IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 05-11450

TIG INSURANCE CO.,

Plaintiff–Appellant,

v.

AON RE, INC.,

Defendant–Appellee.

Appeal from the United States District Court

for the Northern District of Texas

Before GARWOOD, DENNIS, and OWEN, Circuit Judges.

PRISCILLA R. OWEN, Circuit Judge:

TIG Insurance Company has sued its broker, Aon Re, Inc., for failing to

provide complete information to a reinsurer with whom TIG negotiated a

reinsurance treaty. The treaty was rescinded as a result of the incomplete

information, and TIG asserts causes of action against Aon Re for negligence,

negligent misrepresentation, breach of fiduciary duty, and common-law

indemnity. TIG appeals the district court’s summary judgment that TIG take

nothing. We affirm.

United States Court of Appeals

Fifth Circuit

F I L E D

March 13, 2008

Charles R. Fulbruge III

Clerk
No. 05-11450

1 See Breen v. Tex. A&M Univ., 485 F.3d 325, 331 (5th Cir. 2007) (“In determining

whether summary judgment is appropriate, we view all of the evidence in the light most

favorable to the non-moving party and draw all reasonable inferences in its favor.”). 

2

I

In recounting the summary judgment evidence, the facts will be stated in

the light mostfavorable to TIG.1 TIG provided workers’ compensation insurance

policies to employers nationwide, and it reinsured policies issued by other

insurance companies, which included reinsurance business assumed from

Virginia Surety Company. TIG’s general practice was to retain liability for

individual workers’ compensation claims up to a cap of $1 million and to

purchase excess loss reinsurance to cover claims exceeding that amount. 

TIG retained Aon Re, Inc. to act as its agent or intermediary in soliciting

and negotiating proposals for reinsurance. TIG provided Aon Re with

information regarding TIG’s workers’ compensation business, including the

relevant Virginia Surety historical loss data. Aon Re used this information to

prepare a package of underwriting information to send to representatives of

various reinsurance companies. In May 1998, Aon Re sent an information

packet to WEB Management LLC, an underwriter that was acting as an agent

for United States Life Insurance Co. (U.S. Life). In Aon Re’s May 5, 1998 cover

letter to WEB, Aon Re stated that the Claims Diskette contained “Virginia

Surety [loss data] since 1994.” In accordance with TIG’s policies, Aon Re

provided a copy of the packet to TIG for its files in May 1998. It is disputed

whether this packet included the diskettes.

In June 1998, Aon Re representatives met with TIG representatives to

discuss quotes Aon Re had received. TIG expressed interest in WEB’s quote on

behalf of U.S. Life as well as in proposals received from reinsurer Swiss Re, with

whom TIG was dealing directly. At this time, concerns were expressed by TIG

representatives that the data Aon Re had received from TIG and had sent to the
No. 05-11450

3

reinsurance market was incomplete. TIG’s vice president in charge of its

workers’ compensation division reviewed a May 13, 1998 letter from TIG’s 

actuary criticizing the quality of Aon Re’s reinsurance submission, and

specifically commented in an email on June 19, 1998 that he “want[ed] to make

sure the data AON sentto the market[was] good” because WEB’s quote was “out

of line on the low side” compared to the Swiss Re quote and quotes from other

reinsurers.

Regardless of these concerns, TIG accepted U.S. Life’s bid on June 29,

1998, and coverage was bound effective April 1, 1998. The reinsurance treaty

subsequently signed by TIG on October 6, 1998 and by WEB on U.S. Life’s behalf

on November 12, 1998 applied to losses occurring in the three year period

commencing April 1, 1998, subject to the treaty being cancelled at any time by

TIG. TIG cancelled the reinsurance treaty on January 1, 1999 prospectively, but

the treaty continued in force to cover claims arising out of losses that occurred

between April 1, 1998 and January 1, 1999. 

U.S. Life stopped paying claims under the reinsurance treaty in the

summer of 2001 because an audit of TIG’s operations had not been completed

and TIG had not provided requested information. TIG demanded arbitration

under the terms of the treaty, claiming outstanding payments in the amount of

nearly $9 million were due, and proceedings commenced. Aon Re was not a

party to the arbitration.

