United States Court of Appeals

Fifth Circuit



## FILED

December 7, 2004

Charles R. Fulbruge III

Clerk REVISED DECEMBER 29, 2004



## In the



# United States Court of Appeals

for the Fifth Circuit

_____________________



## m 04-50110

Summary Calendar

_____________________

S INGLE 

### E NTRY



### . COM



### , I NC



### .,

Plaintiff-Appellant,



## VERSUS

S T



### . P AUL 

### F IRE 

### & M ARINE 

### I NSURANCE 

### C OMPANY



### ,

Defendant-Appellee.



## ____________________

Appeal from the United States District Court

for the Western District of Texas



## m A-03-CV-94-SS

____________________2

Before D AVIS , S MITH , and D ENNIS

, Circuit Judges.

J ERRY E. S MITH , Circuit Judge: *

SingleEntry.com, Inc. (“SingleEntry”), appeals a summary s ummary judgment in favor

of St. Pau l Fire and Marine Insurance Company (“St. Paul”). SingleEntry, as assignee of

ThinkSpark Corporation’s rights, contends

that ThinkSpark provided notice of a claim

within its policy period under a claims-made

technology errors and omissions policy. In addition, SingleEntry avers that St. Paul is required to show prejudice for failure to provide

notice and was required to provide a defense

to ThinkSpark under article 21.55 of the Texas

Insurance Code. We affirm.

I.

St. Paul issued ThinkSpark a claims-made

technology errors and omissions policy covering the period from Novem ber 9, 2000, to

November 9, 2001. SingleEntry hired ThinkSpark to design and build a website. In t he

spring of2000, a dispute arose between SingleEntry and ThinkSpark. SingleEntry sued

ThinkSpark on December 5, 2000, alleging

fraud, brea ch of contract, violations of the

Texas Deceptive Trade Practices Act, and an

alternative claim for neg ligent misrepresentation.

ThinkSpark knew of the litigatio n no later

than December 7, 2000, but did not inform St.

Paul until September 18, 2001, when ThinkSpark’s insurance broker sent St. Paul a copy

of the petitio n

. SingleEntry and ThinkSpark submitted their dispute to arbitration, a nd on

August 7, 2002, SingleEntry obtained an arbitration award against ThinkSpark.

St. Paul denied coverage to ThinkSpark for

the claims a ssert ed by SingleEntry in the underlying litigation. On February 11, 2003, the

state court ordered a turnover that assi gned

ThinkSpark’s claims against St. Paul to SingleEntry, which then sued St. Paul, alleging

status as an assignee and judgment creditor or

third-party beneficiary of the policy and seeking indemnification under the policy. St. Paul

removed to federal court on the basis of diversity jurisdiction.

S ingleEntry and St. Paul filed cross-motions for summary judgment on the legal question whether t he provision in the policy that

required ThinkSpark to notify St. Paul of a

loss “as soon as possible” is a mandatory notice requirement and therefore a condition precedent to coverage. The district court denied

Single-Entry’s motion for partial summary

judgment and granted St. Paul’s cross-motion

for summary judgme n t, determining that

ThinkSpark had failed to comply with the

notice requirements.

II.

An assignee steps into the shoes of the assignor and takes the assigned rights subject to

all defenses that an

o pposing party might be

able to as sert against the assignor. B urns v.

Bishop , 48 S.W.3d 459, 466 (Tex.

App. 

### SS Houston [14th D ist.] 2001). A thirdpar t y beneficiary judgment creditor of the insured steps into the shoes of the insured. S tate

Farm Lloyds Ins. Co. v. M aldonado , 963

S.W.2d 38, 40 (Tex. 1998). The judgment

creditor must show that the insured complied

with the conditions precedent and terms of the

policy. Id. * Pursuant to 5 T H C IR

. R. 47.5, the court has

determined that this opinion should not be published and is not precedent except under the limited

circumstances set fort in 5 TH C IR

. R. 47.5.4.3

When interpreting an insurance policy under Texas law, a court must construe ambiguities against the insurer and in favor of the insured. N at’l Union Fire Ins. Co. v. Willis

, 296

F.3d 336, 339 (5th Cir. 2002). The primary

goal is to give effect to the written expression

of the parties’ intent. Id. This is necessary to

ensure that the interpretation of the policy will

give effect to each term in the contract so that

none will be rend ered meaningless. I d. An

insurance policy will be considered ambiguous

if, when considered as a whole, it is reasonably

susceptible to more than one meaning. Matador Petroleum Corp. v. St. Paul Surplus Lines

Ins. Co.

, 1 74 F.3d 653, 657 (5th Ci r. 1999)

(quoting Forbau v. Aetna Li fe Ins. Co. , 876

S.W.2d 132, 134 (Tex. 1994)). A court

should not strain to find ambiguities that may

defeat the parties’ probable intention. I d. Furthermore, an

insurance contract will be given

its certain legal meaning or inte rpretati on i f

possible. Id.

The terms in an insurance co ntract are

g iven their ordinary and generally accepte d

meaning, unless the policy show s that the

words were meant in a tec hnical or different

sense. N ew Era of Networks, Inc. v. Great N.

