Court Opinion

ID: 9555930
Source: CourtListenerOpinion
Date Created: 2023-08-15 18:01:22.07181+00
Date Added: 2024-06-11T15:36:52.646871
License: Public Domain

Case: 22-10997         Document: 00516858247               Page: 1      Date Filed: 08/15/2023

             United States Court of Appeals
                  for the Fifth Circuit                                             United States Court of Appeals
                                                                                             Fifth Circuit

                                      ____________                                         FILED
                                                                                        August 15, 2023
                                        No. 22-10997                                    Lyle W. Cayce
                                      ____________                                           Clerk

   David O’Donnell,

                                                                       Plaintiff—Appellant,

                                              versus

   Avis Rent A Car System, L.L.C.; ACE American Insurance
   Company,

                                               Defendants—Appellees.
                      ______________________________

                     Appeal from the United States District Court
                         for the Northern District of Texas
                              USDC No. 3:19-CV-2687
                     ______________________________

   Before Duncan and Wilson, Circuit Judges, and Mazzant, District
   Judge. *
   Per Curiam: †
         Judgment-creditor David O’Donnell sued Avis Rent a Car System,
   L.L.C. and ACE American Insurance Company seeking insurance proceeds
   under a policy issued to judgment-debtor Juan Pablo Zavala Diaz. Avis and
   ACE moved for summary judgment, and the district court adopted the
         _____________________
         *
             District Judge of the Eastern District of Texas, sitting by designation.
         †
             This opinion is not designated for publication. See 5th Cir. R. 47.5.
Case: 22-10997     Document: 00516858247           Page: 2   Date Filed: 08/15/2023

                                    No. 22-10997

   magistrate judge’s recommendation to grant the motion. O’Donnell timely
   appealed. We affirm.
                                         I.
          In January 2015, Diaz, a Spanish citizen, traveled to Dallas, Texas, on
   business. On arriving, he entered into a car rental contract with Avis (the
   Rental Agreement). The Rental Agreement included liability insurance
   coverage of up to $30,000. However, Diaz paid an extra premium to
   purchase an optional $2 million in additional liability insurance (ALI).
   Apparently, unbeknownst to Diaz, and unclear from the language of the
   Rental Agreement, ACE issued this additional coverage. While driving the
   car, Diaz collided with another car in which O’Donnell was a passenger, and
   O’Donnell allegedly sustained injuries to his brain. Diaz cooperated with law
   enforcement and Avis at the accident scene. Later he returned to Spain.
          In November 2016, O’Donnell sued Diaz, seeking compensation for
   his injuries. O’Donnell then joined Avis as a defendant in the suit. As the
   case progressed, O’Donnell was unable to serve Diaz. In March 2019, the
   court granted summary judgment for Avis. That June, O’Donnell finally
   served process on Diaz via email as authorized by court order. Because Diaz
   neither made an appearance nor filed an answer, the district court entered a
   default judgment against him for $2 million. O’Donnell then filed an
   application for a turnover order in aid of collection of judgment. The district
   court granted the order, transferring to O’Donnell “any and all interest in
   legal claims [Diaz] may have had against any party arising out of the traffic
   accident that he was involved in on January 15, 2015.” O’Donnell thereby
   stepped into the shoes of Diaz, inheriting both his claims and all defenses to
   his claims. See Fid. & Deposit Co. of Maryland v. Conner, 973 F.2d 1236, 1243
   (5th Cir. 1992); Martinez v. ACCC Ins. Co., 343 S.W.3d 924, 929 (Tex.
   App.—Dallas 2011, no pet.).

