IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

EMCODE REIMBURSEMENT §

SOLUTIONS, INC., et al., §

 §

 §

Plaintiffs, §

 § Civil Action No. 3:05-CV-1551-D

VS. §

 §

NUTMEG INSURANCE COMPANY, §

 §

Defendant. §

MEMORANDUM OPINION

 AND ORDER 

The principal question presented in this insurance coverage

dispute is whether the insured gave timely notice of its claim

under a claims-made policy. Concluding that it did not, the court

grants summary judgment dismissing plaintiffs’ breach of contract

action. The court also concludes that plaintiffs have failed to

demonstrate that they have viable extracontractual claims or that

granting them leave to amend would not be futile. Accordingly, the

court dismisses this case with prejudice.

I

In this removed action, plaintiffs EmCode Reimbursement

Solutions, Inc. (“EmCode”) and EmCare, Inc. (“EmCare”) sue

defendant Nutmeg Insurance Co. (“Nutmeg”) on claims for declaratory

judgment, bad faith denial of coverage, unfair settlement practice,

breach of contract, and attorney’s fees arising from Nutmeg’s

refusal to defend and indemnify EmCode and EmCare in litigation

filed in the United States District Court for the Northern District

 

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1The court recounts the evidence in a light favorable to

EmCode and EmCare as the summary judgment nonmovants and draws all

reasonable inferences in their favor. E.g., U.S. Bank Nat’l Ass’n

v. Safeguard Ins. Co., 422 F.Supp.2d 698, 701 n.2 (N.D. Tex. 2006)

(Fitzwater, J.) (citing Clift v. Clift, 210 F.3d 268, 270 (5th Cir.

2000)).

2These policies are also referred to as “claims-made”

policies, and the court will use this shorthand form in this

memorandum opinion and order.

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of Oklahoma. In that lawsuit——the “Green Country

Litigation”——Green Country Emergency Physicians, P.C. (“Green

Country”), a professional group for emergency physicians, sued

Healthcare Administrative Services, Inc. (“HASI”) and EmCare, both

wholly-owned subsidiaries of EmCode, for breach of contract and

conversion, eventually adding a negligence claim.1

 In January 2001

Green Country entered into separate contracts with EmCare, d/b/a

Medtrust Healthcare Services, and HASI to provide billing and

financial management services (EmCare contract) and administrative

support services (HASI contract) to Green Country. In the Green

Country Litigation, Green Country alleged in its complaint that

HASI and EmCare were liable for breach of contract and conversion

arising from their failure, neglect, and refusal to provide the

services they had agreed to perform.

Nutmeg insured EmCode under three successive one-year term

insurance policies for the period May 16, 2002 through May 16,

2005. Each policy was a “claims-made and reported”-type insurance

policy.2

 The terms of the Policy required disclosure of pending or

 

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potential suits against the insured prior to its initial inception

and before subsequent renewals. EmCode renewed the Policy annually

until May 16, 2005, when the Policy expired.

When Green Country sued HASI and EmCare in March 2003 for

breach of contract and conversion, EmCode did not forward a copy of

the complaint to Nutmeg or otherwise disclose or report the factual

allegations of the lawsuit to Nutmeg during the 2002-03 Policy

term. Nor did it do so during the 60-day reporting period that

followed the expiration of the 2002-03 Policy (i.e., the tail

period). 

Green Country amended its complaint in June 2003, asserting in

its first amended complaint two claims for breach of contract

(addressing two separate contracts) and one claim for conversion.

EmCode did not forward to Nutmeg a copy of the first amended

complaint or otherwise disclose or report the factual allegations

of the Green Country Litigation to Nutmeg during the 2003-04 Policy

term or the 60-day reporting period that followed.

When EmCode renewed the Policy for the third and final annual

period of May 16, 2004 to May 16, 2005, it did not report the Green

Country Litigation to Nutmeg in accordance with the terms of the

renewal. In January 2005 Green Country filed a second amended

complaint alleging, in addition to the breach of contract and

conversion claims, a new cause of action for negligence based

essentially on the same factual allegations asserted in its

 

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3

As the court notes infra at note 11, the petition referred in

error to the 2003-04 Policy as the basis for the claim. 

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complaint and first amended complaint. A few days later, EmCode

forwarded a copy of the second amended complaint to Nutmeg, who

tendered a defense, subject to a full reservation of rights. About

two weeks later, Nutmeg received copies of Green Country’s

complaint and first amended complaint.

