Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca5-03-20592/USCOURTS-ca5-03-20592-0/pdf.json

Parties Involved:
Ace Property & Casualty Insurance Company
Appellee
Denise Dorismond
Appellant

Document Text:

United States Court of Appeals

Fifth Circuit

F I L E D

February 11, 2004

Charles R. Fulbruge III

Clerk

In the

United States Court of Appeals

for the Fifth Circuit

_______________

m 03-20592

_______________

ACE PROPERTY & CASUALTY INSURANCE COMPANY,

Plaintiff-Appellee,

VERSUS

DENISE DORISMOND,

Defendant-Appellant.

_________________________

Appeal from the United States District Court

for the Southern District of Texas

m H-02-CV-4871

_________________________

Before JONES, MAGILL,

*

 AND SMITH, 

Circuit Judges.

JERRY E. SMITH, Circuit Judge:**

* Circuit Judge of the United States Court of

Appeals for the Eighth Circuit, sitting by designation.

** Pursuant to 5TH CIR. R. 47.5, the court has

determined that this opinion should not be published and is not precedent except under the limited

circumstances set forth in 5TH CIR. R. 47.5.4.

 Case: 03-20592 Document: 0051185300 Page: 1 Date Filed: 02/11/2004
2

Denise Dorismond appeals a summary judgment in favor of ACE Property & Casualty

Insurance Company (“ACE”). Concluding

that ACE’s insured, Service Merchandise,

breached a duty to ACE by not attempting to

limit liabilityarising fromDorismond’s original

suit, we affirm. 

I.

In 1997, Dorismond was injured in a Service Merchandise (“Service”) retail store. In

1999, Service filed for bankruptcy in

Tennessee. Two months later, Dorismond

sued Service in Texas state court.

As a result of the bankruptcy proceedings,

Dorismond’s suit was automatically stayed.

Eventually, she agreed to seek only insurance

proceeds and asked that the stay be lifted. The

bankruptcy court allowed the suit to go

forward on August 5, 2002.

ACE providedan excessinsurance policyto

Service at the time of Dorismond’s injury,

covering personal injury damagesthat exceeded $250,000. Service notified ACE of Dorismond’s suit on August 2, 2002SSover five

years after the original injury and over three

years after the originalsuit was filed. Service

also informed ACE that it did not intend to

defend itself against Dorismond’s state claim.1

Neither Service nor ACE appeared at trial,

and the Texas court entered a default judgment in Dorismond’s favor for $421,516.39.

ACE sought a declaratory judgment, pursuant

to 28 U.S.C. § 2201(a), regarding the amount

it owed under its policywith Service. The district court entered summary judgment in favor

of ACE and held that ACE did not owe any

funds to Dorismond.

II.

We review a summary judgment de novo

and follow the same standard as did the district

court. See, e.g., Med. Care Am., Inc. v. Nat’l

Union Fire Ins. Co., 341 F.3d 415, 420 (5th

Cir. 2003). “We likewise review matters of

contract interpretation de novo.” HS Res.,

Inc., v. Wingate, 327 F.3d 432, 440 (5th Cir.

2003). “Summary judgment is appropriate only if the movant demonstrates that there are no

genuine issues of material fact and that it is

entitled to a judgment as a matter of law.” Id.

We may affirm for any reason supported by

the record, even if the district court did not

rely on such a reason.2 LLEH, Inc. v. Wichita

County, Tex., 289 F.3d 358, 364 (5th Cir.),

cert. denied, 537 U.S. 1045 (2002). Because

this diversity3 action concerns the

interpretation and application of an insurance

contract, Texas substantive law applies. Erie

R.R. v. Tompkins, 304 U.S. 64 (1938). 

1 Service’s senior legal counsel sent ACE a

letter that stated, “As Ms. Dorismond has waived

any right to receive a distribution from [Service, it]

does not intend to defend the personal injury case.”

2 The district court held that (1) Service

breached a notice provision of the insurance policy

by waiting three years to alert ACE of Dorismond’s suit; and (2) Service abrogated its duty to

ACE to limit liability arising from the suit.

Because the second ground constitutes ample reason to affirm, we do not address the notice issue or

ACE’s contention that Service and Dorismond

entered into a collusive agreement that violated

Texas public policy.

3 Because this case involves diverse litigants

and an amount in controversy greater than

$75,000, federal courts have jurisdiction under 28

U.S.C. § 1332(a)(1).