On February 21, 2003, in its preliminary position statement in the

arbitration, U.S. Life stated for the first time that it had the right to rescind the

reinsurance treaty because Aon Re had provided it with “materially incomplete”

loss data by omitting “the loss data for the entire Virginia Surety segment,”

which comprised a significant portion of TIG’s insurance business. TIG disputed

the assertions that the data was missing and that it was material, but the

arbitration panel found in favor of U.S.Life and specifically stated in its findings
No. 05-11450

4

of fact that Aon Re, as TIG’s agent, had omitted the information regarding the

Virginia Surety historical loss data. 

The arbitrators determined that U.S. Life was entitled to rescind the

treaty with regard to the Virginia Surety segment of TIG’s business, that the

treaty was “void ab initio” to that extent, but the remainder was valid and

enforceable. The arbitration panel issued a final award that directed TIG to

return to U.S. Life $4,720,836 plus interest of $661,910, for claims that U.S. Life

had previously paid for Virginia Surety claims, and U.S. Life was required to

return to TIG a premium of $6,443,103 plus $1,872,793 of interest. Therefore,

because of the rescission of the Virginia Surety-related portion of the

reinsurance treaty, TIG owed U.S. Life $5,382,746 and U.S. Life owed TIG

$8,315,896, with the net result that U.S. Life paid TIG $2,933,150.

TIG filed the instant lawsuit against Aon Re on June15, 2004, claiming

negligence, negligent misrepresentation, breach of fiduciary duty, and seeking

common-law indemnity. TIG also sought declaratory relief contending that Aon

Re was obligated to reimburse and indemnify TIG for unreinsured liability. TIG

also requested attorneys’ fees. TIG filed a partial summary judgment motion

asserting that Aon Re should be collaterally estopped from litigating issues

resolved in the arbitration proceeding. Aon Re filed a summary judgment

motion contending that (1) TIG’s negligence, negligent misrepresentation, and

breach of fiduciary claims were barred by statutes of limitations; (2) the

discovery rule does not apply to defer accrual of these causes of action; and

(3) TIG’s common-law indemnity claim fails as a matter of law. The district

court denied TIG’s partial summary judgment motion on the collateral estoppel

issue and granted Aon Re’s summary judgment motion on the statute of

limitations, discovery rule, and common law indemnity issues. The district court

determined that it was unnecessary to address the other issues presented in the

motions, and the court entered judgment that TIG take nothing.
No. 05-11450

2

Id.

3 FED. R. CIV. P. 56(c).

4 TEX. CIV. PRAC. & REM. CODE § 16.003(a); see also KPMG Peat Marwick v. Harrison

Cty. Housing Fin. Corp., 988 S.W.2d 746, 750 (Tex. 1999); HECI Exploration Co. v. Neel, 982

S.W.2d 881, 885 (Tex. 1998).

5 TEX. CIV. PRAC. & REM. CODE § 16.004(a)(5) (“A person must bring suit on the

following actions not later than four years after the day the cause of action accrues: . . . breach

of fiduciary duty.”).

6 Holy Cross Church of God in Christ v. Wolf, 44 S.W.3d 562, 566-67 (Tex. 2001).

5

TIG now appeals the denial of its partial summary judgment motion and

the summary judgment in Aon Re’s favor. Because we affirm the district court’s

summary judgment on the statute of limitations, discovery rule, and commonlaw indemnity issues, we do not reach the other issues.

II

We review a grant of summary judgment de novo, applying the same

standard as the district court.2 Summary judgment should be rendered if the

pleadings, discovery, admissions, “and any affidavits, if any, show that there is

no genuine issue as to any material fact and that the movant is entitled to a

judgment as a matter of law.”3

III

We first consider limitations. Both parties agree that Texas law governs

this issue. Negligence and negligent misrepresentation claims must be brought

“not later than two years after the day the cause of action accrues,”4 and breach

of fiduciary duty claims must be brought “not later than four years after the day

the cause of action accrues.”5 As we have noted, TIG filed this suit on June 15,

2004.