After reviewing the complaint and first amended complaint,

Nutmeg denied coverage. It concluded that EmCode had breached

conditions precedent to coverage by failing to report the claim

during the 2002-03 Policy term, when it was “first made,” or during

the Policy’s 60-day reporting period. 

EmCode and EmCare then brought this lawsuit against Nutmeg in

Texas state court, alleging that Nutmeg had a duty to defend and

indemnify EmCode and EmCare.3 Nutmeg removed the case to this

court based on diversity of citizenship. The following five

motions are pending for decision: (1) Nutmeg’s May 18, 2006 motion

for summary judgment; (2) plaintiffs’ June 9, 2006 motion for leave

to amend complaint; (3) plaintiffs’ June 26, 2006 motion for leave

to supplement evidence in support of summary judgment response; (4)

Nutmeg’s September 5, 2006 motion to exclude expert opinions of

Olie R. Jolstad (“Jolstad”); and (5) Nutmeg’s September 12, 2006

motion to extend the discovery deadline.

 

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4Nutmeg refers throughout its brief to EmCode as if it were

the party sued in the Green Country Litigation. See, e.g., D. Br.

9. Plaintiffs refer collectively to EmCode and EmCare as “EmCare.”

See, e.g., Ps. Br. 1. For clarity, the court will refer to

EmCode’s wholly-owned subsidiaries, HASI and EmCare, as the

defendants in the Green Country Litigation and to EmCode as the

insured.

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II

The court turns first to Nutmeg’s motion for summary judgment.

A

Nutmeg contends that Green Country’s complaint, filed in March

2003, alleged “wrongful acts” involving professional services

against HASI and EmCare4 that constituted a “claim” under the

Policy during the 2002-03 Policy period. It maintains that because

the specific allegations gave rise to a claim no later than March

2003, they were not first made during the May 16, 2003 to May 16,

2004 Policy. And because the claim was not reported until February

2005, it is not covered under the Policy because EmCode failed to

report the claim as soon as practicable, but in no event later than

60 days after the expiration of the Policy period, as the Policy

required. Nutmeg therefore argues that EmCode failed to comply

with the following conditions precedent: report the claim within

the Policy period in which the claim was first made, or during the

60-day tail period; immediately forward to Nutmeg any suit papers

and the like; and provide written notice of the claim details as

soon as practicable.

Nutmeg also contends that the Policy required immediate notice

 

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5

Plaintiffs adopt the evidence contained in Nutmeg’s appendix.

They also submit an appendix that contains the affidavit of Todd

Zimmerman, Esquire, General Counsel of Emergency Medical Services

Corporation (plaintiffs’ corporate parent), in which Zimmerman

avers that he believed that Green Country’s complaint was not

covered under the 2002-03 Policy.

6Plaintiffs refer to plural negligence “claims” in their

briefing. It is apparent, however, that Green Country alleged a

single negligence cause of action in its second amended complaint.

Plaintiffs’ references to multiple negligence “claims” are to

distinct allegations of negligent acts or omissions alleged in the

second amended complaint. The court will refer to Green Country’s

negligence claim in the singular.

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of every demand, notice, summons, of other process. It posits that

because the Green Country Litigation was filed and the first claim

made no later than the 2002-03 Policy period, EmCode was required

to report the lawsuit immediately, provide additional written

information as soon as practicable, and no later than 60 days

following the expiration of the Policy period; the 22-month delay

in forwarding the complaint did not satisfy the Policy’s

requirement that the insured “immediately forward process” to the

insurer; and because Texas law clearly mandates compliance with a

claims-made policy’s reporting requirements as a condition

precedent to coverage, the failure to timely report the claim

barred coverage, regardless whether Nutmeg was prejudiced.

Plaintiffs generally accept Nutmeg’s statement of facts and

its supporting evidentiary appendix.5 They posit, however, that

when Green Country filed its second amended complaint and for the

first time explicitly asserted a negligence claim,6 EmCode promptly

 

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7

It is not clear from plaintiffs’ brief that they dispute that

the Green Country Litigation was a claim “first made” under the

2002-03 Policy, although this premise appears to be implicit in

their summary judgment briefing.

8Plaintiffs offer neither authority for this proposition nor

an adequate explanation for their reasoning in support, and the

court accordingly declines to address or accept it.

