1

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

UNITED STATES FIRE INSURANCE 

COMPANY,

§

§

§

 Plaintiff-Counterdefendant, §

§

v. § Case No. 3:22-cv-00868-BT

§

UNIFIED LIFE INSURANCE 

COMPANY,

§

§

§

 Defendant-Counterclaimant. §

MEMORANDUM OPINION AND ORDER

This is a declaratory judgment action seeking a determination of the 

rights and obligations of the parties in connection with a reinsurance 

agreement between Plaintiff-Counterdefendant United States Fire 

Insurance Company (USF) and Defendant-Counterclaimant Unified Life 

Insurance Company (Unified). Unified also asserts a claim against USF for

breach of the reinsurance agreement. Before the Court are the parties’ cross

motions for summary judgment. For the following reasons, the Court 

determines that USF owes a duty to Unified under the reinsurance 

agreement to pay a portion of a class settlement and associated costs and 

fees and that USF breached that duty when it failed to pay as required under 

the agreement. Accordingly, the Court DENIES USF’s Motion for Summary 

Judgment (ECF No. 31) and GRANTS Unified’s Affirmative Motion for 

Summary Judgment (ECF No. 26).

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Background

A. The Reinsurance Treaty

At one time, Unified, a Texas insurance company, offered short-term 

medical (“STM”) insurance products. In connection with its STM products, 

Unified entered into a reinsurance agreement with various reinsurance 

companies, including USF (the “Reinsurance Treaty”). See Def.’s App., Ex. 

A-1 & A-2 (ECF No. 28). 

Under the terms of the Reinsurance Treaty, the reinsurers, including 

USF, agreed to provide reinsurance coverage as follows:

Article IV – Reinsurance Coverage

A. With respect to the Policies subject to this Agreement, 

[Unified] shall cede to the Reinsurer, and the Reinsurer 

shall accept 50% of [Unified’s] Net Loss, subject to policy 

limits up to and including $1,000,000. However, the 

liability of the Reinsurer as respects Extra Contractual 

Obligations shall not exceed $5,000,000 in the aggregate 

for all insured persons per Agreement Year.

B. In addition to its limits of liability above, the Reinsurer shall 

cover any Extra Contractual Obligations arising from 

Claims incurred on the policies reinsured hereunder. The 

Reinsurer shall indemnify [Unified] for such Extra 

Contractual Obligations in the same proportion as the 

Reinsurer’s share in the Net Loss bears to the total amount 

of [Unified’s] Net Loss. However, the Reinsurer’s maximum 

liability for all Extra Contractual Obligations shall not 

exceed $5,000,000 per Agreement Year.

Id. at 16. That is, the reinsurers agreed to accept 50% of Unified’s “Net Loss” 

and cover any “Extra Contractual Obligations” arising from Claims incurred 

on the STM policies. Id.

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With respect to handling and settling Claims under the STM policies, 

the reinsurers “agree[] to abide by all Claim payments made by or on behalf 

of [Unified], . . . and . . . to pay or allow, as the case may be, its proportion of 

each such settlements.” Id. at 18. The reinsurers also “agree[] to abide by all 

loss payments and settlements made by or on behalf of [Unified]” and 

“agree[] to pay or allow, as the case may be, [their] proportion of each such 

settlement.” Id. Each reinsurer further agreed to be “liable for its 

proportionate share of Claim and Loss Adjustment Expenses incurred by or 

on behalf of [Unified] in connection therewith.” Id. 

Regarding lawsuits, the Reinsurance Treaty provides that Unified

“shall . . . advise the Reinsurer promptly of all Claims which, in the opinion 

of [Unified], may result in a Claim hereunder and of all subsequent 

developments thereto which, in the opinion of [Unified], may materially 

affect the position of the Reinsurers.” Id. But “[i]n the event a lawsuit is filed 

which involves a claims decision, [Unified] has the final authority in hiring 

outside counsel, agreeing upon the terms of a potential settlement and shall

have the final authority over all strategic decisions made in the course of 

litigation.” Id.

B. The Butler Litigation

In February 2016, Charles Butler, a citizen and resident of Montana, 

purchased a Unified STM policy. Pl.’s App., Ex. F, ⁋⁋ 1, 2 (ECF No. 33). Six 

months later, Butler received a cancer diagnosis. Pl.’s App., Ex. F, ⁋⁋14, 17.

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He incurred medical expenses related to his cancer treatment, for which he 

unsuccessfully sought payment under the STM policy. 

In April 2017, Butler and his wife sued Unified in a Montana federal 

court, Charles M. Butler, III, et al. v. Unified Life Insurance Company, et 

al., Case No. 1:17-cv-50, for alleged improper handling of Butler’s claims 

under the STM policy. Pl.’s App., Ex. F (ECF No. 33). Among other things, 

the Butlers alleged that Unified discounted Mr. Butler’s medical bills to 

lower than the “Reasonable and Customary Charge” as defined in the STM 

policy, which resulted in Unified underpaying the disputed claims.

In August 2018—after the expiration of the deadline to amend 

pleadings—the Butlers filed a motion for leave to file a third amended 

complaint which sought to add a class action claim on behalf of all Unified

policyholders for breach of the STM policies. See Butler, Case No. 1:17-cv50, Doc. 86. The Butlers then moved for partial summary judgment on the 

contract claims brought individually and purportedly on behalf of a class. 

See id. at Doc. 98. Unified filed a cross motion for summary judgment on 

October 5, 2018, which argued that the Butlers’ claims fail based on the plain 

terms of the STM policy. Id. at Doc. 115.