Under Texas law, the question of when a cause of action accrues is a

matter of law for the court to decide,6 and “a cause of action accrues when a

wrongful act causes some legal injury, even if the fact of injury is not discovered
No. 05-11450

7 S.V. v. R.V., 933 S.W.2d 1, 4 (Tex. 1996).

8 Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 514 (Tex.

1998).

9 964 S.W.2d 265 (Tex. 1997).

10 Id. at 270.

6

until later, and even if all resulting damages have not yet occurred.”7 The

Supreme Court of Texas has also said that“[a] cause of action generally accrues,

and the statute of limitations begins to run, when facts come into existence that

authorize a claimant to seek a judicial remedy.”8

TIG contends that it did not suffer a legal injury and could not seek a

judicial remedy against Aon Re until the arbitration decision rescinded the

reinsurance treaty with regard to the Virginia Surety claims, which occurred on

May 5, 2004. TIG contends in the alternative that its causes of action accrued

in February 2003, when U.S. Life first asserted a right to rescind the treaty

based on Aon Re’s misrepresentations. Aon Re contends, and the district court

found, that TIG’s causes of action accrued in June 1998, when TIG and U.S. Life

consummated the reinsurance treaty.

The Texas Supreme Court’s decision in Murphy v. Campbell9is dispositive.

In that case, an accounting firm gave faulty tax advice to its client. The Texas

court held that “[a] person suffers legal injury from faulty professional advice

when the advice is taken.”10 Although the court in that case applied the

discovery rule, as we will discuss below, it concluded that a cause of action

accrues, even when the discovery rule applies, as soon as the claimant knows or

is put on notice that the advice is faulty, which may be well before a third party

takes any adverse action against the plaintiff. The Texas court said, “a taxpayer

may know his advice was faulty long before he receives a deficiency notice. For

example, if a taxpayer sought other opinions upon receipt of an audit notice, or

even earlier, the information obtained might put him on notice that the advice
No. 05-11450

11 Id. at 271.

12 Id. at 272 (concluding that “the deficiency notice . . . marked the latest date on which

their malpractice action could have accrued”).

13 Id. 273.

7

he received was wrong.”11 In that case the cause of action accrued at the latest

when the IRS sent a deficiency notice.12 Accordingly, limitations could

commence to run well before the IRS notified the taxpayer of its contention that

additional tax was owed.

TIG acted on Aon Re’s representations that complete data regarding

Virginia Security had been provided to U.S. Life’s agent when TIG accepted U.S.

Life’s proposal and entered into the reinsurance treaty. U.S. Life similarly relied

on Aon Re’s representations to itthatthe historical loss data was complete when

in fact Aon Re omitted the Virginia Security data. A legal injury to TIG occurred

on the date the treaty with U.S. Life became binding because that agreement

was impaired from the outset by Aon Re’s misrepresentations. U.S. Life had the

right to rescind because of those misrepresentations. Additionally, TIG’s

liabilities for claims made under Virginia Surety policies were accruing from the

date the treaty was consummated, but because of Aon Re’s conduct, the treaty

afforded TIG inadequate coverage for those claims, and they remained TIG’s

obligations.

TIG argues that if it had sued Aon Re before U.S. Life sought to rescind

the reinsurance treaty, Aon Re would have contended there were no damages,

and therefore, TIG would have had no meaningful judicial remedy. The

Supreme Court of Texas expressly rejected a similar argument in Murphy v.

Campbell.

13 One of the dissenters in that case had contended that “‘[t]here is no

need for an accountant to be subject to a malpractice claim if the Tax Court

concludes that his client does not owe additional taxes and the accountant’s
No. 05-11450

14 Id. (quoting 964 S.W.2d at 276 (ABBOTT, J., dissenting)).

15 Id.

16 Id.

17 Id. (“While it may be necessary to abate a malpractice suit pending resolution of a

dispute with the taxing authority, we view that procedure as preferable to holding that

limitations on a plaintiff’s claim begins to run when plaintiff decides it should.”).

