The pa rties have not briefe d the issue of Ac e’s s tanding to object, but we pr esume that 1 Ace has st anding under Texas I nsuranc e Code a rticle 21.28, sec tion 3(h) (West 2004) (se e footnote 2 inf

ra for a n explanation of why

article 21.28 g overns this dispute). 

### TEXA S C OU R T OF A PPEAL S, THIR D DIST R ICT , AT AU STIN

NO. 03-0 6 -00 236 -CV

Ac e P r ope r ty& C as ual tyIns ur anc e Co m pany , A ppe lla nt
v. P rim e Tem pus , Inc., Sp ecial De puty Rece iver Under C ontractto the P erm anent Rec eiverof Highl ands Insu rance C om pany ; and Eagl e Star Insurance Com pany, L td., Appellees

F ROM THE DISTRICT CO URT OF TRAVIS COUNTY , 53RD JUDICIAL DISTRICT NO. D-1- GN-05- 0044 07 , HO NORAB LE STEP HEN Y ELENOSK Y , JUDGE PRESIDI NG

M E M O R

A N D U M O P I N I O N
Ace Property

& Ca sualty

I nsuranc e Company

(“A ce” ) appe als a district cour t order g rantingthe Application for Authority

to Sett l e a C l ai m filed by Prime Tempus, Inc. (“ SDR”), specia l deputy

rec eiver for Hig hlands Insuranc e Com p any (“H ighla nds”). Ea g le Star Insuranc e Com pa ny (“ Ea g le Star” ) s ue d H ig hla nd s f or mon e y a lle g e dly ow ing un de r an

ins ur anc e a g re e me nt. Whil e that suit was pending , Hig hlands enter ed re cei v er s h ip, and SDR was appointed its specia l deputy rec eiver
. SDR subsequently neg otiated a settlement ag ree ment with Eag le Star and a sked the
c ourt su pe rv isi ngthe re c e ive rs hip to a pp ro ve it. Ac e , whi c h ha d it s o wn ins ur anc e re latio ns hip wi th Hi g hla nd s, ob je c te d, arguin g tha

t th e Ea g le Star s e ttl e me nt was no t in the H ig hla nd s e state ’s be st int er es t an d would violate var ious provisions of the Texas I nsuranc e Code. The c ourt issued an 1 order approvingthe Eag le Star settlement, and A ce a ppeale d. We will affirm the orde r.Article 21.28 of the Texas I nsuranc e C ode was repe aled e ffe ctive September 1, 2005, but 2 it neverth el es s g overns he re be cause this disput e commenc ed bef ore Septe mber 1, 2005. See Act of 2005, 79th L eg ., R.S., ch. 995, § 10(b) (“ A proc eedin g o r cause of ac tion broug ht under Article 21.28, Insuranc e Co d e, as it existed before its repea l by this Act . . . that was filed or commence d befor e the e ffe ctive date of this Act is g overne d by the law in ef

fec t at the time the proce eding o r cause of a ction was filed or commence d, and that law is c ontinued in effe ct for that purpose.” ). 2

F ACTUAL AND P ROCEDURAL BACK GR OUND B e g inn ingin t

he 19 60 s, Ea g le Star a nd Hi g hla nd s p art ic ipate d in insur an c e /r e in s u r an c e p o o ls
. U n d e r th e s e ar r an g e me n ts , in s u r e r s li k e E a g le St ar g o t r e in s u r ance from compa

nies like Hig hlands, which mea nt that Hi g hlands cove red a perc entag e of Eag le Star’s insura

nce pa y outs. As pool members, Eag le Star and Hi gh l an ds also both rec eived excess-of- loss reinsuranc e, which me ant that y et other insurance companies w ould reimburse the m once the ir payouts ex cee ded ce rtain amounts. Ace joined Eag le Star’s a nd Hig hlands’s insuranc e pools in 1970. I n 2002, Eag le Star sued Hig hlands in Ca lifornia. Eag le Star cla imed that Hig hlands owed it betwe en six and eig ht mill ion dollars in reimburseme nts for insuranc e payouts Eag le Star ha d ma de . H ig hla

nd s jo ine d A c e a s a thir d- pa rt y de fe nd ant, c la imi ng that as a r e ins ur e r A c e ha d to indemnify

