Court Opinion

ID: 19323
Source: CourtListenerOpinion
Date Created: 2010-04-25 07:23:27+00
Date Added: 2024-06-11T14:58:54.239999
License: Public Domain

IN THE UNITED STATES COURT OF APPEALS
                                 FOR THE FIFTH CIRCUIT

                                        ________________________

                                              No. 98-40965
                                        ________________________

JARVIS CHRISTIAN COLLEGE,

                                 Plaintiff-Appellant,

-vs-

NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH, PENNSYLVANIA,

                                 Defendant-Appellee.

                  ____________________________________________

                  Appeal from the United States District Court
                        for the Eastern District of Texas
                  ____________________________________________

                                                 December 3, 1999

Before POLITZ and                            STEWART,              Circuit           Judges,   and   LITTLE,
District Judge.*

LITTLE, District Judge:

           Plaintiff Jarvis Christian College (“Jarvis”) appeals the

district court’s ruling declaring that Jarvis is not entitled

to recover indemnity for the loss caused by the actions of

Jerrell J. Cosby, pursuant to the “School Leaders Errors and

Omissions” Policy, issued by defendant National Union Fire

Insurance               Company            of       Pittsburgh,                 Pennsylvania    (“National

 *
     District Judge of the W estern District of Louisiana, sitting by designation.
Union”). Jarvis argues that the district court made erroneous

findings of fact and conclusions of law regarding two of the

Policy’s exclusions: (1) the “personal profit or advantage”

exclusion,              and       (2)        the       “fraud          or      dishonesty”                exclusion.

Moreover, Jarvis argues that the district court erred in not

awarding penalties and interest to Jarvis and in denying

Jarvis’ claim for attorney’s fees.                                             We AFFIRM the district

court’s ruling.

                                                 I.      BACKGROUND

A.      Facts of the Case

          Jarvis is a community college in Wood County, Texas,

operating as a Texas non-profit corporation.                                                         Jarvis is an

insured under a “School Leaders Errors and Omissions” Policy

(“Policy”) issued by National Union, which is authorized and

licensed to do business in the State of Texas.                                                         The Policy,

with a liability limit totaling $1 million, insured against

claims arising from “wrongful acts” committed by directors and

officers of the school.

          Jerrell J. Cosby (“Cosby”) was a member of Jarvis’ board

of trustees, as well as Jarvis’ treasurer and chairman of the

finance committee. During his tenure, Cosby issued a proposal

to the finance committee and later the board of trustees about

an investment opportunity in a small factoring1 company called

  1
    Factoring is the business of accepting accounts receivable as security for short-term loans. See W EBSTER’S II NEW RIVERSIDE
UNIVERSITY DICTIONARY 460 (1988).

                                                              2
Action Funding, Inc. (“Action Funding”).                                                     Action Funding was

a relatively new and undercapitalized business with very

little experience in factoring. At the time, it even reported

a negative net worth on its tax return.                                                           Cosby had a 49%

ownership              interest              in,        and       was        a     director              and       salaried

employee of, Action Funding.                                     Apparently, however, he did not

disclose that information to Jarvis’ finance committee and

board of trustees,2 and the committee and board were not aware

of such facts.

           After a presentation to the finance committee by Cosby’s

Action Funding business partner, Rodney Williams, it was

Cosby’s recommendation that Jarvis invest $2 million of its

endowment funds in the venture.                                          It is noted that $2 million

represent nearly the entire 15% of Jarvis’ endowment funds

that        had        been        reserved              for       “nontraditional”                        investments.

Ultimately, Cosby successfully caused the transfer of $2

million of Jarvis’ endowment funds to Action Funding.                                                                            In

exchange, Action Funding gave Jarvis a piece of paper that

amounted to no more than an unsecured promissory note.

           Perhaps unsurprisingly, the investment failed.                                                           With the

money          from         Jarvis,              Action           Funding             had         bought           accounts

receivable from hospitals and health care providers at a

discounted rate, with plans to collect the debts at face value

   2
     Cosby testified that he had informed the board of his ownership interest and expected profits, but Jarvis fully disagreed with
that contention. According to the testimony of Jarvis representatives, Cosby never disclosed his involvement with Action Funding
and his conflicts of interest arising therefrom. As a matter of fact, the board minutes do not reflect that such a disclosure was made
until September 1992, when Jarvis’ executive committee became aware of Action Funding’s financial difficulties.