18 Id. (quoting a brief filed by an amicus curiae).

19 Id. (“As in all discovery rule cases, a cause of action accrues when the plaintiff knows

or reasonably should know that he has been legally injured by the alleged wrong, however

slightly.”).

8

advice was sound.’”14 The court held otherwise, reasoning, “[w]hen alleged

malpractice claims are not brought within a reasonable period after they are

discovered or should have been discovered, accountants are severely prejudiced

in mounting their defense: witnesses often cannot be located or have forgotten

critical facts and documents frequently are misplaced or destroyed.”15 The court

concluded that if accrual of a cause of action were deferred “for prolonged and

indeterminate periods of time, the policy of repose underlying the statute of

limitations is undermined.”16 The proper course, the Texas court explained in

Murphy v. Campbell, is to abate the claimant’s negligence suit until any

proceedings involving third parties are commenced and resolved.17 The court

recognized thatit may take a considerable period oftime for a plaintiff to resolve

issues with third parties. But requiring a plaintiff to sue when its cause of

action accrued will foreclose “‘the specter of litigating decade-old-claims.’”18

The Texas court thus held that even in cases in which the discovery rule

applies, as it did in Murphy v. Campbell, a cause of action accrues when the

alleged wrong has caused a legal injury, “however slight[].”19In the present

case, TIG could have sued Aon Re at any time from June 1998 and

simultaneously pursued a declaratory judgment or other action against U.S. Life
No. 05-11450

20 962 S.W.2d 507 (Tex. 1998).

21 964 S.W.2d 265 (Tex. 1997).

22 Johnson & Higgins of Texas, Inc., 962 S.W.2d at 514.

23 Wellborn v. Sears, Roebuck & Co., 970 F.2d 1420, 1425 (5th Cir. 1992) (quoting

Simpson v. James, 903 F.2d 372, 375 (5th Cir. 1990)) (quotations omitted).

9

to clarify or determine the validity or extent of coverage of the treaty. TIG was

legally injured because of the impairment of the treaty.

The Texas Supreme Court’s decision in Johnson & Higgins of Texas, Inc.

v. Kenneco Energy, Inc.20 is not inconsistent with Murphy v. Campbell.

21 The

issue in that case was “whether, in a suit by an insured against its agent for

negligent breach of the agent’s duty to obtain insurance, the injury-producing

event was the denial of coverage by the insurance company, or the final

resolution of the coverage dispute by the courts.”22 The court held that the

earlier date obtained. There was no contention in that case, however, that the

plaintiff’s suit against its agent accrued when the agent made

misrepresentations to the plaintiff and the plaintiff entered into a contract in

reliance on those misrepresentations.

The district court did not err in holding that TIG’s causes of action for

negligence, negligent misrepresentation, and breach of fiduciary duty accrued

in June 1998.

IV

TIG contends that the discovery rule applies to its negligence, negligent

misrepresentation, and breach of fiduciary claims. As a preliminary matter, Aon

Re argues that TIG waived this issue by not pleading it. While Texas state

procedure may require specific reference to the discovery rule in pleadings,

“federal law governs the pleading requirements of a case in federal court.”23 The
No. 05-11450

24 Id.

25 Id. (quoting Simpson, 903 F.2d at 375) (quotations omitted).

26 S.V. v. R.V., 933 S.W.2d. 1, 8 (Tex. 1996) (“R.’s claims are therefore barred unless she

is entitled to an exception to the legal injury rule.”); Computer Assocs. Int’l, Inc. v. Altai, Inc.,

918 S.W.2d 453, 455 (Tex. 1996).

27 HECI Exploration Co. v. Neel, 982 S.W.2d 881, 886 (Tex. 1998) (citing Computer

Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex.1996)).

28 Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex. 1990).

29 918 S.W.2d 453 (Tex. 1996).

30 933 S.W.2d 1 (Tex. 1996).