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notified Nutmeg of the second amended complaint, as required under

the 2004-05 Policy.7 Plaintiffs argue that summary judgment must

be denied because Green Country’s new negligence claim was

potentially covered under the 2004-05 Policy, and EmCode promptly

tendered the required notice. They posit that Nutmeg never

disputed this prompt notice or that the negligence claim was

covered under the 2004-05 Policy, but instead denied coverage on

the basis that the claims were not first reported during the 2002-

03 Policy period, when Green Country filed its complaint.

Plaintiffs contend that Nutmeg implicitly acknowledges that it

would have accepted coverage for the claim had it been submitted in

2003, and, if so, they are legally excused from submitting the

claim in 2003.8 

Plaintiffs also maintain that even if Green Country’s

complaint was a claim first made during the 2002-03 Policy period,

EmCode was legally excused from giving notice within the period

required under the 2002-03 Policy. They contend that Texas law

excuses late notice when the insured had a reasonable and prudent

belief, reached after a full investigation of all the surrounding

 

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9

Plaintiffs also cite Nutmeg’s assertion in Nutmeg Insurance

Co. v. Clear Lake City Water Authority, 229 F.Supp.2d 668 (S.D.

Tex. 2002), that it had no duty to defend or indemnify where the

underlying suit was for intentional breach of contract. They argue

that, depending on Nutmeg’s present position concerning the

inconsistencies between its arguments in that case and in the

present suit, EmCode’s notice either was timely or its failure to

provide timely notice was excused. Because the court holds that

plaintiffs cannot rely on “excused late notice” in the context of

this claims-made policy, the court need not address this argument.

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facts and circumstances, that a claim was not covered. According

to plaintiffs, EmCode had such a belief. Todd Zimmerman, Esquire

(“Zimmerman”), General Counsel of Emergency Medical Services

Corporation (plaintiffs’ corporate parent), reviewed the 2002-03

Policy and the Green Country Litigation, and he concluded, based on

his experience with similar policies and on a review of this

Policy, that the 2002-03 Policy did not cover the types of claims

alleged——i.e., breach of contract and conversion. Zimmerman

adhered to this conclusion after Green Country filed its first

amended complaint. But when Green Country filed its second amended

complaint, which for the first time asserted a claim for

negligence, Zimmerman understood that the claim was covered by the

2004-05 Policy, and EmCode promptly gave Nutmeg notice of the new

claim.9

Nutmeg replies that, under Texas law that governs a claimsmade policy, EmCode’s failure to timely report the claim first made

against it in March 2003 in the Green Country Litigation vitiates

coverage under all subsequent policies, even when the lawsuit has

 

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been amended to include a new cause of action or a new theory of

recovery, if the new cause of action arises out of the same or

essentially the same facts as alleged in the prior complaint. It

contests plaintiffs’ attempt to excuse EmCode’s failure to report

the Green Country claim under the 2002-03 Policy, contending that

the grounds on which they rely do not apply to claims-made policies

and that the cases they cite involved occurrences policies. Nutmeg

further posits that even if delayed notice can be excused in the

context of a claims-made policy, plaintiffs have failed to offer

any competent evidence that EmCode reasonably believed there was no

insurance coverage for the claims made the basis of the Green

Country Litigation when the suit was first filed in March 2003.

B

The court begins by placing to one side plaintiffs’ reliance

on their alternative contention that EmCode’s late notice was

excused. Plaintiffs have failed to offer authority for the

proposition that an insured’s reasonable and prudent belief that a

claim was not covered excuses late notice under a claims-made

policy. The cases on which plaintiffs’ rely address occurrence

policies.

Courts traditionally distinguish between two

types of insurance policies. “An ‘occurrence’

policy covers all claims based on an event

occurring during the policy period, regardless

of whether the claim or occurrence itself is

brought to the attention of the insured or

made known to the insurer during the policy

period.” 

 

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Fed. Ins. Co. v. CompUSA, Inc., 239 F.Supp.2d 612, 617 (N.D. Tex.

2002) (Fitzwater, J.) (quoting Yancey v. Floyd West & Co., 755

S.W.2d 914, 918 (Tex. App. 1988, writ denied)), aff’d on the basis

of the district court opinion, 319 F.3d 746 (5th Cir. 2003) (per

curiam). In contrast, “[a] ‘claims-made’ policy covers occurrences

which may give rise to a claim that comes to the attention of the

insured and is made known to the insurer during the policy period.”

