Southwest Risk, L.P. v. Ironshore Specialty Insurance Co.

188 F. Supp. 3d 621, 2016 U.S. Dist. LEXIS 65599, 2016 WL 2898040
CourtDistrict Court, S.D. Texas
DecidedMay 18, 2016
DocketCIVIL ACTION NO. H-14-1745
StatusPublished
Cited by1 cases

This text of 188 F. Supp. 3d 621 (Southwest Risk, L.P. v. Ironshore Specialty Insurance Co.) is published on Counsel Stack Legal Research, covering District Court, S.D. Texas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Southwest Risk, L.P. v. Ironshore Specialty Insurance Co., 188 F. Supp. 3d 621, 2016 U.S. Dist. LEXIS 65599, 2016 WL 2898040 (S.D. Tex. 2016).

Opinion

MEMORANDUM AND OPINION

Lee H. Rosenthal, United States District Judge

The plaintiffs, Southwest Risk, L.P. (“Southwest”) and its owner, ClearView [623]*623Risk Holdings, L.L.C, (“ClearView”), sued their insurer, Ironshore Specialty Insurance Co. (“Ironshore”). They sought a declaratory judgment that the professional-liability insurance policy they purchased from Ironshore covers their indemnification claim. They also sought damages under the Texas Insurance Code.

Ironshore moved for summary judgment that the insurance policy does not cover the claims against Southwest and Clear-View for which they seek indemnification because: (1) the claims were not made during the policy period, (2) Southwest and ClearView failed to disclose the claims on their insurance application, (3) the fortuity doctrine barred the claims, and (4) Southwest’s former owner, Houston International Insurance Group, funded the settlement of the claims, meaning that the plaintiffs did not suffer any losses. (Docket Entry No. 28). Southwest and ClearView cross-moved for summary judgment that the policy terms require Ironshore to indemnify them and that Houston International’s payment did not affect Ironshore’s liability. (Docket Entry No. 30). Southwest and ClearView argued in the alternative that factual disputes material to determining whether the policy terms bar coverage and whether the fortuity doctrine applies preclude summary judgment.

Ironshore moved for leave to supplement its motion to assert a new argument supporting summary judgment. (Docket Entry No. 42), The court heard oral argument. (Docket Entry No. 44).-

Based on the pleadings, the parties’ written and oral arguments, the record, and the applicable law, the court grants Ironshore’s motion for summary judgment and denies Southwest’s and ClearView’s cross-motion. The motion for leave to supplement is dismissed as moot. By May 27, 2016, the parties must file a proposed final judgment.

The reasons are explained below.

I. Background

A. Southwest Creates AMREAC, and Hurricane Ike Hits

Southwest is an insurance broker specializing in securing property and casualty insurance for real-estate and construction projects. Southwest formed the American Real Estate Advisory Council L.L.P. (“AMREAC”) to provide insurance for third-party property owners,1 and through AMREAC insured various apartment complexes in Houston, Texas. Southwest represented to the potential insureds that AMREAC would cover the risks of physical loss up to $100 million by arranging a “tower” of coverage spread across independent policies. (See, e:g,, Ex. 19). Thirty-four different owners insured their properties with AMREAC, for a total insured value of $1.1 billion. (Docket Entry No. 28, Ex. 1A, Part 2 at p. 10).

Southwest timely placed two layers of insurance on the properties before Hurricane Ike emerged as a threat. The first layer was a policy providing up to $25 million in coverage. The second layer was á policy that provided an added $10 million. Southwest was to place additional layers to reach $100 million in coverage. Before Southwest did so, however, Hurricane Ike was moving toward Houston. Insurers were unwilling to issue a policy in the face of the impending hurricane, so Southwest could not place any additional coverage for hurricane-related property damage. The result: AMREAC-insured properties were not covered for Hurricane Ike claims exceeding $35 million, even though the own[624]*624ers were told, when they purchased the policies, that the coverage limit was $100 million.

Hurricane Ike lived up to the threat and caused considerable damage. The AMR-EAC-insured property owners submitted claims under the two insurance policies Southwest had placed. The property owners exhausted the policies but were not insured as Southwest had promised. Significant damages went uninsured.

B.The Adams LaSalle Claims Begin

1.The Demand Letter

On September 10, 2010, after exhausting the primary and excess insurance policies that Southwest did place under the AMR-EAC 'program, Adams LaSalle Realty, among others, sent Southwest a demand letter. The letter demanded coverage and payment of over $1.2 million in hurricane-related property damages. The letter accused Southwest of “misrepresenting and/or failing to discuss with [the property owners] pertinent facts or policy provisions relating to coverage as an issue.” (Docket Entry No. 28, Ex. 47 at p. 5). There is no dispute that Southwest received the demand letter.

2.The Original Petition

That same day, the Adams LaSalle claimants sued Southwest .and others in Texas state court alleging misrepresentation under the Texas Insurance Code. (Docket Entry No. 28, Ex. 48). The original petition alleged that the defendants, including Southwest, had “misrepresent[ed] one or more material facts and/or policy provisions relating to coverage.” (Docket Entry No. 28, Ex. 48 at p. 13). The plaintiffs served Southwest, which answered on October 8, 2010. (Docket Entry No. 28, Ex. 51).

3.The Amended Petition

The Adams LaSalle plaintiffs filed a more specific amended petition on October 6, 2010. (Docket Entry No. 28, Ex. 49). The amended petition alleged that Southwest had “benefited] from the monies tendered by plaintiffs in good faith for a product that now appears to be inadequate and wholly different from what...was promised.” {Id. at ¶ 58). It also alleged that the Adams LaSalle plaintiffs had “only recently discovered that some or all the excess carriers may not provide coverage for the Hurricane Ike damages or associated losses.” {Id. at ¶ 59).

The plaintiffs never served the amended petition on Southwest. The record shows, however, that Southwest’s attorneys became aware of the amended petition in other ways and emailed Southwest executives a copy on June 15, 2011. (Docket Entry No. 33, Ex. 1 at p. 3).2

C. Houston International Sells Southwest to ClearView

Southwest’s owner, Houston International, sold Southwest to ClearView on December 27, 2010. The sáles contract provided that Houston International would indemnify ClearView against future claims “arising out of or relating to... any inaccuracy of any representation or warranty of the Seller.” (Docket Entry No. 28, Ex. 54 at p. 40).

D. Southwest and ClearView Renew the Ironshore Insurance Policy

Southwest and ClearView purchased a professional-liability insurance policy from Ironshore with effective dates- of December 27, 2010 to February 15, 2012. The plaintiffs renewed the policy. The renewed [625]*625policy is at issue. (Docket Entry No. 28, Ex. 69). The policy covered “only claims first made against the insured during the policy period,” which was February 15, 2012 to February Í5, 2013. (Id. at p. 2, 6).

The policy’s definitions section included the following: a “claim” was defined as “any written demand received by the insured for damages or for non-monetary relief based on any actual or alleged wrongful act”; a “wrongful act” was defined as “actual or alleged conduct by an insured ..

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Bluebook (online)
188 F. Supp. 3d 621, 2016 U.S. Dist. LEXIS 65599, 2016 WL 2898040, Counsel Stack Legal Research, https://law.counselstack.com/opinion/southwest-risk-lp-v-ironshore-specialty-insurance-co-txsd-2016.