Opinion ID: 766889
Heading Depth: 2
Heading Rank: 5

Heading: Wrongful Act

Text: 46 The School Leaders Errors and Omissions Policy issued by National Union to Jarvis insures against claims for any wrongful act committed by directors and officers of Jarvis. Wrongful act is specifically defined in the policy as follows: any actual or alleged breach of duty, neglect, error, misstatement, misleading statement or omission committed solely in the performance of duties for the School District . . . . 47 A dispute at trial before the district court centered on the phrase solely in the performance of duties for the School District. National Union interpreted the phrase to mean when an insured has no interest in a transaction other than that of the School District. Such interpretation would exclude coverage from the outset for the wrongful acts of directors and officers wearing two hats or having divided loyalties, such as Cosby had as a director of both Jarvis and Action Funding. Jarvis offered a different interpretation of the same phrase: while performing duties for the School District. Jarvis' claim arising from Cosby's actions initially would fall within coverage under this second interpretation. 48 The district court found that the phrase solely in the performance of duties for the School District in the insuring clause is ambiguous and susceptible to more than one reasonable interpretation. Recognizing that Texas law compels the court to construe ambiguities in favor of the insured regardless of which interpretation is more reasonable, the district court adopted the interpretation offered by Jarvis. 49 National Union contends that the district court erred in finding the phrase ambiguous. According to National Union, there is no ambiguity; [b]ased upon the express terms of this provision, a covered act must be one that was done 'solely' on behalf of Jarvis. (Def.'s Br. at 43). Because Cosby clearly had divided loyalties between Jarvis and Action Funding, National Union's argument is that when Cosby made the $2 million transfer, he was not acting solely in the performance of duties for Jarvis. 50 The district court's finding that the phrase at issue is ambiguous is not clearly erroneous. Jarvis presented to the district court an interpretation that is reasonable and different from the one provided by National Union, which also is reasonable. Under Texas law, a contract is ambiguous if it is reasonably susceptible of two different meanings. See Canutillo Indep. Sch. Dist. v. National Union Fire Ins. Co., 99 F.3d 695, 700 (5th Cir. 1996)(citing Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983)). If a policy provision is ambiguous, the court must adopt the insured's construction of the provision, as long as that construction is not unreasonable, even if the construction urged by the insurer appears more reasonable or a more accurate reflection of the parties' intent. See Lubbock County Hosp. Dist. v. National Union Fire Ins. Co., 143 F.3d 239, 242 (5th Cir. 1998)(citing National Union Fire Ins. Co. of Pittsburgh, Pennsylvania v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991)). Thus, the district court was correct in construing the ambiguity in favor of Jarvis, the insured. 51 Contrary to National Union's position that, due to divided loyalties, Cosby could not have acted solely in the performance of duties for the School District when he caused the $2 million transfer, a fair argument can be made that it is because Cosby was acting solely in the performance of his duties as Jarvis' treasurer that he was able to accomplish what he did. Cosby may very well have been the only person at Jarvis authorized to invest that kind of money in another business. Regardless of motive or intention, Cosby's job as treasurer was to manage and make investments with Jarvis' money, and that is what he did in this case. 52 Because the definition of wrongful act contains a phrase for which there is no one clear reading, the district court did not clearly err in finding an ambiguity and construing it in favor of the insured, under Texas law. 53