Revised July 16, 2002

UNITED STATES COURT OF APPEALS

For the Fifth Circuit

No. 01-20723

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA,

Plaintiff-Counter Defendant-Appellee,

VERSUS

MARK A. WILLIS,

Defendant-Counter Claimant-Appellant.

Appeal from the United States District Court

For the Southern District of Texas

June 25, 2002

Before DUHÉ, DeMOSS, and CLEMENT, Circuit Judges.

DeMOSS, Circuit Judge:

Appellant, Mark A. Willis (Willis), brought this appeal asking

this Court to reverse the district court's granting of summary

judgment in favor of appellee, National Union Fire In surance

Company of Pittsburgh , PA (National Union). The district court

found that Willis was not entitled to coverage under a directors,

officers, a nd corporate liability insurance policy issued by

National Union to EqualNet Communications Corporation (EqualNet) of2

which Willis was an officer. We affirm.

BACKGROUND

Nationa l Union brought an action against Willis, who was an

officer and director of EqualNet, seeking a declaratory judgment

that Willis was not entitled to coverage under any of three

directors, officers, and corporate liability insurance policies

issued by National Union to EqualNet. The first policy covered the

time period of March 8, 1998, to March 9, 1999 (1998 policy). The

second policy covered the time period of March 8, 1999, to March 8,

2000 (1999 policy). The third policy covered the time period of

March 8, 2000, to March 8, 2001 (2000 policy). EqualNet

intervened.

A United States magistrate judge granted summary judgment in

favor of National Union. Furthermore, the district court granted

National Union's motion to dismiss Willis' counterclaims for extracontractual liability. Thereafter, EqualNet dismissed its

intervention and is not a party to the present appeal.

This appeal stems from a cause of action brought by

Cyber Serve, Inc., WSHS Enterprises, Inc., and William Stuart

(collectively “CyberServe”) on September 21, 1998, against

EqualNet, Netco Acquisition L.L.C., Willis, and Willis Group L.L.C.

in the 215t h District Court of Harris County, Texas. The action3

asserted claims against Willis for fraud, fraud in the inducement,

statutory fraud in a stock transaction, tortious interference with

a contract, and conspiracy. In addition, claims for breach of

contract and quantum meruit were alleged against EqualNet and the

Willis Group. The plaintiffs filed their fourth amended petition

in March 2000, adding a claim for negligent misrepresentation

against Willis, the Willis Group, and EqualNet. The added

negligent misrepresentation claim was based on the same al leged

misrepresentations underlying the fraud, fraudulent inducement, and

statutory fraud claims. Furthermore, the factual basis of the

fourth amended petition was the same as that used in the original

petition.

Notably, National Union was first notified of the lawsuit by

EqualNet on February 29, 2000. The first time Willis notified

National Union of the lawsuit was by letter dated May 11, 2000.

National Union denied coverage and declined to advance defe nse

costs to Willis because, in accordance with paragraph 7 of the

policies, the claims were not timely reported. Willis and EqualNet

did not dispute that they failed to notify National Union of the

CyberServe lawsuit during the 1998 policy period. Willis, however,

argued that he was not required to give notice of a lawsuit unless

a claim asserted against him was covered by t he terms of the

policy.

Therefore, Willis asserted that he was not required to notify

National Union until after the fourth amended petition was filed in4

March 2000. The three previously amended petitions, according to

W illis, asserted intentional torts that fell within the policy

exclusion for claims “arising out of, based upon, or attributable

to the committing in fact of any criminal or deliberate fraudulent

act.” As a result, Willis claimed that his May 11, 2000,

notification to National Union was timely to provide coverage under

the 2000 policy.

The district court determined that Willis was not entitled to

coverage under any of the three policies and gr anted summary

judgment in favor of National Union. The court concluded that

Willis should have given notice to National Union in 1998 when he

was first made aware of circumstances that could reasonably be

expected to give rise to a claim against him. National Fire Ins.