                                                                 3
at a later time. The hospitals and health care providers went

into bankruptcy, however, and Action Funding was unable to

collect the debts.                             Action Funding failed to fulfill its

promissory note obligation to Jarvis and ceased doing business

altogether in 1991.                              In September 1992, Jarvis’ executive

committee first learned of Action Funding’s financial troubles

and the exact nature of Cosby’s involvement with Action

Funding.              In light of Cosby’s status as co-owner, director,

and employee of Action Funding, Cosby was asked to resign from

Jarvis’ board, which he eventually did.

           On 15 March 1993, Jarvis filed a lawsuit (“underlying

lawsuit”) against Cosby and Action Funding in the 294th

Judicial District Court for Wood County, Texas.3                                                                       In its

original                petition,                 Jarvis              alleged               that           Cosby          had

misrepresented certain facts and had made false statements to

the board of trustees in connection with the $2 million

transfer.               Jarvis timely presented its claim for payment to

National Union for the financial loss arising out of the acts

committed by Cosby as alleged in the petition.

           The jury found that Cosby breached both the duty of care

and the duty of loyalty that he owed to Jarvis.                                                              Based upon

the jury’s verdict, a final judgment was signed by the state

court on 12 September 1995, awarding Jarvis judgment against

Cosby in the amount of $1,815,000 (of which $315,000 was

 3
     That lawsuit is styled Jarvis Christian College, Inc. v. Jerrell J. Cosby and Action Funding, Inc., No. 93-141.

                                                                4
prejudgment interest) and against Action Funding in the amount

of $2,015,000 (of which $15,000 was attorney’s fees).    Jarvis

never received any payments on the judgment from either Cosby

or Action Funding.

     Seeking to collect money from its School Leaders Errors

and Omissions Policy based upon the judgment in the underlying

lawsuit, on 28 March 1996, Jarvis made a written demand to

National Union to pay the policy limits.    After evaluation of

the claim, National Union denied it in writing on 11 October

1996.   The reasons given were that the loss was not covered

under the Policy by definition of “wrongful act” as set forth

in the contract, and that two of the policy exclusions--the

“fraud or dishonesty” exclusion and the “personal profit or

advantage” exclusion--were applicable in this case to preclude

coverage.

B.   Procedural History

     On 3 February 1997, Jarvis filed this lawsuit against

National Union in the 294th Judicial District Court of Wood

County, Texas, seeking a declaratory judgment as to coverage

under the Policy.    National Union removed the action to the

United States District Court for the Eastern District of Texas

based upon diversity of citizenship and amount in controversy

in excess of $75,000.     Both parties filed motions for summary

judgment on the coverage issues.

                                 5
     The parties stipulated that they would waive trial by

jury, and the case was tried before the district court on 15

January    1998.    The    record    from   the     proceedings     in   the

underlying lawsuit was introduced into evidence by agreement

of the parties.     Both parties’ motions for summary judgment

were denied.

     On 16 July 1998, the district court entered its findings

of fact and conclusions of law.             The court found that the

language in the Policy’s definition of “wrongful act” is

ambiguous and must be construed in favor of Jarvis, the

insured,   pursuant   to     Texas   law.     The    court   also   found,

however, that two policy exclusions--the fraud or dishonesty

exclusion and the personal profit or advantage exclusion--are

applicable    to   Jarvis’    claim,     either     of   which   precludes

insurance coverage in this case.            The court concluded that

Jarvis is not entitled to recover under the School Leaders

Errors and Omissions Policy issued by National Union for the

loss caused by Cosby’s actions. Having concluded that Jarvis’

claim was properly denied by National Union, the court awarded

no penalties, prejudgment interest, or attorney’s fees to

Jarvis.

     Based upon its findings and conclusions, the district

court entered a final judgment in favor of National Union.

