1

United States Court of Appeals

Fifth Circuit

FILED

August 5, 2003

Charles R. Fulbruge III

Clerk

UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 01-10324

MEDICAL CARE AMERICA, INC.,

Plaintiff-Appellant,

VERSUS

NATIONAL UNION FIRE INSURANCE COMPANY

OF PITTSBURGH, PENNSYLVANIA,

Defendant-Appellee.

Appeal from the United States District Court

For the Northern District of Texas

Before WIENER, BENAVIDES, and DENNIS, Circuit Judges.

JAMES L. DENNIS, Circuit Judge: 

Following a precipitous decline in stock value, shareholders

sued (among others) the director and officers of a Texas

corporation formed through merger. After the suit settled, the

corporation sued its insurer for coverage under its directors and

officers liability policy. At issue was whether the policy covered

the directors and officers’ post-merger wrongful acts that were the

same as or related to their pre-merger wrongful acts. A jury
2

concluded that there was no coverage. The corporation now appeals

the district court’s pretrial grant of partial summary judgment,

its rulings on three motions for judgment as a matter of law at the

close of the evidence, and its judgment on the verdict. We AFFIRM.

I.

A.

In the Summer of 1992, Medical Care International, Inc.

(“MCI”) and Critical Care America (“CCA”) announced that they would

merge to become wholly owned subsidiaries of a new company, Medical

Care America, Inc. (“Medical Care”). The companies issued

statements trumpeting expectations for Medical Care’s increased

earnings. On August 3, 1992, they filed a joint proxy-prospectus

with the Securities and Exchange Commission (“SEC”) and sent copies

of the filing to their shareholders. The merger became final on

September 9, 1992, at which time the directors of MCI and CCA

became the directors of Medical Care. 

In anticipation of the merger, Medical Care’s risk management

director, Theresa Major-Gable, consulted Larry Waldie, an insurance

broker employed by Marsh & McLennan, Inc. (“Marsh”), about

purchasing directors and officers (“D&O”) liability insurance for

Medical Care “going forward” from the date of the merger. In

conjunction with this consultation, Medical Care appointed Marsh

its exclusive agent of record. Acting on Medical Care’s behalf,

Waldie solicited quotes from several insurance companies, including

National Union Fire Insurance Company (“National Union”). Major-
1 Prior to the merger, CCA maintained D&O insurance through the

Chubb Group of Insurance Companies. Its coverage continued through

September 9, 1992. It also purchased a “runoff” policy that

extended the reporting period for claims regarding pre-merger acts.

MCI had no D&O coverage for acts prior to September 9, 1992. 

3

Gable subsequently instructed Waldie to bind National Union’s

quote. On September 4, 1992, National Union sent Waldie a letter

that represented a temporary conditional binder outlining its

agreement to provide Medical Care with $10 million worth of D&O

coverage from September 9, 1992, to September 9, 1993. The

temporary conditional binder conditioned coverage on National

Union’s receipt, review, and acceptance of certain information from

Medical Care, including a completed application. It explained that

the policy would be issued with ten endorsements, including one for

“prior acts as of September 9, 1992.”1 Waldie summarized the

temporary conditional binder in a separate binder (“Binder”) he

sent to Major-Gable on September 15, 1992. The Binder indicated

that the policy would exclude “all prior acts prior to policy

inception date.” On September 28, 1992, Medical Care satisfied the

conditions of the temporary conditional binder. 

B.

The pre-merger expectations for Medical Care proved overly

optimistic, and on September 25, 1992, the new company announced

flat earnings. The announcement caused share value to plummet over

50% in one day, at which point the New York Stock Exchange

suspended trading of Medical Care stock. In response, at least 15
2 15 U.S.C. §§ 78j(b), 78t(a). 

3 17 C.F.R. § 240.10b-5. 

4

shareholder class action lawsuits were filed against Medical Care,

CCA, MCI, and the directors and officers. The lawsuits were

consolidated into a single action in the United States District

Court for the Northern District of Texas. The consolidated suit

alleged violations of §§ 10(b)and 20(a) of the Securities Exchange

Act of 19342 and of SEC Rule 10b-5.3 The complaint alleged that the

defendants made misrepresentations and failed to make necessary

disclosures in public statements and filings. 

