Motion for Rehearing Overruled; Opinion of September 15, 2015, 

Withdrawn; Affirmed in Part, Reversed in Part, Remanded, and Substitute 

Opinion filed November 10, 2015.

In The

Fourteenth Court of Appeals

NO. 14-14-00740-CV

ROGER D. BURKS, Appellant

V.

XL SPECIALTY INSURANCE COMPANY, Appellee

On Appeal from the 113th District Court

Harris County, Texas

Trial Court Cause No. 2013-32662

S U B S T I T U T E O P I N I O N

We overrule the motion for rehearing, withdraw our opinion dated 

September 15, 2015, and issue the following substitute opinion.

Appellant Roger D. Burks was the chief financial officer of Superior 

Offshore International, Inc., which had obtained a directors and officers (D&O) 

insurance policy from appellee XL Specialty Insurance Company. Superior 
2

Offshore ultimately reorganized through a Chapter 11 bankruptcy, and the plan 

agent sought to recover property that the company transferred to Burks and to 

avoid future obligations owed to him. After XL denied Burks’s request for defense 

expenses and coverage under the D&O policy, Burks settled the plan agent’s

claim.

In this case, Burks sued XL for breach of the D&O contract, seeking 

damages for his defense expenses and the amount of his settlement with the plan 

agent. XL moved for summary judgment on these grounds: (1) the plan agent’s 

claim was brought outside of the policy period for this claims-made policy, and the 

claim was not interrelated with other prior shareholder derivative actions; (2) XL 

had no duty to advance defense expenses because there was no possibility of 

coverage for the plan agent’s claim, which sought disgorgement and was therefore 

not covered by the policy’s definition of “loss”; and (3) XL similarly had no duty 

to indemnify Burks because the plan agent sought disgorgement, which was not 

covered under the policy’s definition of “loss.” The trial court signed a final 

summary judgment in XL’s favor without specifying the grounds, and Burks 

appealed.1

First, we review the standards for summary judgment and principles of 

insurance contract interpretation. Then, we address each of the grounds XL urged 

for summary judgment. Ultimately, we hold that XL has not shown that it is 

entitled to summary judgment on Burks’s breach of contract claim.

 

1 Burks alleged claims other than breach of contract, and the summary judgment disposed 

of those claims, but on appeal Burks challenges only the disposition of his breach of contract 

claim.
3

We affirm the trial court’s judgment in part, reverse the judgment as to 

Burks’s breach of contract claim, and remand for proceedings consistent with this 

opinion.2

I.

STANDARDS FOR SUMMARY JUDGMENT

AND

PRINCIPLES FOR INSURANCE CONTRACTS

We review summary judgments de novo, and when, as here, the trial court 

grants the judgment without specifying the grounds, we will affirm if any of the 

grounds presented are meritorious. FM Props. Operating Co. v. City of Austin, 22 

S.W.3d 868, 872 (Tex. 2000). The movant for a traditional summary judgment 

must show that there is no genuine issue of material fact and that it is entitled to 

judgment as a matter of law. Tex. R. Civ. P. 166a(c); Mann Frankfort Stein & 

Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). A defendant is 

entitled to summary judgment if the defendant negates at least one essential 

element of the plaintiff’s cause of action. See Sci. Spectrum, Inc. v. Martinez, 941 

S.W.2d 910, 911 (Tex. 1997). Once the defendant establishes its right to summary 

judgment as a matter of law, the burden shifts to the plaintiff to present evidence 

raising a genuine issue of material fact. Walker v. Harris, 924 S.W.2d 375, 377 

(Tex. 1996). We review the summary judgment evidence in the light most 

favorable to the nonmovant, crediting evidence favorable to the nonmovant if 

reasonable fact finders could, and disregarding contrary evidence unless reasonable 

 

2 We note that Burks also appeals the trial court’s denial of his motion for partial 

summary judgment on liability, but we do not generally review the trial court’s denial of a 

summary judgment motion. See Cont’l Cas. Co. v. Am. Safety Cas. Ins. Co., 365 S.W.3d 165, 

172 (Tex. App.—Houston [14th Dist.] 2012, pet. denied). Although there is an exception 

requiring an appellate court to render the judgment the trial court should have rendered when 

both parties move for summary judgment, the exception does not apply unless both parties have 

moved for a final summary judgment. See id. Because Burks’s motion was for a partial 

summary judgment only, we do not review it. See id.
4

fact finders could not. Mann Frankfort, 289 S.W.3d at 848; see also Joe v. Two 

Thirty Nine Joint Venture, 145 S.W.3d 150, 156 (Tex. 2004).

