IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 00-20120

 

ALMA DeLEON, Individually and as Administrator 

of The Estate of Melissa Morales,

Plaintiff-Appellant,

versus

LLOYD'S LONDON, CERTAIN UNDERWRITERS; ET AL,

Defendants,

LLOYD'S LONDON, CERTAIN UNDERWRITERS; COLIN M. OWEN,

Defendants-Appellees.

 

Appeals from the United States District Court

for the Southern District of Texas 

 

July 18, 2001

Before REYNALDO G. GARZA, HIGGINBOTHAM, and SMITH, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

A corporation elected to self insure under Texas workers’

compensation laws. As part of its opt-out from the protections of

workers’ compensation, the company purchased from Lloyd’s, London

insurance upon the life of its employees, payable to itself. An

employee was fatally injured in the course of work, and her

representative obtained a substantial sum in settlement of a claim

that the death was caused by the company’s negligence. Lloyd’s paid

the policy proceeds to the corporation. The representative of the
1 We will refer to both Ronald H. Seaborg and his company,

International Accident Facilities, Inc., as "Seaborg." 

2

deceased employee later learned of the life insurance and filed

this suit against Lloyd’s, seeking the policy proceeds.

This is a diversity case and we apply the Texas law of

insurable interest, ultimately affirming summary judgment in favor

of Lloyd’s, London. We conclude that under Texas law Lloyd's was

obligated to pay the proceeds of the policy and discharged its

obligation by paying the proceeds to the named beneficiary. We also

conclude that the named beneficiary, lacking an insurable interest,

held the proceeds in trust for the benefit of the estate of the

insured employees.

I

In 1991, National Convenience Stores, Inc. purchased an

accidental death insurance policy from Certain Underwriters at

Lloyd's, London through its broker, Ronald H. Seaborg and his

company, International Accident Facilities, Inc.1 The policy

provided benefits of $250,000 for each insured person, defined as

the officers and employees of NCS. The proceeds were payable to NCS

upon the accidental death of any Texas NCS employee that occurred

within the scope and course of employment.

Melissa Morales worked for NCS as a clerk in one of its Stopn-Go convenience stores. On April 19, 1992, a robber stabbed
2 999 S.W.2d 12 (Tex. App. - Houston 1998).

3

Morales to death at her store. On July 7, 1992, Lloyd's paid the

policy proceeds to NCS.

Alma DeLeon, the administrator of Morales's estate, filed suit

against NCS in Texas state court. Within six months NCS settled

with DeLeon, paying $1,050,000.00 to the estate in exchange for a

comprehensive release from liability. NCS did not disclose the

existence of its policy with Lloyd's. Only after settling with NCS

did DeLeon learn of NCS's policy with Lloyd's.

On September 10, 1996, DeLeon filed suit in the United States

District Court for the Southern District of Texas against Lloyd's

and Seaborg, seeking to recover the policy benefits. Jurisdiction

rested on diversity of citizenship. Seaborg and Lloyd's each filed

a third-party complaint, claiming over against NCS. The court

stayed the action pending resolution of Tamez v. Certain

Underwriters at Lloyd's, London,

2 a case in state court involving

virtually the same defendants and similar facts. When the Tamez

case was decided, the district court lifted the stay.

After various amended complaints, cross-claims, and counterclaims, DeLeon decided not to pursue an action against NCS.

Lloyd's, in turn, decided not to pursue its cross-claim against

NCS. In short, Lloyd's became the only defendant. The district

court granted summary judgment in favor of Lloyd's, and DeLeon

appeals that judgment.
3 DeLeon does not appeal the grant of summary judgment on her

conversion claim.

4 See Fed. R. Civ. P. 56(c); Geoscan, Inc. v. Geotrace Techs.,

Inc., 226 F.3d 387, 390 (5th Cir. 2000).