Ins. Co.

, 2003 WL 23573645, at *8 (S.D. Tex.

2003) (citing Am. States Ins. Co. v. Hanson

Indus.

, 873 F. Supp. 17, 22 (S.D. Tex. 1995)).

The purpose of a

notice requirement is to

enable the insu rer to investigate the circumstances of an accident while the matter is fresh

in the minds o f t he witnesses so that it may

adequately prepare to ad j ust or defend any

claims that may be then or thereafter be asserted against persons covered by its po licy.

Id. (cit ing E

mployers Casualty Co. v. Glens

Falls Ins. Co. , 484 S.W.2d 570, 575 (Tex.

1972); Bay Elec. Supply, Inc. v. Travelers

Lloyds Ins. Co.

, 61 F. Supp. 2d 611, 619 (S.D.

Tex. 1999)). Compliance with the provision that notice

be given as soon as practicable is a condition

precedent , the breach of which voids policy

coverage. I

d

. (citing Br

oussard v. Lumbermens Mut. Cas . Co. , 582 S.W.2d 261, 2662

(Tex. App. 

### SS

Beaumont 1979); Duz ich v.

Marine Office of Am. Corp

., 980 S.W.2d 857,

866 (Tex. App. 

### S S

Corpus Christi 1998). According ly, “failure to give timely notice is a

breach of the insurance contract and relieves

the insurer of its obligation to defend or

indemnify. Id. (citing Assicurazioni Generali

SpA v. Pipe Line Valve Specialties Co.

, 935 F.

Supp 879, 887 (S.D. Tex. 199 6 )). Where an

insurance policy requires notification of an occurrence or a lawsuit as soon as practicable or

immediat ely, courts must consider the reasonableness of

a delay in notification if the facts

are undisputed

. Id. Notice requirements are

strictly interpreted, because the parties specifically negotiate them. M

atador

, 174 F.3 d at

657.

A claims-mad e policy is distinguishable

froman occurrence policy, where an occurrence during the policy triggers coverage. I d.

Alternatively, under a claims-made poli c y,

providing notice triggers the insured’s coverage. I d. An insurer is not required to show

prejud ice from late notice where a claimsma de policy is involved. I d. at 659. Courts

will not rewrite policies to permit notice-prejudice to be applied to claims -made policies,

because to do so would interfere wit h the

right to contract. I

d. A party right ly should

be held to know the co nditions of the policy

and the conscious choice that it made in selecting a claims-made policy instead of an occurrence policy. H irsch v. Tex. Law yers Ins.

Exch.

, 808 S.W.2d 561 , 565 (Tex. App. 

### S S El

Paso 1991, wrti denied). Therefore, the failure

to provide proper notice under a claims-made

policy negates coverage, regardless of whether4

the insurer has been prejudiced. Id. A showing of prejudice is required on ly in narrowly

defined cases invo lving bod ily injury and

property damage. D airyland County Mut. Ins.

Co. v. Roman

, 498 S.W.2d 154, 157 n.2 (Tex.

1973).

The instant policy sets forth defin ite requirements with which ThinkSpark must comply to secur e coverage. Under the policy

section titled “When this Poli c y Provides

Liability Protection,” the policy states: “If an

accident, error, event, offense, or wrongful act

happe ns t hat may involve liability protection

provided in this policy, you or any other protec t ed person involved must tell us or our

agent what happ ened as soon as possible.”

ThinkSp a rk, however, did not notify St. Paul

until nine months after Single Entry had filed

suit.

In addition, ThinkSpark did not give notice

to St. Paul when SingleEntry failed to pay over

$219,952 wort h o f invoices on May 9, 2000.

Also, in June 2000, ThinkS park referred the

controversy with SingleEntry to an atto r ney,

and its chief financial officer predicted that the

dispute would resul

t in litigation. St. Paul’s

policy states that “it is reasonable that a protected person could fo resee a claim or suit

being made or brought if one of your customers refused to pay all or part of your charges

for those products or services.” Consequently,

the actual period of time during which ThinkSpark failed to notify St. Paul is actually much

longer than nine months.

Analogously, there i s ample Texas authority

that taking eleven months to notify an insurer

is not “as soon as practicable.” C hi c ago Ins.

Co. v. W. World Ins. Co.

, 1998 WL 51363, at

*3 (N.D. Tex. 1998). Therefore, the district

court correctly found that ThinkSpark failed to

fulfill the notice r equirement of the policy. The terms and conditions of the policy demons t rat e that this notice requirement was meant

to be a condition precedent. Accordingly, because SingleEntry took the assigned rights

from ThinkSpark subject to all the defenses St.

Paul is able to assert, the di stri ct court properly granted St. Paul’s cross-motion for summary judgment.

III.

SingleEntry’s assertion that notice was provided before t he expiration of the policy is

unavailing. The policy specifically mandated

that notice be provided “as soon as possible.”

The r efore, under Texas law, ThinkSpark’s

d elay of notification from May 2000 unti l

D e cember 2001 fails to fulfill the condition

precedent of providing notice. Moreover,

although SingleEntry repeatedly cites the language of the policy stating that “failure to comply could affect coverage,” this language must

be read along with the requirement that notice

must be given “as soon as possible.” Accordingly, St. Paul was properly granted summary

judgment on SingleEntry’s suit as the assignee

of ThinkSpark’s claim.

