Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca5-03-50335/USCOURTS-ca5-03-50335-0/pdf.json

Parties Involved:
Employers Insurance of Wausau
Appellant
Facility Insurance Corporation
Appellee

Document Text:

1

United States Court of Appeals

Fifth Circuit

F I L E D

January 14, 2004

Charles R. Fulbruge III

Clerk

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

__________________________

No. 03-50335

__________________________

FACILITY INSURANCE CORPORATION,

Plaintiff - Appellee,

versus

EMPLOYERS INSURANCE OF WAUSAU, A Mutual Company,

Defendant - Appellant.

___________________________________________________

Appeal from the United States District Court

For the Western District of Texas

___________________________________________________

Before SMITH, BARKSDALE, and CLEMENT, Circuit Judges.

EDITH BROWN CLEMENT, Circuit Judge:

This case is a breach of contract dispute in which Facility Insurance Company (“FIC”) seeks

to recover moniesthat it, and its predecessors, paid to Employers Insurance of Wausau (“Wausau”).

Wausau argues that FIC is not suing on an open account, so the statute of limitations bars FIC’s

contract claim. In the alternative, Wausau argues that the disputed contract provision unambiguously

establishes that Wausau complied with the contract. We reject both arguments, and accordingly

affirm the district court’s ruling.

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FACTS AND PROCEEDINGS

FIC is the successor in interest to the Texas Workers Compensation Assigned Risk Pool

(“Pool”). In 1953, the Texas Legislature created the Pool as an unincorporated association of

workers’ compensation insurers. The Pool acted as the insurer of last resort for Texas employers

who could not obtain workers’ compensation insurance in the private market. Texas law required

all workers’ compensation insurance carriers to participate in the Pool in proportion to their

individual level of Texas business. 

The Pool contracted withseveralofitsmemberinsurance companies—includingWausau—to

provide a variety of services for the Pool. These servicing companies issued policies, collected

premiums, adjusted claims, and improved the insureds’ workplace safety through accident prevention

measures. The accident prevention measures were also referred to as “loss control services.” 

In 1989, the State Board of Insurance (the “Board”) amended the Pool’s contract with its

servicing companies. Specifically, the Board amended Paragraph X of the Pool’s Rules and

Regulations (“Rule X”), entitled “Administration of the Fund.” Rule X set forth that the servicing

companies would receive 10.0 percent of the premiums as compensation for their services to the

Pool. The 1989 amendment to Rule X added a provision stating that one-fifth of the 10.0 percent

compensation should be designated for loss controlservices (i.e., 2.0 percent of the total premiums).

Rule X stated that “[t]he shares of premium to which the Servicing Company shall be entitled”

included a “Loss Control Services Factor” equivalent to 2.0 percent. In the preamble to this

amendment (“Preamble”), the Board stated the following: 

The amended rules and regulation incorporates changes made in Board Order 51959,

dated December 22, 1987, a 10% reduction in servicing carrier feesto be effective on

and after 12:01 a.m., April 1, 1990, and a requirement that at least two points of the

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 The Facility stopped writing policies because at that time the Texas Legislature created a

new insurer of last resort, the Texas Workers’ Compensation Insurance Fund (“Fund”). The

Fund did not assume the Facility’s assets or liabilities.

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servicing carrier share of premium be used to provide accident prevention services

effective April 1, 1990. 

In October 1992, the Board again amended Rule X to reduce the “Loss Control Services Factor”

from 2.0 percent to 1.4 percent. 

During 1990, representativesfrom the Pool, the Board, and Wausau expressed in writing that

each one understood that the 2.0 percent loss controlservices factor meant that servicing companies

must devote 2.0 percent ofthe premiumto loss control activities. Between April 1990 and November

2001, Wausau received a total of $7,909,004 in loss control services fees, but only expended

$5,382,894 on actual accident prevention measures. Wausau treated the difference between the loss

controlservices factor that Rule X specified, and the amount that Wausau actually spent on accident

prevention services—$2,526,110—as general revenue.

Effective January 1, 1991, the Texas Legislature terminated the Pool and replaced it with a

new insurer of last resort, the Texas Workers Compensation Insurance Facility (“Facility”). The

Facility assumed all of the assets and liabilities ofthe Pool, including itsservicing company contracts,

and continued operating in the same manner. On December 31, 1993, the Facility stopped writing

policies, but did continue to service the workers’ compensation claims that had accrued under the

policies it had written prior to that date.1

In 1997, the Texas Legislature authorized the unincorporated association of insurers which

constituted the Facility to sell the assets and liabilities of the Facility to a private insurance company,

the FacilityInsurance Corporation (“FIC”). The former members of the Facility became shareholders

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 A “bordereau” (pl. bordereaux) is defined as “a detailed note or memorandum of

account.” MERRIAM-WEBSTER’S COLLEGIATE DICTIONARY 133 (10th ed. 1998). 