Hig hlands for a

ny amounts Hig hlands owed Ea g le Star. W h i l e t h e C a l i f

o r n i a s u i tp r o c e e d e d , H i gh l a

n d s e nt e r e d

r e c e i v e r s h i p i n

T r a v i s C o u n t y. See Tex. I ns. Code Ann. art. 21.28, § 2(i) (West 2004). SDR wa s appointed spec ial deputy rec eiver 2 t o administer the re ceive rship. Se e id
. § 2 ( a )
. S D R s u b s e qu e n t l y

n e g o t i a t e d

a s e t t l e m e n tw i th Ea g le Star u

nd e r wh ich Eagle Sta

r w ou ld: (1 ) p ay

the Hi g hla

nd s e state $2 00 ,0 00 ; ( 2) re le a se Hi gh l an ds from any

and all cla ims related to their r einsuranc e re lationship (including the3

California law suit); and (3) obtain the r ights to all of High l an d s ’s excess-of- loss and reinsura nce entitlements (including any amounts owingfrom Ac e). SD R a s k e d th e s p e c ia l ma s te r s u p e r v is in g H igh la

n d s ’ s r e c e iv e r s h ip to a

p p r o v e the E a g l e S t ar

s e t t l e m e n t
. A c e o b

j e c t e d an d t r i e d t o r e a c ha

s e t t l e m e n to f

i t s o w n w i t h H i g h l an d s . It ultimately

offe red to pa

y Hig hlands $450,000 in exchang e for rele ase f rom any and all re insurance liability (including third-par

ty -def endant liability

in the California law suit). SDR c on c lud e d th at the Hi g hla nd s e state wo uld

be be tte r s e rv e d b y

se ttl ingwi th Eag le Star than with Ac e. The special maste r ag ree d, and he wrote a memorandum re commendation to the district court re laying his co n clus ion. Ace obje cted to the r ecommendation, but the dist rict court a dopted it and appr oved the Ea g le Star settlement. Ac e appe aled.
STA ND AR

D O F RE VI EW W e revie w for a

buse of discr etion a district cour t’s approva l of a re ceive r’s application for a

uthority to settle a cla im. Se e Sa lay me h v . P laz a Ce ntro, LLC , 258 S.W .3d 236, 240 (T e x. Ap p. —H ou sto n [1s t D ist .] 20 08 , n o p e t.) ; Cornelison v. Firs t Nat’l Bank , 218 S.W . 2d 888, 890 (Tex. Civ. App.—Au s t in 1949, writ ref ’d n.r.e .). We ca

n only overr ule a district court’s d ec i s i o n t o approve such an a pplication if the cour

t acted unr easona

bly or in an a

rbitrar y
manner , without refe renc e to g uiding r ules or princ iples. Se e Gi bs on v . S mi th , 511 S.W .2d 327, 329 (Tex. Civ. App.—Ty ler 1974, no wr i t ). We ca nnot substit ute our judg ment for the tr ial court’s
rea sonable judgme nt e ven if we would have r eac hed a c ontrary conclusion. Id
. Put another wa y , an “abuse of discretion does not oc cur w here the trial cour t bases its decisions on conflictingevidenc e.” Hi sa w & As so c s. Ge n. Con tra c tor s, In c . v . Co rn e rston e Con c re te Sy s. , 115 S.W .3d 16, 204

(T ex . A p p . — Fo rt W o rt h 2 0 0 3 , p et
. d en i ed ) ( ci t i n g Davis v. H uey , 571 S.W .2d 859, 862 (Tex. 1978)). DI SCU SSIO N

