United States Court of Appeals

for 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”) summary judgment on the claim of HM International, L.L.C. 

(“HMI”), that Twin City had breached its duty to indemnify. The court 

interpreted the policy as not covering settlement payments made after limitations for the underlying negligent conduct had expired. But properly interpreted, the policy does cover such settlement payments. We vacate and 

remand.

United States Court of Appeals

Fifth Circuit

FILED

September 2, 2021

Lyle W. Cayce

Clerk

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I.

This insurance dispute arises out of the settlement of a threatened 

negligence suit against HMI, which provides various accounting and financial 

services for Greg and Kathy Geib. On January 12, 2015, HMI’s CFO received an email from a fraudster purporting to be Greg Geib, instructing HMI 

to wire transfer $1 million to another bank account. HMI, unfortunately, 

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 later 

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, in short, the policy requires 

the insurer to defend and indemnify certain threatened and actual lawsuits 

against the insured.

Twin City declined to defend HMI, citing two exclusions to the D&O 

policy. Shortly thereafter, HMI sued Twin City for breach of the insurance 

contract. The Geibs joined the lawsuit as plaintiffs against Twin City, asserting that a different part of the insurance policy separately covered them.2

While the litigation against Twin City was ongoing, 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.

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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 the 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 judgment. Among other contentions, Twin City theorized that it does not have 

to indemnify 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 

remaining 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 wellestablished 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 plain 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 must “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.

Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 133 (Tex. 

2010).

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The D&O Policy says that “the 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.” (Emphasis added.) The policy 

defines a number of those terms, as well as some terms used in those 

definitions:

• “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.” (Emphasis 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 alternative dispute proceeding, commenced by the service of a 

complaint, 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 proceeding commenced by the filing of a notice of charges, or similar document.”

The district court granted summary judgment to Twin City, concluding that the settlement payment was not a “loss” because it was not an 

amount that HMI was “legally liable to pay solely as a result of a claim.” 

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Specifically, the court reasoned “[i]n the very sense of the words ‘legally 

liable,’ a claim barred by the statute of limitations cannot be a claim in which 

HMI faced legal liability—the law actually bars liability.” That conscientious 

reasoning is 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.” 

That 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 

statute of limitations. But the policy’s definition of “claim” includes a “written 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 reasoning 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 that interpretation. But under Texas law, “legally liable to pay” can mean a contractual obligation to pay. Comsys Info. Tech. Servs. v. Twin City Fire Ins. Co., 

3 Another possible error was allowing Twin City to prevail on a theory relying on 

HMI’s supposed lack of liability to the Geibs. Given that 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 any other reason. See Great Am. Ins. Co. v. Hamel, 

525 S.W.3d 655, 662 (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 plaintiff.”). 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 settlement 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 resolve that tension in favor of estoppel, 

assume without deciding that Twin City is not estopped from prevailing on that argument.

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130 S.W.3d 181, 189 n.3 (Tex. App.—Houston [14th Dist.] 2003, pet. 

denied). Such a contractual obligation can arise through settlement. This 

interpretation is bolstered by the inclusion of “settlement amounts” in the 

list of payments included as damages.

With those two misinterpretations clarified, the settlement payment’s 

inclusion in the policy becomes clear. The policy covers “Loss . . . resulting 

from an Entity Claim.” The demand letter that the Geibs’ attorney sent to 

HMI constitutes an Entity Claim because it is a “written demand for monetary damages or other civil non-monetary relief.” The HMI’s settlement 

payment 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 that. 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 insurers that breach their duty to defend 

cannot challenge the reasonableness of the settlement amount. See Evanston 

Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660, 670–74 (Tex. 

2008). The fact that the statute of limitations, and not the merits, was the 

reason HMI was likely5 to prevail does not change that 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 

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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 adversarial process, so it has no duty 

to indemnify. Second, it contends that a policy exclusion applies. For differing reasons, neither supports the summary judgment.6

A.

Twin City’stheory that it has no duty to indemnify because the settlement was not the result of an adversarial process does not support the summary 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, such 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 opportunity 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 adverplausibly would have had to expend more resources litigating limitations.

6 Twin City also asserts that HMI waived its ability to contest those points by not 

addressing 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 Certain Underwriters at Lloyd’s, London v. Axon Pressure Prods. Inc., 951 F.3d 248, 273 n.19 (5th Cir. 2020). 

Because the district court did not rely on those grounds for its decision, HMI had no 

responsibility to address them in its opening brief, and it adequately addressed the issues in 

its reply brief. 

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sarial process. In determining whether the proceeding was adversarial, “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 

settlement accurately reflects the plaintiff’s damages and thus the defendantinsured’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, 256 S.W.3d at 673–74). Typically, cases in which that possibility 

is absent involve the insured assigning 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 with 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 that exclusion 

removes HMI’s settlement payment 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 that 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 the matter and leave it to the district court to decide whether that 

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that the wire transfer services were provided gratis to preclude summary 

judgment for Twin City. Specifically, HMI points to the Administrative Services 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. That

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 what 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.

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