31 HECI, 982 S.W.2d at 886 (quoting S.V., 933 S.W.2d at 5-6).

10

discovery rule need not be specifically pleaded in federal court.24 “[U]nder Rule

8 of the Federal Rules of Civil Procedure, it is enough that the plaintiff plead

sufficient facts to put the defense on notice of the theories on which the

complaint is based.”25 The facts pleaded by TIG gave sufficient notice to Aon Re

that TIG might assert that the discovery rule applies.

Under Texas law, the discovery rule is an exception to the general rule

that a cause of action accrues when a wrongful act causes some legal injury.26

When applied, the discovery rule “defer[s] accrual of a cause of action until the

plaintiff knew or, exercising reasonable diligence, should have known of the facts

giving rise to a cause of action.”27 The determination of whether the discovery

rule applies to a particular cause of action is a question of law.28

Prior to the Texas Supreme Court’s decisions in Computer Associates

International, Inc. v. Altai, Inc.29 and S.V. v. R.V.,

30 the reasoning that supported

the Texas courts’ “decisions to apply the discovery rule in particular cases was

‘diverse, somewhatinconsistent, and often overly broad.’”31 The Texas Supreme

Court “attempted to bring predictability and consistency to [its] jurisprudence
No. 05-11450

32 Id.

33 Id. (citing Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex.1996);

S.V., 933 S.W.2d at 6).

34 Id. (quoting Altai, 918 S.W.2d at 457).

35 S.V., 933 S.W.2d at 6.

36 Id. at 7.

11

in this area” in Altai and S.V.32 The court “articulated two unifying principles

that generally apply in discovery rule cases. They are that the nature of the

injury must be inherently undiscoverable and that the injury itself must be

objectively verifiable.”33

Importantly, the Texas court explained that whether the discovery rule

applies is determined categorically:

[The Supreme Court of Texas] explained in Altai that the

applicability of the discovery rule is determined categorically.

Although the particular injury in Altai may not have been

discovered, it was the type of injury that generally is discoverable

by the exercise of reasonable diligence: “While some trade secret

misappropriations might not be quickly discovered, this isolated fact

does not alter the reality that, in most cases, trade secret

misappropriation generally is capable of detection within the time

allotted for bringing such suits.”34

That is because “[s]tatutes of limitations are not directed to the merits of any

individual case[;]they are a result of legislative assessment ofthe merits of cases

in general.”35

“An injury is inherently undiscoverable if it is by nature unlikely to be

discovered within the prescribed limitations period despite due diligence.”36 The

injury in this case, the consummation of an agreement between TIG and U.S.

Life that was based on incomplete underwriting data, is not inherently

undiscoverable because it is the type of injury that could have been discovered
No. 05-11450

37 See Armstrong v. Am. Home Shield Corp., 333 F.3d 566, 570 (5th Cir. 2003) (“We find

that the profitability of a corporate division, and the source of information which underlies a

cost quotation, are precisely the types of information that a seller involved in a substantial

business transaction would seek to discover and could discover through the exercise of

reasonable diligence.”);MartinezTapia v. Chase Manhattan Bank, N.A., 149F.3d404, 409 (5th

Cir. 1998) (“The investor who seeks to blame his investmentloss on fraud or misrepresentation

must himself exercise due diligence to learn the nature of his investment and the associated

risks.”).

38 Murphy, 964 S.W.2d at 271.

12

by the exercise of reasonable diligence.37 An entity in TIG’s circumstances has

numerous sources from which it could determine whether accurate information

was sent to one with whom it was negotiating a contract. A starting point is the

company’s own files. Another source is the party with whom it is about to

contract. Inquiry could be made to determine or confirm the facts and

assumptions on which the bargain was to be based.

In the present case, there was summary judgment evidence that TIG’s vice

president in charge of its workers’ compensation division sent an internal email

before accepting U.S. Life’s bid, stating,“I want to make sure the data AON sent

to the market is good.” A red flag had been raised because U.S. Life’s bid was

so low. The TIG vice-president claims that he instructed an employee in TIG’s

actuarial department to follow up on this concern, but Washburn testified that

he did not recall that conversation. While fact questions exist as to exactly what

follow-up occurred, the evidence exemplifies that TIG’s injury is not,

categorically, the type of injury that is inherently undiscoverable.