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of FIC’s parent corporation. By statute, FIC was “to be considered a continuation of the [F]acility”

with the right to “enforce all contract and statutory rights of the [F]acility under any servicing

company arrangements.” Texas Acts (1997), 75th Leg., ch. 594, § 1.06(b). After the sale of the

Facility, FIC acted as the insurer on the existing policies, and Wausau continued to service those

policies pursuant to the servicing contract that it originally entered into with the Pool.

The Pool, the Facility, and later FIC, paid the servicing companies fees by establishing a

running account of mutual credits and debits. The transactions were tracked by a “bordereau”2and

operated asfollows: each quarter a servicing company would file a report (a bordereau) with the Pool

(or its successor) listing thousands of premium transactions and claim payments that the servicing

company handled during the preceding quarter. These amounts were tallied up on the bordereau to

arrive at a net amount that the Pool owed to the servicing company as its servicing fee. Although the

bordereaux never specified the percentage of the fee applicable towardsloss controlservices, the fee

did in fact include an amount for loss control services under the terms of Rule X. 

The servicing fees that the Pool(and itssuccessors) paid to the servicing companies were not

final. The servicing companies would make adjustments to claims that had already been processed.

These claimadjustments would affect the premiumamount collected, and inturn the premiumamount

affected the past servicing fees charged. Consequently, the Pool and the servicing companies revised

and corrected past bordereau entries on subsequent bordereaux. These adjustments accordingly

affected the amount of fees for loss control services credited to the servicing companies. 

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In 1994, the last Facility policyexpired. Yet Wausau continued to make adjustments, collect

corresponding premiums from insureds, and enter corrections on subsequent premium bordereaux.

In October 1997, Wausau processed the last premium transaction on the open account. The last

adjustment to the premium and servicing fee portion of the bordereaux occurred in November 1997.

On November 5, 2001, FIC closed the premium and servicing fee portion of the bordereau account.

In November 2001, FIC sued Wausau inTexasstate court to recover the loss controlservices

fees that Wausau did not expend in loss controlservices. Wausau timely removed the case to federal

court based on diversity jurisdiction. Texas law governs the dispute.

On cross motions for summary judgment, the district court concluded that (1) the statute of

limitations does not bar FIC’s claim because it is a suit on an open account, and (2) Rule X required

Wausau to spend the full amount of loss control services fees on loss control services. The court

entered judgment against Wausau for the amount Wausau collected in loss control services fees but

did not spend on loss controlservices, $2,526,110. These two dispositive issues are now before this

Court. For the reasons set forth below, we affirm the district court’s judgment.

STANDARD OF REVIEW

The standard of review for a district court’s grant ofsummary judgment is de novo. Gowesky

v. Singing River Hosp. Sys., 321 F.3d 503, 507 (5th Cir. 2003). Summary judgment is only

appropriate if the evidence shows that there is no genuine issue as to any material fact, and that the

moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Gowesky, 321 F.3d

at 507.

DISCUSSION

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 In addition to Article 6133, the legislative act that created the Facility specifically

provided that the Facility had “the legal rights of a private person in this state and the power to

sue in its own name.” TEX. INS. CODE ANN. art. 5.76-2 § 2.05(m), repealed by Acts 1997, 75th

Leg., ch. 594, § 3.01(1).

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I. Standing

As a threshold matter, Wausau argues that FIC lacks standing to sue Wausau because even

if Wausau breached the servicing contract, FIC has not suffered any breach of contract damages.

Wausau bases this argument on the fact that the predecessorsto FIC were merely “conduits” for the

member insurance companies, who were the actual insurers of last resort. Wausau argues that only

those member companies have standing to sue for any contract breach.