Id. (quoting Yancey, 755 S.W.2d at 918).

The purpose of claims-made policies, unlike

occurrence policies, is to provide exact

notice periods that limit liability to a fixed

period of time after which an insurer knows it

is no longer liable under the policy, and for

this reason such reporting requirements are

strictly construed.

Nat’l Union Fire Ins. Co. v. Willis, 296 F.3d 336, 343 (5th Cir.

2002) (internal quotation marks omitted) (quoting Resolution Trust

Corp. v. Ayo, 31 F.3d 285, 289 (5th Cir. 1994)). “Allowing

coverage beyond that period would be to grant the insured more

coverage than that which was bargained for, and to require insurers

to provide coverage for risks not assumed.” Id. (citing United

States v. A.C. Strip, 868 F.2d 181, 187 (6th Cir. 1989)). 

Plaintiffs do not appear to acknowledge this critical

distinction between policy types, and they fail to offer a

compelling reason or to cite any authority for why the court should

extend the “excused late notice” rule to a claims-made policy.

Absent such reasoning or authority, the court is unable to hold

 

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10Although the fact that Green Country’s complaint constituted

a “claim” under the 2002-03 Policy appears largely undisputed, the

court will decide this question to ensure that the issue is not

left unresolved. 

- 11 -

that plaintiffs’ 22-month delay in proving notice is excusable. 

C 

The court considers next whether Green Country’s complaint

constituted a “claim” that was “first made” under the 2002-03

Policy, and, if so, whether coverage under the 2003-04 and 2004-05

Policies was vitiated as a result of EmCode’s late notice.10 

Under the terms of the Policy, a “Claim” is defined as 

receipt by the Insured of a written demand

naming the Insured seeking Damages,

Professional Services, or equitable relief

arising out of a Wrongful Act by the Insured

or any Entity for whom the Insured is legally

liable.

D. App. 52 (bold font omitted). The Policy defines “Wrongful Act”

to mean “any actual or alleged act, error or omission in the

rendering or failure to render Professional Services.” Id. at 53.

The term “‘Professional Services’ means those services set forth in

Item 7 of the Declarations requiring special learning or

intellectual skill, performed by the Insured in the ordinary

conduct of its profession for others for a fee, remuneration or

other consideration; or as otherwise defined by endorsement to this

Policy.” Id. (bold font omitted). The allegations in Green

Country’s complaint plainly alleged a “wrongful act,” and therefore

a “claim,” under the Policy, because they related to errors or

 

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omissions arising out of the rendering of professional services and

sought damages. Green Country alleged that HASI and EmCare had

failed to prepare an adequate budget or physician compensation

reports, to establish and administer account procedures, controls,

and systems for the development, preparation, and safe keeping of

financial records, to timely prepare and make available monthly

statistical financial reports and agreed on forms and formats, and

to adequately monitor some billing expenses. D. App. 124-25.

Under the terms of the Policy, “[a] Claim is considered first made

when the Insured receives notice of Claim from a claimant or such

claimant’s legal representative . . . .” D. App. 52 (bold font

omitted). Accordingly, the complaint constituted a claim “first

made” under the 2002-03 Policy. 

D

The next question to be decided is whether coverage was

vitiated under the 2003-04 and 2004-05 Policies. Plaintiffs do not

dispute that they failed to provide notice of Green Country’s

complaint, which the court has held was “first made” during the

2002-03 Policy term, during the Policy term or within 60 days

thereafter. They contend that when Green Country filed its second

amended complaint and for the first time explicitly asserted a

negligence claim, EmCode promptly notified Nutmeg of the second

amended complaint, as required under the 2004-05 Policy. They

argue that Green Country’s new negligence claim was potentially

 

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covered under the 2004-05 Policy, and EmCode promptly tendered the

required notice. Plaintiffs posit that Nutmeg never disputed this

prompt notice or that the negligence claim was covered under the

2004-05 Policy, but instead denied coverage on the basis that the

claim was not first reported during the 2002-03 Policy period, when

Green Country filed its complaint. 

The 2002-03 Policy provides, in pertinent part: 

[a]s a condition precedent to coverage under

this Policy, the Insured shall report such

Claim in writing to the Company as soon as

practicable but in no event later than 60 days

after expiration or termination of this Policy

. . . .