When interpreting an insurance policy, we follow the “general rules of 

contract construction to ascertain the parties’ intent.” Gilbert Tex. Constr., L.P. v. 

Underwriters at Lloyd’s London, 327 S.W.3d 118, 126 (Tex. 2010). We look to 

the language of the policy because we presume the parties intend what the words 

of their contract say. Id. “Terms in insurance policies that are subject to more than 

one reasonable construction are interpreted in favor of coverage.” Id. at 133.

II.

INTERRELATED CLAIMS

The parties agree that the D&O policy was a claims-made policy, and the 

plan agent’s claim was asserted after the policy period expired. But Burks 

contends that the trial court erred by granting a summary judgment to XL on this 

ground because the plan agent’s claim was “deemed to have been made during the 

policy period” under the “interrelated claims” provision of the policy. XL urged in 

its motion for summary judgment that the plan agent’s claim was not interrelated 

with prior shareholder derivative actions, so there was no possibility of coverage. 

XL also urged that the court could not consider the complaints in the derivative 

action under the eight-corners rule.

First, we review the relevant policy terms. Then, we hold that the eightcorners rule does not prevent consideration of the derivative action complaints to 

determine whether the plan agent asserted an interrelated claim. Next, we review 

the evidence submitted by the parties: complaints from the derivative actions and 

the bankruptcy proceeding. Finally, we hold that Burks raised a genuine issue of 

material fact on the interrelatedness of the claims. Thus, XL was not entitled to 

summary judgment on this ground.
5

A. Relevant Policy Terms

A claims-made policy, like the D&O policy here, only covers claims first 

asserted against the insured during the policy period. See Prodigy Commc’ns 

Corp. v. Agric. Excess & Surplus Ins. Co., 288 S.W.3d 374, 378 (Tex. 2009). The 

parties agree that the plan agent’s claim against Burks in the bankruptcy 

proceeding was not, facially, made during the policy period.

The parties dispute, however, whether the plan agent’s claim should be 

covered under the interrelated-claims provision, which provides as follows: “All 

Claims arising from the same Interrelated Wrongful Acts shall be deemed to 

constitute a single Claim and shall be deemed to have been made at the earliest 

time at which the earliest such Claim is made or deemed to have been made 

pursuant to [the notice conditions].”3 

The parties disagree about whether the plan agent’s claim arose from the 

same interrelated wrongful acts alleged in shareholder derivative actions against 

Burks that were brought during the policy period. The policy defines “interrelated 

wrongful acts” as “any Wrongful Act based on, arising out of, directly or 

indirectly resulting from, in consequence of, or in any way involving any of the 

same or related, or series of related, facts, circumstances, situations, transactions, 

or events.”

The parties also disagree about whether the plan agent asserted a “wrongful 

act” against Burks, which is defined in relevant part as “any actual or alleged act, 

error, or omission, misstatement, misleading statement, neglect, or breach of duty 

by any Insured Person while acting in his or her capacity as an . . . Insured 

Person of the Company.”

 

3 Bolded terms are defined in the policy.
6

B. Eight-Corners Rule

XL attached evidence to its motion including, among other things, the plan 

agent’s complaint and a derivative action complaint. Burks responded to XL’s 

motion and submitted an additional derivative action complaint, although the 

allegations in each derivative action were substantially the same. 

XL contends that the eight-corners rule prevents this court from reviewing 

both of the derivative action complaints to determine whether XL had a duty to 

advance defense expenses under the policy. The eight-corners rule requires Texas 

courts to look only to the pleadings and the insurance policy to determine whether 

a duty to defend exists. See Weingarten Realty Mgmt. Co. v. Liberty Mut. Fire Ins. 

Co., 343 S.W.3d 859, 862 (Tex. App.—Houston [14th Dist.] 2011, pet. denied). 

When determining a duty to defend issue, applying the eight-corners rule means 

that the allegations in the third-party pleadings are considered without regard to 

their truth or falsity, and the insurer cannot contradict them with extrinsic 

evidence. See id. at 864. “The rationale behind the eight-corners rule is to require 

insurers to defend the insured against all claims, even those without merit.” Id.

