida law make clear that in order to be able to revote as opposed to holding something in possession the order had to make clear that that voting rights was being transferred and in this case it was not in fact it was the exact opposite because again the original order of receivership only included the legally recognized privileges of the entity also bearing in mind that the entity of stanford financial group company that we're here on today was not subject to the initial receivership order so the timeline is feb nineteenth the initial receivership order came down excluding rock and i legally recognized privileges of individuals as opposed to the entities subsequent to that were the wrongful acts during the last week of february two thousand and nine come march twelfth two thousand  i would acknowledge your honor the receivership order became much more clear for two reasons number one stanford financial group company was named under the receivership order as a defendant in that case and number two the court specifically found for the first time that the receiver was to take the fight business and financial control of allen stanford that was not until march twelfth two thousand nine that those things occurred had the receiver on february nineteenth through the initial receivership order had the right to vote allen stanford shares of stock in stanford financial group company despite it not being a named entity under that receivership order the march twelfth amended order is completely superfluous that was not necessary when one of the ex complained of here prior to march twelfth two thousand and nine february twenty fifth through february twenty ninth so it was not until march twelfth two thousand and nine that arguably the district court had granted the voting rights to allen stanford prior to that time the right to vote the stock remained in allen stanford despite the fact that the court controlled through the receiver the actual operations were not here arguing that had allen stanford showed up at a shareholders meeting and voted his stock that the receiver wouldn't have laughed but he had the right to do it yet there might have been jackson but he had the legal right to do that and that's why we believe that the that this provision is not ambiguous is also because of the factual timing in this case i think had the wrongful act occurred out of march twelfth two thousand and nine we would not be able to argue no ambiguity but because it did not we thought that lloyds had waived the issue of ambiguity quite specifically in its opening brief on appeal so that issue is not really before us brief and even in the reply reproof they specifically confined to the scope of the sophisticated insured exception obviously we believe that there are a variety of reasons that the court can affirm the district court's order to include the reasoning established in that order again we are here on a very narrow issue of an exclusion the district court did not say oh i really believe that the texas courts will adopt a sophisticated insured exception he was giving to lloyd's of london the benefit assuming that they're sophisticated there's no evidence here that they were is that it not he has to say for you to prevail that is definitely one way for us to prevail prevail i don't know if i have ranked the variety of ways to prevail  my head i think the easy in my view the easiest way to prevail is to recognize that the texas courts have never recognized the sophisticated insured exception at all their five or not even having to get to the encourage the haps a second easiest way is as your that control of the company was transferred but somehow allen stanford held in prison was kept as voting rights and even though it could nick exercise them i want is very important that is not what the trial court said judge god be a page five of the order that's being appealed from hell that his order of february seventeenth two thousand and nine for the voting rights it's right there in black and white on page five of this order so he and he's the one who entered the order and he is the one who signed that order and he is the one who interpreted it in that the order this be an appeal from he said that the trant that the rights were transferred now as to this argument that somehow we would really really be a real question as to whether a party was sophisticated or not there was no mystery whether stanford financial group was a sophisticated and sure as that doctrine has been applied and courts including and courts in this circuit the reply the evidence in the reply actually made the point that this is a negotiated policy the stanford who is represented by willis the largest broker in the world and that is enough in every jurisdiction that is considered the question of the sophisticated insured exception it is enough that the parties represented by a broker because the way it works is just with them wrote in his opinion and he lays i policy in the london market works in this kind of search situation a manager policy is that the broker comes to broker present's language and that is negotiated off the brokers language but in any event the only inadequacy the judge god  with the evidence so that he considered that was submitted on a reply was he said there was a specific evidence that exclusion j was negotiated he didn't doubt that there was evidence that this was a sophisticated insured what he said was assuming that they're insured because the evidence that he considered and he did not strike or exclude stated that they were represented by well this is a negotiated policy and that would in any event fall within the of the sophisticated church exception now the whole decision was argued to use a case that says this first circuit in that case somehow contra preference applies and that the exclusion must be construed strictly against the insurer even where there's you know a sophisticate in church will in fact issue was not the no one argued ambiguity in that previous decision and that language about the language being construed ambiguous language being construed against the insurer is actually consistent with the contra preference to my rule and it's in language talking about the interpretation of contracts that's often included and in opinions but no one argued that there was an ambiguity so it never came into play the court never said and this language is ambiguous and therefore we're constrained against the insurers indeed there's a careful consideration of the money laundering exclusion is what occurs and always remember for the proceedings you're saying the district court never said it was ambiguous the district court in the previous on the money laundering exclusion the hold case did not involve an argument about ambiguity it was an and it wasn't a new rule of can struction which was dispositive in this case which was the actual fulcrum upon which is order turned that is we don't decide here whether this provision is ambiguous we have not the ground that we have appealed on is that he stated  incorrect basis for his ruling and that it should not be in that it should be reversed there's no such limitation on the sophisticated and sure exception and it was outcome determined there you're not challenging the district court's determination him but throughout the circuit drone or i have to say i don't understand why is it that you're not arguing that this provision is not ambiguous i mean to be that's the easy out here well you're not arguing it so you may just have shot south and thought well i would just say this we had to we we have to select what we're going to appeal on and the judge below said that there were two reasonable interpretations but he announced a new rule of construction that he said was  positive and against against my clients against opponents and so the decision has to be made at that point do we appeal on ambiguity when he said there are two reasonable interpretations do we want to challenge  and i mean large you lucky to get in the evidence you did and so you shouldn't be challenging the abuse of discretion not letting any other evidence well i'm i consider myself fortunate many things but  why because what he said in his opinion was this is even if you're sophisticated there is no evidence that you negotiated this specific provision you've given me evidence that you're supposed to it sure was sophisticated but you haven't give me evidence that this particular provision was negotiated that is a new rule of law that we could have anticipated that no one could have anticipated because no one no texas court has ever adopted that limitation on the rule and so when we saw that we said well we need to bring to the court's attention that indeed this provision not just the entire policy which he conceded he says it was negotiated and the let the evidence before him they were represented by a broker that's all before him and that should be sufficient but he said no because there's a lack of evidence on one particular provision we said well your honor here it is here will was actually gave us the language of all the policy it was there's a contra prefer and i'm it should be against the drafter willis in this case that's the whole essence of the of the sophists going to church up i would say under that circumstance that's what the rules for now i never filed a motion for reconsideration i don't like to do that but in this case we saw that he had coined a new rule and that there was specific evidence that was applicable and refuted the application of this new rule that we've never seen before and that's what we came to is that your honor take a look at this this really is not the right out