               IN THE UNITED STATES COURT OF APPEALS
                       FOR THE FIFTH CIRCUIT


                           No. 01-10133


7-ELEVEN, INC. (f/k/a THE SOUTHLAND CORPORATION),

                               Plaintiff-Counter Defendant-Appellant

versus

NATIONAL UNION INSURANCE COMPANY OF PITTSBURGH, PA.,

                               Defendant-Counter Claimant-Appellee

          Appeal from the United States District Court
               for the Northern District of Texas
                          (3-00CV965-M)
                        February 28, 2002

Before DAVIS, WIENER, and BARKSDALE, Circuit Judges.

PER CURIAM*:

     Plaintiff-Appellant 7-Eleven, Inc., formerly known as The

Southland Corporation (“7-Eleven”), appeals the dismissal of its

suit against Defendant-Appellee National Union Insurance Company

(“National Union”) for failure to state a claim.    We conclude that

the district court erred when it determined that an exclusion

provision in the insurance policy underlying 7-Eleven’s suit was

unambiguous and barred coverage of 7-Eleven’s claim, with the

result that 7-Eleven had failed to state a claim for which relief

could be granted. We therefore reverse the dismissal of 7-Eleven’s


     *
       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this opinion should not be published and is not precedent except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.

                                 1
claim, and remand the case to the district court for further

proceedings consistent with this opinion.

                    I. Facts and Proceedings

1. The Franchise and Money Order Agreements

     7-Eleven is an operator and licensor of convenience stores.

Although some of 7-Eleven’s stores are company-operated, most are

operated by franchisees. This case concerns the theft of nearly $2

million in American Express money orders by one former 7-Eleven

franchisee, Feras Alfares.

     Alfares operated three 7-Eleven stores in the Philadelphia

area.   7-Eleven and Alfares entered into three detailed Store

Franchise Agreements that governed their relationship with respect

to the three stores operated by Alfares.       The Store Franchise

Agreements expressly provided:

          21. Independent Contractor. FRANCHISEE shall be an
          independent contractor and shall control the manner and
          means of the operation of the Store and exercise complete
          control over and responsibility for all labor relations
          and the conduct of FRANCHISEE’s agents and employees,
          including, but not limited to, the day-to-day operations
          of the Store and all Store employees. FRANCHISEE and
          FRANCHISEE’s agents and employees shall not (i) be
          considered or held out to be agents or employees of 7-
          ELEVEN or (ii) negotiate or enter any agreement or incur
          any liability in the name or on behalf of, or that
          purports to bind, 7-ELEVEN.        No actions taken by
          FRANCHISEE or FRANCHISEE’s agents or employees shall be
          deemed to be actions obligating 7-ELEVEN.      FRANCHISEE
          acknowledges that nothing herein shall create a fiduciary
          or similar relationship with 7-ELEVEN. [Emphasis ours.]

     In 1983, 7-Eleven entered into an agreement with American

Express (“Amex”) through which Amex money orders could be sold at


                                 2
7-Eleven stores.     That agreement was memorialized in the Money

Order   Trust   Agreement   and   includes   the   following   noteworthy

provisions:

           2. Trust Relationship.
                a.   Effective on Start Date, Amex appoints Seller
                     [7-Eleven] as its Agent and Trustee authorized
                     to sell Money Orders in accordance with the
                     provisions stated herein. Upon the Effective
                     Date of this Agreement, and pursuant to its
                     terms and conditions, Seller shall be a
                     trustee and act in a fiduciary capacity with
                     respect to any Money Orders and Trust Funds in
                     Seller’s possession.
                b.   Seller agrees to hold the Money Orders and
                     Trust Funds in trust for the benefit of
                     Amex.... Except as set forth herein, it is
                     expressly understood that Seller does not by
                     operation of this Agreement or otherwise
                     acquire any right, title or interest of any
                     kind in the Money Orders or Trust Funds. All
                     Money Orders and Trust Funds remain the sole
                     and exclusive property of Amex.
           ...
           4. Remittance and Reporting Procedures.
                a.   Seller shall pay Amex the Amex Fee in the
                     amount of $0.13, for each Money Order sold or
                     used by Seller or Participating Franchisees.
           ...
           6. Safekeeping and Liability for Loss.
                a.   ... As used in this Section 6, the term
                     “Seller” shall mean and include any officer,
                     employee,    representative,     Participating
                     Franchisee(s) or agent of Seller.
                b.   Seller shall be absolutely liable to Amex for
                     the Face Value of any Money Orders in all
                     circumstances where such Money Orders are
                     lost, stolen, misappropriated, seized or
                     forfeited from Seller and subsequently paid by
                     Amex. [Emphasis ours.]