XL cites no authority to suggest that the rule applies to a duty to advance 

defense expenses. See Pendergest-Holt v. Certain Underwriters at Lloyd’s of 

London, 600 F.3d 562, 574 (5th Cir. 2010) (“[N]o Texas state court has applied the 

rule to a case, like the present one, involving a duty to advance defense costs.”). 

Regardless, the rationale for the rule does not apply when an insured seeks to 

establish coverage under an interrelated-claims provision. See Weingarten, 343 

S.W.3d at 865 (recognizing a limited exception to the eight-corners rule for a “pure 

coverage” question where the insurer is not questioning the merits of the 

underlying third-party claim, and the extrinsic evidence goes “strictly to an issue of 
7

coverage without contradicting any allegation in the third-party claimant’s 

pleadings material to the merits of that underlying claim”).

Burks is not trying to contradict any allegations in the plan agent’s 

complaint. Thus, the eight-corners rule does not bar him from proving coverage 

under the interrelated-claims provision by referring to complaints from prior 

claims. See ACE American Ins. Co. v. Ascend One Corp., 570 F. Supp. 2d 789, 

795 (D. Md. 2008) (under Maryland law, the exclusive-pleadings or eight-corners 

rule did not bar the insured from using extrinsic evidence to prove the potentiality 

of coverage under an interrelated-claims provision); see also American Gen. Life 

Ins. Co. v. Ace Ins. Co., 131 Fed. App’x 217, 221 (11th Cir. 2005) (under Texas 

law, the eight-corners rule did not bar insurer from introducing extrinsic evidence 

to show relatedness of claims under an exclusion that barred coverage for claims 

related to pending litigation).

C. The Evidence

1. Derivative Actions 

During the policy period, Burks and eight other officers and directors of 

Superior Offshore were sued in two derivative actions. The plaintiffs in both 

actions alleged claims for breach of fiduciary duties, insider selling of stock, 

misappropriation of information, abuse of control, gross mismanagement, waste of 

corporate assets, and unjust enrichment. The plaintiffs sought money damages, 

equitable or injunctive relief, attorney’s fees and costs, accountant’s fees, expert’s 

fees, expenses, and restitution, including disgorgement of “all profits, benefits and 

other compensation obtained by [Burks].”

The derivative actions alleged that the directors and officers made 

misrepresentations about the financial health of the company while the defendants 
8

“profited handsomely” by selling stock based on insider information, and the 

defendants artificially inflated the price of the stock “so they could protect and 

enhance their executive and directorial positions and the substantial compensation 

and prestige they obtained as a result thereof.” Regarding the unjust enrichment 

claim, the plaintiffs sought “restitution from these Individual Defendants [and] an 

order of this Court disgorging all profits, benefits, and other compensation 

obtained by these Defendants, and each of them, from their wrongful conduct and 

fiduciary breaches.” Regarding the waste-of-corporate-assets claim, the plaintiffs

alleged that the defendants “caused Superior Offshore to waste valuable corporate 

assets by paying incentive based bonuses to certain of its executive officers.”

2. Plan Agent’s Complaint and Objection to Claims

The plan agent’s complaint and objection to Burks’s claims in the 

bankruptcy proceeding sought to recover transfers of money and stock made to 

Burks (the “2007/2008 Transfers”), and to avoid obligations under an agreement 

for compensation to Burks (the “Separation Agreement”). The legal bases for the 

plan agent’s complaint and objections were that Superior Offshore did not receive

reasonably equivalent value under the Bankruptcy Code and the Texas Uniform 

Fraudulent Transfers Act (TUFTA). See 11 U.S.C. § 548(a)(1)(B); Tex. Bus. & 

Com. Code Ann. §§ 24.005(a)(2), 24.006(a). The plan agent also sought to avoid 

Superior Offshore’s obligations under the Separation Agreement as a preferential 

transfer under the Bankruptcy Code. See 11 U.S.C. § 547(b). The plan agent 

alleged that Burks was an insider of the company and that the transfers under the 

Separation Agreement were made while the company was insolvent.

The plan agent identified the “2007/2008 Transfers” that the plan agent 

sought to avoid:
9

(i) non-base salary compensation paid to Burks during 2007 and 2008 

in the amount of approximately $243,000; (ii) the additional base 

salary paid to Burks after the September/October, 2007 raise 

described herein; (iii) the perquisites identified above and paid during 

2007 and 2008 [such as an automobile allowance, tax and estate 

planning services, and life insurance premiums]; (iv) the transfer(s) to 

Burks of no less than 256,667 shares of the Debtor’s common stock; 

(v) the 2007 employment agreement and all related agreements; and 

(vi) the General Release . . . .