The Montana district court granted the Butlers leave to amend on 

December 3, 2018, and filed the Butlers’ third amended complaint on the 

docket. Id. at Doc. 180 & Doc. 181. In August 2019, a magistrate judge 

recommended granting the Butlers’ individual breach of contract claim but 

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recommended denial of class certification and denial of summary judgment 

for the class. Id. at Doc. 225 & Doc. 226. Then, on September 30, 2019, the 

district court accepted the recommendation in part and granted the motion 

for partial summary judgment as to the Butlers’ individual claims. Id. at Doc. 

240. But the district court rejected the magistrate judge’s recommendation 

regarding the class claim and granted the motion for class certification. Id. 

at Doc. 241. Unified sought interlocutory review from the Ninth Circuit 

Court of Appeals; the Ninth Circuit denied review on November 21, 2019. Id. 

at Doc. 252.

Unified first notified USF of the Butler litigation and the added class 

claim on December 20, 2019. Def.’s Br. 15 (ECF No. 27). Following 

notification, USF contributed to the defense by recommending that Unified

(1) retain different counsel; (2) file a motion to reconsider the court’s 

summary judgment ruling; (3) file a motion to reconsider the court’s class 

certification ruling; and (4) make efforts to settle. Id. at 16. Unified initially 

declined USF’s recommendation to move for reconsideration and 

communicated its plan to retain expert witnesses to testify “that Unified’s 

claims repricing [methodology] was industry standard, policy compliant, 

and not a breach of the insurance contract.” Id. at 17 (citing Exhibit A-13 

(APP000262-264)). Until that point in the litigation, Unified had decided 

that retaining experts was not a cost-effective litigation strategy. See Def.’s 

Resp. 36 (ECF No. 44) (citing Exhibit A-5, Unified 30(b)(6) Deposition pp. 

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64:5–11 (APP000107) (“[B]efore it was a class action lawsuit, Unified

discussed using expert witness, but it was not cost effective.”); Exhibit A-6, 

Kevin Dill Deposition, 58:15–17 (APP000137) (“[I]t wasn’t cost effective for 

[Unified] at that point in time . . . .”)).

Unified eventually filed a motion to clarify the prior summary 

judgment ruling and a motion for leave to file a motion for reconsideration. 

Id. at Doc. 339 & 361. Regarding reconsideration, Unified argued that in 

holding that Unified’s claim-pricing methodology breached the terms of the 

STM policies, “the Court incorrectly assumed that [Unified’s] program 

utilized only one method for calculating payment amounts when it actually 

uses three different methods depending on the type of medical claim.” Pl.’s 

App., Ex. X at 5 (ECF No. 33). Unified supported each motion with 

declarations from expert witnesses recommended to Unified by USF. See 

Pl.’s Br. 17 (ECF No. 32) (“Attached to the Motion for Clarification as Exhibit 

A was a supporting declaration of . . . experts that U.S. Fire had 

recommended.”).

In March 2021, the Montana district court denied Unified’s motions 

to clarify and for leave to file a motion for reconsideration. See Butler, Case 

No. 1:17-cv-50, at Doc. 373. In its order denying the motions, the court 

explained it was not persuaded that Unified could not have presented its 

expert witness testimony and accompanying factual argument regarding 

Unified’s claim pricing methodology prior to the court ruling on class 

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certification. Pl.’s App., Ex. X, at 6 (ECF No. 33). Additionally, the court 

stated that regardless of the timing of the expert witness testimony, the 

accompanying argument would likely not have made a difference. See id. 

(“The Court is not persuaded that additional evidence of [Unified’s] 

methodologies for calculating medical claim payments based on the type of 

claim would have materially affected the question of whether Unified 

breached its insurance policy by paying a lower amount on medical claims 

than required.”). Further, in denying Unified’s request for an order of 

clarification, the court reasoned that “[t]he exact methodology [Unified’s] 

system used to calculate those payments was not material, the key finding 

was that [its] system resulted in lower payments than required. The Court 

sees no reason to limit that holding now.” Id. at 9–10.

Shortly after the district court denied Unified’s motions, the parties to 

the Butler litigation filed a joint motion for mediation. See Butler, Case No. 

1:17-cv-50, at Doc. 375. The parties ultimately reached an agreement to 

settle the class claims for $8 million, and in November 2021, the district 

court granted final approval of the $8 million settlement. Id. at Doc. 427; 

Def.’s Br. 19 (ECF No. 27).

Pursuant to the Reinsurance Treaty, Unified sought payment from 

USF for its share of the settlement. Def.’s Br. 20 (ECF No. 27). USF refused

to pay.

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C. This Declaratory Judgment Action

USF initiated this civil action in April 2022, seeking a declaration that 

Unified provided it unreasonably late notice of the Butler litigation and, 

therefore, USF has no obligation to pay any amounts on any claims—of the 

Butlers or the class members—and that it has no obligation to reimburse 

Unified for any defense costs or damages imposed in the Butler litigation. 

Compl. (ECF No. 1). Alternatively, USF seeks a declaration that (i) USF has 

no obligation to indemnify Unified for the $2 million attorney fee award that 

was part of the $8 million Butler settlement because the Reinsurance Treaty 

does not permit payment of those costs; (ii) USF has no obligation to 

reimburse any defense costs incurred by Unified in defense of the Butler

litigation; and (iii) USF is entitled to a set-off in subrogation for its share of 

any recovery obtained by Unified against any entity.

On June 17, 2022, Unified answered USF’s Complaint and filed

counterclaims for declaratory judgment, breach of contract, and attorney’s

fees. Answer (ECF No. 5). USF filed a Motion to Dismiss Unified’s 

Counterclaims (ECF No. 8), and Unified responded by filing its operative 

pleading, the First Amended Counterclaims, on July 29, 2022. Am. 