     Amex entered into a separate agreement directly with Alfares.

In that agreement, Alfares was appointed Amex’s “agent authorized

to sell American Express Money Orders.”            As did the agreement

                                    3
between Amex and 7-Eleven, Amex’s agreement with Alfares emphasized

that

            (c)     It is expressly understood that [Alfares] does not,
                    by operation of this Agreement, acquire any right,
                    title or equitable interest in the Money Order or
                    the proceeds.

       Finally, the contractual relationship between Alfares and 7-

Eleven was updated to cover this new class of transactions in an

agreement titled the Money Order Amendment.               In the Money Order

Amendment,    the     parties   agreed       that   Alfares,   acting   “as   an

independent contractor,” would “use [his] best efforts in the

promotion and sale of Money Orders,” report all daily proceeds from

the sale of money orders and deposit the daily proceeds from the

sale of money orders as directed by the agreement, paying 14 ½

cents per money order to 7-Eleven as consideration for the money

orders themselves and all the related services and material that 7-

Eleven agreed to provide to Alfares.

       Alfares began selling Amex money orders from his three 7-

Eleven stores in 1995, and continued to do so without incident

until 1999.    In 1999, however, he began to steal the money orders

by either (1) issuing them to fictitious payees or (2) fraudulently

signing money orders that were issued to legitimate payees and

depositing the proceeds in his personal accounts or using them for

his personal benefit. By April 1999, Alfares had stolen $1,916,095

in this manner.      Alfares is thought to have left the United States

and is a fugitive from justice.


                                         4
2. The CrimeGuard Insurance Policy

     To     protect    itself        from       losses   arising     from     criminal

activities, 7-Eleven had purchased a series of annual “CrimeGuard”

insurance policies from National Union, effective for one-year

terms that ran from November to November.                     The policies provided

broad coverage for “losses” that met the definition of being “the

direct deprivation of [7-Eleven] by a single act or a series of

related acts resulting from dishonesty, dissolution, or forgery

occurring during the Policy Period and reported to [National Union]

during the Policy Period.”             For purposes of this definition, the

terms     “dishonesty”    and     “dissolution”          are    defined     as    well:

“Dishonesty”     is    theft    by    an    employee     of    the   policy      holder;

“dissolution” is the destruction or disappearance of money or

securities,1 or theft by any natural person other than an employee.

     When 7-Eleven discovered Alfares’s theft of almost $2 million

in Amex money orders, it notified National Union of its “loss”

during the 1998-1999 policy term. Initially, National Union denied

coverage    on   the   ground        that   7-Eleven     lacked      the    “requisite

financial interest” in the Amex money orders, but later changed its

ground for denial of coverage, proffering two exclusions in the

CrimeGuard policy, Exclusion “e” and Exclusion “l,” as bars to

coverage.

     When National Union persisted in its refusal to cover 7-

     1
       The parties do not dispute that the Amex money orders are
“money” within the meaning of the CrimeGuard policy.

                                            5
Eleven’s losses resulting from Alfares’s defalcations, 7-Eleven

brought this action in the district court for the Northern District

of Texas, alleging breach of contract and violation of the Texas

Insurance Code.     The district court granted National Union’s Rule

12(b)(6) motion to dismiss for failure to state a claim.                In its

conclusional Order and Final Judgment, the district court stated:

                 After considering the Motion, all responsive papers
            on file, the evidence presented by the parties and the
            arguments of counsel, the Court has determined that
            National Union’s Motion to Dismiss should be granted
            based upon the application of Exclusion “e” in “the
            Policy.”   The Motion is denied with respect to the
            application of Exclusion “l.”        The Court further
            determines that because of the application of Exclusion
            “e,” Plaintiff, 7-Eleven[,] will never be able to state
            any claim on the facts and occurrences set out in its
            complaint so that leave to amend would be futile.

