# United States Court **of Appeals**  **f or the Fifth Circuit** 

No. 20

- 20122

**HM International, L.L.C.,** Plaintiff

— Appellant **,**

versus **Twin City Fire Insurance Company,** Defendant

— Appellee

**.**

Appeal from the United States District Court for the Southern District of Texas No. 4:17

- CV

- 111

Before **Owen,** Chief Judge **, Smith** and **Graves,** Circuit Judges

**. Jerry E. Smith,**  Circuit Judge **:** The district court granted Twin City Fire Insurance Company (“Twin City”) sum mary judgment on the claim of HM I nternational , L.L.C. (“HMI”) , that Twin City had breached its duty to indemnify. The court inter preted the pol icy as not cover ing settlement pay ments made after limita

tions for the underlying negligent conduct had expired. But properly inter

preted, the policy does cover such settlement pay ments . We vacate and remand. United States Court of Appeals Fifth Circuit 

### FILED September 2, 2021 Lyle W. Cayce Clerk Case: 20-20122 Document: 00516002239 Page: 1 Date Filed: 09/02/2021No. 20

- 20122

2 I. This insurance dispute arises out of the settlement of a threatened negligence suit against HM I, which provides various accounting and financial services for Greg and Kathy Geib. On January 12, 2015, HMI ’ s CFO re

ceived an email from a fraudster purportin g to be Greg Geib, instructing HMI to wire transfer $1 million to another bank account. HMI, unfortu nately, executed the order, causing the Geibs to lose the $1 million, much of which they have been unable to recover. The fraud was discovered two days l ater when the fraudster attempted the scheme a second time, prompting HMI to contact Greg Geib to confirm the transfer request. Three months later, the Geibs ’ attorney sent HMI a letter accusing it of negligence and demanding that HMI compensate the Geibs for their loss. HMI notified Twin City, its insurer, of the letter and requested that Twin City provide a defense and indemnification per the Directors, Officers, and Entity Liability Coverage ( “ D&O Policy ” ) held by HMI ’ s parent company. 1 The details of that policy are discussed infra , but, i n short, the policy requires the insurer to defend and indemnify certain threatened and actual law suits against the insured. Twin City declined to defend HMI, citing two exclusions to the D&O policy. Shortly thereaf ter, HMI sued Twin City for breach of the insurance contract. The Geibs joined the lawsuit as plaintiffs against Twin City, assert

ing that a different part of the insurance policy separately covered them. 2 While the litigation against Twin City was ongo ing, HMI and the Geibs settled their dispute. HMI paid the Geibs $470,000 and received a

1 Coverage under other parts of the insurance policy were initially at issue, but only coverage under the D&O Policy remains disputed.

2 That claim has been dismissed and is no longer at issue. Case: 20-20122 Document: 00516002239 Page: 2 Date Filed: 09/02/2021No. 20

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3 complete release from any liability and the right to pursue recovery of the stolen funds. The Geibs never filed their threatened negligence suit against HMI. And th e settlement occurred more than two years after the Geibs ’ negligence claim accrued, so limitations had run
. After discovery, both HMI and Twin City moved for summary judg

ment. Among other contentions, Twin City theorized that it does not have to indemni fy HMI for its settlement payment to the Geibs because the policy does not cover settlements made after the limitations period had run. The district court agreed with Twin City ’ s interpretation of the policy and granted it summary judgment on HMI ’ s claim for breach of the duty to indemnify. Later, on a motion to reconsider, the district court granted HMI summary judgment on its claim for breach of the duty to defend , a decision that Twin City did not cross

- appeal . HMI then voluntarily dismissed its remai ning claims with prejudice and appealed the district court ’ s grant of summary judgment to Twin City. Our review is de novo

. Davis v. Fernandez , 798 F.3d 290, 292 (5th Cir. 2015).

II. Under Texas law, insurance policies are interpreted “ under the well

established rules of contract construction. ” Great Am. Ins. Co. v. Primo , 512 S.W.3d 890, 892 (Tex. 2017). “ [E] very contract should be interpreted as a whole and in accordance with the p lain meaning of its terms. ” Id. Courts
are to “ assign terms their ordinary and generally accepted meaning unless the contract directs otherwise. ” Id. at 893. The policy should be interpreted so that “ no provision is rendered meaningless, ” and courts mu st “ refuse to insert language or provisions the parties did not use. ” Id. If the policy is ambiguous, then it is to be “ interpreted in favor of coverage. ” Gilbert Tex

. Const r

., L.P. v. Underwriters at Lloyd ’ s London , 327 S.W.3d 118, 133 (Tex. 2010). Case: 20-20122 Document: 00516002239 Page: 3 Date Filed: 09/02/2021No. 20

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4 The D&O P olicy says that “ t he Insurer shall pay Loss on behalf of an Insured Entity resulting from an Entity Claim first made against such Insured Entity during the Policy Period or Extended Reporting Period, if applicable, for a Wrongful Act by an Insured Entity. ” ( E mphasis added

. ) The policy defines a number of those terms, as well as some terms used in those defin itions :

• “ Loss ” is defined as “ Defense Costs and Damages. ”

• “ Damages ” is defined as “ the amounts, other than Defense Costs, that the Insureds are legally liable to pay solely as a result of a Claim covered by this Liability Coverage Part, including: .