Countercl. (ECF No. 12). Succinctly stated, Unified seeks a declaratory 

judgment that the Reinsurance Treaty obligates USF to pay USF’s

proportional share of the Butler litigation settlement and associated defense 

costs and fees. Unified argues that it timely provided USF notice of the 

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Butler litigation—when, in Unified’s subjective opinion, it became clear that 

the Butler litigation would result in a claim against the reinsurers—and USF 

breached the Reinsurance Treaty by failing to pay USF’s share of the Butler 

litigation settlement and associated costs.

Both parties have moved for summary judgment, and those cross 

motions are fully briefed and pending before the Court.

Legal Standards

Summary judgment is proper when “there is no genuine dispute as to 

any material fact and the movant is entitled to judgment as a matter of law.” 

Fed. R. Civ. P. 56(a). A party seeking summary judgment who does not have 

the burden of proof at trial need only point to the absence of a genuine fact 

issue. See Duffy v. Leading Edge Prods., Inc., 44 F.3d 308, 312 (5th Cir. 

1995). Once the movant meets its initial burden, the non-movant must show 

that summary judgment is not proper. See Duckett v. City of Cedar Park, 

950 F.2d 272, 276 (5th Cir. 1992). To do so, the nonmovant must go beyond 

its pleadings and designate specific facts showing there is a genuine issue for 

trial. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc) 

(per curiam). 

By contrast, a party seeking summary judgment who bears the burden 

of proof at trial must establish “beyond peradventure all of the essential 

elements of the [claim or] defense to warrant judgment in his favor.” Chaplin 

v. NationsCredit Corp., 307 F.3d 368, 372 (5th Cir. 2002) (emphasis 

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removed) (quoting Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 

1986)). This means that the movant must demonstrate that there are no 

genuine and material fact disputes and that the movant is entitled to 

judgment as a matter of law. See Martin v. Alamo Cmty. Coll. Dist., 353 F.3d 

409, 412 (5th Cir. 2003). 

The parties may satisfy their respective burdens “by tendering 

depositions, affidavits, and other competent evidence.” Topalian v. 

Ehrman, 954 F.2d 1125, 1131 (5th Cir. 1992) (first citing Int’l Shortstop, Inc. 

v. Rally’s, 939 F.2d 1257, 1263 (5th Cir. 1991); and then citing Fed. R. Civ. P. 

56(e)).

Analysis

Unified moves for summary judgment on its breach of contract and 

declaratory judgment counterclaims. USF moves for summary judgment on 

its declaratory judgment claim, as well as Unified’s counterclaims for 

declaratory judgment, breach of contract, and attorneys’ fees. The gravamen 

of the parties’ dispute is whether Unified complied with its obligations under 

the Reinsurance Treaty to provide USF timely notice of the underlying 

claims in the Butler litigation.

By its motion, Unified argues that it settled the Butler litigation in 

good faith and ceded this loss to USF for reinsurance coverage under the 

Reinsurance Treaty, but USF denied coverage and failed to reimburse 

Unified for USF’s portion of the Net Loss, thereby breaching the 

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Reinsurance Treaty. USF argues that it has no obligation to indemnify 

Unified for any amounts in relation to the Butler litigation because Unified 

failed to provide USF “prompt” notice of the Butlers’ claims, as required by

the terms of the Reinsurance Treaty. Instead, USF contends, Unified

provided USF “unreasonably late” notice of the Butler litigation. 

Unified contends that the Reinsurance Treaty does not require 

prompt notice “in the abstract.” Rather, the obligation to provide notice 

arises only when—in Unified’s subjective opinion—the underlying litigation 

“may result in a claim [under the Reinsurance Treaty]” and “may materially 

affect the position of the Reinsurer.” According to Unified, until the Ninth 

Circuit denied its request for interlocutory appellate review, Unified 

subjectively believed the Butler litigation was meritless and would not result 

in a reinsurance claim. As such, Unified insists it gave USF timely notice. 

Unified further argues that even if its notice was late, it is still entitled to 

summary judgment because USF did not suffer any prejudice as a result of 

the late notice.

USF rejects Unified’s assertion that the notice provision of the 

Reinsurance Treaty creates a subjective standard to decide when to provide 

notice. USF also argues that Unified provided late notice in bad faith, and 

therefore USF is not required to show that it suffered prejudice as a result of 

the alleged late notice. If prejudice is required, however, USF argues that

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Unified’s late notice prejudiced USF because it deprived USF of the ability 

to advise and assist Unified in the defense of the Butler litigation.

As explained below, Unified has established beyond peradventure all 

of the essential elements of its breach of contract counterclaim to warrant 

judgment in its favor. Also, there are no genuine disputes of material fact

regarding USF’s late notice defense or its declaratory judgment claim. Thus, 

Unified is entitled to summary judgment on its breach of contract and 

declaratory judgment counterclaims.

A. Unified is entitled to summary judgment on its breach of contract 

counterclaim.

To prevail on its breach of contract counterclaim, Unified must 

establish: (1) the Reinsurance Treaty is a valid contract; (2) USF breached

the Reinsurance Treaty; (3) Unified performed or tendered performance; 

and (4) Unified sustained damages sustained as a result of USF’s breach.1

Mullins v. TestAmerica, Inc., 564 F.3d 386, 418 (5th Cir. 2009) (citing 

Aguiar v. Segal, 167 S.W.3d 443, 450 (Tex. App.—Houston [14th Dist.] 

2005, pet. denied)). The parties do not dispute that the Reinsurance Treaty 

is a valid and enforceable agreement. Thus, the Court begins with the second 

and third elements of the claim.

1 The Reinsurance Treaty contains a “Governing Law” provision stating that 

Texas state law shall govern as to performance, administration, and 

interpretation of the agreement. Def.’s App. Ex. A-1, at 26 (ECF No. 28).

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i. Breach 

As set forth above, the notice provision in the Reinsurance Treaty 

states:

The Company [Unified] shall also advise the Reinsurer [USF] 

promptly of all Claims which, in the opinion of the Company, 

may result in a Claim hereunder and of all subsequent 

developments thereto which, in the opinion of the Company, 

may materially affect the position of the Reinsurer.