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                                    No. 22-10997

          In November 2019, O’Donnell filed the present action against Avis,
   ACE, and others not party to this appeal. He alleged, as Diaz’s judgment-
   creditor, that Avis breached the Rental Agreement with Diaz, and,
   alternatively, that Diaz’s election of ALI created an additional insurance
   contract (the ALI Policy) that Avis and ACE breached. Avis and ACE moved
   for summary judgment.         The magistrate judge issued a report and
   recommendation to grant Avis and ACE’s motion, to which O’Donnell
   objected. The district court adopted the magistrate judge’s ruling in toto.
          The district court rejected both of O’Donnell’s theories. First, the
   court held that, on its own terms, the ALI Policy “bec[a]me[] the relevant
   policy,” thus defeating O’Donnell’s claims grounded on the Rental
   Agreement. O’Donnell v. Avis Rent A Car Sys. LLC, No. 3:19-CV-2687-S-
   BK, 2022 WL 962513, at *11 (N.D. Tex. Mar. 11, 2022), report and
   recommendation adopted, No. 3:19-CV-2687-S-BK, 2022 WL 954338 (N.D.
   Tex. Mar. 30, 2022). Second, as to O’Donnell’s claims under the ALI Policy,
   the court found that Diaz failed to comply with the ALI Policy’s notice of suit
   and delivery of process conditions. Id. at *9–10. The court concluded that
   Avis and ACE were prejudiced by Diaz’s failure to comply with those
   conditions. Id. at *9–10. Therefore, the court held that O’Donnell’s claims
   against Avis and ACE failed and granted summary judgment in favor of the
   defendants.
          On appeal, O’Donnell has refined his arguments. He now contends
   that he is entitled to either $30,000 or $2 million in coverage under the
   Rental Agreement. His argument is premised on the notion that Diaz’s
   election of ALI increased the baseline liability coverage of $30,000 that Avis
   itself offered to $2 million. However, according to O’Donnell, Diaz was not
   bound by the conditions precedent of the ALI Policy because the ALI Policy
   is not incorporated into the Rental Agreement.

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                                    No. 22-10997

          Alternatively, O’Donnell urges that if the ALI Policy is incorporated
   into the Rental Agreement such that the terms of the ALI Policy control, then
   Diaz complied with the conditions precedent to coverage.            O’Donnell
   sidesteps the undisputed fact that Diaz never provided notice of suit and
   never forwarded process to ACE by asserting that Avis and ACE served as
   agents for each other and for Diaz, such that the companies’ receipt of
   process and notice of suit from their shared adjuster satisfies the ALI Policy’s
   requirement that Diaz provide notice of suit and forward process. Finally, as
   an independent ground for reversal, O’Donnell contends that Avis and ACE
   failed to show prejudice resulting from Diaz’s failure to provide notice of suit
   or forward process to ACE.
                                         II.
          We review the district court’s grant of summary judgment de novo.
   GWTP Invs., L.P. v. SES Americom, Inc., 497 F.3d 478, 481 (5th Cir. 2007).
   Summary judgment is appropriate when “there is no genuine dispute as to
   any material fact and the movant is entitled to judgment as a matter of law.”
   Green v. Life Ins. Co. of N. Am., 754 F.3d 324, 329 (5th Cir. 2014) (citation
   and quotation marks omitted).         We also review the district court’s
   interpretation of an insurance contract de novo. Am. Nat. Gen. Ins. Co. v.
   Ryan, 274 F.3d 319, 323 (5th Cir. 2001).
          We begin by (A) analyzing whether, as the district court concluded,
   the terms of the Rental Agreement yield to those of the ALI Policy. We
   answer that question in the affirmative, so we next consider (B) whether Diaz
   satisfied the conditions precedent of the ALI Policy such that O’Donnell can
   collect under the policy.      Because Diaz failed to satisfy the relevant
   conditions, O’Donnell cannot invoke the ALI Policy’s coverage.