On January 30, 1993, National Union issued the D&O liability

policy that Medical Care had applied for the previous September.

Endorsement #7 of the policy provided:

In consideration of the premium charged, it is hereby

understood and agreed that this policy only provides

coverage for Loss arising from claims for alleged

Wrongful Acts occurring on or after September 9, 1992 and

prior to the end of the Policy Period and otherwise

covered by this policy. Loss(es) arising out of the same

or related Wrongful Act(s) shall be deemed to arise from

the first such same or related Wrongful Act.

By letter dated January 27, 1993, National Union denied coverage

for the claims asserted in the class action based on the related

acts language of the second sentence of Endorsement #7. On March

9, 1993, the class action plaintiffs filed an amended complaint.

National Union restated its denial of coverage by letter dated May
4 Meanwhile, in September of 1994, Medical Care was acquired by

Columbia/HCA Healthcare Corporation. 

5 The agreement allocated sums as follows: MCI, $13.4 million;

the directors of MCI, $10 million; CCA, $13.4 million; the

directors of CCA, $10 million; and Medical Care, $13.4 million.

6 The revised agreement allocated sums as follows: MCI, $10

million; the directors of MCI, $10 million; CCA, $10 million; the

directors of CCA, $10 million; Medical Care, $10 million; and the

5

21, 1993, repeating its reliance on Endorsement #7.4

The shareholder suit was settled in principle pursuant to

court-ordered mediation for $60 million and the full release of all

claims asserted against the defendants. Medical Care advised

National Union of the settlement, asking it to reconsider its

denial of coverage and to participate in the settlement, which had

not yet been funded or approved by the court. National Union

reiterated its previous position. After the district court

approved the settlement, the $60 million was paid to the class

action plaintiffs and the claims against Medical Care, MCI, CCA,

and their respective officers and directors were released. In

February 1995, the defendants entered into an agreement that

allocated responsibility for the $60 million settlement among five

of the six defendants. Under that agreement, Medical Care owed a

contribution to the settlement but its directors and officers, who

were separate defendants in the shareholder suit, did not.5 In May

1996, however, the defendants revised their allocation agreement,

requiring Medical Care’s directors and officers to contribute $10

million to the settlement.6 Because Medical Care had indemnified
directors of Medical Care, $10 million. 

7 Tex. Ins. Code art. 21.21. 

6

its directors and officers, it ultimately bore responsibility for

that $10 million. 

C.

Medical Care filed the present lawsuit in November 1996 after

National Union denied coverage under the D&O policy. It stated

claims for breach of contract, breach of the duty of good faith and

fair dealing, and violations of the Texas Insurance Code.7 The

district court granted in part and denied in part the parties’

competing motions for summary judgment. Of relevance to this

appeal, the court ruled for Medical Care in holding that “the

binder agreements are the controlling contracts of insurance at

issue in this case”; ruled against Medical Care in finding that

there was a triable issue as to whether National Union was estopped

from relying on the related acts exclusion; and ruled for National

Union in dismissing with prejudice Medical Care’s extracontractual

claims. 

Medical Care’s remaining claim for breach of contract was

tried to a jury. At the close of the evidence, both parties filed

motions for judgment as a matter of law (“JMOL”). The court denied

Medical Care’s motion in toto. Of relevance here, it held that

Medical Care had not shown that it was due coverage as a matter of

law. The court granted National Union’s motion in part, ruling
8 GeoSouthern Energy Corp. v. Chesapeake Operating Inc., 274 F.3d

1017, 1020 (5th Cir. 2001). 

9 Fed. R. Civ. P. 56(c). 

7

that the insurance contract included a “related acts” exclusion and

that National Union was not equitably estopped from relying on that

“related acts” exclusion. The jury returned a take-nothing verdict

for Medical Care, finding that Medical Care proved that its

directors and officers had incurred loss arising from the

shareholders’ claims about their alleged wrongful acts occurring on

or after September 9, 1992, and that Medical Care had indemnified

its directors and officers for such loss. The jury found, however,

that National Union proved that all the directors’ and officers’

wrongful acts occurring after September 9, 1992, were the same as

or related to wrongful acts occurring prior to September 9, 1992.