Ace argues that the dist ri ct court a bused its discretion in approvingthe Eag le Star settlement for f

our re asons: (1) the se ttlement was not in the best intere st of the Hig hlands estate; (2) the se ttlement violates the I nsuranc e Code by transfe rring cer tain rig hts be fore the closing of the Hig hlands estate, the reby cre ating a subclass of cre ditors; ( 3) the settlement violates the Insuranc e Code by failing to acknowle dg e Ac e’s se toff rig hts; and (4) the se ttlement v i o l at es t he Insuranc e Code by deprivingAce of the rig ht to interpose def enses to Eag le S tar’s claims ag ainst Hig hlands and re cover

the costs incurr ed in doing so. We will address ea ch issue in turn.
Whe the r the

Se ttl e ment W as in the Be st I nte re st o f t he Hig hla nds Est

ate Under the now-r epea led Insuranc e Code provi s i o n s that still g overn this ca se,
rec eiver s must conserve the assets of e states in their cha rg e. SeeTex. I ns. Code art. 21.28, § 2(e)
. Ace argues that SDR would violate this duty by settling with Eag le Star instead of Ace beca use Ac e
o ff ere d g reater va lue to the Hig hlands estate. E ag le Star off ere d to pay

the estate $200,000 and rele a s e it f r o m a ll c la im s ( in c lu d in g th e Ca li f o r n ia s u it ) in e xc h an g e f

o r th e r igh ts to Hig hlands’s
e xce ss- of -l os s and re ins ur anc e e nti tle me nts
. Ac e , in c on tr a st, of fe re d to pa

y the e state $4 50 ,0 00 in exchang e for

rele ase f rom all claims made by

Hig hlands ag ainst it. I f any evidenc e in the re cord supports th e c o n c lu s io nth a t S D R w o u ld c o n s e r v e H igh la n d s ’ s a s s e ts b y

s e tt li n g w it

hE a g le St ar, the n th e tr ia l c ourt

did no t a bu se its dis c re tio n b y

a pp ro vin g the Ea g le Sta

r s e ttl e me nt. We conclude that the trial court did no t ab use its discretion. Fir st, the Hig hlands
e state may

inc ur signif ic ant l e g a l e xpe ns e s if

it h a s to c on tin

ue de fendi ng the Ca lif

or nia laws uit ,Both sides submi tted documentar y evidenc e on this matter that was not before the district 3 court. We g ener ally

cannot c onsider such e vidence
. See Langley v. Co mm i s s i o n for Law yer Discipline , 191 S.W .3d 913, 915 (Tex. A p p . — D a ll a s 2 0 0 6 , n o p et.) (a

ppellate c ourts cannot c onsider documents that ar e not par t of appe llate re cord) . Ace argues, howe ver, that its evidence is exempt from this rule beca

use it consists of public rec ords ca pable of judicial notice. Se e Be

sin g v. Sm ith , 843 S.W .2d 20, 21 (Tex. 1992). Wit hout deciding whether Ace is corr ect, we decline to take judicial notice of the s ubmitted documents bec ause the y will not affec t the outcome of this appe al. Cf. In re J .L. , 163 S.W .3d 79, 84 (Tex. 2005). This is so beca use ot her evidence supports the district court’s approva l of the Eag le Star-Hig hlands settlement. See Butnaru v. Ford Motor Co. , 84 S.W .3d 198, 21 1 ( Te x. 20 02 ) ( dis tr ic t c ourt do e s n ot a

bu se dis c re tio n if

so me e vid e nc e re a so nably su pp or ts i ts decision). 5 which it will if it settl es with Ace instead of Ea g le Star, and significant liability may result if it loses the suit. Ace argu es t h at b eca use Eag le Star, a low- priority cre ditor, will li kely