 Case: 03-20592 Document: 0051185300 Page: 2 Date Filed: 02/11/2004
3

III.

Service breached an implied duty to ACE

by taking no action to mitigate damages

arising from Dorismond’s suit. ACE owed no

duty to defend Service; Service had a duty to

take some action to limit damages; and Service

breached such a duty by not defending in

Dorismond’s suit.

First, ACE explicitly removed, through

language in the contract, any possible duty it

might have to defend Service. The policy

stated that it “[did] not apply to defense, investigation, settlement, or legal expenses, or prejudgment interest arising out of any

‘occurrence’ or offense.” Although ACE

retained the right “to assume from the insured

the defense and control of any claim or ‘suit,’”

such intervention was contingent on ACE’s

choice to participate in the defense. A court

may not compel an insurer to defend an

insured when the insurer disavows, in the

contract, any duty to provide a defense.4 

Dorismond argues, however, that ACE exercised its right to intervene and should bear

the costs arising from the default judgment.5

She points to an admission filed in Service’s

bankruptcy proceedings, wherein ACE stated

that it would assume the defense of any

outstanding personal injury claims. At the

time of ACE’s statement, however, the Texas

court already had entered summary judgment

in favor of Dorismond. Thus, with respect to

Dorismond, nothing remained for ACE to

defend.6 

Secondly, Service had a duty to take some

action to mitigate liability arising from Dorismond’s suit. Texas courts and federal courts

applying Texas law have made statements regarding the general duty of a insured to

minimize legal liability.7 Though these courts

have not provided the precise contours of a insured’s duty, the statements suggest that the

insured must take some kind of minimum action to limit liability to the insurer. 

Service’sfailure to act falls outside any reasonable expectations one may have of an insured. Rather than merely carrying out a bad

defense or have some misfortune strike its

4 See, e.g., St. Paul Guardian Ins. Co. v. Centrum GS, Ltd., 283 F.3d 709, 713 (5th Cir. 2002)

(“When the language of an insurance policy is not

ambiguous, it is our duty to give the words used

their plain meaning.”); Harville v. Twin City Fire

Ins. Co., 885 F.2d 276, 279 (5th Cir. 1989) (applying Texas law and holding that, even if a primary insurer who otherwise owed a duty to defend

the insured went into receivership, the excess

liability insurer did not owe such a duty “under the

terms of the contract”).

5Dorismond maintainsthat “ACE assumedthat

duty to defend in it’s [sic] admission in the

Adversary Complaint in bankruptcy and therefore,

(continued...)

5

(...continued)

it had a duty to defend by its own creation.”

6 Dorismond also asserts that a settlement

reached in the bankruptcy proceedings moots the

current case. We disagree.

7 See, e.g., Laster v. Am. Nat’l Fire Ins. Co.,

775 F. Supp. 985, 995 (N.D. Tex. 1991) (“[Insurer] is at the mercy of the insured to see that

proper steps are taken in [its] defense . . . . Implicit in an excess insurance contract of this kind is

an obligation on the part of the insured to take

reasonable steps to avoid legal liability . . . .”);

State Farm Fire &Cas. Co. v. Gandy, 925 S.W.2d

696, 714 (Tex. 1996) (“In no event, however, is a

judgment for plaintiff against defendant, rendered

without a fully adversarial trial, binding on defendant’s insurer . . . .”).

 Case: 03-20592 Document: 0051185300 Page: 3 Date Filed: 02/11/2004
4

case,8 Service consciously allowed the court to

enter a default judgment. The only way it

could have incurred more liability would have

involved an incompetent and belligerent attorney who spurred the judge to enter numerous

contempt citations. 

Service deliberately decided not to take any

action, as shown in its August 2, 2002, letter

to ACE. Supra note 1. Service’s inaction

provides an egregious example of avoiding “a

fully adversarial trial” or even some sort of aggressive settlement negotiation. Gandy, 925

S.W.2d at 714. Such inaction constitutes a

breach of Service’s duty to its insurer.

Because Service breached its duty to

mitigate damages, ACE has no obligation to

pay Dorismond’s default judgment. The

summary judgment is AFFIRMED.

8

In Laster, for example, the insured at least began with an attorney but then mishandled that

attorney’s withdrawal from the case. Laster, 775

F. Supp. at 996-98.

 Case: 03-20592 Document: 0051185300 Page: 4 Date Filed: 02/11/2004