Jarvis filed a notice of appeal on 3 August 1998.

                                     6
                                                   II.        DISCUSSION

A.      Standard of Review

           A federal court of appeals reviews a judgment on the

merits of a nonjury civil case applying the usual standards of

review.             See North Alamo Water Supply Corp. v. City of San

Juan, Tex., 90 F.3d 910, 914-15 (5th Cir. 1996).                                                                  Thus, with

respect to the district court’s underlying fact-findings and

inferences deduced therefrom, the appellate court is bound by

the “clearly erroneous”4 standard of review.                                                            See Barrett v.

United States, 51 F.3d 475, 478 (5th Cir. 1995); see also Fed.

R. Civ. P. 52(a)(“[f]indings of fact, whether based on oral or

documentary evidence, shall not be set aside unless clearly

erroneous”).                    The legal conclusions reached by the district

court based upon factual data are reviewed de novo, as an

issue of law.                    See Barrett, 51 F.3d at 478.                                         If the district

court’s account of the evidence is plausible in light of the

record viewed as a whole, the appellate court may not reverse

even if it is convinced that, had it been sitting as the trier

   4
     In Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 105 S. Ct. 1504 (1985), the Supreme Court discussed at length
the meaning of “clearly erroneous.” It stated that “‘[a] finding is “clearly erroneous” when although there is evidence to support it,
the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.’” Id. at
573, 105 S.Ct. at 1511 (quoting United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S. Ct. 525, 542 (1948)). The
Court elaborated:

           This standard plainly does not entitle a reviewing court to reverse the finding of the trier of fact simply because
           it is convinced that it would have decided the case differently. The reviewing court oversteps the bounds of
           its duty under Rule 52(a) if it undertakes to duplicate the role of the lower court. . . . If the district court’s
           account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not
           reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the
           evidence differently. Where there are two permissible views of the evidence, the factfinder’s choice between
           them cannot be clearly erroneous. . . . This is so even when the district court’s findings do not rest on
           credibility determinations, but are based instead on physical or documentary evidence or inferences from
           other facts.
Id. at 573-74, 105 S.Ct. at 1511-12 (citations omitted)(emphasis added).

                                                                   7
of fact, it would have weighed the evidence differently.                   See

North Alamo, 90 F.3d at 915.                 “In practice, the ‘clearly

erroneous’ standard requires the appellate court to uphold any

district court determination that falls within a broad range

of permissible conclusions.” Cooter & Gell v. Hartmarx Corp.,

496 U.S. 384, 400, 110 S. Ct. 2447, 2458 (1990).

B.   Rules of Interpretation

     The      district    court’s    interpretation       of     an   insurance

contract and its exclusions is a question of law and, thus,

subject to de novo review.          See Lubbock County Hosp. Dist. v.

National Union Fire Ins. Co., 143 F.3d 239, 241-42 (5th Cir.

1998).

     In       this    diversity     case,     Texas   rules      of   contract

interpretation govern.            See Canutillo Indep. Sch. Dist. v.

National Union Fire Ins. Co., 99 F.3d 695, 700 (5th Cir.

1996); see also TEX. INS. CODE ANN. art. 21.42 (West 1999).

Under Texas law, the terms used in an insurance policy are to

be given their ordinary and generally accepted meaning, unless

there    is    an    indication    that     the   words   were    meant   in   a

technical or different sense.                Canutillo, 99 F.3d at 700

(citing Security Mut. Cas. Co. v. Johnson, 584 S.W.2d 703, 704

(Tex. 1979).         The policy is to be considered as a whole, with

each part given effect and meaning. See id. (citing Forbau v.

Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994).

                                       8
     It is well established under Texas law that ambiguities

in insurance contracts are to be strictly construed against

the insurer.        See Sharp v. State Farm Fire and Cas. Ins. Co.,

115 F.3d 1258, 1260-61 (5th Cir. 1997)(citing Puckett v. U.S.

Fire Ins. Co., 678 S.W.2d 936, 938 (Tex. 1984)).                  This is

“‘especially so when dealing with exceptions and words of

limitation.’” Lubbock County, 143 F.3d at 242 (quoting Ramsay

v. Maryland Am. Gen. Ins. Co., 533 S.W.2d 344, 349 (Tex.