never rec over any thing it wins in the California suit, Eag le Star will l ikely abandon the suit. See id . § 8(a) (c re dit or s p a id i n o rd e r o f p ri or ity ). B ut ev e n if Ea g le Sta

r d oe s n ot a

ba nd on the su it, Ac e argue s, Hi g hla nd s c an s imp ly

c on c e de lia

bil ity or de fa ult , k no wi ngthat it

wi ll l ike ly

ne ve r h a ve to p ay

Ea g le Star b e c a us e hig he r- pr ior ity

c re dit or s w ill de ple te its a sse ts. We f ind thi s argume nt u

np e rs ua siv e . F ir st, Ea g le Sta r ha s re pe a te dly re pr e se nte d to thi s Co ur t and the dis tr ic t c ourt

that it wi ll co nti nu e the Ca lif or nia laws uit if

it d oe s n ot s e ttl e wi th Hi g hla nd s. Se c on d, the e vid e nc e in t he re c or d d oe s n ot c on c lus ive ly e sta bli shtha t E a g le Star w ill
n ev er recove r on a judg ment in the California a ction. I n li g h t o f th e e xp e n s e , u n c e rta inty , and 3 opportunity

cost of continuingto liti g ate in California , as we ll as the possibilit y that Eag le Star may obtain a siz eable rec overy there , the district c ourt did not abuse its discr etion in de term i n i n g that SDR would conserve Hig hlands’s asse ts by acc epting Eag le Star’s settlement of fer
. We n ote , a s an a dd iti on a l f a c tor , th a t a c c e pti ng Ea g le Sta r’ s se ttl e me nt o ff

e r w ou ld benef it Highlands in wa

y s un re l at ed t o the California a ction. For example, SDR i nvested seve ral months’ worth of time and e ffor t in neg otiating the se ttlement ag ree ment with E ag le Star. Reneg ing6

on that ag ree ment could tarnish SDR’s r eputation in the ey es of Hig hlands cre ditors w ith whom SDR ha s to ne g oti a te in t

he futur e . I n ad dit ion , Ac e ’s se ttl e me nt of fe r to Hig hla

nd s con sis te d o f a

te rs e le tte r l arg e ly

de vo id o f sig nif

ic ant de ta ils ; thus , we re SDR to pur su e se ttl e me nt w ithAc e , it wo uld likely have to de vote sig nificant a dditional tim e and r esourc es to neg otiating a compr eh en sive
a g re e me nt. I f t

he pa rt ie s c ou ld n ot u lti mate ly

re a c h mutua lly satis fa c tor y te rm s, Hi g hla

nd s w ou ld be bac k to square one w i t h n o settlement to show for its eff orts. Compared to this potential
un c e rt a int y , h avin g the Ea g le Sta

r s e ttl e me nt i n h and

c le arl y ha s g re a t va lue to H ig hla nd s. Ac e c omp la ins that the tr ia l court did no t con sid e r “ e vid e nc e ” on a ll the se matte rs , but rather took SDR’s and the specia l maste r’ s word for them. We disag ree . At a minimum, the court had befor e it the Eag le Star-Hig hlands settlement ag ree ment and Ac e’s c ompeting se ttlement offe r. These two documents wer e sufficie nt e vidence to pr ovide a basis upon which a ra t i o n al decision could be made. See Hi sa w &As so cs. Ge n. Con tra c tor s , 115 S.W .3d at 20 (trial c ourt does not abuse discr etion if it bases dec ision on conflicting e vidence ). De ciding t h e re l at i ve value s of competing set t l em en t o ffers is a per fec tly appropr iate exerc ise of discre tion. See Landon v. Je an-Paul Budinger, Inc