After the court denied its motion for a new trial and its

renewed motion for JMOL, Medical Care appealed.

II.

We review summary judgment de novo, following the same

standard applied by the district court.8 Summary judgment is

appropriate only if the movant demonstrates that there are no

genuine issues of material fact and that it is entitled to a

judgment as a matter of law.9 
10 Deffenbaugh-Williams v. Wal-Mart Stores, Inc., 188 F.3d 278,

285 (5th Cir. 1999). 

11 Fed. R. Civ. P. 50(a)(1). 

12 Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150

(2000). 

13 Boeing Co. v. Shipman, 411 F.2d 365, 374-75 (5th Cir. 1969)

(en banc), overruled on other grounds by Gautreaux v. Scurlock

Marine, Inc., 107 F.3d 331 (5th Cir. 1997) (en banc).

8

We also review judgment as a matter of law de novo.10 JMOL is

appropriate when “a party has been fully heard with respect to an

issue and there is no legally sufficient evidentiary basis for a

reasonable jury to have found for that party with respect to that

issue.”11 In reviewing the record, we draw all reasonable

inferences in favor of the nonmovant, make no credibility

determinations, and do not weigh the evidence.12 We give credence

to evidence supporting the movant only if it “is uncontradicted and

unimpeached, at least to the extent that that evidence comes from

disinterested witnesses.” If, after reviewing the evidence in this

manner, “the facts and inferences point so strongly and

overwhelmingly in favor of one party that the Court believes that

reasonable men could not arrive at a contrary verdict, granting of

[JMOL] is proper.”13 But “if there is substantial evidence opposed

to [JMOL], that is, evidence of such quality and weight that

reasonable and fair-minded men in the exercise of impartial

judgment might reach different conclusions, [JMOL] should be
14 Id. (“A mere scintilla of evidence is insufficient to present

a question for the jury.”). 

15 See Great Am. Ins. Co. of N.Y. v. Maxey, 193 F.2d 151, 152

(5th Cir. 1951) (“The terms and provisions which control in the

construction of the coverage afforded by a binder are those

contained in the ordinary form of policy usually issued by the

company at the time upon similar risks.” (further citation

omitted)); Ranger County Mut. Ins. Co. v. Chrysler Credit Corp.,

501 S.W.2d 295, 298 (Tex. 1973) (“As long as a binder is in effect,

the insured may look to the form of the contemplated policy for

coverage, duration, cancellation, and other terms.” (further

citation omitted)). 

16 Under Texas law, National Union bore the burden of

establishing that a policy exclusion applies. See Tex. Ins. Code

art. 21.58(b); see also Guaranty Nat’l Ins. Co. v. Vic Mfg. Co.,

143 F.3d 192, 193 (5th Cir. 1998). 

9

denied.”14

III.

A.

The parties agree that under Texas law an insurance binder

provides coverage according to the terms and provisions of the

ordinary form of the contemplated policy.15 In this case, the

Binder expressly states that the policy would exclude coverage of

“all prior acts prior to policy inception date,” but it is silent

as to coverage of subsequent acts that are related to the prior

acts. At issue is whether the ordinary form of prior acts

endorsement used in D&O policies contains language excluding

coverage of subsequent related acts.16 At the close of evidence,

the district court granted a partial JMOL for National Union on

this issue, finding as a matter of law that Endorsement #7, the

prior acts endorsement containing related acts language that was
17 Although Waldie also testified that D&O policies written by

different companies often used different verbiage, he explained

that “probably 80 to 90 percent of the terms and conditions would

be very, very similar as far as the exclusion and the basic

insuring agreements.”

10

used in the policy issued to Medical Care in January 1993, “was the

standard form normally or ordinarily issued by National Union” in

its D&O liability policies. The consequence of this ruling under

Maxey and Ranger County was to make the related acts exclusion a

term of the Binder. We agree that National Union met its burden

under Rule 50(a) and that JMOL was appropriate on this issue. 