Def.’s App., Ex. A-1, art. VIII(B) (ECF No. 28). It is undisputed that Unified 

first notified USF of the Butler litigation on December 20, 2019. Id. at 11. 

Unified argues that its notice was timely because the plain language 

of the notice provision creates a subjective standard for notice. That is, 

Unified’s obligation to notify any reinsurer is not triggered until “in the 

opinion of [Unified,]” the litigation could result in reinsurance liability. 

Def.’s Br. 25 (ECF No. 27). Unified asserts that—prior to the Ninth Circuit’s 

denial of interlocutory review of class certification—it subjectively believed 

that the Butlers’ class claims were meritless and would not result in 

reinsurance liability. Id. at 25–26. Unified also asserts that because it paid 

off the Butlers’ individual claims, it also subjectively believed that the 

individual claims would not result in reinsurance liability. Id.

USF disputes that the Reinsurance Treaty creates an entirely 

subjective standard for notice and insists that Unified’s notice was 

unreasonably late, and thus, USF is not under any obligation to pay Unified. 

USF explains that the Reinsurance Treaty is a quota-share treaty, which 

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provides reinsurance coverage to the first dollar of liability of Unified. 

Therefore, USF asserts, Unified should have notified USF about the Butler 

litigation at or near the time the Butlers filed their initial Complaint in April 

2017—or at the least, when Unified began incurring legal expenses which 

were allocated to the Butlers’ claim. Pl.’s Br. 19 (ECF No. 32). 

The Court construes USF’s late notice argument as an affirmative 

defense, on which USF bears the burden of proof. See Tony Gullo Motors I, 

L.P. v. Chapa, 212 S.W.3d 299, 314 (Tex. 2006) (referring to “prior material 

breach” as an affirmative defense); Blackstone Med., Inc. v. Phoenix 

Surgicals, L.L.C., 470 S.W.3d 636, 646 (Tex. App.—Dallas 2015, no pet.) 

(“The contention that a party to a contract is excused from performance 

because of a prior material breach by the other contracting party is an 

affirmative defense that must be affirmatively pleaded.”). To prevail on its 

late notice defense, USF must establish both (1) a prior breach—late notice; 

and (2) materiality—prejudice from such late notice. Berkley Reg’l Ins. Co. 

v. Philadelphia Indem. Ins. Co., 690 F.3d 342, 349 (5th Cir. 2012) (“[I]n 

order for an insured’s breach to defeat coverage, the breach must prejudice 

the insurer in some tangible way.”); Trumble Steel Erectors, Inc. v. Moss, 

304 F. App’x 236, 239 (5th Cir. 2008) (quoting PAJ, Inc. v. Hanover Ins. 

Co., 243 S.W.3d 630, 631, 636–37 (Tex. 2008) (“Under Texas law, when an 

insurance policy requires that the policyholder notify its insurer of any claim 

or suit ‘as soon as practicable,’ the policyholder’s ‘failure to timely notify its 

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insurer of a claim or suit does not defeat coverage if the insurer was not 

prejudiced by the delay.’”); St. Paul Guardian Ins. Co. v. Centrum G.S. Ltd., 

383 F. Supp. 2d 891 (N.D. Tex. 2003) (under Texas law, insurer was required 

to show prejudice from insureds’ failure to provide timely notice of claims, 

absent the policy “specifically mention[ing] the consequences of not giving 

timely notice” or the policy “defin[ing] the notice requirement as a condition 

precedent to coverage”).2

Under the terms of the Reinsurance Treaty, Unified has a duty to 

provide “prompt[]” notice once, “in the opinion of [Unified],” the underlying 

lawsuit may result in a claim that would result in reinsurance liability. Def.’s 

App., Ex. A-1, art. V(A); art. VIII(B) (ECF No. 28) (emphasis added). The 

notice provision conspicuously fails to include any modifier requiring that 

Unified’s opinion must be “reasonable.” Despite this plain language, USF 

argues that the Court should construe the notice provision to include a 

requirement that Unified’s opinion be objectively reasonable, because to 

2 Neither party cites any authority—and the Court does not find any cases in 

its own research—discussing specifically whether Texas law requires 

prejudice in the context of reinsurance, rather than direct insurance. But the 

Court discerns no rationale for treating reinsurers differently than insurers 

in the context of asserting a late notice defense. The Court favorably notes 

authority reasoning that the need to show prejudice is even more important 

in the reinsurance context compared to direct insurance. See, e.g., 

Christiana Gen. Ins. Corp. v. Great Am. Ins. Co., 745 F. Supp. 150, 159 

(S.D.N.Y. 1990) (reinsurers “have no duty to defend claims,” and the “the 

potential staleness of claim” is not “as significant a concern to a reinsurer as 

it is to a primary insurer”).

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construe the provision precisely as written would grant Unified “unfettered 

discretion” and “would effectively read the notice provision out of the 

treaty.” Pl.’s Resp. 5–6 (ECF No. 39). Further, USF argues, a subjective 

standard would be contrary to the principle of Texas law that requires courts 

to construe contracts from a “utilitarian standpoint” given the particular 

business activity involved. Id. 6–7 (citing Hackberry Creek Country Club, 

Inc. v. Hackberry Creek Home Owners Ass’n, 205 S.W.3d 46, 62 (Tex. 

App.—Dallas 2006). According to USF, the purpose of the notice provision 

is to permit the reinsurers to decide whether to associate in the defense of a 

particular claim, and that purpose would be completely undermined if 

Unified could wait to notify the reinsurers until after liability had been 

imposed. Id. But ultimately, USF’s proposed construction would have the 

Court ignore fundamental principles of contract interpretation. See Lincoln 

Gen. Ins. Co. v. U.S. Auto Ins. Servs., Inc., 787 F.3d 716 (5th Cir. 2015) 

(under Texas law, reinsurance agreements are construed by applying 

ordinary rules of contract interpretation).