The plan agent also detailed the terms of the Separation Agreement, which 

included an obligation to pay Burks about $675,000 in severance payments, nine 

months of medical and dental benefits, payment of some legal fees, and a 

company-supplied cell phone.

D. Analysis

XL makes two arguments for why the broad policy definitions do not 

encompass the plan agent’s complaint. First, XL contends that the plan agent did 

not allege a “wrongful act” by Burks. Second, XL contends that the plan agent did 

not allege “interrelated wrongful acts.” We address each argument in turn.

1. Wrongful Acts

XL contends that the plan agent did not allege that Burks “acted 

wrongfully,” and “the intent of [Burks] is not at issue” in the bankruptcy 

proceeding because the plan agent sought recovery only under the constructive 

fraud theories of the Bankruptcy Code and TUFTA. However, the plain language 

of the policy does not require scienter to establish a wrongful act. The term is 

defined broadly as “any . . . alleged act, error, or omission . . . by any Insured 

Person while acting in his or her capacity as an . . . Insured Person of the 

Company.” Here, the plan agent alleged acts and omissions—the receipt of 

money, stock, and other benefits, and the failure to give Superior Offshore 
10

something of reasonably equivalent value—while Burks was acting as a corporate 

officer. Viewing the evidence in the light most favorable to Burks, he raised a fact 

issue as to whether the plan agent alleged a wrongful act.

2. Interrelated Wrongful Acts

Next, XL contends that the plan agent’s allegations are not related to the 

derivative actions. Initially, we note that an interrelated-claims provision is a 

double-edged sword. Most often, insurers use it to exclude coverage for claims 

made during the policy period when those claims relate to claims made before the 

policy period began. See, e.g., Reeves Cnty. v. Houston Cas. Co., 356 S.W.3d 664, 

675 (Tex. App.—El Paso 2011, no pet.). But such a provision can also be used, as 

Burks seeks here, to have a claim that is made after the policy period deemed one 

made during the policy period, thus including coverage for a subsequent claim. 

See, e.g., Blackburn v. Fid. & Deposit Co. of Md., 667 So. 2d 661, 670 (Ala. 

1995).4

As quoted above, the definition of “interrelated wrongful acts” is incredibly 

broad as it includes any wrongful act that “in any way involv[es] any of the same 

or related . . . facts, circumstances, situations, transactions, or events.” See XL 

Specialty Ins. Co. v. Perry, No. CV 11-02078-RGK, 2012 WL 3095331, at *6 

(C.D. Cal. June 27, 2012) (excluding claims under this “broad” definition, which 

describes “a wide range of causal connections . . . that will suffice to make claims 

fall within the scope of ‘interrelated wrongful acts’”). 

 

4

See generally John E. Zulkey, Related and Interrelated Acts Provisions, 50 Tort Trial & 

Ins. Prac. L.J. 83, 92–93 (2014) (collecting cases) (“Most commonly, insurers rely on such 

provisions to argue that claims that are made during the policy period should be deemed to have 

been made prior to the inception of the coverage period—and thus are not covered by that 

policy—because they are related to claims that were first-made before the inception date. . . . 

Policyholders have relied on such provisions to argue in favor of coverage for claims made after 

the end of the coverage period on the basis that they were related to claims that were made 

within the coverage period.”).
11

In Reeves County, the El Paso Court of Appeals held that claims were 

interrelated when both suits involved the same parties, alleged similar facts, and 

involved similar alleged wrongful actions taken by the defendant. See 356 S.W.3d 

at 674–75. Several cases discussed in Reeves County are also illustrative. In 

ruling that claims were not related, the United States District Court for the District 

of Maryland focused on the temporal differences and the nature of the claims—the 

first claim was a private action by individuals and the second was a governmental 

investigation dealing with transactions and events from a completely different time 

period. See ACE American Ins. Co., 570 F. Supp. 2d at 801. Similarly, the United 

Stated District Court for the Northern District of Oklahoma ruled on summary 

judgment that two claims were not related because the plaintiffs in the first action 

sought recovery based on the failure of the company’s officers to release the 

plaintiffs from a loan guarantee, and the second action was brought by a 

bankruptcy trustee and focused on the poor management of the company without 

any reference to the loan agreement. See Axis Surplus Ins. Co. v. Johnson, No. 06-

CV-500-GKF-PJC, 2008 WL 4525409, at *8–9 (N.D. Okla. Oct. 3, 2008). 