. . settlement amounts. ” ( E mphasis added

. )

• “ Claim ” is defined to include any “ Entity Claim. ”

• “ Entity Claim ” is defined to be any of the following things asserted against an Insured Entity:

o A “ written demand for monetary damages or other civil

non
- monetary relief commenced by the receipt of such demand ” ;

o A “ civil proceeding, including arbitration or other alterna

tive dispute proceeding, commenced by the service of a

com plaint, filing of a demand for arbitration, or similar pleading ” ;

o A “ criminal proceeding commenced by the return of an indictment, or formal administrative or regulatory proceed

ing commenced by the filing of a notice of charges, or simi

lar document. ” The district court granted summary judgment to Twin City , conclud

ing that the settlement p ayment was not a “ loss ” because it was not an amount that HMI was “ legally liable to pay solely as a r esult of a claim. ” Case: 20-20122 Document: 00516002239 Page: 4 Date Filed: 09/02/2021No. 20

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5 Specifically, the court reasoned “ [i] n the very sense of the words ‘ legally liable, ’ a claim barred by the statute of limitations cann ot be a claim in which HMI faced legal liability

— the law actually bars liability. ” That conscientious reasoning i s erroneous for two key reasons. 3 First, the district court did not account for the policy ’ s definition of the term “ claim, ” instead treating it as synonymous with “ cause of action. ” Th at error is apparent from the court ’ s referring to a “ claim barred by the statute of limitations. ” A cause of action can certainly be time

- barred by a
stat ute of limitations. But the policy ’ s definition of “ claim ” includes a “ writ

ten demand for monetary damages or other civil non

- monetary relief ”

— i.e. , a Demand Letter

— which cannot. Second, the district court interpreted the phrase “ legally liable to pay ” to mean effectively that HMI actually lost or would have lost had the Geibs filed suit. The court ’ s reason ing that HMI
was not “ legally liable to pay ” the claim because HMI likely would have won based on limitations if the Geibs sued demonstrates its use of th at inter

pretation. B ut under Texas law, “ legally liable to pay ” can mean a contrac

tual obligation to pay. Comsys Info. Tech. Servs. v. Twin City Fire Ins. Co. ,

3 An other possible error was allowing Twin City to prevail on a theory relying on HMI ’ s supposed lack of liability to the Geibs. Given th at Twin City breached its duty to defend, it was arguably estopped from maintaining that HMI was not liable to the Geibs , based on the statute of limitations or a n y other reason

. See Great Am. Ins. Co. v. Hamel , 525 S.W.3d 655, 66 2 (Tex. 2017) ( “ [A] n insurer that wrongfully refuses to defend its insured is barred from collaterally attacking a judgment or settlement between the insured and the plain tiff. ” ). On the other hand, coverage cannot be created ex nihilo by estoppel. See Utica Nat ’l Ins. Co. of Tex

. v. Am. Indem. Co. , 141 S.W.3d 198, 203 (Tex. 2004). Twin City ’ s argument

— that HMI ’ s lack of liability for the underlying conduct means the set

tlement is not covered

— highlights a tension between those two principles of Texas insurance law. Because Twin City ’ s position is ultimately unavailing, we, instead of making an Erie

- guess as to whether Texas courts would r esolve th at tension in favor of estoppel , assume without deciding that Twin City is not estopped from prevailing on th at argument

. Case: 20-20122 Document: 00516002239 Page: 5 Date Filed: 09/02/2021No. 20

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6 130 S.W.3d 181, 189 n.3 (Tex. App.

— Houston [14th Dist.] 2003, pet. denied) . Such a contractual obligation can arise throug h settlement. This interpretation is bolstered by the inclusion of “settlement amounts” in the list of payments included as damages.
With th o se two misinterpretations clarified, the settlement payment ’ s inclusion in the policy becomes clear. The policy c overs “ Loss

. . . resulting from an Entity Claim

. ” The demand letter that the Geibs ’ attorney sent to HMI constitutes a n Entity C laim because it is a “ written demand for mone

tary damages or other civil non

- monetary relief

. ” The HMI ’ s settlement pay ment constitutes a Loss because it is an amount that HMI is legally liable

— through contract

— to pay to the Geibs as a result of the demand letter.
The fact that the Geibs never filed their threatened suit and that the limitations period had seemingly run does not change th at

. The policy does not require that the party suing the insured win a judgment. 4 Nor does it require that the insured meet a threshold likelihood of losing the threatened lawsuit before a settlement can be covered. The party defending the suit , threatened or filed, has the right to measure the legal risk it presents and decide whether to settle ; that is why insure r s that breach their duty to defend

ca nnot challenge the reasonableness of the settlement amount. See Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc. , 256 S.W.3d 660, 670

– 74 (Tex. 2008). Th e fact that the statute of limitations, and not the merits, was the reason HMI was likely 5 to prevail does not change th at basic tenet of

4 Even if it did, Twin City might be estopped from relying on that requirement , given that it breached its duty to defend. See Enserch Corp. v. Shand Morahan & Co. , 952 F.2d 1485, 1496 n.17 (5th Cir. 1992)

.
5 We emphasize that HMI was likely, not certain, to prevail. As HMI suggests , there were conceivable ways for the Geibs to overcome limitations. At the very least, HMI Case: 20-20122 Document: 00516002239 Page: 6 Date Filed: 09/02/2021No. 20

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7 insurance law.