5 See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp.,

475 U.S. 574, 585-87 (1986).

6 See McGruder v. Will, 204 F.3d 220, 222 (5th Cir. 2000).

7 See 28 U.S.C. § 1738 (2001); Gammage v. West Jasper Sch. Bd.

of Educ., 179 F.3d 952, 954 (5th Cir. 1999).

4

II

DeLeon contends that the district court erred in granting

summary judgment on her breach of contract claim.3 We review a

district court's grant of summary judgment de novo. Summary

judgment is appropriate where no genuine issue of material fact

exists and the moving party is entitled to judgment as a matter of

law.4 The Court must accept the evidence of the nonmoving party and

draw all reasonable inferences in favor of that party.5 In this

diversity action, we review de novo the district court's

interpretation of state law.6 

III

DeLeon first contends that Lloyd's is collaterally estopped

from arguing that NCS was the lawful beneficiary of the policy. She

argues that Tamez is binding upon this Court. A federal court must

accord a state-court judgment the preclusive effect it would enjoy

under the law of the state in which the judgment was rendered.7
8 In re Miller, 156 F.3d 598, 602 (5th Cir. 1998).

9 See Logan v. McDaniel, 21 S.W.3d 683, 687-88 (Tex. App. -

Austin 2000).

10 Tamez, 999 S.W.2d at 13-14.

5

Under Texas law, the party seeking to invoke collateral estoppel

must establish that (1) the facts sought to be tried in the second

action were fully and fairly tried in the earlier suit; (2)those

facts were essential to the judgment in the first suit; and (3) the

parties were cast as adversaries in the first suit.8 Although

DeLeon was not a party in Tamez, she may still assert offensive,

non-mutual collateral estoppel. Texas recognizes this variant of

collateral estoppel, provided that the party against whom

collateral estoppel is now asserted was either a party or in

privity with a party in the first suit.9 Lloyd's was a party in the

Tamez case.

In Tamez, the families of two deceased NCS employees sued

Lloyd's, NCS, and Seaborg for benefits from the same Lloyd's

coverage at issue here. The trial court denied the plaintiffs'

motion for partial summary judgment and granted the defendants'

motions for summary judgment.10 The Texas Court of Appeals affirmed

in part and reversed in part, finding that NCS lacked an insurable

interest in the lives of its employees under Texas common law and

that NCS was not a proper beneficiary under Article 3.51-6 § 3 of
11 Id. at 19, 20-21.

12 See id. at 20-22.

13 See Van Dyke v. Boswell, O'Toole, Davis & Pickering, 697

S.W.2d 381, 384-85 (Tex. 1985); 18 James Wm. Moore et al., Moore's

Federal Practice § 132.03[4][c] (3d ed. 1998).

14 See Tex. Ins. Code Ann. art. 3.51-6 § 3.

15 See Tamez, 999 S.W.2d at 19-21.

6

the Texas Insurance Code.11 These findings were essential to its

partial reversal of the summary judgment order,12 and, according to

the record, they were fully and fairly litigated. 

The court also implicitly found that the estates of the

deceased employees were proper beneficiaries under Article 3.51-6

§ 3. Issues decided implicitly in a prior judgment have collateral

estoppel effect if they were essential to that judgment.13 The

provision of the Texas Insurance Code at issue in Tamez and here

requires payment to the person insured, his designated

beneficiaries, or his estate.14 The Tamez court found that NCS

employees were the persons insured under the policy, that the

deceased employees could not designate beneficiaries, and that NCS

was not the proper beneficiary of the policy.15 Implicit in the

court's opinion, therefore, was the conclusion that the estates of

the deceased employees were proper beneficiaries, a finding

necessary to the judgment of the Tamez court.

Lloyd's argues that Tamez lacks preclusive bite for two

reasons. First, that the Tamez decision was not a final judgment.
16 Van Dyke, 697 S.W.2d at 385 (quoting Restatement (Second)

of Judgments § 13, cmt. g (1982)).

17 Id. (quoting Restatement (Second) of Judgments § 13, cmt.

g (1982)).