Co. v. Willis

, 139 F. Supp. 2d 827, 835 (S.D. Tex. 2001). In

addition, the court concluded that the claims made in the fourth

amended petition were “expressly excluded from the coverage of the

policy because they allege, arise out of, are b ased upon, or are

attributable to a pending or prior litigation or allege or derive

from the same or esse ntially the same facts as alleged in such

pending litigation.” I d. Willis now appeals the district court's

decision.

STANDARD OF REVIEW

Review of the district court's granting of summary judgment is5

de novo

. Harris v. Rhodes

, 94 F.3d 196, 197 (5th Cir. 1996).

Summary judgment may be granted “if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is enti tled to a

judgment as a matter of law.” F E D

. R. C IV

. P. 56(c). All disputed

fa cts and reasonable inferences are viewed “in the light most

favorable to the nonmoving party.” Duffy v. Leading Edge Prods.

,

44 F.3d 308, 312 (5th Cir. 1995).

DISCUSSION

The issue before this Court is whether the district court

erred in granting summary judgment in favor of N ational Union

having found that Willis failed to provide timely notice of the

claims or potential claims asserted against him as required by his

insurance policy. This Court has clearly identified that Texas law

requires an insurance policy to be construed against the in surer

and in favor of the insured. S ee Lubbock County Hosp. Dist. v.

Nat ional Union Fire Ins. Co , 143 F.3d 239, 242 (5th Cir. 1998);

National Union Fire Ins. Co

. v. Hudson Energy Co.

, 811 S.W.2d 552,

555 (Tex. 1991); Blaylock v. American Guar antee Bank Liab. Ins.

Co.

, 632 S.W.2d 719, 721 (Tex. 1982). As a result, an insurance

policy's exceptions and limitations are construed in favor of the

insured in order to avoid exclusion of coverage. Puckett v. U.S.6

Fire Ins. Co.

, 678 S.W.2d 936, 938 (Tex. 1984). Furthermore, when

interpreting an insurance policy, courts must consider that the

primary goal is to give effect to the wr itten expression of the

parties' intent. Balandran v. Safeco Ins. Co. of Am. , 972 S.W.2d

738, 741 (Tex. 1998). In so doing, courts are to ensure the policy

is interpreted in such a way as to give effect to each term in the

contract so that none will be rendered meaningless. Lynch Props.

Inc. v. Potomac Ins. Co.

, 14 0 F.3d 622, 626 (5th Cir. 1998);

Kelley-Coppedge, Inc. v. Highlands Ins. Co.

, 980 S .W.2d 462, 464

(Tex. 1998). In addition, all provisions of the policy should be

considered with reference to the whole contract so that no

provision is controlling. S tate Farm Life Ins. Co. v. Beaston

, 907

S.W.2d 430, 433 (Tex. 1995).

The insurance policies at issue here are “claims-made”

policies. To invoke coverage under a claims-made policy, a claim

must be made against the insured during the coverage period of the

policy and the insured must notify the insurer of the claim during

the same period. M atador Petroleum Corp. v. St. Paul Surplus Lines

Ins. Co., 1 74 F.3d 653, 658-59 & n.2 (5th Cir. 1999). The

insured's giving notice to the insurer triggers coverage. Id. at

659. Further, under a claims-made policy, insurers may deny

coverage if notice is not given timely. Id.

A. Willis' Contentions

Willis argues that he is entitled to coverage under the 20007

policy for the negligent misrepresentation claim made against him

in April 2000 when CyberServe and the other plaintiffs in the

underlying lawsuit filed their f ourth amended petition. Willis

first complains that the di strict court's ruling was erroneous

because i t misconstrued the applicable notice provisions under

section 7(c) of the policy. S ee Willis

, 139 F. Supp. 2d at 832.

Section 7(c) provides:

(c) If during the Policy Period or during the Discovery

Period (if applicable) the Company or the Insureds shall

become aware of any circumstances which may reasonably be

expected to give rise to a Claim being made against the

Insureds and shall give written notice to the Insurer of

the circumstances and the reasons for anticipating such

a Claim, with full particulars as to dates, persons, and

entities invoked, th en any Claim which is subsequently

ma de against the Insureds and reported to the Insurer

alleging, arising out of, based upon or attributable to

such circumstances or alleging any Wrongful Act which is

the same as or related to any Wrongful Act alleged or

contained in such circumstances, shall be considered made

at the time such notice of such circumstances was given.