. , 742 S.W .2d 931, 935 (Tex. App.—Austin 1987, no writ) (“disc retion” signifie s power to c hoose amongalternatives). Furthermore , the re cord of the hea ring on Ace ’s objection shows that the dis trict court did not simply rubber -stamp t he special master’ s and SDR’s
rec ommendation to approve the Eag le Star settlement, but rather itself we ighe d th e m erits of the settlement. We will n o t o verr ule such trial- court va luations absent a r esult that shocks the conscie nce. See Salay meh , 258 S.W .3d at 240.7 I n s um, e vid e nc e in t

he re c or d s up port s th e con clus ion that SD R w ou ld n ot f

a il t o
c on se rv e Hi g hla

nd s’ s a sse ts b y

se ttl ingwi th E a g le Star r a the r t ha n A c e . We ov e rr

ule Ac e ’s fi rs t point of err or.
Whe the r the

Se ttl e ment I mper missib ly Trans fe rs R igh ts B e

fo re the Clo sing of an Es tat e Ace next arg ues that Eag le Star ca nnot leg ally

obtain Hig hlands’s excess-of -loss and reinsura nce rig hts w hile the Hig hlands estate is still open. Ace cites Insuranc e Code a rticle 21.28, section 3(d) , which st ates that claims “base d on unliquidated or undetermined demands
. . . shall not share in a n y

d is tr ib u ti o nto c la im an ts u n ti l t h o s e c la im s ar e d e f

in it e ly li qu id a te d , d e te r

mi n e d , and all o we d .” Ac e asse rts that the rig hts Highla nds would transfe r to Eag le Star ar e unliquidated and
un de te rm ine d, and

thu s th e ir tr ans fe r w ou ld v iol a te the statut e . It a lso a sse rt s that tra ns fe rr ingtho se rig hts would render

Eag le Star an imper

missibl e subcla ss of cre ditor. Se e id . § 8(a)
. Ac e a pp e ars to re c og nize the te nu ou sn e ss of the se argume nts , a s it a c tua lly ob je c ts to t he Ea g le Star s e ttl e me nt o nly “ to th e exten t th a t” it v iol a te s se c tio n 3 (d ). B y its pla in t e rm s,
se c tio n 3 (d ) g ov e rn s the dis tr ibutio n of a sse ts to c re dit or s. At iss ue he re , h ow e ve r, is a se ttl e me nt, not a d i stribution. S ection 2(g ) of a rticle 21.28, e ntitled “Disposal of Proper ty ; Settli ng Claims,” instead controls. I t states: “The r ec ei v er m ay , subject to the appr oval of the c ourt, (1) se ll or otherwise dispose of

the re al and persona l pr operty , or any part there of, of an insurer ag ainst whom a proc eedinghas bee n broug ht under this Article, a nd (2) s el l o r compound all doubtful or uncollectible de bt s , or cla ims owed by or owingto such insurer.” Under this statute, Hi g hla nd s’ s tr ans fe r of un liq

uid a te d a sse ts to Ea g le Sta r is c le arl y

pe rm itt e d. F ur

the rm or e , b e c a

us e Hig hlands’s t ransf

er of assets t o Eag le Star does not violate se ction 3(d) of article 21.28, the transf

er cannot c reate an imper

missibl e subcla ss of cre ditors. We overrule A ce’ s second point of e rror .8

Whe the r the

Se ttl e ment M ust A c kno wle dgeAc e ’s Se tof f R igh ts Se c tio n 3 (f

) o f I n s u r a n c e C o de art ic le 21 .2 8 p ro vid e s th a t “ in a ll c a se s o f m utu a l de bts or mutual cre dits . . . , such cre dits shall be set off and the ba lance s only

shall be allowe d or paid.” Ace corr ectly

asser ts that any

thing it owes H ighlan d s, including a ny reinsura nce c laims that Hig hlands transfe rs to Eag le Star, is subject to this provision. See B urns v. Bishop , 48 S.W .3d 459, 46 6 ( Te x. Ap p. —H ou sto n [14t h Di st. ] 2 00 1, no pe t.)
. Hi g hla nd s and Ea g le Star d o n ot d isp ute thi s pr o p o s i t i o n . A c e n e v e rt h e l e s s c o n t e n d s t h a t t h e H i g h l an d s - E a g l e S t ar s e t t l e m e n t a g r e e me nt i s impermissible beca

