1 At the time of the contract, the insurance company's name

was Classified Insurance Company. The company later changed its

name to American Star Insurance Company.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

 

No. 92-5084

 

AMERICAN STAR INSURANCE CO.,

f/k/a Classified Insurance 

Corporation,

Plaintiff-Appellee,

versus

ROBERT F. GIRDLEY and

VIRGINIA L. GIRDLEY,

Defendants-Appellants.

 

Appeal from the United States District Court

for the Eastern District of Texas

 

(April 14, 1994)

Before HIGGINBOTHAM, DAVIS, and SMITH, Circuit Judges.

HIGGINBOTHAM, Circuit Judge:

We hold that an agreement requiring the agent of a bail bond

company to indemnify the company is not an illegal reinsurance

contract under Texas law.

I

Robert F. Girdley and Virginia L. Girdley agreed to act as

agents of American Star Insurance Company1 in the bail bond

business. The contract required the Girdleys to indemnify American

Star for any loss incurred on a bail bond issued by the Girdleys on
 

2 After the district court entered final judgment, the

Girdleys asked that the court amend its findings pursuant to

Fed.R.Civ.P. 52(b) to reflect the fact that the bail bond

business was not the Girdleys' but, rather, was American Star's. 

The district court made this alteration but nevertheless held

that American Star was entitled to summary judgment. 

2

American Star's behalf. American Star here sued the Girdleys under

the indemnification provision.

Both American Star and the Girdleys moved for summary

judgment, the motions turning on whether the indemnification

provision is an insurance contract. If it is, the Girdleys argued,

then the agreement was void because the Girdleys were not licensed

as insurers. This is their only defense on appeal.

The district court applied Texas law in granting summary

judgment for American Star, despite a provision in the agreement

specifying California law as controlling. The court concluded that

the indemnity provision was incidental to the agency agreement and

therefore that it did not require the Girdleys to provide

insurance. As a result, the agreement was enforceable.2 From this

judgment, defendants timely appeal. 

II

We must first address whether the district court erred in

applying Texas law in spite of the parties' choice of California

law. The issue in this case is whether the indemnification

provision in the agreement between the Girdleys and American Star

is enforceable as a matter of law. Because the Girdleys do not

contest American Star's position that the provision would be
 

3 Indeed, it appears that such a provision would be

enforceable under California law. See, e.g., Tischhauser v.

Jarvis, 273 P. 66, 67 (Cal. Ct. App. 1928) ("an agreement to

indemnify a surety on a bail bond is not against public policy");

McDonough v. Chu Chew Shong, 68 P.2d 976, 977 (Cal. Ct. App.

1937) ("Action upon an indemnity contract to guarantee plaintiffs

from loss by reason by their furnishing bail."); People v. Silva,

170 Cal. Rptr. 713, 719 (Cal. Ct. App. 1981) (bail agent of

corporate surety, as indemnitor, has standing to challenge bail

bond forfeiture); see generally J.E. Macy, Annotation, Right of

Surety on Recognizance or Bail Bond to Indemnity or Contribution,

170 A.L.R. 1161 (1947).

3

enforceable under California law,3 and because we hold below that

the provision is enforceable under Texas law, we need not decide if

the district court erred in applying Texas law. See Eugene F.

Scoles & Peter Hay, Conflict of Laws 17 (1984) ("'false conflict'

exists when the potentially applicable laws do not differ").

III

We hold that the indemnification provision was incidental to

the lawful agreement that the Girdleys would serve as American

Star's agents. It therefore did not constitute, or transform the

agreement into, an illegal insurance contract. As a result, we

need not decide whether providers of bail bonds are in the

insurance business or, alternatively, whether a party may shirk its

commitments by claiming that it has acted illegally.

