Opinion ID: 64744
Heading Depth: 3
Heading Rank: 1

Heading: MSC Plan Claims

Text: The first ground for Mary Kay’s alleged Policy coverage in the MSC Suit concerns certain ERISA and COBRA claims relating to benefit plans of MSC, which Mary Kay submits was covered as its “subsidiary” under the Policy. These claims include breaches of fiduciary and co-fiduciary duty, 29 U.S.C. §§ 1104, 1105, prohibited transactions, id. § 1106, and failures to offer plan benefit appeal of the relevant findings is dismissed pursuant to Federal Rule of Appellate Procedure 28(a). See Yohey v. Collins, 985 F.2d 222, 225 (5th Cir. 1993). 7 No. 07-10951 continuation and related information to participants, id. §§ 1161, 1166. As described above, the district court found in favor of FIC based on its adoption of a “coverage” exception to the “eight-corners rule” and, thereafter, its invocation of the bankruptcy order. We affirm the district court’s finding, although we do so on alternative grounds. While appreciating the arguments for a limited “coverage” exception to the “eight-corners rule,” we recognize that Texas has yet to adopt such an exception. See, e.g., Zurich Am. Ins. Co. v. Nokia, Inc., 268 S.W.3d 487, 497 (Tex. 2008) (observing that “Texas has not” recognized an exception to the “eight-corners rule”); GuideOne, 197 S.W.3d at 308–09 (acknowledging, without adopting, a “coverage” exception to the rule); see also Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 531 (5th Cir. 2004) (predicting, without applying, a limited exception that the Texas Supreme Court might adopt). Nevertheless, it is unnecessary for us to adopt it here because the district court’s finding can be alternatively, and more directly, affirmed based on the fact that the MSC Suit’s complaint—which is in the “eight corners”—fails to include any specific allegations from which Mary Kay subsidiary status during the Policy term can be discerned. See Northfield Ins. Co., 363 F.3d at 531 (“If all the facts alleged in the underlying petition fall outside the scope of coverage, then there is no duty to defend.”); King v. Dallas Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002) (“If a petition does not allege facts within the scope of coverage, an insurer is not legally required to defend a suit against its insured.” (quotation omitted)). The only possible allegation in the MSC Suit’s complaint relating to Mary Kay’s position in MSC is through reference to an arguable Mary Kay subsidiary, “MS Acquisition, Ltd.,” and a March 2001 Form 10-K stating that this entity 8 No. 07-10951 “owned approximately 81.9% of the outstanding common shares of [MSC].” Yet, not only does this assertion pre-date the Policy term, it pre-dates the bankruptcy of MSC. Bankruptcy, by its very nature, “causes fundamental changes in the nature of corporate relationships.” Commodity Futures Trading Comm’n v. Weintraub, 471 U.S. 343, 355 (1985). This pre-Policy term timing is perhaps not surprising given that the chief focus of the MSC Suit was on events surrounding MSC’s bankruptcy, which occurred well before the Policy term. In any event, stretching arguable ownership allegations from well before to after bankruptcy in order to impose a duty to defend is simply a bridge too far, particularly given the Policy’s present-tense definition of subsidiary—the Policy defines “subsidiary” as any entity “in which more than 50% of the outstanding securities or voting rights representing the present right to vote for election of directors is owned or controlled, directly or indirectly . . . by [Mary Kay].” Thus, we hold that the MSC plan-based claims in the MSC Suit are not covered by the Policy.4 Of course, the foregoing assumes that it is the Policy term, and not any other prior point in time, that matters for coverage purposes. Mary Kay argues that by the Policy’s references to “renew[ed]” policies—which would include the 2000–2002 policy—in its definition of “sponsored plan,” and to acts “before or during the Policy period” in its coverage provision, the Policy “provides residual coverage to Mary Kay.” Mary Kay’s argument is misguided. First, the operative Policy term “subsidiary” is defined in the present tense. Second, language 4 It should be noted that, at least on appeal, Mary Kay seeks only a duty to defend from FIC, and not indemnity. This is perhaps understandable given that, “[u]nlike the duty to defend, the duty to indemnify is not based on the eight corners of the policy and the underlying petition, but on the actual facts that form the underlying claim”—a situation that would likely call for the bankruptcy order and, thus, doom an indemnity claim. Gomez, 241 S.W.3d at 205. 9 No. 07-10951 elsewhere in the Policy indicates—at least during a term—that it only covers new subsidiaries with further agreement (and a likely premium adjustment), and does not cover divested subsidiaries. Third, although pre-existing act coverage is understandable, particularly on a renewal, “perpetual coverage of former subsidiaries,” as the district court put it, would likely present complex underwriting issues. We cannot impose such risks on FIC without supporting policy language. See King, 85 S.W.3d at 187 (observing that the duty to defend depends upon “the language of the insurance policy”).