Namely, Texas courts should be “hesitant to imply terms into 

contracts.” Barrow-Shaver Res. Co. v. Carrizo Oil & Gas, Inc., 590 S.W.3d 

471, 489 (Tex. 2019) (citing Murphy Expl. & Prod. Co.–USA v. Adams, 560 

S.W.3d 105, 110 (Tex. 2018) (declining to read any implied proximity 

requirement concerning an offset well into a lease provision); URI, Inc. v. 

Kleberg Cnty., 543 S.W.3d 755, 771 n.81 (Tex. 2018) (explaining that Texas 

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courts will not imply restraints for which the parties have not bargained); 

Tenneco Inc. v. Enter. Prods. Co., 925 S.W.2d 640, 646 (Tex. 1996) 

(recognizing that Texas courts have long refused to imply restraints that are 

absent from the agreement)); see also Gamma Grp., Inc. v. Transatlantic 

Reinsurance Co., 242 S.W.3d 203, 212 (Tex. App.—Dallas 2007, pet. denied)

(citing Helmerich & Payne Int’l Drilling Co. v. Swift Energy Co., 180 S.W.3d 

635, 640 (Tex. App.—Houston [14th Dist.] 2005, no pet.) (“A court may not 

add to a contract under the guise of interpretation.”). Texas courts do not 

rewrite contracts to insert provisions parties could have included or imply 

restraints for which the parties did not bargain. Gamma, 242 S.W.3d at 212

(citing Tenneco, 925 S.W.2d at 646). A term will not be implied simply to 

make a contract “fair, wise, or just.” Universal Health Serv., Inc. v. 

Renaissance Women’s Group, P.A., 121 S.W.3d 742, 748 (Tex. 2003).

Here, bound by long-standing rules of contract construction, the 

Court will not insert the term “reasonable” into the bargained-for notice 

provision. See Gamma, 242 S.W.3d at 213 (“To adopt the trial court’s 

interpretation of the contract would require us to inject meaning not 

expressed in words chosen by the parties and placed within the four corners 

of the agreement. Had these sophisticated businesses intended . . . the 

agreement could easily have included the word “reasonable”[.]”). Creating a 

reasonableness constraint would ignore and effectively eliminate the plain 

language chosen and agreed to by both parties. See Lincoln Gen. Ins. Co. v. 

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U.S. Auto Ins. Servs., Inc., 809 F. Supp. 2d 582, 589 (N.D. Tex. 2011) (citing 

Westwind Exploration v. Homestate Sav. Ass’n, 696 S.W.2d 378, 382 (Tex. 

1985)) (“If a certain construction of the contract renders a clause 

meaningless, that reading is unreasonable and therefore not favored.”).

Regardless of any purported utilitarian rationale related to the business 

purpose of the Reinsurance Treaty, the Court is constrained by the contract’s 

express terms.

Further, USF’s principal concern that the notice provision, as written, 

grants Unified “unfettered” discretion is overstated. The notice provision 

constrains Unified to follow its actual subjective opinion. Accordingly, in the 

absence of any binding authority addressing notice to a reinsurer under a 

reinsurance contract,3 the Court concludes the language of the notice 

provision in the Reinsurance Treaty creates a subjective standard.

And here, the uncontroverted summary judgment evidence 

establishes that Unified subjectively did not believe the Butlers’ claim would 

result in reinsurance liability to USF in April 2017. At that time, Unified had 

paid the Butler-related health care benefits, and it was initially handling the 

Butlers’ claims through the claims appeal process. Def.’s App., Ex. A-5 (ECF 

No. 28) Unified 30(b)(6) Deposition, at 114 (“[W]e felt there was no claim 

against U.S. Fire at that time.”). Unified subjectively believed that it had 

3 USF concedes “[n]o Texas case has addressed reasonable notice to a 

reinsurer under a reinsurance contract.” Pl.’s Br. 23 (ECF No. 32).

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properly processed the Butlers’ claims under the policy terms. Id. (“We felt 

that the Butlers’ claims were processed per their policy.”); Ex. A-6, Kevin D.

Deposition, at 133 (“Unified felt like all the claims were paid.”). Unified also 

held the opinion that the class claims had no merit, and, therefore, the Butler 

litigation would not result in a claim against any reinsurers. As late as August 

2019, Unified relied on the magistrate judge’s recommendation to deny class 

certification and deny summary judgment for the class. Unified’s opinion 

changed on November 21, 2019, following the Ninth Circuit’s denial of 

Unified’s interlocutory appeal of the district court’s rejection of the

recommendation regarding class certification. At that time, it became clear 

to Unified that the class claims would proceed beyond the certification stage, 

and Unified subjectively believed the Butler litigation could result in a claim 

under the Reinsurance Treaty. Unified notified the reinsurers of the Butler 

litigation approximately 30 days later—on December 20, 2019. 

In view of the summary judgment evidence, there is no genuine 

dispute as to Unified’s subjective opinion regarding when it became likely 

that the claims in the Butler litigation would result in reinsurance liability 

for USF. Thus, the Court concludes there is no genuine dispute—indeed, 

Unified has shown beyond peradventure—that Unified provided “prompt” 

notice to USF of all Claims which, “in the opinion of [Unified], may result in 

a Claim [under the Reinsurance Treaty],” as required by the parties’ 

agreement.

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But even if Unified had provided late notice of the Butler litigation, 

USF’s claim that it is not obligated to pay fails because USF was not 

prejudiced by such late notice.