Wausau’s argument is without merit. Texas law provides an unincorporated association the

right to sue and be sued in its own name without joining all of its members. TEX. CIV. STAT. CODE

ANN. art. 6133 (Vernon 2003).3 When an association does so, it asserts the collective rights of its

members. Accordingly, the Facility could seek redress for an injury to its members. Just as the

Facility could seek redress for an injury to its members when an insured fails to pay a premium, see,

e.g., Sunbeam Environmental Services Inc. v. TWCIF, 71 S.W.3d 846 (Tex. App.—Austin 2002, no

writ), so also could the Facility seek redress when the servicing companies did not perform their

duties in conformity with Rule X. The Facility thus had standing. When FIC bought the assets of

the Facility, FIC bought the rights to pursue the Facility’s causes of action. FIC has standing to sue

Wausau.

II. Statute of Limitations

An important issue before this Court is whether the statute of limitations has expired for FIC

to bring suit against Wausau. Under Texas law, a party must bring suit for breach of contract within

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four years after the cause of action accrues. TEX. CIV. PRAC. & REM. CODE §§ 16.004(a), 16.051.

Normally, a cause of action for breach of contract accrues when the breach occurs. Stine v. Stewart,

80 S.W.3d 586, 592 (Tex. 2002). If the instant case were a normal breach of contract situation,

FIC’s suit would be barred as the last alleged breach occurred in October 1997, more than four years

prior to the November 2001 suit.

However, Texas law provides a special limitations period for parties suing on an open

account. TEX. CIV. PRAC. & REM. CODE § 16.004(c). An open account exists where parties have

conducted past and current dealings in a financial account; it remains open

as long as the parties expect to conduct future dealings in the account. Livingston Ford Mercury,

Inc. v. Haley, 997 S.W.2d 425, 427 (Tex. App.—Beaumont 1999, no writ). The Texas Civil Practice

and Remedies Code § 16.004(c) (“Section 16.004(c)”) states:

(c) A person . . . must bring an action on an open or stated account . . . not later than

four years after the day that the cause of action accrues. For purposes of this

subsection, the cause of action accrues on the day that the dealings in which the

parties were interested together cease.

(emphasis added). Thus, the limitations period for a suit concerning a transaction on an open

account does not begin running until the account is closed. Id.

Given the extended limitations period on open account disputes, an essential question in the

instant case is whether FIC sues Wausau on an open account. A suit on an open account is—among

other things—one which arises out of the general course of dealing between a debtor and creditor.

Livingston Ford, 997 S.W.2d at 427 (citing McCamant v. Batsell, 59 Tex. 363, 367-69 (Tex.

1883)). Such a suit need not be restricted to suits involving physical items; Section 16.004(c)

includes suits involving performance of services. Livingston Ford, 997 S.W.2d at 429 (applying

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 We decline to address Wausau’s argument that FIC’s pleadings failed to allege facts

sufficient to support a legal theory of an open account. At oral argument, Wausau conceded that

it failed to raise the prejudicial effect of this alleged insufficiency at the summary judgment

proceedings. Wausau may not raise this argument for the first time on appeal.

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Section 16.004(c) where the parties had a running account for the purpose of accounting for one

party’s performance of services). 

Here, FIC sues Wausau over Wausau’s failure to spend all of the monies that the Pool (and

its successors) provided to Wausau for the specific purpose of loss controlservices. The Pool (and

its successors) transferred these monies to Wausau through the bordereaux, which is an open

account that existed between Wausau and the Pool. FIC argues that because Wausau’s obligation

to spend the fees earmarked for loss controlservices was contingent on the bordereau open account,

the suit over Wausau’s failure to spend those fees is a suit on the open account. Because that

account between Wausau and FIC did not close until November 2001, FIC contends that under

Section 16.004(c), FIC brought suit against Wausau well within the limitations period.

Wausau does not dispute that the bordereau system constitutes an open account between it

and FIC. Wausau disputes, however, that FIC is suing on that account.4 Wausau offers two general

arguments for this conclusion: (1) the bordereaux did not itemize the unspent fees for loss control

services, and (2) suits over open accounts can only be over a party’sfailure to pay for performance.

Neither argument is persuasive.

A. Itemization on an open account

With respect to Wausau’s first argument, Wausau concludes that FIC is not suing on the

account because the bordereaux did not itemize either the loss control services fees or the amount

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 The only legal authority that Wausau relies on for the proposition that a transaction must

be explicitly listed on an open account to properly sue on that account is a 1955 California state

appellate decision, Burchell v. Rohnert, 283 P.2d 333 (Cal. App. 1955). That case is inapposite

to the instant case. There, the court held that an employee was not suing on a ledger account for

a cash bonus allegedly due him from his employer. Id. The court reasoned that the cash bonus

could not be tied to any entry on that ledger account. Id. at 336. The disputed bonus did not

stem from any transaction within the account. Id. Here, however, the 2.0 percent loss control

services fee can be tied to the bordereau entry for premium percentages that the Pool (and its

successors) paid to Wausau.