Two disinterested witnesses testified that National Union’s

standard practice, like that of the industry, was to use related

acts language in prior acts endorsements. Lawrence Waldie, the

insurance broker who served as Medical Care’s agent, testified that

Endorsement #7 was in a form that was the “customary and normal

form of a prior acts endorsement issued by National Union” and

other carriers writing D&O policies under similar circumstances.17

Hence, he was not surprised that it contained related acts

language. On the contrary, he agreed that Endorsement #7 was the

type of prior acts endorsement that he had anticipated when he

wrote out the Binder in September 1992. He testified that he had

no recollection of ever negotiating a prior acts endorsement that

did not contain related acts language on behalf of any client with

either National Union or any other insurer. Furthermore, he could

not recall ever seeing a D&O policy with a prior acts endorsement
11

that did not contain related acts language. Indeed, he was not

aware that any such policy was available in the industry. 

Anthony Codding testified similarly. Codding, a former

assistant division manager of National Union’s D&O division, was

involved in underwriting between 5000 and 8000 D&O policies at

National Union. He testified that in his experience National Union

had never used a prior acts endorsement that did not include

related acts language. He explained that, based on his experience,

he would interpret a reference in a binder to a prior acts

endorsement to mean that the subsequently issued policy would

include a prior acts endorsement containing related acts language.

In sum, he testified that the standard form used in 1992 by

National Union for prior acts endorsements contained language “such

as the second sentence of endorsement number 7"–that is, related

acts language.

Through Codding, Medical Care introduced evidence that

National Union had seven different forms of prior acts endorsements

available for use by its underwriters. One of these did not

contain related acts language. Codding testified, however, that he

could not recall a time when National Union had used that lone

form. He explained that “[i]t is not a standard endorsement” and

is not “ordinarily and customarily used by National Union on D&O

policies.”

In addition to Waldie and Codding, Elliot Rothman appeared on

behalf of National Union as an expert witness in the area of D&O
18 Robert Lang, an expert in the area of D&O insurance law, also

testified that in 20 years of practice he had only seen D&O

policies that used prior acts exclusions that contained related

acts language. Because National Union is one of his principal

clients, Lang cannot be considered a disinterested witness. 

12

liability insurance. Rothman testified that the standard industry

practice was to include related acts language in prior acts

endorsements.18

Medical Care offered no evidence to contradict the testimony

of Waldie, Codding, or Rothman. Instead, it argued that the lone

endorsement form that did not contain related acts language and the

testimony that all D&O policies were different and subject to

negotiation created a triable issue about the scope of coverage

under the Binder. But neither piece of evidence supports a

reasonable inference that the customary and standard form of D&O

liability insurance issued by National Union did not contain

related acts language. There is no evidence that National Union

ever used the lone endorsement form that does not contain related

acts language. And there is no evidence that National Union ever

issued a D&O policy with a prior acts endorsement that did not

contain related acts language. Indeed, Codding testified that he

could not recall a single instance when a broker or client

negotiated the related acts language out of a prior acts

endorsement.

After carefully reviewing the record, we conclude that the

evidence and inferences point so strongly and overwhelmingly in
19 Johnson & Higgins v. Kenneco Energy, 962 S.W.2d 507, 515-16

(Tex. 1998) (citing Schroeder v. Texas Iron Works, Inc., 813 S.W.2d

483, 489 (Tex. 1991)). 

20 Barfield v. Howard M. Smith Co. of Amarillo, 426 S.W.2d 834,

838 (Tex. 1968). 

13

favor of a finding that National Union’s standard prior acts

endorsement normally or ordinarily used in its D&O liability

policies contained related acts language that JMOL in National

Union’s favor is warranted. 

B.