18 See Partee v. Phelps, 840 S.W.2d 512 (Tex. App. - Dallas

1992).

19 See Restatement (Second) of Judgments § 13, cmt. a (1982).

7

Second, that DeLeon's "wait and see" attitude ought to bar resort

to this equitable doctrine. Both arguments lack merit.

The test for finality here is "whether the conclusion in

question is procedurally definite."16 Courts are to consider whether

"the parties were fully heard, [whether] the court supported its

decision with a reasoned opinion [and whether] the decision was

subject to appeal or was in fact reviewed on appeal."17

The two holdings urged to be transportable are that (1) NCS

lacked an insurable interest in the lives of its employees, and (2)

that the estates of the deceased employees are proper beneficiaries

under the policy. There is no indication that the parties in Tamez

failed to receive a full hearing on these issues. The court's

analysis of the merits of these questions was also thorough and

reasoned. Its judgment has the same conclusive effect on the

parties as the final judgment of a lower court.18 The disputed

findings were undoubtedly the "last word" of the Tamez court on

these matters.19 Lloyd's first argument fails.
20 See Parkland Hosiery Co. v. Shore, 439 U.S. 322, 330 (1979).

21 See Tamez, 999 S.W.2d at 21.

22 Id.

8

Lloyd's second argument is that courts are reluctant to apply

offensive collateral estoppel where the plaintiff adopts a "wait

and see" attitude, in the hope that the first action by another

plaintiff will result in a favorable judgment.20 The difficulty here

is that the theory has no factual legs. Lloyd's points to no

specific dilatory tactics on the part of DeLeon. Indeed, the

district court stayed this case pending resolution of Tamez.

We conclude that Lloyd's is collaterally estopped from trying

again whether: (1) NCS has an insurable interest in the lives of

its employees, and (2) the estates of the deceased employees of NCS

are proper beneficiaries of the policy. As DeLeon is a deceased

employee of NCS, she is a proper beneficiary of the policy. 

DeLeon makes one additional argument based on Tamez. She notes

that the Tamez court found in favor of the plaintiffs on their

breach of contract claim, that Lloyd's was obligated to pay them

directly, in reversing the trial court's summary judgment in favor

of Lloyd's.21 We disagree. As we read it, this essential holding

was only a repudiation of the trial court's reasoning. The trial

court apparently had adopted Lloyd's argument that plaintiffs

stated no claim for breach of contract because "the policy was

lawful and NCS was the proper beneficiary."22 A Texas court of
23 See Maley v. 7111 Southwest Freeway, Inc., 843 S.W.2d 229,

234 (Tex. App. - Houston 1993).

24 For instance, summary judgment may have been appropriate

because plaintiffs were not named beneficiaries of the policy and

were therefore not in privity with Lloyd's. See discussion, infra.

25 Tamez, 999 S.W.2d at 21.

9

appeals can not affirm a summary judgment on grounds not argued

before the trial court.23 Consequently, the Tamez court was

constrained to reverse, despite other potentially adequate bases

for affirming summary judgment on the claim for breach of

contract.24 Collateral estoppel then does not support DeLeon's

breach of contract claim. 

More to the point, the Tamez court found that "[t]here was no

contractual relationship between [plaintiffs] and Lloyd's."25 Under

Tamez, DeLeon lacked privity with Lloyd's and Lloyd's did not

breach its contract by paying the proceeds to NCS.

DeLeon replies that the contract should be reformed to include

DeLeon as the lawful beneficiary of the policy. Whether Tamez also

implicitly precludes reformation, given its express finding that

there was no contractual relationship between the plaintiffs and

the insurer, is not clear. This interpretation taxes the preclusive

effect of an implicit holding and, while it is not without force,

we are reluctant to rest there. We turn to the merits of

reformation under Texas law.
26 Tamez, 999 S.W.2d at 19; see also Stillwagoner v. Travelers

Ins. Co., 979 S.W.2d 354, 360-62 (Tex. App. - Tyler 1998); Cheeves

v. Anders, 28 S.W. 274 (Tex. 1894).