USF contends that it does not have to show prejudice to avoid paying 

a share of the settlement because “Unified failed to provide timely notice in 

bad faith.” Pl.’s Br. 26 (ECF No. 32). But USF does not cite any binding 

authority holding that a showing of bad faith negates an insurer’s obligation 

to show prejudice under Texas law. Rather, USF relies on two cases from the 

Second Circuit Court of Appeals interpreting New York Law, Unigard Sec. 

Ins. Co. v. N. River Ins. Co., 4 F.3d 1049 (2d Cir. 1993), and Christiania 

General Ins. Corp. of New York v. v. Great Am. Ins. Co., 979 F.2d 268 (2d 

Cir. 1992), as well as a New Hampshire state court case interpreting 

California and New York law, Certain Underwriters at Lloyd’s London v. 

Home Ins. Co., 146 N.H. 740, 783 A.2d 238 (N.H. 2001).

Relying on these nonbinding authorities, USF asserts that the 

summary judgment record establishes that Unified acted in bad faith in 

providing late notice to USF because “the president of Unified admitted that 

it had no procedure or controls to ensure notification of reinsurers of claim 

litigation brought by insureds.” Pl.’s Br. 27 (ECF No. 32) (citing Ex. A, 53:2-

4 (USF APPX 0014)). But even considering the summary judgment evidence 

in the light most favorable to USF, the record does not support that Unified 

had no procedure for deciding when to notify its reinsurers of potential 

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liability. Rather, the record reveals that Unified had a procedure of deciding 

when notice was required on a case-by-case basis, depending on the 

particular facts of each potential claim. See Def.’s App., Ex. C-1 ¶ 4 (ECF No. 

45) (K. Dill Declaration). Such case-by-case determination was a good-faith, 

reasonable notification procedure in light of the discretion afforded to 

Unified by the plain language of the notice provision in the reinsurance 

agreement. See Munich Reinsurance Am., Inc. v. Am. Nat. Ins. Co., 999 F. 

Supp. 2d 690, 752 (D.N.J. 2014), aff’d, 601 Fed. Appx. 122 (3d Cir. 2015) 

(Unigard II did not require “best practices” for an insured to avoid a bad 

faith finding; such caselaw found practices sufficient if they were 

“reasonable in light of the circumstances”).

Accordingly, even if the authority on which USF relies were binding 

on the Court, it does not support USF’s contention that Unified acted in bad 

faith. USF thus has the burden to show it was prejudiced by any late notice.

To establish prejudice, “[b]ecause of the inherently uncertain nature 

of its burden—demonstrating how events may have differed under a 

different set of facts—an insurer need not ‘show precisely what the outcome 

would have been had timely notice been given.’” Trumble, 304 F. App’x at 

239–40 (quoting Am. Ins. Co. v. Fairchild Indus., Inc., 56 F.3d 435, 440 (2d 

Cir. 1995)). “Uncertainty does not, however, relieve the insurer of the burden 

to ‘show the precise manner in which its interests have suffered.’” Id. 

(quoting 13 RUSS & SEGALLA, COUCH ON INSURANCE § 193:29). 

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Indeed, “the insurer [or reinsurer] must prove more than ‘prejudice that is 

only theoretical or presumed merely from the length of the delay.’” Id. 

(quoting Coastal Ref. & Mktg., Inc. v. U.S. Fid. & Guar. Co., 218 S.W.3d 279, 

288 (Tex. App.—Houston [14th Dist.] 2007, pet. denied)). 

Put another way, to avoid reinsurance coverage, “actual prejudice” is 

required. Clarendon Nat. Ins. Co. v. FFE Transp. Servs., Inc., 176 F. App’x 

559, 562 (5th Cir. 2006) (emphasis added). Late notice “must prejudice the 

insurer in some tangible way.” Trumble, 304 F. App’x at 239 (quoting PAJ, 

Inc. v. Hanover Ins. Co., 243 S.W.3d 630, 631, 636–37 (Tex. 2008)). And 

generally, “an insurer must show not merely the possibility of prejudice, but, 

rather, that there was a substantial likelihood of avoiding or minimizing the 

covered loss [had the insured provided earlier notice][.]” Id. at 240 n. 19 

(quoting 13 RUSS & SEGALLA, COUCH ON INSURANCE § 193:29).

Texas courts have outlined “specific and definitive” circumstances in 

which prejudice occurs as a matter of law:

when the insurer, without notice or actual knowledge of suit, 

receives notice after entry of default judgment against the 

insured; (2) when the insurer receives notice of the suit and the 

trial date is fast approaching, thereby depriving it of an 

opportunity to investigate the claims or mount an adequate 

defense; (3) when the insurer receives notice of a lawsuit after 

the case has proceeded to trial and judgment has been entered 

against the insured; and (4) when the insurer receives notice of 

a default judgment against its insured after the judgment has 

become final and nonappealable.

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St. Paul Guardian, 383 F. Supp. 2d at 902 (collecting Texas cases). The facts 

of this case do not fit squarely into any of these specific categories. Unified 

notified USF of the Butler litigation after the Montana district court granted 

partial summary judgment on liability and the Ninth Circuit denied 

interlocutory review. But Unified notified USF well before the parties 

reached any settlement agreement. As Unified points out, “[USF] received 

notice over a year before a settlement agreement was reached, nearly two 

years before the final settlement was approved by the court, and presumably 

even longer than that had the case proceeded to trial.” Pl.’s Reply 19 (ECF 

No. 47). USF had notice of the Butler litigation in time to contribute to at 

least some of its defense. For example, once notified, USF contributed to the 

arguments made to the Montana court in Unified’s motion for leave to file a 

motion for reconsideration and its motion for clarification.

USF claims it was prejudiced by Unified’s notice because it “was not 

able to exercise its right to associate and to assist Unified in the defense of 

the case at a time when it would have been helpful.” Pl.’s Br. 29 (ECF No. 