1976)). If a policy clause is ambiguous, the court must adopt

the insured’s construction of the clause, “‘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.’”            Id. (quoting

National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d
552, 555 (Tex. 1991)).

     These rules favoring the insured apply only if the

contract is determined to be ambiguous.            See Sharp, 115 F.3d

at 1261.      Whether the contract is ambiguous is a question of

law for the court to decide.             See id.    The fact that the

parties disagree as to coverage does not create an ambiguity.

See id.      The court looks first to the language of the policy

itself.      See id.   If the policy clause is susceptible of only

one reasonable interpretation, the court must enforce the

clause as written, see Lubbock County, 143 F.3d at 242, even

if disfavorable to the insured.

                                    9
C.        “Personal Profit or Advantage”

             The School Leaders Errors and Omissions Policy issued by

National Union to Jarvis contains a policy exclusion as to

“any claim arising out of5 the gaining in fact of any personal

profit or advantage to which the Insured is not legally

entitled.”6                   The district court found that “[i]n completing

the transfer of the $2,000,000 of the plaintiff’s funds to

Action Funding, Inc., Cosby gained, in fact, a personal profit

or advantage.” (R. 582, Finding of Fact No. 10).                                                            To support

its finding, the court below articulated:

             Despite the plaintiff’s contention that Cosby
             obtained no profit as a result of the $2 million
             transfer, it seems self-evident that Cosby’s
             actions provided him, ultimately, with a distinct
             business advantage. It cannot be disputed that the
             investment of $2 million dollars into the coffers
             of Action Funding accrued to Cosby’s personal
             advantage by infusing his business with substantial
             investment capital with which to operate his
             business.   As a factoring business, such capital
             would enable Action Funding to acquire from other
             businesses the accounts receivable necessary for it
             to operate and ultimately profit. The record in
             the underlying case makes clear, and Cosby himself
             admitted, that he maintained a forty-nine percent
             interest in Action Funding, Inc. As an owner of
             Action Funding, Cosby stood to gain, personally,
             from any investment of capital into his business.
             It [is] clear then, that Cosby gained, in fact, an
             advantage from the transfer of the $2 million to
             Action Funding, Inc.

(R. 597)(emphasis in original)(citation omitted).

   5
     The words “arising out of,” when used within an insurance policy, are “‘broad, general, and comprehensive terms effecting
broad coverage.’ The words are understood to mean ‘originating from,’ ‘having its origin in,’ ‘growing out of’ or ‘flowing from.’”
American States Ins. Co. v. Bailey, 133 F.3d 363, 370 (5th Cir. 1998)(quoting Red Ball Motor Freight, Inc. v. Employers Mut. Liab.
Ins. Co., 189 F.2d 374, 378 (5th Cir. 1951)).

   6
       This language appears in the “Exclusions” section of the policy as Exclusion (f).

                                                                10
     The district court’s finding that Cosby actually gained

a personal profit or advantage from the $2 million transfer is

not clearly erroneous.     First, any time money was loaned to

Action Funding, it worked to Cosby’s personal advantage, from

a business perspective, as he was a 49% owner of Action

Funding.    Capital investmests would allow the small factoring

company to grow and prosper, and also to gain credibility with

other companies--companies with which Action Funding could

transact business. Consequently, Cosby would become the owner

of a successful business.      Business success clearly qualifies

as a personal advantage.

     Importantly, Cosby was not personally responsible for the

loan repayment.     As a 49% owner, Cosby stood to reap the

financial    benefits   from   profitable   investments,   without

personal responsibility for borrowed funds.

     In this case, Cosby breached his fiduciary duties to

Jarvis, as the jury in the underlying lawsuit found, and

wrongfully gave himself the personal advantage in transferring

$2 million of Jarvis’ money to a small, highly risky business.

One must ask why any corporate officer/trustee would violate

his fiduciary duties by transferring a substantial sum of

corporate funds to another company--one that he owns--if the

transfer was not going to give him a personal advantage.