D. App. 26 (bold font omitted). Additionally, the 2002-03 Policy

requires:

[i]n the event of a Claim the Insured shall as

a condition precedent to coverage afforded by

this Policy: 

(1) Immediately forward to the Company every

demand, notice, summons or other process . . .

received by the Insured.

Id. at 31 (bold font omitted). It is undisputed that EmCode did

not report the Green Country Litigation to Nutmeg until 22 months

after the receipt of service. This is insufficient to satisfy the

Policy provisions that required EmCode to immediately forward Green

Country’s complaint to Nutmeg and to report the claim in writing as

soon as was practicable, but in no event later than 60 days after

expiration or termination of the Policy, so as to satisfy the

condition precedent to coverage. Under Texas law, an insurer is

 

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11Plaintiffs have failed to plead a claim for coverage under

the 2004-05 Policy. Their original petition, filed in state court

prior to removal, is at this point their operative pleading. In

it, plaintiffs actually rely only on the 2003-04 Policy. See Pet.

¶ 6. As plaintiffs recognize in their motion for leave to amend

complaint, their state-court petition is defective in this respect.

Ps. Mot. Leave to Amend 2; Ps. Reply Br. in Support of Mot. for

Leave to Amend 2 (“[EmCode] initially asserted causes of action on

an inapplicable insurance policy, and now seeks to assert those

causes of action under the proper insurance policies.”). They seek

by amendment to rely on the 2004-05 Policy and alternatively on the

2002-03 Policy. Plaintiffs cannot, however, invoke the 2004-05

Policy for the first time in response to Nutmeg’s summary judgment

motion. See Cutrera v. Bd. of Supervisors of La. State Univ., 429

F.3d 108, 113 (5th Cir. 2005) (“A claim which is not raised in the

complaint but, rather, is raised only in response to a motion for

summary judgment is not properly before the court.”) (citing Fisher

v. Metro. Life Ins. Co., 895 F.2d 1073, 1078 (5th Cir. 1990)). The

court will nevertheless address whether plaintiffs can recover

under this policy because it is germane to the issue of futility of

amendment, which the court decides below at § V. 

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not required to show prejudice by late notice under a claims-made

policy. See, e.g., SingleEntry.com, Inc. v. St. Paul Fire & Marine

Ins. Co., 117 Fed. Appx. 933, 936 (5th Cir. 2004) (unpublished

opinion); Hirsch v. Tex. Lawyers’ Ins. Exch., 808 S.W.2d 561, 565

(Tex. 1991, writ denied). And as the court has already discussed,

plaintiffs have not shown that their late notice can be legally

excused.

Assuming arguendo that plaintiffs’ reliance on the 2004-05

Policy is not procedurally barred,11 it still fails, because, under

the circumstances of this case, plaintiffs’ late notice under the

2003-04 Policy vitiated coverage under the 2004-05 Policy. This

suit is analogous to National Union Fire Insurance Co., 296 F.3d

336. There the plaintiff in the underlying lawsuit filed suit in

 

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1998 and added a claim for negligent misrepresentation in 2000.

The insured argued that the negligent misrepresentation fell under

the 2000 policy, and the insurer contended that the claim was part

of the initial lawsuit and fell under the 1998 policy. The

district court concluded that the insured was foreclosed from

relying on the 2000 policy because the claims made in the pleading

filed in 2000 arose out of, were based on, or were attributable to

a pending or prior litigation, or alleged or derived from the same

or essentially the same facts as alleged in the pending or prior

litigation, and were therefore expressly excluded from the coverage

of the 2000 policy. Id. at 341.

The Fifth Circuit affirmed. It noted that all the insurance

policies in question defined “Claim” as “a civil . . . proceeding

. . . which is commenced by service of a complaint or similar

pleading.” Id. at 341-42. The panel reasoned that, under this

definition, the underlying plaintiff’s initial complaint commenced

the civil proceeding as a whole, and amended complaints could not

commence a civil proceeding that had already been commenced by the

filing and service of the initial complaint. Id. at 342. Any

other reading would result in one lawsuit’s qualifying as two

different civil proceedings. The court concluded that this was

particularly true when the amended complaint was based on facts

identical to those that were used in the original petition.

Therefore, nothing in the record supported the insured’s contention

 

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that the negligent misrepresentation claim gave rise to a new

theory of recovery that was a separate claim governed by the 2000

policy. The insured was therefore required to notify the insurer

during the 1998 policy period. Id.