32). Specifically, USF asserts that if it had been notified earlier, it could have 

recommended experts to explain to the court how Unified’s methodology for 

pricing and handling claims worked and that it was consistent with the terms 

of the STM Policies. See id. at 32. Without these experts, USF contends,

Unified “failed to respond to the Butlers’ central argument, i.e., that 

[Unified’s] methodology breached the [STM] policy because it was based on 

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what providers customarily accepted, rather than what they charged.” Pl.’s

Br. at 30 (ECF No. 32).

At best, considering the evidence in the light most favorable to USF, 

the summary judgment record raises a genuine dispute only of theoretical

rather than actual prejudice. USF does not point to evidence of any tangible 

injury but instead stresses the mere possibility that, had it been notified 

earlier, its experts could have made a difference. But a mere possibility is not 

enough—USF has the burden to point to evidence indicating a substantial 

likelihood of a different result.

Further, an additional problem for USF’s prejudice argument is that 

it did ultimately recommend its preferred expert witnesses to Unified. And 

based upon that recommendation, Unified supported its motions for leave 

to file a motion to reconsider and its motion to clarify with declarations from 

some of USF’s preferred experts. See id. at 17. But even when provided with 

this testimony and further explanation of the relevant methodology, the 

Montana court denied both motions and affirmed its summary judgment 

ruling. The court even clarified that being presented with the same expert 

testimony at an earlier time would “not have materially affected” its ultimate 

decision. Pl.’s App., Ex. X at 6 (ECF No. 33). And further, the court indicated 

that the very topic the recommended experts testified about—the kind of 

methodology used by Unified in handling claims—did not play a significant 

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role in its decision making. See id. at 9–10. (“The exact methodology 

[Unified’s] system used to calculate those payments was not material[.]”).

Additionally, the record supports that prior to notifying USF, Unified 

itself considered hiring experts to explain the relevant claim-handling 

methodology. But Unified consciously decided against retaining such 

experts after conducting a cost-benefit analysis at an earlier stage of 

litigation. See Def.’s Resp. 36 (ECF No. 44). USF does not point to any 

evidence in the record indicating that it likely would have been able to 

change Unified’s mind regarding this litigation strategy. This lack of 

evidence is especially damaging to USF’s Motion, given the provision in the 

reinsurance agreement stating that while USF has the “right to participate . 

. . in a defense and/or settlement of any Claims of which it may be 

interested[,]” Unified ultimately “has the final authority in hiring outside 

counsel, agreeing upon the terms of a potential settlement and shall have 

final authority over all strategic decisions made in the course of litigation.” 

Def.’s App., Ex. A-1, art. VIII(E) (ECF No. 28). Based on this record, the 

Court finds that no reasonable jury could find that USF was actually, 

tangibly prejudiced on the basis that it contends. 

In sum, the Court determines that there is no genuine dispute that 

Unified gave USF “prompt” notice of the Butlers’ claims, as required by the 

terms of the Reinsurance Treaty. Further, even if Unified did provide late 

notice, USF was not prejudiced by such notice. As such, the Court 

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determines that USF breached the Reinsurance Treaty when it failed to pay 

its proportion of the class settlement and associated costs and fees.

ii. Damages

Unified seeks damages in the amount of USF’s portion of the $8 

million settlement approved by the Montana district court in the Butler

litigation. In the court’s order approving the settlement, the court ordered 

that $2 million of the total amount be awarded to class counsel. See Butler, 

Case No. 1:17-cv-50, Doc. 427 at 5–6. Under Article IV of the reinsurance 

agreement, USF agreed to assume a proportional share of Unified’s “Net 

Loss,” which is defined as Unified’s “liability for Claims, and Claims 

Adjustment Expense, as respects policies covered hereunder.” Def.’s App., 

Ex. A-2, art. V(C) (ECF No. 28); see also Ex. A-1, art. V(C) (defining “Net 

Loss” as “the sum of Claims paid by or on behalf of the Company under the 

Policies reinsured hereunder plus any Loss Adjustment Expense”). “Claims” 

are defined as “damages, benefits or indemnity that [Unified] pays or is 

liable to pay, whether by strict policy conditions or by way of compromise, 

as a consequence of [Unified’s] issuance of the policies.” Def.’s App., Ex. A2, art. V(A) (ECF No. 28); see also Ex. A-1, art. V(A) (defining “Claims” as 

“the Company’s liability for eligible expenses as defined in the Company’s 

Policy). The $8 million settlement amount, including the $2 million counsel 

fee, falls within this definition of “Claims.” Thus, USF is obligated to pay its 

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portion of the $8 million class settlement based on its agreement to pay a 

proportional share of Unified’s “Net Loss.”

Further, the terms “Loss Adjustment Expense” and “Claims 

Adjustment Expense” under the Reinsurance Treaty are defined as 

“expenditures by the Company and as allocated to an individual claim or loss 

in investigating, resisting, settling, adjusting, auditing, managing and 

processing of Claims, including litigation expenses and pre or postjudgment interest, other than for office expense and for the salaries and 

expenses of employees of the Company, or Manager, or any subsidiary or 

related or wholly-owned company of the Company or Manager.” Def.’s App., 

Ex. A-2, art. V(B); Def.’s App., Ex. A-1, art. V(B). USF argues that the phrase 

“allocated to an individual claim” precludes coverage for Unified’s attorney’s 

fees to the extent they went towards defending the class action. Pl.’s Resp. 

24–25 (ECF No. 39). But when read in context of the entire “Loss 

Adjustment Expense” definition, the phrase “allocated to an individual 

claim” does not amount to an exclusion of all attorney’s fees paid to defend 

class action claims. Rather, the phrase limits coverage to expenses that are 

directly related to claims against the reinsured, as opposed to general, 

unallocated overhead expenses.