27 Tamez, 979 S.W.2d at 17 (quoting Drane v. Jefferson

Standard Life Ins. Co., 161 S.W.2d 1057, 1058-59 (Tex. Comm. App.

1942)); see also Stillwagoner, 979 S.W.2d at 361. This doctrine is

animated by two policy considerations: "(1) that no inducement

should be offered to one person to take the life of another; and

(2) that no one should be permitted to wager on the continuation of

a human life." Stillwagoner, 979 S.W.2d at 360.

28 As one Texas court has stated, "[t]he mere existence of an

employer/employee relationship is never sufficient to give the

employer an insurable interest in the life of the employee."

Stillwagoner, 979 S.W.2d at 361.

10

IV

DeLeon argues that because reformation is the appropriate

remedy for a violation of Article 3.51-6 § 3 of the Texas Insurance

Code, she states a claim for breach of contract, so reformed.

As we explained, Tamez held that NCS did not have an insurable

interest in the lives of its employees.26 A putative beneficiary

only has an insurable interest in the life of another where the

beneficiary is "(1) so closely related by blood or affinity that he

wants the other to continue to live, irrespective of the monetary

considerations; (2) a creditor; [or] (3) one possessing a

reasonable expectation of pecuniary benefit or advantage from the

continued life of another."27 Although NCS claimed to fall into the

third category, the Tamez court found otherwise.28

Where an insurer pays the proceeds of a policy to a

beneficiary having no insurable interest, Texas courts have
29 See, e.g., Tamez, 999 S.W.2d at 15-16; Stillwagoner, 979

S.W.2d at 360.

30 Tamez, 999 S.W.2d at 15; see also Wilke v. Finn, 39 S.W.2d

836, 838-39 (Tex. Comm. App. 1931).

31 See Cheeves, 28 S.W. at 275-76.

32 Id. at 275.

33 See Tamez, 999 S.W.2d at 15-16 & n.1; Stillwagoner, 979

S.W.2d at 358. 

11

consistently held that a constructive trust is the appropriate

remedy.29 As the Tamez court stated, "a person with no insurable

interest will hold the proceeds of a policy as trustee for the

benefit of those persons entitled by law to receive it."30 Texas

courts have refrained from invalidating a policy for want of an

insurable interest to avoid a windfall to insurers at the expense

of lawful beneficiaries. Instead, they require insurers to pay the

policy proceeds to the beneficiary named in the policy.31 As the

Texas Supreme Court stated in 1894,

[I]t is no concern of the insurer as to who gets the

proceeds, except to see that it is paid to the proper

parties, under its agreement. It is simply required to

perform its contract, and the law will dispose of the

money according to the rights of the parties.32

Once the named beneficiary is paid, Texas applies the equitable

remedy of constructive trust to provide an avenue of recovery for

a lawful beneficiary.33

Article 3.51-6 § 3 provides that "all benefits under any group

or blanket accident and sickness policy shall be payable to the
34 Tex. Ins. Code. Ann. art. 3.51-6 § 3 (2001).

35 Tamez, 999 S.W.2d at 20-21; see also Tex. Ins. Code Ann.

art. 3.51-6 § 1(a)(1)-(6) (2001) (defining the parameters of

"group insurance" for purposes of the Texas Insurance Code).

36 Id. at 20.

37 Tamez, 999 S.W.2d at 20.

38 See id. at 20; Stillwagoner, 979 S.W.2d at 363.

39 Tamez, 999 S.W.2d at 20-21.

40 130 S.W.2d 287 (Tex. Comm. App. 1939).