According to Willis, requiring the insured to give notice of

circumstances likely to give rise to a claim ignores the plain

language of the insurance policy's notic e requirement. Willis

contends that the applicable provision “ permitted but did not

require Mr. Willis to give notice of any circumstances which might

reasonably be expected to give rise to a claim being made against

him that had not yet resulted in a claim that is covered by the

policies.”

Second, Willis argues that the district court misconstrued the

scope of the policy's exclusions concerning pending litigation.8

The district court held that the negligent misrepresentation claims

asserted in the fourth amended petition were excluded from coverage

under exclusion clause 4(e) because “they allege, arise out of, are

based upon, or are attributable to a pending or prior litigation or

allege or derive from the same or essentially the same facts as

alleged in such pending or prior litigation.” I d. at 835.

Exclusion clause 4(e) provides the insurer does not have to make a

payment in connection with a claim against an insured:

(e) alleging, arising out of, based upon or attributable

to any pending or prior litigation as of the Continuity

Date, or alleging or derived from the same or essentially

the same facts as alleged in such pending or prior

litigation.

According to Willis, the court's interpretation of exclusion clause

4(e) ignores the controlling language “as of the Continuity Date.”

Under the policy, the Continuity Dates were in 1995 and 1996, which

were well before the institution of the underlying CyberServe

litigation initiated in 1998. Similarly, Willis notes that the

court erred in concluding that exclusion 4(d) deprived him of

coverage. Exclusion clause 4(d) provides the insurer need not make

a payment for a claim:

(d) alleging, arising out of, based upon or attributable

to the facts alleged, or to the same or related Wrongful

A cts alleged or contained, in any claim which has been

re ported, or in any circumstances of which notice has

been given, under any policy of which this policy is a

renewal or replacement or which it may succeed in time.

According to Willis, because his claim was made under the 2000

policy, which was a renewal or replacement policy, exclusion 4(d)9

does not apply.

Third, Willis contends that the district court failed to

appropriately distinguish between intentional claims and negligent

misrepresent ation claims. Specifically, Willis argues that the

court concluded that the deliberate fraud exclusion did not reach

the claims asserted in the original petition. Therefore, according

to Willis, National Union did not have be contacted until after the

petition was amended for the fourth time.

Fourth, Willis argues that the court erroneously applied

contractual interpretation principles to the insurance policies.

According to Willis, the district court's decision was based on

legal doctrines that were designed to pro tect insureds but were

misapplied to deprive him of his insurance.

B. National Union's Contentions

National Union contends that the addition o f the negligent

misre presentation claim in the fourth amended petition did not

constitute a new claim, as Willis argues. Rather, National Union

argues that holding otherwise would require courts “to consider

each area of recovery as a separate claim.” Therefore, according

to National Union, the “claim” is the demand for damages initially

made in the first petition filed by the plaintiffs in the

underlying lawsuit. As a result, National Union argues that the

1998 policy applies to this case.

Further, National Union contends that the policies in question10

d o not limit the notice provisions to only covered claims.

According to National Union, “if an insured is free to make its own

coverage determination and decided to notify its insurer of a claim

only when the insured wishes to do so, then the notice provisions

in claim-made policies become meaningless.” In addition, National

Union disputes Willis' contention that coverage was never triggered

i n the original petition because only acts of intentional

,

deliberate conduct were alleged. Rather, National Union argues

that under the express language of the policy, only a finding that

the insured actually committed the alleged criminal or deliberate

fraudulent act will make the exclusion applicable. Moreover,

National Unio n argues that statutory fraud, which was alleged in

the original petition, does not require proof of sc ienter to

recover actual damages. Therefore, National Union contends that

actual damages could be awarded “without ever having to find that

Willis had committed in fact any deliberate fraudulent act.”