Medical Care asserts that National Union was equitably

estopped from relying on the related acts language to deny

coverage. Under Texas law, a plaintiff relying on the doctrine of

equitable estoppel must show:

(1) a false representation or concealment of material

facts; (2) made with knowledge, actual or constructive,

of those facts; (3) with the intention that it should be

acted on; (4) to a party without knowledge or means of

obtaining knowledge of the facts; (5) who detrimentally

relies on the representations.19

“The burden of proving an estoppel and the essential elements

thereof is on the party asserting it and the failure to prove any

one or more of the elements is fatal.”20 At the close of evidence,

the district court granted a partial JMOL for National Union on the

applicability of equitable estoppel to the case. The court

concluded that Medical Care had presented legally insufficient

evidence to establish the first or fourth elements. Because no

facts or inferences support a finding of those two elements, we
21 Barfield, 426 S.W.2d at 838.

14

agree that JMOL for National Union was appropriate as to this

issue. 

Medical Care asserts that National Union concealed the true

scope of the prior acts endorsement by omitting from its binder any

reference to related acts. As we discussed above, the

uncontroverted evidence shows that the Binder indicated that the

policy would include a prior acts endorsement; that a prior acts

endorsement used in the context of a D&O policy would normally and

ordinarily be understood to contain related acts language; and that

National Union’s standard prior acts endorsement normally and

ordinarily contained related acts language. There is no positive

evidence that National Union misrepresented or concealed coverage

terms. Because the evidence points so strongly and overwhelmingly

in favor of National Union, we conclude that a jury could not

reasonably infer that National Union had anything to conceal,

intended to conceal anything, or in fact concealed anything from

Medical Care. Because Medical Care failed to establish the first

element of equitable estoppel, summary judgment was appropriate. 

Furthermore, under Texas law, “[a] party claiming an estoppel

must have used due diligence to ascertain the truth of the matters

upon which he relies in acting to his detriment.”21 There is no

evidence that Medical Care or any of its representatives made any

inquiry of Marsh or National Union as to either the scope or effect
22 Medical Care argues that it had no reason to make further

inquiry into the scope of the coverage because it had requested

going forward coverage and the Binder only indicated that the

policy would exclude coverage for prior acts. Medical Care’s

argument is premised on an unfounded assumption about the meaning

of the Binder. Considering that insurance binders by design only

summarize a policy to be issued, Medical Care’s assumption about

the scope of coverage offered by its $10 million insurance policy

cannot reasonably be said to have constituted the exercise of due

diligence. Moreover, Waldie, Medical Care’s agent, testified that

he fully anticipated that the policy would contain a related acts

exclusion. Hence, Medical Care cannot establish detrimental

reliance. 

15

of the prior acts endorsement. Nor is there evidence that Medical

Care lacked the means to make such an inquiry or was somehow

prevented from doing so. On the contrary, Waldie testified that he

encouraged Major-Gable to contact him with questions about the

Binder. In short, our review of the record reveals that it cannot

reasonably be inferred that Medical Care used due diligence to

ascertain the scope or effect of the prior acts endorsement or that

Medical Care lacked the means of obtaining knowledge of the extent

of the prior acts exclusion. Thus, Medical Care also failed to

establish the fourth element of equitable estoppel, further

demonstrating that summary judgment was warranted.22 

C.

At the close of evidence, Medical Care moved for JMOL on the

issue of whether the policy provided coverage for the shareholders’

claims of wrongdoing on the part of the company’s directors and

officers. It argued that JMOL was appropriate because the

shareholder suit alleged wrongful acts occurring on or after the
23 The shareholders made alternative allegations. The other

alternative was that the statements were materially false and

misleading when made.

24 Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387

S.W.2d 22, 24 (Tex. 1965). 

25 It is true, as Medical Care states, that an exception to the

general rule holds an insurer to the terms of a settlement it

wrongfully refused to defend. This exception is irrelevant here

because National Union had no duty to defend Medical Care.

Furthermore, even under this exception, an insurer is “not estopped

from contesting coverage of [its] liability.” Enserch Corp. v.

Shand Morahan & Co., 952 F.2d 1485, 1493 (5th Cir. 1992)

(“[C]overage . . . cannot be created ex nihilo by estoppel.”). 

16

merger;23 such acts were covered by the policy; and such acts were

not related to prior wrongful acts so as to be excluded by the

prior acts endorsement. The district court denied the motion. 