The action was dismissed with prejudice, and 7-Eleven timely

appealed.




                                II. Analysis

A. Standard of Review

     We review de novo the district court’s dismissal of an action

for failure    to   state   a   claim.     In   doing   so,    we   accept   the

plaintiff’s factual allegations as true and will not affirm a Rule

12(b)(6)    dismissal   “unless   it     appears   beyond     doubt   that   the

plaintiff can prove no set of facts in support of his claim which




                                       6
would entitle him to relief.”2

     Interpretation   of       unambiguous   contract        provisions   and

determination   whether    a   contract   provision     is    ambiguous   are

questions of law which we also review de novo.3

B. Discussion

     The parties do not dispute that Texas law applies in this

diversity case. With respect to insurance policy construction, the

Texas Supreme Court has offered the following guidance:

          First, insurance contracts are subject to the same rules
          of construction as other contracts. Our primary goal,
          therefore, is to give effect to the written expression of
          the parties’ intent.    We must read all parts of the
          contract together, striving to give meaning to every
          sentence, clause, and word to avoid rendering any portion
          inoperative. While parol evidence of the parties’ intent
          is not admissible to create an ambiguity, the contract
          may be read in light of the surrounding circumstances to
          determine whether an ambiguity exists.
               If, after applying these rules, a contract is
          subject to two or more reasonable interpretations, it is
          ambiguous. Where an ambiguity involves an exclusionary
          provision of an insurance policy, we “must adopt the
          construction...urged by the insured as long as that
          construction   is   not   unreasonable,   even   if   the
          construction urged by the insurer appears to be more
          reasonable or a more accurate reflection of the parties’
          intent.”4



     2
       Blackburn v. City of Marshall, 42 F.3d 925, 931 (5th Cir.
1995) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
     3
       Stinnett v. Colorado Interstate Gas Co., 227 F.3d 247,
254 (5th Cir. 2000); Mid Century Insurance Co. of Texas v.
Lindsey, 942 S.W.2d 140, 142 (Tex. App. —— Texarkana 1997).
     4
       Balandran v. Safeco Insurance Co. of America, 972 S.W.2d
738, 740-41 (Tex. 1998) (quoting National Union Fire Insurance
Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991))
(internal citations omitted) (emphasis added).

                                     7
With these rules of construction in mind, we now analyze the

CrimeGuard policy’s exclusionary provisions at issue.

      As explained above, the CrimeGuard policy covers “losses”

resulting from a “dissolution.”      Alfares’s theft of the Amex money

orders will be covered by the policy absent any express provision

to the contrary, because Alfares is an independent contractor, not

a 7-Eleven employee: his theft of the money orders was therefore a

“deprivation”     resulting   from   “dissolution.”      National     Union

maintains that two separate exclusion provisions, Exclusion “e” and

Exclusion “l,” apply to bar coverage of 7-Eleven’s losses.               We

conclude that, for Rule 12(b)(6) purposes, the district court erred

when it determined that Exclusion “e” barred coverage, but we agree

with the district court’s conclusion that Exclusion “l” does not

bar   coverage.     Because   neither    exclusion    unambiguously   bars

coverage, 7-Eleven has not failed to state a claim for which relief

may be granted.

      1. Exclusion “e”

      Exclusion “e” states that the CrimeGuard policy does not cover

“loss or damage resulting from dissolution arising out of the

giving or surrendering of assets in any exchange or purchase.”

None contest that 7-Eleven’s loss resulted from a dissolution —— a

theft committed by a non-employee (Alfares). The parties disagree,

however, about whether the dissolution can be said to have arisen

out of the giving or surrendering of assets “in any exchange or

purchase.”   The policy itself does not define these terms.             7-

                                     8
Eleven contends that we should construe the terms “exchange or

purchase”   as referring to a transaction in which title to an asset

is transferred in exchange for (1) money (a purchase) or (2) other

property (an exchange).