use it does not expressly

addre ss Ace’ s setoff r ights. We disag ree . I t is axiom atic that contra cting parties c annot limit t he rig hts of non-par ties. See BML Stage Lighting, Inc. v. May flower Tr ansit, Inc. , 1 4 S.W .3d 395, 400 (Tex. App.—Houston [14t h Dist.] 2000, pet. denied) (“Acontra ct . . . g ene ra lly binds no one except the par ties to it.”). Thus, Ace ’s setoff

rig hts ex ist independent of wha tever settlement Hig hlands and Eag le Star re ach. I t w ou ld make no se ns e , as Ac e se e ms to advo c a te , to re qu ir e a c on tr a c t to a dd re ss t hir d- pa rt y ri g hts that the contra ct ca

nnot even a ffe ct. The district c ourt did not err in re jectingsuch a r equire ment and
a p p r o v in g th e H ig h la nds-Eag le St ar s e tt le me n t d e s p it e it s s il e n c e o nA c e ’ s s e to f f r igh ts
. We
overr ule Ace ’s third point of err or.
Whe the r the

Se ttl e ment V iti ate s Ac e ’s Rig

ht to Inte rp os eDe

fense s a nd Re c oup Cos ts Se c tio n 10( b) of I ns ur anc e Cod e art ic le 21 .2 8 g ive s r e ins ur e rs the ri g hts to i nte rp os e defe nses when c laims are br oug ht ag ainst the companie s they reinsure and, if succ essful in doing so, to rec oup the involved costs. Ace argues t h at t h e s et t lement betwe en Ea g le Star and H ighla nds would deprive it of these r i gh t s . Under the terms of that settlement, Eag le Star would obtain the9

rig hts to Hig hlands’s reinsurance proce eds. Thus, Ace speculates, if Eag le S tar e ver de termines that it has additional claims ag ainst Hig hlands, it will “presumably” pursue Hig hlands’s re insurers (including Ace ) di re ct l y b eca use it may

no longe r look to Hig hlands. I f Eag le Star does so, Ac e argues, Ac e will be depr ived of the r ight to interpose defe nses under section 10(b)
. As n o te d a

b o v e , a t is s u e h e r e is a s e tt le me n t th a t in c lu d e s a c onvey ance of
rec eivables—n o t a “c l aim” filed dur ing a “delinquenc y

proce eding .” Te x . I ns. Code art. 21.28, § 1 0(b ). Eagle Star

ha s n ot ye t th re a te ne d to fi le su c h a c la im d ir e c tly

a g a ins t A c e , mu c h le ss actua lly filed o n e. Thus, Ac e’s a rgument is not ripe. See Patterson v. Planned Pare nthood of Houston & Se. Tex., I

nc. , 971 S.W .2d 439, 443 (Tex. 1998) (“A case i s not ripe when its resolution d e p e n d s o nc o n ti n g e n t o r

h y p o th e ti c a l f

a c ts , o r u p o n e v e n ts th a t h a v e n o t ye t c o me to p a s s . ” )
. We cannot a djudicate unr ipe claims. Id . We theref ore ove rrule A ce’ s fourth point of er ror.
CO NC LU SION Evidence in the rec ord suppo rt s t h e notion that settlement betwee n Eag le Star and Hi gh l an d s i s i n t he best intere st of the Hig hlands estate a nd does not violate any

provision of the I nsuranc e Code. Thus, the district c ourt did not abuse its discr etion by g rantingSDR’s Application fo r Auth or ity

to S e ttl e a

Cla im. We a ff

ir m.

__________________________________________ David Pury ear , J ustice Be fore Chief J ustice Jones, J ustices Patterson and Puryear Affir med Filed: August 26, 2009