On appeal, Medical Care does not directly challenge the

sufficiency of the evidence supporting the verdict. Instead, it

presents a legal argument for indemnification coverage. Its

argument, however, rests on faulty premises. First, it is not

true, as Medical Care contends, that the coverage issue must be

resolved by looking at the allegations of the underlying

shareholders suit. Under well-established Texas law, an insurer’s

duty to defend its insured is determined by considering the

allegations in the underlying litigation in the light of the policy

provisions.24 But National Union had no duty to defend Medical Care

by express provision of the policy.25 Instead we must look to the

rule governing an insurer’s duty to indemnify its insured. Under

Texas law, this duty depends on the actual facts of the underlying
26 Id. at 25. 

27 The basic coverage provision of the policy provides for

coverage of “Loss arising from . . . claims”: 

This policy shall reimburse [Medical Care] for Loss arising

from any claim or claims which are first made against the

Directors or Officers . . . for any alleged Wrongful Act in

their respective capacities . . . .

17

litigation.26 

Second, Medical Care argues that indemnification coverage is

required based on a selective reading of the policy. Because the

policy defines “Loss” to mean “settlements,” it argues that there

must be coverage of settlements arising from claims of alleged

wrongdoing.27 But its reading fails to account for the limitations

on the definition of “Loss” imposed by Endorsement #7, which

clearly provides that not all loss is covered. In particular, the

prior acts endorsement expressly excludes loss arising from

wrongful acts related to prior wrongful acts predating the coverage

period: 

[T]his policy only provides coverage for Loss arising

from claims for alleged Wrongful Acts occurring on or

after September 9, 1992 . . . . Loss(es) arising out of

the same or related Wrongful Act(s) shall be deemed to

arise from the first such same or related Wrongful Act.

By its very terms, therefore, the policy does not cover settlements

arising from claims of alleged wrongdoing that is the same as or

related to alleged wrongdoing occurring before September 9, 1992.

Once Medical Care’s faulty premises are corrected, it is clear
28 Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456,

459 (5th Cir. 1997) (citing Arnold v. National County Mut. Fire

Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987)).

18

that JMOL was not appropriate because it remained to be determined

whether Medical Care incurred a “Loss,” and, if so, whether that

loss arose from wrongdoing that was related to wrongdoing occurring

before the merger. Later, of course, the jury found that Medical

Care had incurred a “Loss” but that the loss was not covered

because it arose from wrongdoing that was the same as or related to

prior wrongdoing. Because Medical Care does not challenge the

jury’s findings on appeal, it concedes that the verdict rests on a

legally sufficient evidentiary basis. 

D.

Finally, Medical Care contends that the district court erred

in granting partial summary judgment for National Union and

dismissing its extracontractual claims alleging breach of the duty

of good faith and fair dealing and violation of article 21.21 of

the Texas Insurance Code. 

1.

With regard to the common law claim, the parties dispute

whether National Union owed a duty of good faith under the

circumstances. Under Texas law, an insurer owes a duty of good

faith in handling its insured’s own claim of loss.28 This duty

arises from the special relationship that exists between the
29 Arnold, 725 S.W.2d at 167 ; see also Universe Life Ins. Co. v.

Giles, 950 S.W.2d 48, 53 n.2 (Tex. 1997) (“A first-party claim is

one in which an insured seeks recovery for the insured’s own

loss.”). 

30 See Maryland Ins. Co. v. Head Indus. Coatings and Servs.,

Inc., 938 S.W.2d 27, 27-28 (Tex. 1996); see also Giles, 950 S.W.2d

at 53 n.2 (explaining that a third-party claim is that “in which an

insured seeks coverage for injuries to a third party”). 

31 Maryland Ins., 938 S.W.2d at 28-29. Under Stowers Furniture

Co. v. American Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App. 1929),

an insurer must use ordinary care in considering an offer of

settlement. 