USF makes several arguments that the summary judgment record 

before the Court is insufficient to determine the amount of the settlement 

USF owes to Unified. First, USF emphasizes that it is responsible for 

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different percentages of the class settlement depending on when each 

individual class member purchased a STM policy. See id. at 23 (“The Quota 

Share Treaty was divided into three Treaty Years, November 1, 2014 to 

November 1, 2015, November 1, 2015 to November 1, 2016, and November 

1, 2016 to November 1, 2017. In the first Treaty year, US Fire was liable for 

30%, and in the other two Treaty Years US Fire was liable for 25%.”). USF 

contends that because of this, the Court will need to hear more evidence as 

to the payments to individual class members to determine the amounts owed 

by USF. Id. at 24. But this is not a genuine issue in this case, since Unified 

has stipulated that it seeks only a 25% proportional share from USF. This 

makes the damages amount “mathematically ascertainable at the entry of 

summary judgment[.]” Stark Master Fund Ltd. v. Ausmus, 2010 WL 

11618653, at *8 (N.D. Tex. Mar. 31, 2010).

Unified has established beyond peradventure all of the essential 

elements of its breach of contract counterclaim to warrant judgment in its 

favor.

B. Unified is entitled judgment as a matter of law on the parties’ 

declaratory judgment claims.

The parties also request summary judgment on their declaratory 

judgment claims. Under “[t]he Declaratory Judgment Act . . . federal courts 

[are authorized] to ‘declare the rights and other legal relations of any 

interested party seeking such declaration.’” Val-Com Acquisitions Tr. v. 

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Chase Home Fin., L.L.C., 434 F. App’x 395, 395 (5th Cir. 2011) (quoting 28 

U.S.C. § 2201(a)). “[A] declaration may issue only to resolve an actual 

controversy between the parties. An actual controversy is a dispute that is 

definite and concrete, touching the legal relations of parties having adverse 

legal interests.” Id. (citations omitted).

As explained above, the Reinsurance Treaty is a valid and enforceable 

contract pursuant to which USF agreed to be “liable for its proportionate 

share of Claim and Loss Adjustment Expenses incurred by or on behalf of 

[Unified]” in the Butler litigation. Unified timely provided USF notice of the 

Butler litigation—when, in Unified’s subjective opinion, it became clear that 

the Butler litigation would result in a claim against USF. Therefore, USF is 

obligated to pay USF’s proportional share of the Butler litigation settlement 

and associated defense costs and fees. USF’s failure to pay its share of the 

Butler litigation settlement and associated costs constitutes a breach of the 

Reinsurance Treaty.

USF alternatively seeks a declaration from the Court that “[USF] is 

entitled to a set-off for any amounts recovered by Unified in subrogation.”

Compl. ¶ 1 (ECF No. 1). The Reinsurance Treaty provides that “[t]he 

Reinsurer shall be credited with its proportionate share of recoveries from 

subrogation.” Def.’s App., Ex. A-1, art. X (ECF No. 28). Subrogation provides 

that “‘the insurer stands in the shoes of the insured, obtaining only those 

rights held by the insured against a third party, [and] subject to any defenses 

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held by the third party against the insured[.]’” Colony Ins. Co. v. First 

Mercury Ins. Co., 88 F.4th 1100, 1112–13 (5th Cir. 2023) (citing 

Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765, 774–75 

(Tex. 2007)).

But to prevail on its subrogation claim, USF “must present sufficient 

evidence upon which a reasonable factfinder could conclude that it paid a 

debt owed by” another reinsurance company or other third party. Id. “To do 

so, [USF] could ‘present evidence upon which a fact finder could segregate 

covered damages,’ such as ‘internal memoranda, correspondence between 

the insurer and insured, communications with the injured party, [and] 

investigative reports.’” Id. at 1113. Ultimately, USF is entitled to 

reimbursement through subrogation for its settlement contributions “only if 

it paid more than its fair share of the costs[.]” Id. 

Here, USF does not point to any competent summary judgment 

evidence showing that it has, or will, pay more than its fair share of the 

settlement amount and associated costs. After initially requesting a 

declaration that it is entitled to a set-off, USF does not brief its subrogation 

claim at all in its own motion for summary judgment or in response to 

Unified’s affirmative motion. Because USF does not create a genuine 

dispute—or even attempt to argue in its summary judgment motion or 

briefing—that Unified’s requested damages will require USF to pay for 

damages that some other reinsurance company should have covered, its 

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subrogation claim must fail. Accordingly, USF has not shown that it is 

currently entitled to a set-off based on subrogation.

C. Attorneys’ fees

Unified requests reasonable attorney’s fees and expenses incurred in 

this lawsuit, pursuant to Texas Civil Practice and Remedies Code Chapter 

38. Am. Countercl. 10 (ECF No. 12). “To recover attorney’s fees under

Section 38.001, a party must (1) prevail on a cause of action for which

attorney’s fees are recoverable, and (2) recover damages.” Green Int’l, Inc. 

v. Solis, 951 S.W.2d 384, 390 (Tex. 1997).

Section 38.001 allows for attorney’s fees in a successful breach of

contract action. Tex. Civ. Prac. & Rem. Code § 38.001. Because Unified 

prevails on its breach of contract claim and is entitled to damages, it is 

entitled to reasonable attorney’s fees under Chapter 38. The Court ORDERS 

Unified to file any motion for such attorney’s fees within 30 days from the 

entry of this Order.

Conclusion

For the reasons stated, the Court determines that USF owes a duty 

under the Reinsurance Treaty to indemnify Unified for USF’s proportionate 

share of the Butler settlement and associated costs and fees. The Court 

further determines that USF breached the Reinsurance Treaty by denying 

coverage to Unified. Accordingly, the Court DENIES USF’s Motion for 

Summary Judgment (ECF No. 31), GRANTS Unified’s Affirmative Motion 

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