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of those fees which Wausau failed to spend.5 From the fact that FIC is not suing for any specific

itemized entry listed “on” the account, Wausau infers that FIC must not be suing “on” the open

account.

This argument is untenable. Wausau equivocates the meaning of “on” in Section 16.004(c),

“[a] person . . . must bring an action on an open account,” with the meaning of “on” in the

statement, “FIC does not have an itemized entry listed on the open account.” In the former statutory

phrase, “on” denotes suing over an item included in an account transaction; in the latter statement

of fact, “on” denotes the actual presence of an itemized listing. The meaning of “on” in these two

contexts varies significantly. Consequently, the statutory meaning of “on” does not necessitate the

factual condition that Wausau asserts. The plain language of the statute does not suggest that an

item containedwithin an account must be itemized on the account in order to bring suit “on an open

account.”

Wausau further contends that the absence of an itemized entry means that the bordereaux

never accounted for the fees. Because the bordereaux apparently never accounted for these

expenditures, Wausau infers that the amount credited for loss controlservices did not contribute to

bordereaux balances. And because a suit over an open account must affect the final balance, this

suit, Wausau concludes, must not be over the open account. 

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Such reasoning is specious. Wausau concedes that the credits on the bordereaux included

payments for loss control services. Notwithstanding the absence of a specific listing for those

payments, the credits did include amounts for loss control services. Therefore, the loss control

services payments that FIC disputes did contribute to the open account final balance.

Wausau also claims that the failure to itemize Wausau’s unspent portion of the fees paid for

loss controlservices implies that the suit is not on an open account. In support of this proposition,

Wausau relies exclusively on Texas Rule of Civil Procedure 185 which states: “When any action or

defense is founded upon an open account . . . on which a systematic record has been kept . . . .”

From this phrase, Wausau argues that to be an actionable open account, the account must have a

systematic record, and the alleged amount owed must be calculable from that account. Because the

unspent portion of the loss control services fees are not calculable from any amount on the

bordereaux, Wausau contends that the action cannot be “on” an open account.

Wausau’s inference is completely unsupported. First, the cited statute does not suggest the

conclusion that the disputed amount in a suit on an open account must be calculable from that

account. The fact that a systematic record must be kept does not imply that the disputed amount

must be calculable from that record. Second, Rule 185 is an optional pleading mechanism that

allows a plaintiff to prove the prima facia validity of particular kinds of claims “for which a

systematic record has been kept.” TEX. R. CIV. P. 185. An open account is merely one of the

categories of such a claim, but a party suing on an open account need not use this pleading

mechanism. See, e.g., Fuqua v. Moody & Clary Co., 462 S.W.2d 321 (Tex. Civ. App.—Houston

[14th Dist.] 1970, no writ) (suing on an unsworn open account). Rule 185, on which Wausau relies,

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 In conjunction with Wausau’s statement that an open account must have a final balance,

Wausau also argues that this suit is not over the final balance because the account balance has

been zero for nearly four years, including the time at which FIC closed the account. The

circularity of this argument merits little discussion. A statute of limitations permits a party to

dispute a final balance within a set time period, even after that party has apparently accepted the

balance. The fact that FIC has “accepted” the zero balance for the past four years is irrelevant in

determining whether the open account statute of limitations should apply here.

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isirrelevant in determiningthe validityof an open account claimunder Section 16.004(c). Wausau’s

reliance upon Rule 185 is therefore unfounded. 

The absence of an itemized reference to the payment for loss controlservices does not imply

that FIC cannot bring suit on the open account. Wausau’s first argument thus fails. 

B. Suit over the failure to perform services

Wausau’s second argument is that a suit on an open account can only be over the failure to

pay for performance, which non-payment isreflected in the final balance. Wausau attempts to reach

this conclusion by citing to cases where a party has sued on an open account for the failure to pay

for performance, see, e.g., Bernsen v. Live Oak Ins. Agency, Inc., 52 S.W.3d 306, 309 (Tex.