St. Paul also defends SingleEntry’s claims

by noting that the policy did not cove r the

dispu t e that arose between ThinkSpark and

SingleEntry. Specifically, the policy states that

“[w]e wo n’t cover loss that results from any

delay in delivery of, or failure t o deliver your

computer or electronic products or services.”

The dispute between SingleEn try and

ThinkSpark arose because ThinkSpark failed

to complete the requested website for SingleEntry by the deadline of May 1, 2000.

We affirm based on ThinkSpark’s failure to

fulfill the condition precedent of providing notice to St. Paul “as soon as possible.” This decision, moreover, is bolstered by t he conclu-5

sion that the claim was not covered by the policy. Therefore, summary judgment was properly awarded because SingleEntry, as assignee,

is subject to all defenses St. Paul may raise

against ThinkSpark.

IV.

SingleEntr y argue that in Texas, for there

to be a condition precedent, terms such as “if”

or “provided that” or “on condition that” normally m ust be used. C riswell v. European

Crossroads Shopping Ctr. Ltd. , 792 S.W.2d

945, 948 (Tex. 1990). Furthermore, SingleEntry t ries to distinguish F

ed. Ins. Co. v.

CompUSA

, 319 F.3d 746, 748 (5th Cir. 2003),

be cause the contract in that case stated that

“the insured shall, as a condition precedent to

exercising their rights” give written noti ce.

Therefore, SingleEntry contends that the language “condition precedent” must be used for a

notice requirement to act as a condition precedent.

In Gemmy Indus. Corp. v. Alliance General

Ins. Co.

, 190 F. Supp. 2d 915, 921 (N.D. Tex.

1998), how ever, the insurance policy in cont ro versy did not explicitly have the words

“condition precedent” for the notice requirement, but rather sta t ed that notice must be

given as soon as p racticabl e. I d. The court

found that a delay of more than one year before not ifying the insurer was insufficient, regardless of the fact that the notice requirement

was not specifically labeled as a “conditio n

precedent.” Id.

Similarly, in Assicurazioni

, 935 F. Supp. at

887, the policy at issue required notice as soon

as practi cable, yet the insured notified its insurer almost seventeen months after the occurrence and two months after receipt of the origi nal petition. The policy listed the notice requirements under the condition section of the policy, yet the terms did not explicitly state

that the notice requirement was a “condi tion

precedent” t o coverage. Again, although the

notice requirement was not specifically labeled

as a “condition precedent,” the court found

that the delays violated the requirements set

out in the policy. Id.

SingleEntry further urges that ThinkSpark

had discretion to determine when the need for

coverage may exist. SingleEntry cites Employers Ins. v. Bodi-Wachs Aviation Ins.

Agency, Inc. , 39 F.3d 138 (7th Cir. 1994), to

illustrate that the insured has discretion in determining when an insurer must be given notice. In B odi-Wachs

, the insured gave notice to

its insurer directl

y aft er an amended pleading

was filed against it for fraud a nd negligence.

Id. Notably, the decision of the district court

granting coverage to the insured did not demonstrate that the insured has discretio n of

when to provide notice, but that t he insured

fulfilled the requirements of the policy.

Alternatively, Th i

nkSpark had reason to believe that coverage would be need ed when it

failed to reach its deadline for SingleEntry’s

website on May 1, 2000. Furthermore, in June

2000, the chief executive officer of T hinkSpark noted that litigation would likely result.

Consequently, ThinkSpark had the obligation

to notify St. Paul of possible litigation no later

than June 2000, and its failure provide notice

u ntil September 2001 constituted a failure t o

provide the proper notice.

V.

SingleEntry argues that St. Paul had a duty

to provide defense and pay the final judgment

on behalf of ThinkSpark under article 21.55 of

the Texas Insurance Code. SingleEntry is incorrect, because it is not making a first-party

claim in this dispute. Under Article 21.556

§ 1(3), claims are defined as a first-party claim

made by an insured o r policyholder under an

insurance policy or contract or by a beneficiary

named in the policy or contract t hat must be

paid by t he insurer directly to the insured or

beneficiary. An illust

rat ion of a first-party

claim can be found in Hartman v. St. Paul Fire

& Marine I

ns. Co. , 55 F. Supp. 2d 600, 603

(N.D. Tex. 1998), s ho wing that a first-party

claim is an immediate direct diminution of the

insured’s assets, in contrast to a third- p arty

claim, which goes through the first-party as a

conduit.

SingleEntry’s claim is not a first-party claim

for damage suffered directly by the insured.

Therefore, because ThinkSpark’s polic y was

not a first-party insurance policy, Sing le Entry’s third-party claim is not covered by article

21.55 . In addition, SingleEntry is not the

holder of the policy or a named beneficiary.

Accordingly, SingleEntry does not meet the

requirements of ar t icle 21.55, so summary

judgment was properly awarded to St. Paul

.

AFFIRMED.