Here, although the plaintiffs in the derivative actions and bankruptcy 

proceeding are not identical, Burks’s evidence shows that they served a similar 

purpose and alleged similar facts and wrongful acts arising out of the same time 

period. The plan agent carried out the Chapter 11 plan, which provided that the 

agent had authority to pursue claims and avoidance actions for the benefit of the 

estate of Superior Offshore. Similarly, the plaintiffs in the derivative actions sued 

Burks on behalf of Superior Offshore. See, e.g., Richardson v. Newman, 439 

S.W.3d 538, 542 (Tex. App.—Houston [1st Dist.] 2014, no pet.) (shareholder in 

derivative action asserts the corporation’s claims against the directors). Both 

actions alleged that Superior Offshore gave compensation, bonuses, and benefits to 
12

Burks while the company was in financial straits. Both actions sought 

disgorgement of his compensation, bonuses, and benefits from the same time 

period. Viewing this evidence in the light most favorable to Burks, he raised a fact 

issue as to whether the plan agent’s complaint alleged wrongful acts that “in any 

way involv[ed] any of the same or related . . . facts, circumstances, situations, 

transactions, or events” alleged in the derivative actions.

Summary judgment on this ground was not proper.

III.

DEFENSE EXPENSES

XL argued in its summary judgment motion that it owed no duty under the 

policy to advance defense expenses because there was no possibility of coverage 

for the plan agent’s claims, which sought disgorgement of ill-gotten gains that are 

not insurable under Texas law and therefore fall outside of the definition of “loss” 

contained in the policy. Under a plain reading of the policy, we hold that XL has 

failed to establish as a matter of law that XL owed no duty to advance defense 

expenses even if the plan agent’s desired remedy of disgorgement was not 

insurable.5

The D&O policy provides that XL will pay Burks “Loss resulting from a 

Claim.” The policy defined “loss” as “damages, judgments, settlements or other 

amounts . . . and Defense Expenses that the Insured Persons are obligated to 

 

5 Although neither party has cited any Texas authority holding that insurance for 

disgorgement is against public policy, Burks conceded before the trial court and this court that 

disgorgement for ill-gotten gains generally is “uninsurable under the law” of Texas. Given the 

strong policy in Texas favoring the right of parties to contract and the lack of any Texas 

authority holding that insuring against disgorgement is against public policy, we render no 

opinion on the matter. We assume without deciding that disgorgement is “uninsurable” in Texas.
13

pay,” but “Loss will not include: . . . matters which are uninsurable under the law 

pursuant to which this Policy is construed.”6

On appeal and in its summary judgment motion, XL cites to Texas cases that 

reiterate a familiar principle for insurance contracts that create a duty to defend: 

“An insurer has no duty to defend if a petition against an insured alleges facts 

excluded by the policy.” E.g., Chapman v. Nat’l Union Fire Ins. Co. of Pittsburgh, 

171 S.W.3d 222, 228 (Tex. App.—Houston [1st Dist.] 2005, no pet.). XL argues 

that it had no duty to pay Burks defense expenses because the plan agent’s claim is 

excluded by the policy.

However, the D&O policy does not create a duty to defend. The policy 

expressly denies it: “It shall be the duty of the Insured Persons and not the duty of 

the Insurer to defend Claims.” Rather, the D&O policy creates a duty to advance 

defense expenses: “Upon written request, the Insurer will pay on a current basis 

any Defense Expenses before the disposition of the Claim for which this Policy 

provides coverage.” The policy allows XL to obtain Burks’s guarantee to repay 

these defense expenses “if it is finally determined that the Loss incurred is not 

covered under this Policy.” The policy further clarifies that defense expenses will 

be paid before the claim is adjudicated: “Except for such Defense Expenses, the 

Insurer shall pay Loss only upon the final disposition of any Claim.” The policy 

similarly does not exclude defense expenses from other types of excluded loss that 

arguably applied to Burks’s actions (an “ill-gotten gains” exclusion):

 

6

The parties do not dispute that the plan agent’s complaint fit the definition of “claim,” 

which is broadly defined as “(1) a written demand for monetary or non-monetary relief; (2) any 

civil or criminal judicial proceeding in a court of law or equity, or arbitration; or (3) a formal 

civil, criminal, administrative, or regulatory proceeding or formal investigation against an 

Insured Person.” The policy defined “defense expenses” as “reasonable legal fees and expenses 

incurred in the defense of any Claim.” 
14

Except for Defense Expenses, the Insurer shall not pay Loss in 

connection with any Claim:

. . . .