Similarly, in the present case, the 2003-04 Policy defines the

term “Claim” to mean “receipt by the Insured of a written demand

naming the Insured seeking Damages, Professional Services, or

equitable relief arising out of a Wrongful Act by the Insured or

any Entity for whom the Insured is legally liable.” D. App. 52.

The Policy defines “Wrongful Act” to mean “any actual or alleged

act, error or omission in the rendering or failure to render

Professional Services.” Id. at 53. EmCode, through HASI and

EmCare, its wholly-owned subsidiaries, received a written demand

seeking damages arising out of a “Wrongful Act” when Green Country

initiated the Green Country Litigation and served its complaint and

process in 2003. Even if the court assumes that EmCode received a

new “demand” when Green Country filed its second amended complaint

in 2005, it declines to hold that EmCode received a new demand that

arose out of a new “Wrongful Act.” This is because the second

amended complaint was based on the same or essentially the same set

of facts as was the complaint, and the “Wrongful Act” was

essentially the same. Compare D. App. 123-25 (complaint) with id.

at 129-33 (first amended complaint) and id. at 138-42 (second

amended complaint).

 

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12Plaintiffs filed on June 26, 2006 a motion for leave to

supplement evidence in support of summary judgment response. They

offer the affidavit of Jolstad, an insurance expert, who, in his

affidavit, avers that Green Country’s second amended complaint

constituted claims that were potentially covered under the 2004-05

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If the court were to hold that the mere addition of a new

theory of recovery or a new claim based on the same alleged

“Wrongful Act” could enlarge the coverage provided under a claimsmade policy, it would materially compromise a fundamental purpose

for such a policy, which is “to provide exact notice periods that

limit liability to a fixed period of time after which an insurer

knows it is no longer liable under the policy.” Nat’l Union Fire

Ins. Co., 296 F.3d at 343. An insurer would be obligated to

underwrite and issue such a policy on the assumption that the same

covered conduct could subject it to liability perhaps years after

the policy period had ended, simply because the plaintiff in the

underlying litigation had changed the theory on which it sought to

recover for the same conduct. This in turn could impact the

premiums that insurers charge for such policies, perhaps redounding

to the detriment of insurance purchasers who may choose claims-made

policies because they generally cost less. The court declines to

interpret the claims-made policy at issue in this case in a way

that could lead to this result.

Accordingly, the court holds that Nutmeg is entitled to

summary judgment dismissing plaintiffs’ declaratory judgment and

breach of contract claims.12

 

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Policy, and that it was reasonable for EmCode to conclude that the

complaint alleging only breach of contract and conversion claims

was not covered because insurance companies routinely deny coverage

for such claims. In view of the court’s conclusion that EmCode

failed to satisfy the condition precedent for recovering under the

2003-04 Policy and that this failure vitiated EmCode’s right to

recover under the 2004-05 Policy, the court denies the motion for

leave to supplement evidence. 

- 18 -

III

Nutmeg also moves for summary judgment on plaintiffs’ common

law claim for bad faith denial of coverage claim and their unfair

settlement practice claim under Article 21.21 of the Texas

Insurance Code claim. It argues that plaintiffs’ extracontractual

claims fail because there is no coverage for the underlying claim,

and because there is no cause of action for third-party bad faith

under Texas law. Plaintiffs have not responded to these grounds of

Nutmeg’s motion, and they implicitly concede that they cannot

recover under either theory. This is corroborated by the fact that

in their motion for leave to amend, which the court addresses infra

at § IV, they seek leave to amend their state-court petition by

replacing these two claims with a cause of action for unfair or

deceptive insurance practice under Tex. Ins. Code Ann.

§§ 541.060(a)(1), (a)(2)(A), and (a)(7), and 541.061(1) (Vernon

2007).

Accordingly, the court dismisses plaintiffs’ common law claim

for bad faith denial of coverage and their unfair settlement

practice claim under Article 21.21 of the Texas Insurance Code.

 

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IV

The court now turns to plaintiffs’ motion for leave to amend

their complaint.