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                                                A.
           Under Texas law, which the parties agree applies, “insurance policies
   are interpreted by the same principles as contract construction.” Terry
   Black’s Barbecue, L.L.C. v. State Auto. Mut. Ins. Co., 22 F.4th 450, 454 (5th
   Cir. 2022) (citation omitted). “All parts of the policy are read together, and
   courts must give effect to each word, clause, and sentence, and avoid making
   any provision within the policy inoperative.”                  Id. at 455 (citation and
   quotation marks omitted). When a contract is unambiguous, the “intent of
   the parties must be taken from the agreement itself, not from the parties’
   present interpretation, and the agreement must be enforced as it is written.”
   Tex. v. Am. Tobacco Co., 463 F.3d 399, 407 (5th Cir. 2006) (citation and
   quotation marks omitted). “We begin with the language of the policy
   because it is presumed parties intend what the words of their contract say.”
   Terry Black’s Barbecue, 22 F.4th at 454 (citation, alteration, and quotation
   marks omitted). 1
           Our focus is on the interplay between paragraphs 19 and 20 of the
   Rental Agreement. Paragraph 19, titled “Liability Protection,” provides in
   relevant part: “[a]nyone driving the car who is permitted to drive it by this
   agreement will be protected against liability . . . up to the minimum financial
   responsibility limits required by the law of the jurisdiction in which the
   accident occurs.” Thus, under Texas law, the Rental Agreement provides a

           _____________________
           1
             O’Donnell argues in his reply brief that the ACE Policy does not apply to the
   Rental Agreement because the Rental Agreement was not “signed.” We do not address
   arguments raised for the first time in a reply brief. United States v. Rodriguez, 602 F.3d 346,
   360 (5th Cir. 2010). Moreover, under Texas law, while a signature often serves as
   “evidence of the mutual assent required for a contract,” it is not required. Phillips v.
   Carlton Energy Grp., LLC, 475 S.W.3d 265, 277 (Tex. 2015). And any absence of a
   signature is of no moment because O’Donnell admits that Diaz agreed to the rental
   contract.

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   base amount of $30,000 in liability coverage. See Tex. Transp. Code
   § 601.072.
          Paragraph 20, titled “Additional Liability Insurance (ALI)
   & Exclusions,” provides:
          You’ll pay for ALI coverage if available and you accept it. In
          that case, the coverage provided by us according to paragraph
          19 above will be primary and the combined limits of liability
          protection shall be $1,000,000 or $2,000,000, depending on
          the place of rental for bodily injury, death, or property damage
          for each accident, but not for more than the contracted
          $1,000,000 to $2,000,000 limit for each accident, instead of
          the basic limits stated in paragraph 19 above. This additional
          coverage will be provided to an authorized driver . . . under a
          separate policy of excess liability insurance more fully described in
          the available brochure and is subject to all of the conditions and
          limitations described in paragraph 19 above, except that
          notwithstanding anything contained in this agreement, the terms of
          the policy will at all times control.

   (emphasis added). The Rental Agreement refers to itself throughout as “this
   agreement” or “this rental agreement.” By contrast, paragraph 20 refers
   first to “a separate policy of excess liability insurance,” then states that “the
   policy will at all times control” over “this agreement.” On its face, then,
   paragraph 20 requires that the terms of the Rental Agreement yield to those
   of the ALI Policy. Thus, Diaz was required to comply with the conditions in
   the ALI Policy to benefit from its coverage.
          O’Donnell attempts to evade this language by contending that the ALI
   Policy was insufficiently identified in the Rental Agreement to be
   incorporated by reference. As a result, the terms of the ALI Policy cannot
   control, the Rental Agreement’s terms do, and he is entitled to insurance
   proceeds of either $30,000 (per paragraph 19) or $2 million (per paragraph