12

person insured, or to his designated beneficiary or beneficiaries,

or to his estate."34 As the Tamez court found, the policy here is

a group accident policy and therefore governed by Article 3.51-6 §

3.35 The Tamez court also determined that an NCS employee, and not

NCS itself, was the "person insured" under the policy.36 Where, as

here, an NCS employee is deceased at the time the policy benefits

mature, the proceeds can be paid under the statute to either "his

designated beneficiary or estate."37 Morales was not given the

opportunity to designate her own beneficiary in this case.38 As the

court in Tamez determined, the deceased employee's estate was

therefore a proper beneficiary under the policy.39

Relying primarily on the Texas case, American National

Insurance Co. v. Foster,

40 DeLeon invokes the general principle that

when a policy provision is invalid as contrary to the Insurance
41 As the Texas Supreme Court noted, "the policy provision in

question must be disregarded in arriving at a conclusion, and the

terms of the statute must be read into the policy as constituting

terms of the contract which the parties made at the time the policy

issued." Id. at 290.

42 See id.

43 See Stillwagoner, 979 S.W.2d at 363-64. Although the

Stillwagoner court cited the language from Foster cited above, it

did not actually reform a policy that contravened Article 3.51-6 §

3 in lieu of imposing a constructive trust. That court merely found

that summary judgment in favor of the employer was inappropriate.

Moreover, that court recognized that, "[i]f insurance benefits are

paid to a beneficiary without an insurable interest, the

beneficiary holds the proceeds for the benefit of those entitled by

law to receive them." Id. at 358.

44 See Tamez, 999 S.W.2d at 21. 

13

Code,41 the statute is read into the conflicting policy provision.42

As we understand her argument, reformation of the policy would

render the Morales estate the beneficiary. The estate's

representative could then sue Lloyd's on the policy.

Language in a recent Texas Court of Appeals decision offers

some support for reformation as a possible remedy for violating

Article 3.51-6 § 3,

43 but the Tamez case is contrary. The Tamez

court, in reversing the grant of summary judgment, found a

constructive trust theory simultaneously holding that the

plaintiffs had no contractual relationship with the insurer,

characterizing the plaintiffs as third-party claimants.44 These

statements are at odds with a reformed contract. 

The text of Article 3.51-6 § 3 provides little guidance.

Nothing in the statute indicates whether reformation is
45 Tex. Ins. Code. Ann. art. 3.51-6 § 1(a)(1) (2001) (emphasis

added).

46 Tamez, 999 S.W.2d at 20-21.

14

contemplated. Nor is there an express textual linkage between the

statute and the common-law insurable interest doctrine. 

The role of section 3 becomes clearer with section 1 of the

same provision of the Insurance Code. Article 3.51-6 § 1(a)(1)

describes "group accident and health insurance" as a "policy issued

to an employer or trustees of a fund established by an employer,

who shall be deemed the policyholder, insuring employees of such

employer for the benefit of persons other than the employer."45 The

Tamez court interpreted this language to mean that group insurance

must be for the benefit of persons other than the employer.46

Section 1(a)(1) of the Insurance Code therefore parallels at this

point the common law insurable interest doctrine. Although not all

forms of group accident and health insurance insure the life of the

employee, the group accidental death policy in this case runs afoul

of both the insurable interest doctrine and Article 3.51-6 §

1(a)(1). 

Section 1(a)(1) of the statute precludes recovery by an

employer under these circumstances and section 3 defines the proper

beneficiaries of a group or blanket accident and sickness policy.

Section 3 articulates three general categories of beneficiaries who

may receive the proceeds of such a policy: (1) the person insured,
47 Tamez, 999 S.W.2d at 20 (emphasis in original).

48 See Tamez, 999 S.W.2d at 16-21 (discussing violation of both

insurable interest doctrine and Article 3.51-6 § 3); Stillwagoner,

979 S.W.2d at 359-63 (same); see also Coppedge v. Colonial Savs. &

Loan Ass'n, 721 S.W.2d 933, 938 (Tex. App. - Dallas 1986), writ

ref'd n.r.e. ("[W]hen the legislature creates a cause of action and

a remedy for its enforcement, that legislation is regarded as

cumulative of the common-law cause of action and remedy, unless the

statute expressly or impliedly negatives the latter."); Widgeon v.