A

Plaintiffs seek leave to amend in order to change the

insurance policy on which they rely from the 2002-03 Policy to the

2004-05 Policy (and alternatively on the 2002-03 Policy). They

also request leave to assert a claim for unfair or deceptive

insurance practice under Tex. Ins. Code Ann. §§ 541.060(a)(1),

(a)(2)(A), and (a)(7), and 541.061(1) (Vernon 2007). Nutmeg

opposes the motion on the basis of futility, contending that it has

demonstrated that plaintiffs cannot recover under either policy,

and that plaintiffs cannot recover on an extracontractual claim in

the absence, as here, of a duty to defend or indemnify, and because

Texas does not recognize a claim for common law bad faith in the

context of a third-party coverage claim. Plaintiffs reply that

they have successfully opposed Nutmeg’s “premature motion for

summary judgment,” Ps. Reply Br. in Support of Mot. for Leave to

Amend 2, on their contract claim. They maintain that because the

court should deny summary judgment, their proposed amended

complaint is not futile. Plaintiffs do not assert, however, that

their extracontractual claim under various provisions of the Texas

Insurance Code can survive absent a showing that Nutmeg had a duty

to defend or indemnify in the Green Country Litigation. 

 

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B

A court may deny leave to amend when the amendment would be

futile. See, e. g., FDIC v. Conner, 20 F.3d 1376, 1385 (5th Cir.

1994) (holding that “leave to amend need not be granted when it

would be futile to do so”). Moreover, “[s]ummary judgment may be

granted when a motion for leave to amend is pending.” Fresh Am.

Corp. v. Wal-Mart Stores, Inc., 2004 WL 983615, *6 (N.D. Tex. Apr.

29, 2004) (Ramirez, J.). This court typically does not address the

issue of futility in the context of a motion for leave. See, e.g.,

Poly-Am., Inc. v. Serrot Int’l Inc., 2002 WL 206454, at *1-*2 (N.D.

Tex. Feb. 7, 2002) (Fitzwater, J.). Here, however, it has already

addressed the merits of plaintiffs’ proposed contract claim in the

context of Nutmeg’s motion for summary judgment. Were the court to

grant leave to amend to assert a breach of contract claim based on

the 2004-05 Policy and alternatively on the 2002-03 Policy, it

would ultimately grant summary judgment dismissing the claim on the

reasoning and grounds set out in this opinion.

The court likewise concludes that plaintiffs’ proposed

extracontractual claim is futile. In reply to Nutmeg’s opposition

brief, plaintiffs do not address their proposed claim under Tex.

Ins. Code Ann. §§ 541.060(a)(1), (a)(2)(A), and (a)(7), and

541.061(1). Specifically, they do not attempt to demonstrate that

it is viable absent a showing that Nutmeg also breached the

Policies at issue. Even assuming that a claim for unfair or

 

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deceptive insurance practice under the Texas Insurance Code can be

based on conduct that accompanies or exceeds the mere breach of the

insurance policy, plaintiffs do not argue that they are proposing

such a claim. And a reading of their proposed amended complaint

shows that the contemplated claim is based on Nutmeg’s “refusal to

tender coverage under the [2004-05] Policy,” Proposed 1st Am.

Compl. ¶ 18, or, alternatively, its “refusal to tender coverage

under the [2002-03] Policy,” id. at ¶ 19. In other words,

plaintiffs’ extracontractual claim is based on Nutmeg’s denial of

coverage under the Policies.

Accordingly, because the proposed amendment is futile, the

court denies plaintiffs’ motion for leave to amend.

V

Because the court has not considered Jolstad’s testimony,

Nutmeg’s motion to exclude his testimony is denied without

prejudice as moot. Nutmeg’s motion to extend the discovery

deadline is also denied without prejudice as moot.

* * *

Nutmeg’s May 18, 2006 motion for summary judgment is granted,

and plaintiffs’ claims for declaratory judgment, bad faith denial

of coverage, unfair settlement practice, and breach of contract are

dismissed. Although Nutmeg did not explicitly mention plaintiffs’

claim for attorney’s fees in its motion, that claim clearly depends

on the viability of plaintiffs’ other causes of action. Plaintiffs

 

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therefore lack a basis to recover attorney’s fees, and this claim

must likewise be dismissed. 

Plaintiffs’ June 9, 2006 motion for leave to amend complaint

and their June 26, 2006 motion for leave to supplement evidence in

support of summary judgment response are denied. 

Nutmeg’s September 9, 2006 motion to exclude expert opinions

of Jolstad and its September 12, 2006 motion to extend the

discovery deadline are denied without prejudice.

A judgment dismissing this action with prejudice is being

filed today.

SO ORDERED.

March 15, 2007.

_________________________________

SIDNEY A. FITZWATER

UNITED STATES DISTRICT JUDGE

 

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