App.—Corpus Christi 2001, no writ); Kersh & Sons, Inc. v. Texas Employers Ins. Ass’n, 675

S.W.2d 775, 776-77 (Tex. App.—Beaumont 1984, writ ref’d n.r.e.), and to cases holding that an

open account must have a final balance, see, e.g., Baggett Transp. Co. v. United States, 319 F.2d

864, 870 (Ct. Cl. 1963); Seubert Excavators, Inc. v. Eucon Corp., 874 P.2d 555, 561-62 (Idaho Ct.

App. 1993), rev’d on other grounds, 871 P.2d 826 (Idaho 1994).6 From these two bodies of

caselaw, Wausau argues that a suit on an open account can only be over non-payment of a

performed obligation. If this argument were true, then a suit on an open account could not be over

the non-performance of an item already paid for. According to this reasoning, FIC’s suit would not

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qualify as a suit on an open account because FIC is suing over Wausau’s non-performance of its

apparent obligation to spend the full amount of loss control services fees. 

Wausau’s conclusion is wrong. None of the cases on which Wausau relies states that a suit

on an open account must be for the non-payment of an obligation already performed. Moreover,

upon review of caselaw outside the Fifth Circuit, a suit over a party’s failure to perform seems

completely permissible on an open account. In Firestone Tire & Rubber Co. v. Pearson, the Tenth

Circuit held that a party properly brought suit on an open account where the party sued for damages

caused by the other party’s non-performance of an obligation under an open account agreement.

769 F.2d 1471, 1484 (10th Cir. 1985). In Pearson, a retailer alleged that its wholesaler had

breached an agreement to exclusively supply its tires only to the retailer. Id. Although the

prohibited sales were not reflected in the account balance, the Tenth Circuit applied the Utah statute

of limitations for suits brought on an open account. Id. Consistent with Pearson, Wausau is

incorrect in asserting that to sue on an open account, a party may only sue over payment due on the

account balance. Suing over non-performance appears to be “an action on an open account” under

Section 16.004(c).

We hold that for purposes of Section 16.004(c), a suit on an open account can be over an

item that is not listed on the account statement yet affects the account balance. We further hold that

such a suit can be over the failure to perform an obligation for which payment has been made on that

account. Consequently, the Section 16.004(c) statute of limitations period applies in the instant

case.

III. Breach of Contract

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The underlying contract dispute centers around the meaning of Rule X. Texas law provides

that unless a statute is ambiguous, courts must follow the meaning of a statute’s clear language.

H.G. Sledge, Inc. v. Prospective Inv. &Trading Co., 36 S.W.3d 597, 603 (Tex. App.—Austin 2000,

pet. denied); Rodriguez v. Service LloydsIns. Co., 997 S.W.2d 248, 254 (Tex. 1999). Courts must

also construe administrative rules in the same manner as statutes. H.G. Sledge, 36 S.W.3d at 603;

Rodriguez, 997 S.W.2d at 254. Finally, courts should strive to give effect to an administrative

agency’s intent. H.G. Sledge, 36 S.W.3d at 603. 

Wausau argues that Rule X is an unambiguous rule. Rule X states that the servicing

company is “entitled” to 2.0 percent of the servicing fees, but does not state that the servicing

company is required to spend that full amount on loss control services. From this statement,

Wausau infers that the 2.0 percent factor represents the portion of the overall servicing fee that

compensates Wausau for providing the services Wausau had contracted to provide. 

This interpretation is wanting. Wausau’s interpretation of Rule X contradicts the plain

meaning of the Preamble to Rule X. The Texas Code Construction Act states that whether or not

a statute is ambiguous on its face, a court may consider the statute’s preamble in construing the

statute’s meaning. TEX. GOV’T CODE § 311.023(7); accord Helena Chemical Co. v. Wilkins, 47

S.W.2d 486, 493 (Tex. 2001). The Preamble specifically states that the 1989 amendment includes

“a requirement that at least two points of the servicing carrier share of premium be used to provide

accident prevention services.” 

Thisstatement unequivocallyexpressesthat Rule X requires a servicing company to allocate

at least 2.0 percent of the overall servicing fees to loss control services. The Board clearly and

unambiguously intended for the 1989 amendment to require servicing companies to use 2.0 percent

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 The Texas Code Construction Act also permits courts to construe statutes according to

the administrative construction of the statute. Tex. Gov’t Code § 311.023. With respect to the

1989 amendment to Rule X, the Texas Register states: “The amended rule will reduce the

servicing carrier fees by 10% to be effective April 1, 1990. The rule to allocate a minimum of two

points of that fee to accident prevention services will be effective April 1, 1990.” 15 Tex. Reg.