Lastly, Nationa l Union argues that Willis' contention that

exclusion 4(d) does not apply to the present case because he never

reported the claim until the 2000 policy perio d is erroneous.

National Union notes that “EqualNet, of which Willis was an

officer, repor ted the claim to National Union during the 1999

policy period.” Thus, according to National Union, the initial

claim had bee n reported under a prior policy period, which

triggered exclusion 4(d).11

C. Analysis

The original petition in the underlying CyberSpace lawsuit was

filed on September 21, 1998. The fourth amended petition, which

included the negligent misrepresentation claim, was filed on April

11, 2000. As noted above, Willis argues that the negligent

misrepresentation falls under the 2000 policy that covers the time

period of March 8, 2000, to March 8, 2001. National Union,

how ever, contends that the negligent misrepresentation claim is

part of the initial lawsuit and, therefore, falls under the 1998

p olicy that covers the time period of March 8, 1998, to March 9,

1999. The district court concluded that Willis was foreclosed from

relying on the 2000 policy for coverage arising from the negligent

misrepresentation claim. The district court reached this

conclusion because the claims made in the fourth amended petition

“arise out of, are based upon, or are attributable to a pending or

prior litigation, or allege or derive from the same or essentially

the same facts as alleged in such pending or prior litigation, and

thus are expressly excluded from the coverage of the [2000]

policy.” Willis , 139 F. Supp. 2d at 835.

We agree with the district court. All three policies define

“Claim” as “a civil

. . . proceeding . . . which is commenced by

service of a complaint or similar pleading.” Under this

definition, the initial complaint brought by CyberServe “commenced”

this civil proceeding as a whole. Under this plain reading of the12

contract' s language, amended complaints cannot commence a civil

proceeding that has alrea dy been commenced by the filing and

service of the initial complaint. Any other reading would result

in one lawsuit qualifying as two different civil proceedings. S ee,

e.g., F ED

. R. C IV

. P RO . 3 (“A civil action is commenced by filing a

complaint w ith the court.”); T E X

. R. C IV

. P. 22 (“A civil suit in

the district or county court shall be commenced by a petition filed

in the office of the clerk.”); Ameriwood Indus. Int'l Co. v.

American Cas. Co.

, 840 F. Supp. 1143, 1152 (W.D. Mich. 1993) (“A

suit begins in federal court with the filing of a complaint. After

the original filing, the suit is considered to be pending. Thus

the amendment of the

. . . complaint

. . . does not constitute a

new filing of the case.”) (citations omitted); see also 4 C HARLES

A LAN W RIGHT & A RTHUR R. M ILLER

, F EDERAL P RACTICE AND P ROCEDURE § 1052 (3d ed.

2002) (describing the commencement of a civil action with the

filing of a complaint). This is particularly true when, as in this

case, the amended complaint is based on identical facts as those

used in the original petition. We conclude, therefore, nothing in

the record suppo rts Willis' contention that the negligent

misrepresentation claim set forth in the fourth amended complaint

gives rise to a new theory of recovery that is a separate claim

governed by the 2000 policy. As a result, Willis was required to

notify National Union during the 1998 policy period.13

As already noted, howev er, Willis argues that he was not

obligated to notify National Union of claims made against him

unless they were actually covere d by the policy. Specifically,

Willis contends that the “d eliberate fraudulent act” exclusion

under section 4(c) removes the claims made against him from the

scope of the 1998 policy. Under Texas law, an insurer's duty to

defend ari ses when the pleadings allege a claim that is

“potentially” covered by the applicable policy. Gulf States Ins.

Co. v. Alamo Carriage Serv. , 22 F.3d 88, 90 (5th Cir. 1994);

Fidelity & Guar. Ins. Underwriters, I nc. v. McManus , 633 S.W.2d

787, 788 (Tex. 1982). To determine whether the pleadings contain

a “potentially” covered claim, this Court “'must focus on the

factual allegations that show the origin of the damages rather than

on the legal theories alleged.'” A merican States Ins. Co. v.