     Second, Action Funding was operating at a loss prior to

the $2 million transfer. As previously mentioned, it reported

                                 11
a negative net worth on its tax return.          By infusing funds

into his undercapitalized business, Cosby created a viable

opportunity for his business, and therefore himself as well,

to make a profit.

     It also may be noted that by not disclosing to the others

at Jarvis his ownership interest in and employee status with

Action Funding, Cosby placed himself at a personal advantage.

Had he disclosed such information, Cosby very well may not

have been able to accomplish what he hoped to do, namely to

transfer Jarvis’ $2 million to Action Funding.              Had Cosby

disclosed, the investment opportunity that was to his distinct

advantage would have been lost.        Therefore, by not revealing

his connection with Action Funding to the Jarvis board and

finance committee, Cosby placed himself, and Action Funding,

at an advantage.

     One of Jarvis’ central arguments in its appellate brief

is that Cosby did not gain “in fact” a personal profit or

advantage,   as   set   forth   in   the   language   of   the   policy

exclusion at issue.      It is Jarvis’ contention that Cosby’s

only “benefit” received in connection with Action Funding was

a monthly salary of $6,000 for a period of sixteen months as

a director of Action Funding.         Jarvis defends that such a

salary does not constitute “profit.”         While Jarvis’ argument

takes account of Cosby’s employee status with Action Funding,

it fails to acknowledge the fact that Cosby was also an owner

                                 12
of Action Funding.         Employees may not share in profits, if

any, but owners certainly do.                And it is clear from the

records that from the $2 million investment, Cosby expected to

make over $360,000 personally as an Action Funding owner and

director.      Unrealistic or not, his expections fueled his

objective to transfer $2 million of Jarvis’ endowment funds to

Action Funding.

      Even if it were conceded that Cosby did not gain “in

fact”   a   personal      profit,    the    policy       exclusion       at   issue

contains a second exclusionary term:                “advantage.”         Although

Cosby may not have gained a balance-sheet profit, Cosby did

gain in fact a personal advantage, as the district court

correctly concluded and as discussed in the above paragraphs.

      Jarvis   accuses      the     district     court     of   impermissibly

compounding inferences in arriving at the conclusion that

Cosby   gained    a    personal     advantage       from    the     $2    million

transfer. The alleged inferences are: “(1) Jarvis’ investment

in    Action     Funding     ‘would        enable    Action       Funding        to

acquire . . . accounts receivable necessary for it to operate

and   ultimately      profit’;      and    (2)   ‘Cosby     stood    to       gain,

personally[,]      from    any    investment        of    capital    into       his

business.’”      (Pl.’s Br. at 37).          Then Jarvis quickly points

out that Action Funding operated at a loss rather than a

profit and that regardless of what Cosby stood to gain, he

                                      13
received only a salary and in fact lost all the money he

personally had invested in Action Funding.

          Jarvis would have this Court believe that in order to

gain an advantage in fact, one necessarily has to make some

sort of tangible profit. Such a construction is unreasonable,

for it would render the advantage prong of “personal profit or

advantage” meaningless and superfluous.                                                    As National Union

suggests, the term “advantage” is broader than the term

“profit.”7               The former does not mean a balance-sheet profit;

rather,           it      encompasses                 any       gain        or      benefit,             such        as      an

opportunity to make a profit but without responsibility to

repay the loan.

          Furthermore, the district court found that “Cosby was not

legally entitled to a personal profit or advantage from the

$2,000,000 transfer because, in transferring these funds,

Cosby breached his duty of loyalty to the plaintiff.”                                                                      (R.

583, Finding of Fact No. 19). The lower court’s reasoning was

that        “the        jury        found,           and       the       record           affirms,             that        the

transfer of funds from Jarvis’ endowment to Action Funding

came about through Cosby’s breach of duty of loyalty.”                                                                     (R.

