Court Opinion

ID: 43020
Source: CourtListenerOpinion
Date Created: 2010-04-25 21:46:26+00
Date Added: 2024-06-11T14:57:03.311309
License: Public Domain

United States Court of Appeals
                                                                Fifth Circuit
                                                             F I L E D
               IN THE UNITED STATES COURT OF APPEALS
                                                              June 12, 2006
                       FOR THE FIFTH CIRCUIT
                                                         Charles R. Fulbruge III
                                                                 Clerk

                           No. 05-10986

     PRECIS, INC., an Oklahoma Corporation; DAVID MAY,

                                    Plaintiffs-Appellants,

          versus

     FEDERAL INSURANCE CO. an Indiana Stock Insurance
     Company; ZURICH AMERICAN INSURANCE CO.

                                    Defendants-Appellees.

          Appeal from the United States District Court
               for the Northern District of Texas
                           (05-CV-411)

Before GARWOOD, DAVIS, and GARZA, Circuit Judges.

PER CURIAM:*

     In this insurance coverage dispute, plaintiffs-appellants

Precis, Inc. (Precis) and David May (May) appeal from the district

court’s finding of no coverage and the subsequent summary judgment

in favor of defendants-appellees Federal Insurance Co. (Federal)

     *
       Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
and Zurich American Insurance Co. (Zurich).            We affirm.

                                Background

       Precis purchased an “Executive Protection Policy” from Federal

(the Federal policy) under which Federal agreed to cover certain

losses relating to certain written demands asserted against Precis

or its directors and officers.        The Federal policy was in effect

from September 1, 2001, to September 1, 2003.

       On December 2, 2002, Eugene Kennedy (Kennedy) sent a letter to

May,   General   Counsel   of   Precis,    demanding    “consideration       and

adjustment” for damages that Kennedy claimed were a result of

Precis’s intentional delay in granting consent for Kennedy to

execute a cashless exercise of Kennedy’s 15,000 purchase warrants

for the common stock of Precis.           In his letter, Kennedy claimed

that the     company’s   wrongful   delay    deprived    him    of    more   than

$120,000 and he suggested payment to him by Precis of $5 per

warrant, or $75,000.       Kennedy also threatened litigation in the

event he could not obtain an appropriate adjustment from Precis.

       On December 9, 2002, Robert Kirk (Kirk) sent a letter to

Judith Henkels, CEO of Precis, complaining of “the deliberate

actions and stalling of David May” that wrongfully denied Kirk and

his group of warrant holders the ability to cash in their warrants.

Kirk claimed that the group’s damages exceeded $1.5 million and he

threatened    litigation   if   a   settlement   could    not    be    reached.

Precis, which received the letters in December 2002, did not notify

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Federal (and Federal was not aware) of the Kennedy and Kirk

letters, or either of them, at the time they were received or until

sometime after September 10, 2003.

     Precis    subsequently   purchased   a   “Directors   and   Officers

Liability and Reimbursement Policy” from Zurich (the Zurich policy)

under which Zurich agreed to cover certain losses relating to

certain written demands asserted against Precis or its directors

and officers.    The Zurich policy was in effect from September 1,

from September 1, 2003 to September 1, 2004.

     On August 29, 2003, Kennedy, Kirk, and other plaintiffs filed

suit (the Kirk suit) against Precis and May in state court in

Texas.    The underlying conduct complained of in the Kirk suit was

the same conduct complained of in the Kennedy and Kirk letters in

December 2002.    The Kirk suit made a claim against Precis and May

of the type covered by both the Federal policy and the Zurich

policy.     The Kirk suit was served on Precis and May on September

10, 2003.    Following service, Precis requested coverage under both

the Federal policy and the Zurich policy.          On March 23, 2004,

Zurich denied coverage because the claims in the Kirk lawsuit had

first been made in the Kennedy and Kirk letters in December 2002,

which was prior to coverage under the Zurich policy.        On April 22,

2004, Federal also denied coverage, pointing to the December 2002

letters and noting that the claims had not been reported to Federal

“as soon as practicable,” as required by the policy.