Eastern Shore Hosp. Ctr., 479 A.2d 921, 929 (Md. 1984) (holding

that there is no need to imply a new right of action where the

common law already provides an action to remedy the violation)

15

(2) his designated beneficiaries, and (3) his estate. Like section

1(a)(1), section 3 echoes the tenets of the common law insurable

interest doctrine. As the Tamez court observed, Article 3.51-6 § 3

"impliedly does prohibit employers from benefitting [from group

policies] in that it provides for payment of proceeds to the person

insured or to his designated beneficiary."47 Sections 1(a)(1) and

3 therefore jointly codify and clarify the insurable interest

doctrine in the context of group accident and sickness insurance.

Given the overlap between the common law and statutory

regimes, violation of the insurable interest doctrine will often

imply violation of the statute. Although these statutory provisions

at times extend beyond the scope of the insurable interest

doctrine, there is considerable common ground. Like Tamez, this

case falls under the overlap, as both the common law and the

statute were violated. Since constructive trust is already

available to plaintiffs in such cases, nothing suggests that the

legislature thought plaintiffs needed additional protection.48
(cited approvingly in City of Beaumont v. Bouillion, 896 S.W.2d

143, 147 (Tex. 1995)). 

49 Double recovery by the plaintiff, by allowing it to recover

the full amount from both the employer and the insurer, is not

permitted. See Coppedge, 721 S.W.2d at 939 ("It is well-established

that an aggrieved party is entitled to only one recovery for the

same loss, even when alternative remedies exist."). Similarly, a

plaintiff could not recover from both the insurer and the employer

in successive actions. Finally, we note that the employer and

insurer can not be held jointly and severally liable for breach of

contract, as only the insurer would be in breach for having failed

to perform its part of the contract. See Pitman v. Lightfoot, 937

S.W.2d 496, 528 (Tex. App. - San Antonio 1996) ("In the law of

contracts, joint and several liability usually arises when two or

more promisors in the same contract promise the same or different

performances to the same promisee."). 

16

Our conclusion is confirmed by the reality that allowing

reformation—and a later contract action—in such cases would also

create inequitable results. The plaintiff could either (1) sue the

employer under the common law, seeking a constructive trust on the

proceeds; or (2) sue the insurer on a breach-of-contract theory.49

The first option presents little difficulty, unlike a suit against

the insurer. The insurer could be required to pay the policy

proceeds twice: first, to the employer under the policy, and

second, to the plaintiff for breach of contract. Requiring Lloyd's

to pay twice would be inconsistent with the insurable interest

doctrine as applied to the group accident policy. As we have

explained, under the insurable interest doctrine, where a

constructive trust is applied, the insurer only pays what it owes

under the insurance policy. This doctrine does not impose a
50 See Cheeves, 28 S.W.2d at 275-76. Compare McDonald v.

McDonald, 632 S.W.2d 636, 639-40 (Tex. App. - Dallas 1982)

(allowing a direct suit against an insurer who has prior notice of

a rival beneficiary possessing a valid insurable interest, yet who

continues to pay life insurance proceeds to the named beneficiary

lacking an insurable interest). 

51 See Tex. Ins. Code Ann. art. 3.55 (2001); cf. Stewart Title

Guaranty Co. v. Becker, 930 S.W.2d 748, 754-55 (Tex. App. - Corpus

Christi 1996) (finding no need to imply a cause of action from the

Texas Insurance Code given that the Board has the power to punish

title insurers who fail to comply with the Code).

17

"penalty" of double payment on the insurer for having entered into

a policy whose beneficiary lacks an insurable interest.50

This is not to say that the doctrine of insurable interest is

not enforced. The Insurance Code creates incentives to comply. The

Texas Board of Insurance Commissioners may revoke the license of an

insurer who fails to comply with the provisions of the Texas

Insurance Code.51 The threat of revocation may prompt an insurer to

think twice before drafting a policy conflicting with the Code.