Nor wasTIG relying on Aon Re for expertise that TIG did not possess. The

discovery rule has been applied under Texas law to malpractice claims against

accountants and attorneys because “the very reason to seek expert advice is that

tax matters are often not within the average person’s common knowledge.”38

Professional malpractice, such as erroneous tax advice, “is inherently
No. 05-11450

39 Id.

40 918 S.W.2d at 456.

41 760 S.W.2d 642, 645 (Tex. 1988).

42 Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 456 (Tex.1996) (internal

citation omitted). 

43 933 S.W.2d 1, 8 (Tex. 1996).

13

undiscoverable.”39

TIG argues that, in a fiduciary context, the nature of the injury is

presumed to be inherently undiscoverable. TIG cites Computer Associates

International, Inc. v. Altai, Inc.40for this proposition. In Altai, the Texas

Supreme Court observed in dicta:

We stated [in Willis v. Maverick]

41 that “[f]acts which might

ordinarily require investigation likely may not excite suspicion

where a fiduciary relationship is involved,” and that absent the

discovery rule exception the client “would have to hire a second

attorney to observe the work of the first.” But the fiduciary

rationale is, in reality, a variation on the inherently undiscoverable

element. Fiduciaries are presumed to possess superior knowledge,

meaning the injured party, the client, is presumed to possess less

information than the fiduciary. Consequently, in the fiduciary

context, it may be said that the nature of the injury is presumed to

be inherently undiscoverable, although a person owed a fiduciary

duty has some responsibility to ascertain when an injury occurs.42

The Texas Supreme Court subsequently elaborated in S.V. v. R.V. that it had

twice before held that a fiduciary’s conduct was inherently undiscoverable, and

“[t]he reason underlying both decisions is that a person to whom a fiduciary duty

is owed is either unable to inquire into the fiduciary’s actions or unaware of the

need to do so.”43

We assume, without deciding, that Aon Re owed a fiduciary duty to TIG

to provide accurate information to U.S. Life and to accurately relay to TIG what

it conveyed to U.S. Life. However, the undisputed evidence reflects that TIG
No. 05-11450

44 Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 817 (Tex. 1984), receded from on

other grounds by Barr v. Resolution Trust Corp. ex rel Sunbelt Fed. Sav., 837 S.W.2d 627, 628-

29 (Tex. 1992). 

45 Aviation Office of Am., Inc. v. Alexander & Alexander of Tex., Inc., 751 S.W.2d 179,

180 (Tex. 1988) (citing Bonniwell, 663 S.W.2d at 819-20). That decision’s additional

14

was not relying upon Aon Re’s expertise or superior knowledge to obtain

reinsurance coverage. TIG used Aon Re as an intermediary to obtain bids from

some reinsurers, TIG negotiated directly with reinsurers to obtain bids, then

TIG would compare all the information it had received and use that information

to negotiate the most favorable agreement, either directly or indirectly through

Aon Re. TIG not only could but did audit information that Aon Re said it had

distributed to the reinsurance market to determine whether that information

was congruent with what TIG had given to Aon Re. The evidence reflects that

TIG was not unaware of the need to inquire into what information Aon Re was

distributing. This is highlighted by TIG’s concerns when the U.S. Life bid was

considerably lower than expected. Because TIG’s injury was not inherently

undiscoverable, the district court did not err in determining that the discovery

rule is inapplicable to TIG’s negligence, negligent misrepresentation, and breach

of fiduciary claims. 

V

TIG contends thatthe district court erred in determining thatits commonlaw indemnity claim fails as a matter of law. TIG seeks to recover the uninsured

liabilities attributable to the Virginia Surety segment of its business that it has

incurred in the past and will incur in the future and to recover the costs and

expenses it incurred arbitrating with U.S. Life. Both parties agree that Texas

law applies to the indemnification claim.