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      On July 8, 2004, Precis and May sued both Federal and Zurich

in   state   court   in    Oklahoma,      seeking      a    declaratory     judgment

concerning coverage under the policies, a judgment for coverage,

and costs including attorneys’ fees.                Federal and Zurich removed

the case to the United States District Court for the Western

District of     Oklahoma     and,    on   Federal’s        motion,    the   case   was

transferred to the Northern District of Texas.                 All parties moved

for summary judgment.       On July 12, 2005, the district court granted

defendants’     motions    for   summary        judgment,     denied    plaintiffs’

motions   for   summary     judgment,         and   entered   final    judgment    in

defendants’ favor.        Plaintiffs filed a timely appeal.

                  Jurisdiction and Standard of Review

      The district court had jurisdiction based on diversity of

citizenship, 28 U.S.C. § 1332, and this court has jurisdiction

under 28 U.S.C. § 1291.          We review a district court’s grant of

summary judgment de novo.           Summary judgment is proper if, after

adequate opportunity for discovery, the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

any affidavits filed in support of the motion, show that there is

no genuine issue as to any material fact and that the moving party

is entitled to judgment as a matter of law.                     Young v. Equifax

Credit Information Services, Inc., 294 F.3d 631, 635 (5th Cir.

2002).

                                    Discussion

                                          4
     The district court determined, as a matter of law, that the

December 2002 letters from Kirk and Kennedy were “claims” for the

purposes of both the Zurich policy and the Federal policy.      We

agree.   Both policies define a claim as, inter alia, “a written

demand for monetary damages.”   Appellants claim that the district

court’s determination was erroneous because both letters fall short

of making a demand for monetary damages.     As there is no other

purpose for these letters, we disagree.       Both letters allege

monetary damages and threaten litigation in the event that an

appropriate resolution is not obtained.    While the Kennedy letter

merely “suggests” a payment of $75,000, we are convinced that it is

a demand for money, especially considering the amount of monetary

damages identified earlier in the letter.     Kennedy’s use of the

word “suggest” indicates that $75,000 is his opening proposal, it

does not indicate that he is not demanding money.   Similarly, the

Kirk letter claims damages of over $1.5 million and offers either

settlement or litigation.   The fact that Kirk does not propose a

specific amount for settlement does not mean that the letter is not

a demand for money.   We agree with the district court that the

December 2002 letters were, as a matter of law, claims as defined

in both the Federal and Zurich policies.

     The determination that the December 2002 letters were claims

disposes of appellants’ claim for coverage under the Zurich policy

as that policy does not cover claims first made prior to the

                                 5
effective date of the policy.    Therefore, we affirm the summary

judgment in favor of Zurich.

      Appellants argue that, even if the December 2002 letters were

claims, coverage is still available under the Federal policy.      The

district court determined, as a matter of law, that the delay of

over nine months from the receipt of the claims in December 2002 to

notification of Federal in September 2003 was not “as soon as

practicable,” and, therefore, coverage under the Federal policy was

not   triggered.    Appellants   do    not   challenge   the   court’s

determination (with which we agree) that as a matter of law

notification was not made as soon as practicable, but instead argue

that Texas law requires Federal to show prejudice from the late

notice in order to avoid liability.    Under our holding in Federal

Insurance Co. v. CompUSA, Inc., 319 F.3d 746 (5th Cir. 2003) (per

curiam), appellants’ argument fails.    The CompUSA case involved an

Executive Protection Policy with the same relevant policy language

at issue here,1 and we held that an insurer is not required by

Texas law to show prejudice from late notice to avoid coverage

under this type of claims-made policy containing language making

timely notification a condition precedent to coverage.     “[A] prior

      1
      In this case, the policy at issue provided: “The Insureds
shall, as a condition precedent to exercising their rights under
this coverage section, give to [Federal] written notice as soon
as practicable of any Claim made against any of them for a
Wrongful Act.” The CompUSA case involved identical language.
See 319 F.3d at 748.

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panel’s interpretation of state law has binding precedential effect

on other panels of this court absent a subsequent state court

decision or amendment rendering our prior decision clearly wrong.”

Ford v. Cimarron Ins. Co., Inc.,      230 F.3d 828, 832 (5th Cir.

2000). As there has been no such subsequent decision or amendment,

appellants’ argument on this issue is foreclosed by CompUSA.

                           Conclusion

     For the foregoing reasons, the summary judgment in favor of

Federal and Zurich is affirmed.

                            AFFIRMED.

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