III. Twin City raises two alternative grounds supporting the summary judgment in its favor. First, it contends that the settlement between HMI and the Geibs was not the result of an adversar ial process , so it has no duty to indemnify. Second, it contends that a policy exclusion applies. For differ

ing reasons, neither supports the summary judgment. 6

A. Twin City ’ s theory that it has no duty to indemnify because the settle

ment was not the result of an adversarial process does not support the sum
mary judgment for two reasons. First, it ’ s not the case that insurers , as a matter of law, have no duty to indemnify settlements that did not result from a fully adversarial process. Instead, suc h a showing only releases an insurer that breached its duty to defend from being fully bound by the settlement. See Hamel , 525 S .W.3d at 665. In other words, showing the settlement did not result from a fully adversarial process gives insurers the opport unity to contest the amount and validity of the settlement , but it does not give them a get

- out

- of

- coverage free card. Second, HMI and the Geibs ’ settlement was the result of a fully adver

plausibly would have had to expend more resources litigating limitations.

6 Twin City also asserts that HMI waived its ability to contest th o se points by not addre ssing them in its opening brief. That is plainly wrong. Appellants do not have to address issues not relied on by the district court in order to preserve them; adequate discussion in a reply brief after an appellee raises the issue is sufficient. See Ce rtain Under

writers at Lloyd ’ s, London v. Axon Pressure Prod s . Inc. , 951 F.3d 248, 273 n.19 (5th Cir. 2020). Because the district court did not rely on th o se grounds for its decision, HMI had no responsibility to address them in its opening brief, and it adequately addressed th e issues in its reply brief. Case: 20-20122 Document: 00516002239 Page: 7 Date Filed: 09/02/2021No. 20

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8 sarial process. In determining whether the proceeding was adversar ial, “ the controlling factor is whether, at the time of the underlying trial or settlement, the insured bore an actual risk of liability for the damages awarded or agreed upon, or had some other meaningful incentive to ensure that the judgment or settlemen t accurately reflects the plaintiff ’ s damages and thus the defendant

insured ’ s covered liability loss. ” Id. at 666. The possibility of being liable for damages or the settlement if the insurer does not ultimately cover it is an adequate incentive to make such a settlement adversarial. Id. (discussing ATOFINA , 2 56 S.W.3d at 673

– 74). Typically, cases in which that possibility is absent involve the insured assign ing its rights against the insurer to the party suing it as the entirety of the settlement. But that ’ s not what happened here. HMI settled knowing that if it lost this suit, it would be on the hook to pay the settlement; that is enough to give it the proper incentive to reach a fair settlement.

B. Twin City ’ s contention that a policy exclusion applies also does not support the summary judgment. The insurance policy excludes “ Loss .

. . in connection wi th any Claim based upon, arising from, or in any way related to any actual or alleged .

. . rendering of, or failure to render, any services for or on behalf of others for a fee

. . . . ” Twin City contends that th at exclusion removes HMI ’ s settlement paym ent from coverage because HMI regularly performed wire services for the Geibs for a fee, and the Geibs ’ threatened negligence suit arose from a wire service. HMI admits that it provided wire transfer services to the Geibs as a matter of course but denies t hat it did so “ for a fee. ” 7 It has enough evidence

7 HMI also contends that this particular wire transfer was not done “ for on or on behalf of ” the Geibs, because a fraudster, not the Geibs, requested the wire transfer. We express no opinion on th e mat ter and leave it to the district court to decide whether that Case: 20-20122 Document: 00516002239 Page: 8 Date Filed: 09/02/2021No. 20

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9 that the wire transfer services were provided gratis to preclude summary judg ment for Twin City. Specifically, HMI points to the Administrative Ser

vices Agreement between it and the Geibs, which lists the services HMI charged the Geibs for and does not mention wire transfers. HMI also points to its employee ’ s testimony that certain services were provided for free. Th at is, at the very least, enough to create a genuine dispute of material fact on the question. 8
We **VACATE** the summary judgment in favor of Twin City and **REMAND** for further proceedings consistent with this opinion. We place no conditions or limitations on w hat actions the district court should take on remand.

defeats Twin City ’ s argument on remand.

8 Indeed, it is unclear, at this point, what evidence Twin City has that HMI ever charged the Geibs for wire transfer services. Case: 20-20122 Document: 00516002239 Page: 9 Date Filed: 09/02/2021