597).         The court then cited GNG Gas Systems, Inc. v. Dean, 921
S.W.2d 421 (Tex.App.--Amarillo 1996), for the proposition that

    7
      "Advantage” is defined as: 1.A factor conducive to success. 2.Profit or benefit: GAIN. 3. A relatively favorable position. .
. . W EBSTER’S II NEW RIVERSIDE UNIVERSITY DICTIONARY 81 (1988)(emphasis in original). By contrast, “profit” is defined as: 1. An
advantageous gain or return: BENEFIT. 2. The return received on a business undertaking after meeting all operating expenses.
3. often profits. a. The return received on an investment after paying all charges. b. The rate of increase in the net worth of a
business enterprise during a given accounting period. c.Income received from investments or property. d. The amount received
for a commodity or service above the original cost. Id. at 939 (emphasis in original). Thus, even if to Jarvis’ advantage we were
to choose the narrowest definition of each term, the term “advantage” is still more expansive in meaning than “profit.”

                                                              14
when a corporate officer or director diverts assets of the

corporation to his own use, he breaches a fiduciary duty of

loyalty     to   the   corporation,   and    the   transaction   is

presumptively fraudulent and void as being against public

policy.     See id. at 427.   On that basis, the court concluded

that Cosby clearly was not legally entitled to the funds which

his business received as a result of a fraudulent transaction.

(R. 597).

     The district court’s finding that Cosby was not legally

entitled to a personal profit or advantage from the $2 million

transfer is not clearly erroneous.          In fact, it is wholly

consistent with Texas law.     In Kinzbach Tool Co. v. Corbett-

Wallace Corp., 138 Tex. 565, 160 S.W.2d 509 (Tex. 1942), the

Supreme Court of Texas announced that “if [a] fiduciary ‘takes

any gift, gratuity, or benefit in violation of his duty, or

acquires any interest adverse to his principal, without a full

disclosure, it is a betrayal of his trust and a breach of

confidence, and he must account to his principal for all he

has received.’” Id. at 574, 160 S.W.2d at 514 (quoting United

States v. Carter, 217 U.S. 286, 306, 30 S. Ct. 515, 520

(1910)).     This indicates that a fiduciary is not legally

entitled to any profit or advantage he gains as a result of a

breach of duty or trust.

     Jarvis contends that the district court’s finding “is

premised on the erroneous view that a breach of the duty of

                                 15
loyalty is an illegal act. . . .”                                               (Pl.’s Br. at 39).                      Jarvis

then proceeds by arguing that Cosby’s actions were not per se

illegal under Texas law.                                    While the district court found that

Cosby            is       not        legally             entitled              to     a   personal              profit         or

advantage, it never decided that Cosby’s breach of the duty of

loyalty is an illegal act.

             “Not legally entitled” simply is not synonymous with

“illegal.”                      The two have quite different meanings, with

“illegal” involving a greater degree of misconduct.8                                                                    Jarvis

misconstrues the language of the district court’s finding and

asserts that Cosby’s breach of his fiduciary duties was not

tantamount to illegality. The policy exclusion clearly states

that           it      precludes                coverage              for        “any     personal              profit        or

advantage to which the Insured is not legally entitled”

(emphasis added).

             Jarvis criticizes the definition of the duty of loyalty

provided to the jury in the underlying state court action.

The duty of loyalty was defined in the jury charge to mean

that “the director must act in good faith and must not allow

his personal interests to prevail over the interests of the

corporation.”                        Jarvis disputes the conjunctive word “and,”

arguing that “[the] elements are conjunctive. . . .                                                                           The

   8
       National Union provides a good illustration of the distinction in its brief:

             For example, a bank customer who receives an erroneous credit on his monthly statement is not “legally
             entitled” to keep the mistaken deposit, since the bank or another customer has a superior right to that money;
             however, that customer is not guilty of illegal or illicit activity.
(Def.’s Br. at 27).

                                                                    16
district court has therefore in effect held that Cosby’s

failure to act in good faith is sufficient proof of illegality

to preclude coverage.”     (Pl.’s Br. at 43).

     As discussed earlier, the district court made no mention,

let alone a finding, of illegality in this case.            Jarvis’

criticism of the jury charge is without merit.        As this Court

stated in Gearhart Industries, Inc. v. Smith Intern., Inc.,

741 F.2d 707 (5th Cir. 1984), “[t]he duty of loyalty dictates

that a director must act in good faith and must not allow his

personal interests to prevail over the interests of the

corporation.” Id. at 719. The definition in the jury charge,

which is essentially verbatim, was not erroneous.