     In support of its position, 7-Eleven points to the common

usage of these terms, particularly the definitions given in Black’s

Law Dictionary.    7-Eleven argues further that, because both the

Money Order Agreement between Amex and 7-Eleven and the Money Order

Amendment between 7-Eleven and Alfares emphasize that neither 7-

Eleven nor Alfares would acquire title to the money orders, 7-

Eleven’s entrusting custody of the money orders to Alfares could

not have been exchanges or purchases within the contemplation of

Exclusion “e.”    Thus, reasons 7-Eleven, the dissolution cannot be

said to have arisen out of the giving or surrendering of assets “in

any exchange or purchase.”

     National Union first counters by emphasizing that Exclusion

“e” refers to any exchange or purchase, and that there was an

exchange sufficient to bring the transaction within the exclusion

by virtue of the exchange of the money orders for the sales

services provided by Alfares and the fees he was obligated to pay

after each sale.    National Union urges further that because the

agreement between Amex and 7-Eleven is entitled “Money Order Trust

Agreement” and creates a “trust relationship” between the parties,

7-Eleven did in fact —— under basic principles of Texas trust law

—— acquire legal title to the money orders, which it held for the

                                  9
benefit of Amex.

      For Rule 12(b)(6) purposes, National Union’s construction of

this exclusion is not reasonable; on the contrary, we agree with 7-

Eleven that there was no “exchange or purchase” (as those terms are

normally used conjointly) of the money orders. We must, therefore,

reverse the district court’s dismissal of 7-Eleven’s claim insofar

as   that   Rule    12(b)(6)    ruling     is   premised   on   a   holding   that

Exclusion “e” prevents 7-Eleven’s recovery under the CrimeGuard

policy.

      2. Exclusion “l”

      As noted, the district court determined that, for purposes of

Rule 12(b)(6), Exclusion “l” in the CrimeGuard policy does not

preclude recovery.      Exclusion “l” states that the policy does not

cover

            [l]oss or damage resulting from dissolution of money or
            securities which benefits any natural person, partnership
            or corporation (other than the Insured’s bank) acting in
            the capacity of a broker, factor, commission merchant,
            consignee, contractor or other agent or representative of
            the Insured except any natural person, partnership or
            corporation who is duly authorized by the Insured to have
            custody of the money or securities. [Emphasis ours.]

This provision, standing alone, would not bar coverage of 7-

Eleven’s loss from Alfares’s dissolution, because he is a “natural

person” who was “duly authorized” by the insured, 7-Eleven, “to

have custody” of the money orders.

      National Union contends, however, that the final clause of

Exclusion    “l,”    which     restores    coverage   (negates      exclusion   of


                                          10
coverage) for dissolution by the person duly authorized to have

custody of the money or securities, was itself deleted by a

separate document, titled “Endorsement #15,” which reads in its

entirety:

                          DESIGNATED AGENTS COVERAGE

                 It is agreed that:
                 Employee in the Definitions section    is   hereby
            amended by including the following:

                1.   Employees of the following Agents, in their
                     capacity as a Combined Distribution Center
                     [“CDC”] are included as Employees of the
                     Insured [7-Eleven]
                     1. AMR Global Logistics (CDC)
                     2. Bussan Logistics, Inc. (CDC)
                     3. Weber Distribution Systems (CDC)
                     4. Constance Foods Group (CDC)
                     5. E.A. Sween Company (CDC)
                     6. SIG Logistics, Inc. (CDC)

                2.   It is hereby understood and agreed that
                     Exclusion l is deleted in its entirety and
                     replaced by the following:

                     1.   loss or damage resulting from dissolution
                          of money or securities which benefits any
                          natural     person,     partnership    or
                          corporation (other than the Insured’s
                          bank) acting in the capacity of a broker,
                          factor, commission merchant, consignee,
                          contractor     or    other    agent    or
                          representative of the Insured.

                3.   As respects the aforementioned Agents, the
                     following separate Limit of Liability is
                     provided: $2,500,000.00

                4.   As respects the aforementioned Agents, the
                     following separate Deductible is provided:
                     $1,000,000.00

                ALL OTHER TERMS AND CONDITIONS REMAIN UNCHANGED.
                [Emphasis added.]


                                 11
Section 2 above is obviously the problematic provision.                   Read in a

vacuum —— which is precisely how National Union contends it should

be read —— its effect would be to delete from the entire insurance

policy   the    phrase   that   otherwise        saves   Alfares’s    theft     from

Exclusion “l,” namely, “except any natural person, partnership or

corporation who is duly authorized by the Insured to have custody

of the money or securities.”              But, as with any other contract,

single provisions cannot be construed alone and out of context.