Bailey , 133 F.3d 363, 369 (5th Cir. 1998) (quoting National Union

Fire Ins. Co. v. Merchants Fast Motor Lines, Inc.

, 939 S.W.2d 139,

141 (Tex. 1997)). Furthermore, this Court should not consider the

truth or falsity of the allegations in the pleadings. G uaranty

Nat’l Ins. Co. v. Vic Mfg. Co.

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

Rather, all of the facts alleged in the complaint are assumed to be

true. S ee Houston Petroleum Co. v. Highlands Ins. Co.

, 830 S.W.2d

153, 155 (Tex. App.–Houston [1st Dist.] 1990, writ denied).

The original petition alleges, inter alia , that Willis made

misrepresentations and omissions that induced BlueGate and Stuart14

to perform thereunder. In addition, the petition alleges that

W illis' “representations and promises were false and were made

either intentionally or recklessly without regard to their truth or

falsity.” Furthermore, the petition asserts that Willis “agreed to

p articipate in unlawful acts for the purposes of defrauding

BlueGate and Stuart and tortiously interfering with B lueGate's

right to exercise the Lien pursuant to the terms of the Web Page

Agreement.” In determining whether the original petition in the

CyberServe laws uit was “potentially” covered, the district court

undertook an analysis of whether a “reckless” act is equivalent to

a “deliberate” act and, therefore, excluded under section 4(c) of

the 1998 policy. See Willis

, 139 F. Supp. 2d at 834-35.

We do not believe that such an analysis is warranted in this

case. The gist of the original petition's factual allegations are

that Willis made misrepresentations, omissions, and false promises

that induced BlueGate and Stuart to perform thereunder. These

factual allegations are enough to implicate the 1998 policy under

which National Union is obligat ed to “pay the Loss of each and

every Director or Officer of the Company arising from a Claim

. . .

for any actual or alleged Wrongful Act.” Whether a director or

officer ultimately is found to have committed a wrongful act based

on the legal theory of tortious conduct, be it intentional or

negligent, is irrelevant for requiring notification under the

claims-made policy in this case.15

The purpose of claims-made policies, unlike occurrence

policies, is to provide exact notice periods that limit liability

to a fixed period o f time “after which an insurer knows it is no

longer liable under the policy, and for this reason such reporting

requirements are strictly construed.” R es olution Trust Corp. v.

Ayo

, 31 F.3d 285, 289 (5th C ir. 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. See United States v. A.C. Strip

,

868 F.2d 181, 187 (6th Cir. 1989). Ultimately, a claims-made

policy's notice requirement “actually serves to aid the insured by

extending claims-made coverage beyond the policy period.” F DIC v.

Booth

, 82 F.3d 670, 678 (5th Cir. 1996) (citing FDIC v. Barham

, 995

F.2d 600, 604 & n.9 (5th Cir. 1993)). Furthermore, as correctly

noted by the Eighth Circuit:

“[C]laims-made” policies permit the reporting of acts not

yet in litigation. This provides additional protection

for the insured, because coverage could extend to a suit

not brought until long after the policy has expired, as

long as the insured provides notice to the insured [sic]

of potential claims. Yet this highlights the reciprocal

responsibility of the insured to report all acts and

occurrences that could become future clams . Thus, the

notice provision requirement sets the parameters of the

coverage under the policy.

FDIC v. St. Paul Fire & Ma rine Ins. Co. , 993 F.2d 155, 158 (8th

Cir. 1993). Clearly, the “as soon as practical” language in

section 7(a) of the 1998 policy was intended to prevent an insured16

from wait ing to notify the insurer of the existence of a claim.

Had Willis reported the claim to National Union “as soon as

practicable” during the 1998 policy period in which the claim was

first made, he would have preserved his rights to coverage.

Because Willis did not properly report the claim, he violated the

timely notice pro vision and, therefore, his claim was not within

the 1998 policy's coverage.

CONCLUSION

For the f oregoing reasons, we AFFIRM the district court's

judgment.