(2) brought about or contributed to in fact by any:

(i) intentionally dishonest, fraudulent, or criminal act or 

omission or any willful violation of any statute, rule, or 

law; or

(ii) profit or remuneration gained by any Insured Person

to which such Insured Person is not legally entitled;

as determined by a final determination in the underlying action.

(emphasis added). Thus, defense expenses are specifically excluded from 

the exclusion.

Under the unambiguous terms of the policy, XL agreed to advance defense 

expenses until it is “finally determined” the loss is not covered. The Fifth Circuit 

has interpreted similar language in a D&O policy to require the advancement of 

defense expenses until “it is determined” that that the insured engaged in money 

laundering. See Pendergest-Holt, 600 F.3d at 570, 574, 576 (noting that the 

insureds correctly argued that “mere allegations [of money laundering] are 

insufficient to bar coverage under the D&O Policy” for defense expenses, and 

noting that the policy contained a similar provision requiring repayment if it is 

determined the insured committed money laundering). To the extent there is any 

ambiguity, we must adopt Burks’s interpretation. See Gilbert Tex. Constr., 327 

S.W.3d at 133.

XL cites no Texas case holding that an insurer has no duty to advance

defense expenses when loss for the alleged wrongful act would not be covered 

itself.

7

 There is authority to the contrary. See Pendergest-Holt, 600 F.3d at 570, 

 

7 XL cites two New York cases holding that defense expenses were not recoverable when 

the insureds settled with third-parties that had sought disgorgement. See Vigilant Ins. Co. v. 
15

574; see also Level 3 Commc’ns, Inc. v. Fed. Ins. Co., 272 F.3d 908, 911 (7th Cir. 

2001) (noting that even if “loss” did not include disgorgement or restitution, an 

insured may suffer loss from incurring legal expenses to defend against a suit 

seeking restitution or disgorgement; “Those expenses would be a loss to the 

company not offset by any benefit to it, unlike the ‘expense’ that consists simply of 

the value of the stolen property, a wash.”); Starkville Mun. Separate Sch. Dist. v. 

Cont’l Cas. Co., 772 F.2d 168, 170 (5th Cir. 1985) (for a policy that defined “loss” 

to not include “matters which shall be deemed uninsurable under the law,” costs 

and attorney’s fees to defend against a plea for punitive damages were covered

even though under Mississippi law punitive damages were uninsurable for reasons 

of public policy; reasoning that if the insurer “intended to exclude these other costs 

from the policy’s coverage, it needed to do so more explicitly”).

Accordingly, we hold that even if disgorgement is “uninsurable under the 

law” of Texas, XL has not established that this D&O policy excludes the 

advancement of expenses incurred for defending against such claims based solely 

on the definition of “loss.” In his live petition, Burks sought to recover his defense 

expenses from XL. The trial court granted XL summary judgment on those 

defense expenses. Summary judgment on this ground was improper.

 

Credit Suisse First Boston Corp., 10 A.D.3d 528 (N.Y. App. Div. 2004); Millennium Partners, 

L.P. v. Select Ins. Co., 24 Misc. 3d 212 (N.Y. Sup. Ct. 2009). But in both of those cases, and 

unlike the situation here as discussed more fully below, the terms of the settlements were clear 

that the settlements were for ill-gotten gains. See Vigilant Ins. Co., 10 A.D.3d at 529; 

Millennium Partners, 24 Misc. 3d at 217–18. Further, the Vigilant Insurance court 

acknowledged that an insurer may be required to advance defense costs, subject to repayment, 

which is exactly how we interpret the policy here: “While, under certain circumstances, the 

insurers must advance defense costs incurred by the insured in connection with a claim, the 

insured is obligated to repay such advance payments upon a finding that it is not entitled to 

payment of such Loss.” Vigilant Ins. Co., 10 A.D.3d at 529 (quotation omitted).
16

IV.

INDEMNIFICATION

Finally, XL contends that it had no duty to indemnify Burks for the 

settlement because it represents uninsurable disgorgement or restitution.

8

 Burks 

contends that there is doubt (i.e., at least a fact issue) about whether the settlement 

represented disgorgement, and summary judgment is not appropriate.