     We cannot, therefore, approbate such a fractured reading of

Endorsement #15, which ignores the context in which section 2

appears, as National Union proposes. First, the Endorsement itself

is titled “Designated Agents Coverage,” strongly suggesting that

the Endorsement will address only that subject. Second —— and more

telling —— the entire substantive content of Endorsement #15 is

preceded,      and   restricted,     by    the     words,   “Employee      in   the

Definitions section is hereby amended by including the following:”.

Like the title of the Endorsement, this signal tells all who have

occasion to read Endorsement #15 that everything following the

colon will      deal   exclusively    with       the   definition    of   the   term

“employee.”      Third, section 1 begins this task by informing the

reader that the definition of Employee will be amended only to the

extent that employees of six nominate CDCs are concerned: Employees

of the listed CDCs will, for purposes of the policy, be treated as

employees of 7-Eleven (“deemed 7-Eleven employee”).

     A   continuing      analysis    of    the    provisions   surrounding      the

                                          12
problematic section 2 reflects that the sections following it

(sections       3        and   4)    are    unambiguous.     Their    effects     are

unquestionably limited to the CDCs listed in section 1. Construing

Endorsement #15 as a whole, then, we conclude that in context,

section     2       is    most      properly    understood   as    limited   in   its

applicability, as well.                 Section 2 is, in fact, a bewildering

provision, but we need not occupy ourselves with solving its

precise meaning, because one thing is clear:                      Section 2 somehow

affects the CrimeGuard policy’s coverage only when an employee or

a named CDC is involved.                   Alfares was neither an employee of 7-

Eleven nor connected in any way with one or more of the named CDCs.

Whatever else the effects of section 2 may be, they cannot be

tortured to reach the dissolution of Amex money orders by Alfares.

     National Union appears to insist that the parties simply

“stuck” a broad, generally-applicable section 2 right in the middle

of the otherwise-restricted Endorsement #15, instead of bothering

to create a separate document drastically reducing the policy’s

coverage, thereby excluding Alfares’s dissolution from coverage.

Even if there were somehow merit to this suggestion, National Union

would be faced with a contractual provision that, when “read in

light of the surrounding circumstances” is undeniably “ambiguous.”5

If on the basis of no other legal analysis, 7-Eleven’s success on

this appeal is assured by that recognition.


     5
         Balandran, 972 S.W.2d at 741.

                                               13
       As stated above, when we review a district court’s dismissal

of an action for failure to state a claim, our focus is narrow

indeed:         We need only ascertain whether “it appears beyond doubt

that the plaintiff can prove no set of facts in support of his

claim which would entitle him to relief.”6                 When we here conclude

that       at   least      one   reasonable    construction   of   the   ambiguous

Endorsement #15 would not bar 7-Eleven’s claim under the CrimeGuard

policy, our task is complete:                 We agree with the district court

that Exclusion “l” does not preclude 7-Eleven’s recovery under the

policy for the dissolution accomplished by —— and benefiting —— its

independent contractor, Alfares, who had no connection with any of

the six named CDCs and was not an actual employee of 7-Eleven.

Therefore,          with     neither   Exclusion     “e”    nor    Exclusion   “l”

unambiguously barring coverage, 7-Eleven escapes dismissal of its

action at the Rule 12(b)(6) stage and can proceed to the next phase

of the litigation, whether that be further discovery, summary

judgment, or trial.

       Undaunted, National Union argues in the alternative that even

if Endorsement #15 does not amend Exclusion “l” as it pertains to

Alfares, 7-Eleven’s claim would still be barred, by the indemnity

provision in Exclusion “l.”             The provision to which National Union

refers explains that if

                C       the Insured has a contract with the natural person,
                        partnership or corporation covering such loss or

       6
           Conley v. Gibson, 355 U.S. 41, 45-46 (1957).

                                              14
                   damage, or if
           C       the natural person, partnership or corporation has
                   any indemnity or insurance covering such loss or
                   damage,

           then [National Union’s] liability for such loss or damage
           shall only be the excess over the amount of such
           contract, indemnity or insurance and [National Union]
           shall not be obligated to pay any amount for such loss or
           damage until the Insured has been paid under all such
           contracts, indemnities or insurance.