Under Texas law, common-law indemnity is extremely rare and “[o]nly a

vestige of common law indemnity remains.”44 “The only remaining vestiges of

common law indemnity involve purely vicarious liability.”45 Texas law defines
No. 05-11450

observation that “the innocent product retailer situation” remained subject to common-law

indemnity has been superseded by legislation providing statutory indemnity to an innocent

product retailer, see TEX. CIV. PRAC. & REM. CODE § 82.002(a).

46 Beech Aircraft Corp. v. Jinkins, 698 S.W.2d 722, 724 (Tex. App.—Houston [1st Dist.]

1985), aff’d, 739 S.W.2d 19 (Tex. 1987); see also Am. Indem. Co. v. Baumgart, 840 S.W.2d 634,

638 (Tex. App.—Corpus Christi 1992, no writ) (“Beech Aircraft Corp. v. Jinkins does not

prevent a principal from paying a claim and then seeking indemnity against its agent.”).

47 (Emphasis added).

48 113 F.R.D. 100 (S.D.N.Y. 1986).

15

indemnity as “the payment of all of plaintiff’s damages by one tortfeasor to

another tortfeasor who had paid it to the plaintiff.”46

TIG contends that it faced “potential tort liability to US Life based upon

its failure to disclose to US Life the [Virginia Surety] loss experience,”47 and

“faced vicarious liability for any damages to US Life caused by Aon’s conduct.”

TIG candidly acknowledges, however, that “Aon’s tort exposure to US Life (as

well as TIG’s vicarious liability) was extinguished by the arbitration proceeding

in which US Life elected to forego its remedy of damages and pursue the

equitable remedy of rescission.” Because TIG was not vicariously liable for the

tortious conduct of Aon Re, TIG is not entitled to indemnity.

The equitable remedy of rescission granted in the arbitration placed U.S.

Life in the same position that obtained before it entered into the treaty with

regard to Virginia Surety’s obligations. U.S. Life did not suffer any loss and did

not recover any damages. TIG merely repaid payments U.S. Life had made to

reinsure claims attributable to Virginia Surety’s business. This does not give

rise to indemnity.

TIG argues thatPrudential Insurance Co. v. BMC Industries, Inc.,

48 a case

from the Southern District of New York, is the “single authority which squarely

presents the circumstances of this case.” In Prudential, the court noted:

Although no authority is presented for the proposition that
No. 05-11450

49 Id. at 103 (internal citation omitted).

50 See Erie R.R. v. Tompkins, 304 U.S. 64 (1938); Klaxon Co. v. Stentor Elec. Mfg. Co.,

313 U.S. 487, 497 (1941) (“[T]he proper function of the [] federal court is to ascertain what the

state law is, not what it ought to be.”); Barfield v. Madison County, Miss., 212 F.3d 269, 272

(5th Cir. 2000). (“If the state’s highest court has not spoken on the particular issue, ‘it is the

duty of the federal court to determine as best it can, what the highest court of the state would

decide.’”) (quoting Transcon. Gas v. Transp. Ins. Co., 953 F.2d 985, 988 (5th Cir. 1992)).

51 Barfield, 212 F.3d at 272 (quoting Rubinstein v. Collins, 20 F.3d 160, 172 (5th Cir.

1994)).

16

contribution or indemnity is available where the main claim is for

rescission alone, common sense dictates that contribution and

indemnification, usually discussed in the context of damages

actions, are also available where the defendant claims damages

based on a remedy of rescission assessed against it.49

It is our duty, however, to rule on this Texas state law issue as would the Texas

courts.50 “We will not expand state law beyond its presently existing

boundaries.”51 Because no Texas court has applied common-law indemnity to a

claim for damages sustained as a byproduct of rescission, and Texas courts have

routinely confined the availability of indemnity to those who are vicariously

liable for a tort and paid damages resulting from that tort, the district court did

not err in this regard.

Similarly, TIG’s claim for its arbitration costs are not damages that it was

required to pay to U.S. Life as a result of vicarious liability. Common-law

indemnification is not available as a means of recovering TIG’s out-of-pocket

arbitration costs under the circumstances of this case.

VI

For the foregoing reasons, we AFFIRM the judgment of the district court.