127, 1990 WL 294552. This administrative construction is consistent with construing Rule X so

that it allocates the full 2.0 percent of the servicing fee towards loss control services.

14

oftheir premiumsfor accident prevention services. Thus, the meaning of Rule X is that Wausau was

obligated to spend the full amount of the loss control factor on loss control services. Reading the

Preamble in conjunction with the language of the rule leaves no room for a contrary interpretation

of the rule.7

Moreover, the language of Rule X, independent of the Preamble, is anything but clear. Rule

X does not unambiguously establishthat Wausau is not obligated to spend the full 2.0 percent. Rule

X could also be read to mean that Wausau is “entitled” to the 2.0 percent because Wausau is

responsible to spend the entire 2.0 percent. Consequently, Wausau’s claim that the Preamble

contradicts the plain meaning of the rule is unfounded. Only by reading the Preamble does the

Board’s intent of Rule X become clear. 

Despite the Board’s evident intention of Rule X, Wausau argues that if this Court construed

Rule X as being ambiguous on its face, circumstances surrounding the rule’s promulgation

necessitate Wausau’s interpretation. First, in 1992 the Board reduced the loss control services fee

to 1.4 percent from 2.0 percent. This reduction, Wausau contends, implies that the Board did not

expect Wausau to spend the full amount. Second, in April 1992 the board failed to adopt an

amendment that would have required the servicing companies to refund any excess amount of the

loss control services fees not spent on servicing the insured. Third, in the past, FIC expressly

disavowed that Wausau had a contractual obligation to refund any loss control services fees to the

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Facility. Fourth, as part of its 1997 privatization transaction, the Facility expressed that the servicing

companies were not in material default of any term in the servicing agreements. Fifth, Wausau

continued to collect servicing fees even after the last policyexpired in 1994. Wausau contends that

thisfact provesthat the Facility could not have expected Wausau to spend the full amount ofthe loss

control services factor on loss control services because no insureds existed at that point. 

These circumstantial arguments are unavailing. The cited circumstances fail to conclusively

establish that Rule X did not obligate Wausau to spend the full amount of the loss control services

fees. First, even though the Board reduced the servicing fee to 1.4 percent, the Board could have

done so because the servicing companies were failing to spend the required amount. Second, the

Board’sfailure to adopt the proposed amendment does not imply that Rule X did not already require

the substantive content ofthat proposal. Indeed, if Rule X already required the servicing companies

to spend the full amount, the amendment was arguably unnecessary, and for that reason, the Board

should not have adopted it. Third, FIC’s express disavowal to refund excess fees could have

reflected FIC’s intent to apply those excess fees to credits that FIC owed to Wausau on the open

account—not an intent for Wausau to keep those excess fees. Fourth, the Facility representative

who stated that the servicing companies were not in material default later stated that he in no way

intended to imply that the servicing companies were in compliance with every aspect of their

contracts. 

Fifth, while the last insured’s policy expired in 1994, premium adjustments continued after

that point. Wausau included the loss control services fee within the premium adjustments on the

bordereaux that it submitted to the Facility after 1994. Although the Facility paid the adjusted

amount, it is possible that the Facility was unaware that the adjustment included the percent for loss

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control services because the bordereau did not itemize that amount. In any event, the fact that

Wausau collected more than it should have after the policies expired does not imply that FIC is

barred from claiming that amount.

As a final point, other extrinsic evidence strongly suggests that Rule X obligated Wausau to

spend the full 2.0 percent on loss controlservices. When Rule X became effective, a representative

from the Board, the General Manager of the Pool, and a vice president of Wausau communicated

through letters and a memorandum that Rule X required the servicing companies to spend the full

2.0 percent on actual loss control services. This mutual understanding indicates that Rule X did

indeed obligate Wausau to spend the entire amount of the loss control services fees on those

services. 

In view of the Preamble to Rule X, it is clear that the Board intended for Rule X to obligate

the servicing companies to spend the full amount of the loss control services fees on loss control

services. Rule X itself does not contradict such a construction, nor do the circumstances

surrounding the contract.

CONCLUSION

We thus hold that FIC properly sued Wausau on an open account under Section 16.004(c),

and accordingly, FIC has brought suit within the applicable statute of limitations period.

Furthermore, we hold that Rule X obligated Wausau to spend the full 2.0 percent (and later 1.4

percent) on loss control services. Wausau now faces liability to FIC for its failure to comply with

Rule X. We AFFIRM the district court’s judgment.

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