National Union argues that because (1) the Money Order Amendment

between Alfares and 7-Eleven expressly requires that Alfares be

charged for, inter alia, 7-Eleven’s losses “which [are] the direct

or indirect result of any breach of this Money Order Agreement,”

and (2) the Store Franchise Agreement provides that “Franchisee

[Alfares] shall be responsible for and indemnify 7-Eleven from all

losses,   except     those   specifically   the   responsibility   of   or

indemnified by 7-Eleven,” 7-Eleven must recover its loss from

Alfares, not from National Union.

     7-Eleven answers this argument definitively:           As National

Union did not make this argument to the trial court, it cannot do

so for the first time on appeal.      Our precedent is solidly to that

effect, so we shall not consider National Union’s argument.7            It

suffices that we agree with the district court’s conclusion that

Exclusion “l” will not serve as the basis on which to dismiss 7-

Eleven’s action for failure to state a claim for which relief can

     7
       See, e.g., Wiley v. Offshore Painting Contractors, Inc.,
711 F.2d 602, 609 (5th Cir. 1983) (citing Shingleton v. Armor
Velvet Corp., 621 F.2d 180, 183 (5th Cir.1980) and United States
v. Silva, 611 F.2d 78, 80 (5th Cir.1980)).

                                    15
be granted.

     3. Texas Insurance Code Claim

     In addition to its claims directly under the CrimeGuard

policy, 7-Eleven also brought a claim against National Union for

violation of the Texas Insurance Code.         7-Eleven’s complaint

alleges in part:

           More specifically, Defendant is guilty of the following
           unfair insurance practices, which have been and are
           producing causes of Plaintiff’s damages:
           (vii)     The Defendant misrepresented the terms of the
                     insurance policy, in violation of 28 Tex.
                     Admin. Code §§ 21.3 and 21.203(1); and (23);
                     and Texas Insurance Code Ann. art. 21.21-2, §
                     2(a)....

Article 21.21-2, § 2 of the Texas Insurance Code provides:

           (a)   No insurer doing business in this state under the
                 authority, rules and regulations of this code shall
                 engage in unfair claim settlement practices.
           (b)   Any of the following acts by an insurer shall
                 constitute unfair claim settlement practices:
                 (a) Knowingly     misrepresenting   to    claimants
                      pertinent facts or policy provisions relating
                      to coverages as issue....

     After concluding that Exclusion “e” barred coverage of 7-

Eleven’s claims, the district court “ordered, adjudged and decreed

that ... 7-Eleven, Inc.’s Complaint is dismissed with prejudice,”

without   distinguishing   between   policy-based   claims   and   Texas

Insurance Code-based claims.    Even if the policy did not actually

cover 7-Eleven’s losses, 7-Eleven is entitled to develop facts

applicable to its misrepresentation claim.      That is, 7-Eleven is

entitled to show, if it can, that National Union represented that

losses such as those resulting from Alfares’s crime would be

                                 16
covered under the CrimeGuard policy.       We therefore reverse the

district court’s dismissal of 7-Eleven’s Texas Insurance Code-based

claims as well as the policy-based claims.

                            III. Summary

     For Rule 12(b)(6) purposes, Exclusion “e” of the CrimeGuard

policy does not bar coverage of 7-Eleven’s claims because 7-

Eleven’s loss did not result from dissolution arising out of the

giving or surrendering of assets in an exchange or purchase, as

those terms are normally used conjointly, as required to trigger

Exclusion “e.”   We agree, moreover, with the district court that

Exclusion “l” of the CrimeGuard policy does not bar coverage of 7-

Eleven’s claims, and we shall not consider the indemnity provision

highlighted by National Union because this contention was not

presented to the district court.   Finally, 7-Eleven is entitled to

develop its misrepresentation claims grounded in provisions of the

Texas Insurance Code.    We therefore reverse the district court’s

grant of National Union’s Rule 12(b)(6) motion, and we remand the

action to the district court for further proceedings consistent

herewith.

REVERSED and REMANDED.




                                 17