A judgment ordering the repayment of a fraudulent transfer under the 

Bankruptcy Code may indicate that an insured has paid restitution or 

disgorgement. See In re TransTexas Gas Corp., 597 F.3d 298, 310 (5th Cir. 2010). 

But Burks correctly notes that the mere fact of settlement does not indicate 

admission of the allegations in a complaint. Cf., e.g., City of Houston v. Sam P. 

Wallace & Co., 585 S.W.2d 669, 673 (Tex. 1979) (settlement agreements generally 

are not admissible because the jury may improperly view the settlement as an 

admission of liability). “[S]ettlement represents the parties’ willingness to resolve 

the claims after weighing the negotiated settlement amount against the potential 

judgment amount and accounting for the costs and benefits of continued 

litigation.” U.S. Bank Nat’l Ass’n v. Indian Harbor Ins. Co., 68 F. Supp. 3d 1044, 

1050 (D. Minn. 2014). “[T]he essential purpose of a settlement is to avoid 

adjudication of the lawfulness or propriety of conduct which is the subject of 

allegations of the complaint.” Alliance to End Repression v. City of Chicago, 561 

F. Supp. 537, 554 (N.D. Ill. 1982). “If a settlement resolves claims alleging 

 

8 As a threshold to making this argument, and in response to Burks’s contrary position, 

XL contends it is not precluded from denying indemnity even if it breached the duty to advance 

defense expenses. We agree with XL; even Burks’s authority supports XL’s position. See Tex. 

United Ins. Co. v. Burt Ford Enters., Inc., 703 S.W.2d 828, 833 (Tex. App.—Tyler 1986, no 

writ) (noting that the supreme court has held that “where an insurer refuses to tender a defense to 

its insured and denies coverage on a claim made against its insured, and the insured thereafter 

negotiates a settlement of the claim, the insurer is entitled to raise a policy defense of exclusion 

of coverage set forth in the policy”).
17

unlawful activity but excludes an admission of liability for the activity, it does not 

establish that the underlying allegations are true or false.” U.S. Nat’l Ass’n, 68 F. 

Supp. 3d at 1050. Accordingly, we “will not automatically presume . . . that the 

settlement constitutes restitution because it resolved claims alleging ill-gotten gains 

and seeking disgorgement of those gains.” Id. (granting summary judgment to the 

insured after the insured settled allegations of disgorgement when the policy

included a definition of loss and an ill-gotten-gains exclusion similar to the policy 

involved here).

The actual settlement agreement is not in the record; merely a stipulation of 

dismissal of the plan agent’s complaint, which contains no admission of 

wrongdoing. And the plan agent sought more than merely disgorgement or 

restitution; the plan agent sough a “money judgment” and “attorney’s fees” under 

TUFTA. Given that Burks settled these claims, there is necessarily a fact issue 

about whether the entire settlement amount represented disgorgement of ill-gotten 

gains. And we note that Burks testified by affidavit, attached in response to XL’s 

motion for summary judgment, that Burks had “always maintained that [he] was 

legally entitled to the compensation owed [him] under [his] Employment 

Agreement and Separation Agreement with Superior.” Viewing the evidence in 

the light most favorable to Burks, we cannot assume from this record that the 

settlement was for disgorgement and therefore uninsurable under the law of Texas.

As its only Texas authority on point, XL relies on the Dallas Court of 

Appeals’ decision in Nortex Oil & Gas Corp. v. Harbor Insurance Co., 456 

S.W.2d 489 (Tex. Civ. App.—Dallas 1970, no pet.). The policy and facts of 

Nortex are vastly different and not persuasive when interpreting the policy here. 

Some plaintiffs sued Nortex for conversion after Nortex allegedly slantdrilled and removed oil belonging to the plaintiffs. Id. at 490. Nortex settled and 
18

demanded indemnification from its insurer under a policy that covered “damages, 

direct or consequential, and expenses, all as more fully defined by the term 

‘ultimate net loss’, on account of personal injuries . . . and property damage.” Id.

at 491 & n.1. The term “ultimate net loss” was defined in relevant part as “the 

total sum which the Assured . . . becomes obligated to pay by reason of a Personal 

Injury or Property Damage Claims, either through adjudication or compromise.” 

Id. at 491 n.1. The term “property damage” included “damage to or destruction or 

loss of property.” Id.