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   20), irrespective of the ALI Policy’s conditions precedent. “Under Texas
   law, a contract may incorporate an unsigned document by reference provided
   the document signed by the defendant plainly refers to another writing.”
   Sierra Frac Sand, L.L.C. v. CDE Glob. Ltd., 960 F.3d 200, 203 (5th Cir. 2020)
   (citation and quotation marks omitted). No magic words are required. Id.
   But “plainly referring to a document requires more than merely mentioning
   the document. The language in the signed document must show that the
   parties intended for the other document to become part of the agreement.”
   Id. (citation and quotation marks omitted).
          Sierra Frac Sand controls our analysis. There, we held that “by
   making [an] agreement ‘subject to’ the ‘Standard Terms and Conditions of
   Sale’ that were available on request, the contract explicitly refer[red] to
   another document.” Id. at 204. Similarly, paragraph 20 of the Rental
   Agreement makes it subject to the ALI Policy because “the terms of the
   [ALI] [P]olicy will at all times control.” And paragraph 20 notes that a
   brochure detailing the ALI policy was available to Diaz. Thus, the Rental
   Agreement “plainly refers to another writing,” much as in Sierra Frac Sand.
   See id. at 203. Further, it is clear from the parties’ actions that they intended
   the ALI Policy “to become part of [their] agreement,” id., as Avis offered
   ALI as optional coverage, and Diaz paid an additional premium for it. In sum,
   we easily conclude that the ALI Policy is incorporated by reference into the
   Rental Agreement such that the ALI Policy’s terms control whether coverage
   obtains.   And, as we discuss next, the ALI Policy contains distinct
   prerequisites for an insured seeking coverage.
                                         B.
          The ALI Policy contains a clause that provides that “[n]o action shall
   lie against the company unless as a condition precedent thereto, the Insured

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   shall have fully complied with all the terms of this Policy[.]” Clause L, titled
   “notice of loss,” provides:
          When an event causing injury or damage takes place which is
          reasonable [sic] likely to give rise to a claim under this Policy,
          written notice shall be given as soon as practicable by or on
          behalf of the Insured to [ACE] or any of its authorized agents
          in addition to any obligation the Insured may have under the
          Underlying Protection or any other insurance. Such notice
          shall contain particulars sufficient to identify the Insured and
          reasonably obtainable information concerning the time, place
          and circumstances of such event and pertinent details. The
          Insured’s [sic] shall give like notice of any claim or suit on account
          of such event and shall immediately forward to [ACE] every
          demand, notice, summons or other process received by him or his
          representative, together with copies of reports or investigations
          made by the Insured with respect to such claim or suit.

   (emphasis added). Clause L thus contains two distinct conditions precedent.
   The first is clear: The insured, or someone on his behalf, must give written
   notice to ACE as soon as an event causing injury that is reasonably likely to
   lead to a claim takes place. The second, because of sloppy verbiage, is more
   opaque: It requires the “Insured’s” to “give like notice of any claim or suit
   on account of such event” and forward “every demand, notice, summons or
   other process received by him or his representative.”
          Avis and ACE contend that the language used in Clause L means that
   the insured—and only the insured—can satisfy the notice of suit provision.
   In other words, only Diaz himself could satisfy the latter notice requirement
   to invoke coverage. O’Donnell, by contrast, reads the notice of suit provision
   to parallel the earlier notice of claim provision, i.e., that Diaz’s duty to
   provide notice of suit could have been discharged by someone else on Diaz’s
   behalf. (And, indeed, that it was.)