Employers also are deterred from entering into policies which

violate the statute and common law, as they stand to lose both the

proceeds through constructive trust and the premiums they have paid

under the policy. In short, we remain convinced that Texas courts,

wearing their common-law hats, would not conclude that reformation

and a corresponding breach of contract action are necessary to

vindicate the objectives of both the Texas statute and common law:

that the insurer perform its contract and that the persons lacking
52 In her reply brief, DeLeon claims that the December 10,

1999, decision by a Texas trial court in Smith v. Certain

Underwriters at Lloyd's, London, No. 96-52348, collaterally estops

Lloyd's from asserting that it is not jointly and severally liable

with NCS for the policy proceeds. This argument could have been

raised in DeLeon's opening brief and therefore may be deemed

waived. See Yohey v. Collins, 985 F.2d 222, 225 (5th Cir. 1993).

53 Tex. Ins. Code Ann. art. 21.55 §§ 3-4 (West 2001).

54 Id. at § 1(3).

18

the requisite interest in the life of the insured not retain the

benefits of the policy.52

We are persuaded that DeLeon has failed to state a claim for

breach of contract action against Lloyd's. DeLeon may be able to

seek a constructive trust against NCS for the proceeds, a course

she has chosen not to pursue, and we offer no opinion on that

prospect.

V

DeLeon also contends that the district court erred in refusing

to award the Morales estate interest and attorney's fees under

Article 21.55 of the Texas Insurance Code. Article 21.55 requires

the prompt payment or resolution of claims according to a defined

timetable.53 This timetable is only triggered by the filing of a

"claim," defined as "a first party claim made by an insured or a

policyholder under an insurance policy or contract or by a

beneficiary named in the policy or contract that must be paid by

the insurer directly to the insured or beneficiary."54 The Code
55 Id. at § 6.

56 See id. at § 8.

57 Id. at § 1(3).

19

further provides that, "where a claim is made pursuant to a policy

of insurance and the insurer liable therefor is not in compliance

with the requirements of this article," eighteen per cent interest

and attorney's fees must be paid to either "the holder of the

policy, or the beneficiary making a claim under the policy."55

Although Article 21.55 is to be liberally construed,56 by its

plain language the statutory penalties do not apply. Neither

Morales nor her estate is "named in the policy or contract" as a

beneficiary. Under the policy issued by Lloyd's, the proceeds were

to be paid to the beneficiary, NCS, upon the death of an employee.

NCS presented a "first party claim" that "must be paid by the

insurer directly to the . . . beneficiary."57 DeLeon concedes that

NCS was the named beneficiary on the policy and that NCS submitted

a claim to Lloyd's. Although reformation might operate to place the

Morales estate in the position of the policy beneficiary, we have

rejected reformation on these facts. 

The legislature has framed the claim-processing deadlines of

Article 21.55 in terms of the primary relationship between the

insurer and the "named" beneficiary—not the lawful, yet unnamed

beneficiary. The statute does not readily apply to a

"claim" made by a party through the filing of a complaint in
58 Daugherty v. Am. Motorists Ins. Co., 974 S.W.2d 796, 798

(Tex. App. - Houston 1998).

20

litigation. As one Texas court has observed, "The purpose of the

statutory deadline contained in Article 21.55 is to guarantee the

prompt payment of claims made pursuant to policies of insurance;

not to create a statutory windfall for one party or the other."58

We do not believe that Texas courts would so read Article 21.55.

VI

DeLeon also objects to the district court's refusal to enter

a judgment declaring her rights under the policy. The district

court did not abuse its discretion in refusing declaratory relief.

It decided the case on the merits by its grant of summary judgment.

We therefore AFFIRM the judgment of the district court.

AFFIRMED.