     Finally, pointing out that the policy insures against

wrongful acts, which are defined as “any actual or alleged

breach of duty . . . ,” Jarvis then makes a twisted argument.

Jarvis argues: (1) insurance contracts should be construed to

provide meaning to all terms, including the word “any” in the

above clause; (2) that term “any” conflicts with the policy

exclusion at issue; (3) under Texas law, if a policy contains

conflicting provisions, the insuring clause takes precedence

over a conflicting exclusionary clause.

     The   frailty   of   that   argument   is   obvious.   Jarvis’

construction of the policy and the word “any” in the insuring

clause would render the policy exclusion at issue completely

meaningless.   In fact, any exclusionary provision would be

                                  17
devoid of meaning or value.                                      There would be no reason for

having an “Exclusions” section in any insurance contract.

Interestingly, that would violate the very same rule that

Jarvis invokes:                      insurance contracts should be construed to

provide meaning to all terms.

           For all of the foregoing reasons, the district court’s

findings with respect to the “personal profit or advantage”

exclusion are not clearly erroneous, and Jarvis’ arguments to

the contrary are unpersuasive.

D.      “Fraud or Dishonesty”

           The policy issued by National Union to Jarvis contains

another applicable policy exclusion.                                               The exclusion defeats

“any claim involving allegations of fraud, dishonesty or

criminal acts or omissions; however, the Insured shall be

reimbursed for all amounts which would have been collectible

under this policy if such allegations are not subsequently

proven.”9                The district court found that this “fraud or

dishonesty” exclusion applies to this case and precludes

coverage of Jarvis’ claim.

           We need not engage in a discussion of the fraud or

dishonesty exclusion here, as the personal profit or advantage

exclusion applies and fully precludes coverage in this case.

E.      “Wrongful Act”

 9
     This language appears in the “Exclusions” section of the policy as Exclusion (a).

                                                              18
     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 . . . .”

     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.

     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

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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.

      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.

      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

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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.

     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.

     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.

F.   Penalties, Interest, and Attorney’s Fees

     Based on our discussion, Jarvis is not entitled to a

favorable ruling on any of the issues presented.             Because the

“personal profit or advantage” exclusion precludes coverage of

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Jarvis’ claim in this case, the district court was correct in

not awarding penalties and interest to Jarvis.

     Jarvis also is not entitled to attorney’s fees incurred

in prosecuting its claim against National Union.    Because it

was proper for National Union to deny Jarvis’ claim, the

district court did not err in declining to grant Jarvis

attorney’s fees in this case.    There is no issue remaining as

to attorney’s fees to remand to the district court.

                        III.   CONCLUSION

     The district court’s finding that Cosby gained in fact

a personal profit or advantage when he caused the transfer

of $2 million of Jarvis’ endowment funds to a company in

which he was a 49% owner--all without disclosing his

conflicts of interest to Jarvis--is not clearly erroneous.

Cosby gained measurable personal advantages from a financial

and business perspective, including continuation of a steady

monthly salary and the opportunity to make a handsome

profit.   The district court properly concluded that Jarvis’

claims against Cosby were excluded from the coverage of the

National Union policy by virtue of the “personal profit or

advantage” exclusion.   Because such exclusion applies,

applicability of the “fraud or dishonesty” exclusion is

unnecessary and need not be considered in this case.

     The district court’s finding that there is not one

clear reading of the policy language “solely in the

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performance of duties for the School District” is not

clearly erroneous, since the phrase is susceptible to more

than one reasonable interpretation.   The court’s finding in

favor of the insured, that Cosby’s conduct constituted a

“wrongful act” within the scope of the policy’s coverage, is

also not clearly erroneous.

     Finally, since Jarvis is not entitled to a favorable

ruling on any of the issues, the district court did not err

in denying Jarvis penalties and interest, as well as

attorney’s fees.   We AFFIRM the judgment of the district

court in all respects.

AFFIRMED

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