The Nortex court did not hold that settlements for disgorgement, generally, 

are against public policy or “uninsurable” under Texas law. Instead, the court held 

that the plaintiffs’ claims were “not claims for property damage within the 

meaning of the policy.” Id. at 493. The Nortex policy, as quoted above, required 

that the total sum Nortex was obligated to pay through settlement was “by reason 

of a . . . Property Damage Claim[].” Id. at 491 n.1. Thus, the Nortex court was 

required to look at the claim alleged and determine whether it was for property 

damage, and therefore, whether the settlement was a covered loss. Id. at 494.

Here, the definition of “loss” in the D&O policy is not so limiting: “‘Loss’ 

means damages, judgments, settlements or other amounts (including punitive or 

exemplary damages, where insurable by law) and Defense Expenses that the 

Insured Persons are obligated to pay. Loss will not include: . . . matters which are 

uninsurable under the law pursuant to which this Policy is construed.” Unlike in 

Nortex, “settlements” is not modified by a particular type of claim, such as 

“property damage,” which can be ascertained by reference to the claims asserted in 

a plaintiff’s petition or complaint. The settlement in Nortex was excluded because 

“loss” was defined by reference to the type of claim asserted—loss included 

“property damage” claims, not conversion claims.
19

Further, no Texas court has held that insuring a settlement of a claim seeking 

restitution or disgorgement is against public policy or otherwise generally 

“uninsurable under the law” of Texas; nor has the Legislature enacted any 

legislation on point. Under these circumstances, we cannot hold as a matter of law 

that the parties intended for a settlement such as this one to be excluded from 

coverage. See U.S. Bank Nat’l Ass’n v. Indian Harbor Ins. Co., No. 12-cv-3175, 

2014 WL 3012969, at *3 (D. Minn. July 3, 2014) (settlement for restitution was 

not “uninsurable” under Delaware law because no Delaware statute or case law 

expressly precluded insurance coverage for settlements of restitution). To the 

extent the Fifth Circuit in In re TransTexas understood Nortex as establishing a 

public policy in Texas against insuring settlements made in satisfaction of claims 

alleging ill-gotten gains, we disagree with that reading.9 

Finally, XL suggests that it “can’t be right” that a judgment for 

disgorgement is uninsurable while a settlement is not, quoting the Seventh Circuit. 

See Level 3 Commc’ns, Inc. v. Fed. Ins. Co., 272 F.3d 908, 911 (7th Cir. 2001). 

Notwithstanding that the sweeping Level 3 decision has never been cited as 

authority by a Texas court, even the Seventh Circuit acknowledged that not all 

settlements in satisfaction of claims alleging ill-gotten gains necessarily would be 

excluded from coverage. See id. at 912. It refused to decide and could find “no 

guidance” on whether an insured might argue that such a settlement could be 

covered with a showing that the third-party’s allegations were groundless. Id. 

Here, unlike in Level 3, Burks has raised a fact issue on the nature of the 

 

9

The Fifth Circuit, relying on Nortex as its only Texas authority, held that a judgment

“restitutionary in nature” is “uninsurable under Texas law.” In re TransTexas Gas Corp., 597 

F.3d 298, 309–11 (5th Cir. 2010).
20

settlement, and he testified that he was legally entitled to the compensation that the 

plan agent sought.10

We discern a genuine issue of material fact on whether Burks’s settlement 

was for disgorgement and therefore “uninsurable under the law” of Texas, and we 

find no Texas authority precluding coverage for such a settlement as a matter of 

law. Therefore, we hold that the trial court erred by granting summary judgment to 

XL on this ground.

V.

CONCLUSION

None of the grounds XL alleged in its motion for summary judgment on 

Burks’s breach of contract claim is meritorious. Thus, we affirm the trial court’s 

judgment on the non-contract claims, reverse the judgment as to the contract claim, 

and remand the case to the trial court for proceedings consistent with this opinion.

/s/ Sharon McCally

Justice

Panel consists of Justices Boyce, McCally, and Donovan.

 

10 The Seventh Circuit’s apparent concern for adopting a different standard for judgments 

and settlements is also alleviated by the terms of XL’s policy, which required Burks to not admit 

liability or make any settlement “without the Insurer’s consent, such consent not to be 

unreasonably withheld.” At least one court has suggested a similar clause obviates the concern 

over treating settlements differently because the insurer could “condition[] consent on an 

admission of liability for wrongdoing or a stipulation that the payment was restitution.” U.S. 

Bank Nat’l Ass’n, 68 F. Supp. 3d at 1053. We do not now address whether Burks failed to 

comply with this condition, or whether Burks was relieved from doing so by XL’s failure to 

advance defense expenses.