All parties agree that the Girdleys could lawfully serve as

agents of American Star in the bail bond business. The question is

whether the Girdleys' indemnification of American Star qualifies as

reinsurance. We note at the outset that "when a contract is

susceptible of two constructions the construction which makes it

legal and valid will be adopted." Board of Ins. Com'rs v. Kansas
4

City Title Ins. Co., 217 S.W.2d 695, 697-98 (Tex. Civ. App. Austin

1949, writ ref'd n.r.e.).

We recently interpreted Texas law as establishing that "one

party to a contract for services is not an 'insurer' of the other

party to the contract solely because the first party indemnifies

the second party pursuant to an indemnity clause." Vesta Insurance

Co. v. Amoco Production Co., 986 F.2d 981, 985 (5th Cir.), cert.

denied, 114 S.Ct. 80 (1993). This court relied in Vesta on Board

of Ins. Com'rs. Vesta, 986 F.2d at 986 n.12 (citing Board of Ins.

Com'rs v. Kansas City Title Ins. Co., 217 S.W.2d 695 (Tex. Civ.

App. Austin 1949, writ ref'd n.r.e.)). In Board of Ins. Com'rs.,

the court addressed an indemnification provision in a contract

between a vendor of title abstracts and a provider of title

insurance. The vendor agreed to serve as the title insurance

company's agent. The indemnification provision held the vendor

liable to the title insurance company for obligations arising from

the policies the vendor sold on the insurance company's behalf. If

the indemnity provision was a reinsurance contract, it violated

Texas law by enabling the vendor to act as an unlicensed insurer.

The court held that the provision was not a reinsurance contract

but rather was incidental to the agency relationship. Id. at 697-

98.

In reaching this conclusion, the court looked to the likely

effect on the "public interest" of invalidating the indemnification

agreement. Id. at 698. By tracing the court's reasoning, we heed

the stated purpose for enacting the statute requiring the licensing
5

and regulation of bail bondsmen, that is, regulation of "a business

affecting the public interest." Tex. Rev. Civ. Stat. Ann. art.

2372p-3 §1 (Supp. 1994). See also Board of Ins. Com'rs, 217 S.W.2d

at 698 ("Title insurance is a business affected by public interest

and subject to legislative control"). 

The court in Board of Insurance Commissioners noted that the

indemnification provision neither allowed the vendor to "hold

itself out as engaging in the insurance business" nor caused people

to "rely upon the responsibility" of the vendor. 217 S.W.2d at

698. A Texas court addressing a similar issue noted that in Board

of Ins. Com'rs the title company "had not by [the] contract

relieved itself of liability to the policyholder, and that the

public was buying insurance from the [insurer] and not [the

vendor]." Manning v. State, 423 S.W.2d 406, 412 (Tex. Civ. App.

Austin 1967, writ ref'd n.r.e.) (citing Board of Ins. Com'rs, 217

S.W.2d 695, 698 (Tex. Civ. App. Austin, writ ref'd 1949 writ ref'd

n.r.e.)). The court in Manning seized on the fact that the agent

before it had "assumed all liability to the policyholder" whereas

the agent in Board of Ins. Com'rs had not. For this reason, the

Manning court found that the agent had provided insurance and had

not merely formed "a contract of indemnity." Id.

The same distinction applies to the present case. The

Girdleys could, and did, present themselves only as American Star's

agents. By the terms of the agreement, American Star acted "as

surety for bail bonds solicited in its name." The Girdleys do not

claim that American Star could have avoided its obligations as a
6

result of the indemnification provision. That provision was a

purely private agreement between American Star and the Girdleys.

It would be ironic if in an effort to protect an unwary government

institution or member of the public, neither of which had reason to

rely on the Girdleys as bail bondsmen, we were to keep American

Star from enforcing the Girdleys' obligations. The court in Board

of Ins. Com'rs rejected this approach to distinguishing between

indemnification and reinsurance. Board of Ins. Com'rs, 217 S.W.2d

at 698 (treating an indemnity provision as an illegal insurance

contract would be error where it would expose to risk parties that

the law was designed to protect). No interest that Texas might

wish to protect would be served by allowing the Girdleys to escape

liability. 

AFFIRMED.