19

insurer and its insured.29 An insured, however, has no claim for

bad faith premised on the insurer’s investigation or defense of a

claim brought against it by a third party.30 This is because “an

insured is fully protected against his insurer’s refusal to defend

or mishandling of a third-party claim by his contractual and

Stowers rights,” which give rise to causes of action sounding in

contract and negligence.31

In this case, Medical Care does not allege that National Union

acted in bad faith in investigating or defending the shareholders’

claims of loss. Indeed, it admits that National Union had no duty

to defend the shareholder suit. Medical Care alleges instead that

National Union acted in bad faith in handling its own claim of loss

(i.e., reimbursement of its indemnification of the $10 million

allocated to its directors and officers following the settlement of

the shareholder suit). Its allegation concerns the relationship

between it and National Union—not between National Union and the

shareholders. Thus, we will treat Medical Care’s claim as a first-
32 State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex.

1998); see also Giles, 950 S.W.2d at 55 (“[A]n insurer will be

liable if the insurer knew or should have known that it was

reasonably clear that the claim was covered."). 

33 Simmons, 963 S.W.2d at 43.

34 Republic Ins. Co. v. Stoker, 903 S.W.2d 338, 341 (Tex. 1995).

20

party claim to which the duty of good faith applies.

"[A]n insurer breaches its duty of good faith and fair dealing

by denying a claim when the insurer’s liability has become

reasonably clear."32 “Evidence that shows only a bona fide coverage

dispute does not rise to the level of bad faith.”33 Thus, “[a]s a

general rule there can be no claim for bad faith when an insurer

has promptly denied a claim that is in fact not covered.”34 Here,

the evidence overwhelmingly shows that there was a bona fide

coverage dispute, which National Union subsequently won. In the

absence of coverage, summary judgment for National Union was

appropriate as to Medical Care’s bad faith claim. 

2.

Medical Care’s statutory claims arise under article 21.21

§ 16(a) of the Texas Insurance Code, which allows an individual who

has been damaged by "unfair methods of competition or unfair or

deceptive acts or practices in the business of insurance" to bring

a statutory cause of action. Medical Care alleged that National

Union engaged in four unfair or deceptive practices:

(a) National Union misrepresented the benefits of the

Policy to Medical Care and its officers and directors in

violation of [Texas Insurance Code] Art. 21.21 § 4(1).
35 See also Johnson & Higgins of Tex. v. Kenneco Energy, 962

S.W.2d 507, 515 (Tex. 1998) (explaining that as a general rule, a

cause of action accrues and the limitations period begins when

coverage is denied). 

21

(b) National Union made untrue and misleading statements

regarding the coverage it would provide pursuant to the

Policy, in violation of [Texas Insurance Code] Art. 21.21

§ 4(2).

(c) National Union engaged in unfair settlement practices

in violation of [Texas Insurance Code] Art. 21.21

§ 4(10).

(d) National Union misrepresented the Policy by making

untrue statement of material fact, failing to state

material facts, or making misleading statements to

Medical Care and its officers and directors in violation

of [Texas Insurance Code] Art. 21.21 § 4(11).

Each of these claims is time-barred. Article 21.21 § 16(d) imposes

a two-year limitations period on statutory claims and states that

a claim accrues when the unfair practice occurred or should have

been discovered:

All actions under this Article must be commenced within

two years after the date on which the unfair method of

competition or unfair or deceptive act or practice

occurred or within two years after the person bringing

the action discovered or, in the exercise of reasonable

diligence, should have discovered the occurrence of the

unfair method of competition or unfair or deceptive act

or practice.35

The misrepresentations of the first, second, and fourth statutory

claims allegedly occurred before coverage was denied on May 21,

1993. Likewise, the unfair settlement practices alleged in the

third statutory claim occurred before the denial of coverage. It

is self-evident that Medical Care should have discovered the

occurrence of these allegedly unfair or deceptive practices by May
36 All-Tex Roofing, Inc. v. Greenwood Ins. Group, 73 S.W.3d 412

(Tex. Ct. App. 2002), to which Medical Care looks for support, is

distinguishable on the facts and on the applicable law. It does

not involve the Texas Insurance Code, a claim arising under that

code, or the particular language of the statute of limitations

imposed by that code on which our decision turns. 

22

21, 1993. Therefore, because Medical Care did not sue until

November 22, 1996, over three years later, its statutory claims are

untimely.36 Summary judgment was warranted. 

IV.

For the foregoing reasons, we AFFIRM the judgment.

AFFIRMED.