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          As Clause L is not a model of careful drafting, it may well be
   reasonable to read the notice of suit provision as O’Donnell urges. Cf. TIG
   Specialty Ins. Co. v. Pinkmonkey.com Inc., 375 F.3d 365, 373 (5th Cir. 2004)
   (Pickering, J., concurring) (“Under well-established Texas law, if a contract
   of insurance is susceptible of more than one reasonable interpretation, we
   must resolve the uncertainty by adopting the construction that most favors
   the insured.”) (citation and quotation marks omitted). But even assuming
   notice of this suit could have been given to ACE by someone “on behalf of”
   Diaz, O’Donnell’s argument still fails because it never was.
          O’Donnell urges that Avis gave ACE notice on Diaz’s behalf. He
   reasons that Avis was Diaz’s agent for the purpose of the ALI Policy because
   Avis sold Diaz the policy. And he contends that Avis gave ACE notice of the
   suit against Diaz. Basically, per O’Donnell, Avis’s notice of suit to ACE
   discharged the notice of suit condition for Diaz as well.
          But the record contains no evidence that Avis—nor anyone else—
   gave notice of suit on Diaz’s behalf. And we cannot assume, based solely on
   the purported agency relationship between Diaz and Avis, that Avis’s notice
   to ACE was necessarily for Diaz too. On the contrary, Avis was acting in its
   own interest throughout the underlying suit. Texas law recognizes that
   notice of suit provisions are important because they “let[] the insurer know
   that the insured is subject to default and expects the insurer to interpose a
   defense.”    National Union Fire Insurance Company of Pittsburgh, PA v.
   Crocker, 246 S.W.3d 603, 609–10 (Tex. 2008). Nothing in the record
   suggests that Avis’s notice of suit to ACE mentioned Diaz at all, much less
   requested a defense for him. Therefore, neither the letter nor the spirit of
   the notice of suit provision was satisfied.
          But that is not quite the end of our analysis. Under Texas law, “an
   insured’s failure to timely notify its insurer of a claim or suit does not defeat
   coverage if the insurer was not prejudiced by the delay.” PAJ, Inc. v. Hanover

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   Ins. Co., 243 S.W.3d 630, 636–37 (Tex. 2008). O’Donnell contends that Avis
   and ACE cannot show prejudice because they had actual knowledge of the
   suit against Diaz based on Avis’s participation in the lawsuit and Avis’s
   agency relationship with ACE. Avis and ACE counter that their actual
   knowledge is irrelevant under Texas law.
          Avis and ACE have the better argument. Consider Crocker. In that
   case, Beatrice Crocker sued Emeritus Corporation and its employee, Richard
   Morris, for injuries Crocker sustained when she was hit by a door swung open
   by Morris. 246 S.W.3d at 604. Emeritus’s insurer, National Union, stepped
   in to defend Emeritus, but did not defend Morris, though he qualified as an
   additional insured under the policy. Id. at 604–05. Morris was unaware that
   he was an additional insured and was similarly ignorant of the policy’s terms
   and conditions, including its notice of suit condition. Id. at 605. As a result,
   despite being served, he failed to comply with that condition. He also never
   made an appearance. Id. After Crocker received a default judgment against
   Morris, she sued National Union to collect. Id.
          Despite National Union’s actual knowledge of, and participation in,
   the litigation against Morris and Emeritus, the Supreme Court of Texas
   denied coverage.     The Crocker court noted that “National Union was
   obviously prejudiced in the sense that it was exposed to a $1 million
   judgment.” Id. at 609. Importantly, the court held that National Union
   should not be estopped to deny coverage even though it was “aware that
   Morris had been sued and served and had ample time to defend him.” Id.
   The court reasoned that the insurer’s duties to defend and provide coverage
   only arise once the insurer knows that “the insured is subject to default and
   expects the insurer to interpose a defense.” Id. at 609–10 (emphasis added).
   The court noted there were many reasons why an insured may opt out of
   seeking a defense from his insurer, and insurers need not subject themselves
   to gratuitous coverage and defense liability. Id. at 610.

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          The same result obtains here. Crocker is clear that an insurer’s actual
   knowledge of a suit against its insured does not, in itself, nullify prejudice
   suffered by the insurer as a result of the insured’s failure to give notice of suit.
   Thus, it is of no moment that Avis and ACE knew that Diaz had been sued—
   he still needed to provide notice of that suit to ACE under the terms of the
   ALI Policy. Because Diaz failed to satisfy a condition precedent to coverage
   and that failure prejudiced ACE, the insurer acted within its rights in denying
   coverage. The district court’s summary judgment is
                                                                      AFFIRMED.

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