     Case: 11-50595   Document: 00511943365    Page: 1   Date Filed: 08/02/2012




          IN THE UNITED STATES COURT OF APPEALS
                   FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                   Fifth Circuit

                                                                  FILED
                                                                 August 2, 2012
                                 No. 11-50595
                                                                 Lyle W. Cayce
                                                                      Clerk
BERKLEY REGIONAL INSURANCE COMPANY, as Subrogee of Venus
Rouhani and as Assignee/Subrogee of the Tower of Town Lake Condominium
Association, Inc.,

                                          Plaintiff - Appellee
v.

PHILADELPHIA INDEMNITY INSURANCE COMPANY,

                                          Defendant - Appellant


                  Appeal from the United States District Court
                       for the Western District of Texas


Before HIGGINBOTHAM, HAYNES, and HIGGINSON, Circuit Judges.
HAYNES, Circuit Judge:
        Philadelphia Indemnity Insurance Company (“Philadelphia”) appeals the
grant of summary judgment to Berkley Regional Insurance Company
(“Berkley”). We REVERSE and REMAND.
                                    I. Facts
        As the district court aptly characterized it, this case is “factually
straightforward, [but] contractually complex.” Berkley Reg’l Ins. Co. v. Phila.
Indem. Ins. Co., No. 1:10-CV-362, Order at 2 (W.D. Tex. Apr. 27, 2011).
Accordingly, we describe only those facts necessary to gain an understanding of
the insurance coverage question presented here.
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                                        No. 11-50595

       The underlying liability case involved a 2004 slip-and-fall by dentist Venus
Rouhani (“Rouhani”) on the premises of the Towers of Town Lake Condominiums
(“Towers”). Towers had general liability coverage in the form of a primary policy
issued by Nautilus Insurance Company (“Nautilus”) with a policy limit of $1
million per occurrence, and excess/umbrella coverage through Philadelphia with
a policy limit of $20 million for liability exceeding the primary policy’s coverage.
Rouhani sued Towers which submitted the case to Nautilus to provide a
defense.1 For purposes of the summary judgment at issue here, the parties agree
that Philadelphia did not receive notice of the Rouhani lawsuit at that time.2
       Rouhani’s injuries were substantial—she was unable to continue
practicing as a dentist. Expert reports put Rouhani’s damages at $800,000 (the
defense’s number) or $1.25 million (the plaintiff’s number).                     The parties,
however, contested liability, yielding a situation where Rouhani made various
settlement demands. Rouhani’s initial settlement demand was $800,000. At a
mediation in the underlying litigation, the parties reached an impasse with
Rouhani’s “bottom” offer at $215,000 and Towers/Nautilus’s “top” offer at
$150,000.
       With negotiation attempts having failed, the case went to trial, and the
jury awarded Rouhani $1,654,663.50; ultimately, the judgment incorporated the
jury verdict plus post-judgment interest and costs. The day of the verdict,
Towers demanded that Philadelphia pay the amount in excess of the primary
coverage amount. Philadelphia contends this was the first time it had notice of



       1
           It is undisputed that Nautilus provided a defense to Towers in the Rouhani lawsuit.
       2
        The district court determined, and the parties do not dispute, that there is a fact issue
as to whether Philadelphia received “constructive notice” through an insurance agent. See
Berkley Reg’l, Order at 18 & n.11. We express no opinion on this matter. We will assume for
purposes of this appeal that Philadelphia received no notice before the jury verdict was
rendered, without prejudice to the factual development of this issue on remand.

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                                       No. 11-50595

this suit (or claim).        In addition to contesting coverage for late notice,
Philadelphia also interposed certain policy defenses.
       Nautilus filed an appeal on behalf of Towers that was ultimately
unsuccessful. Towers of Town Lake Condo. Ass’n v. Rouhani, 296 S.W.3d 290
(Tex. App.—Austin 2009, pet. denied).              In order to avoid execution of the
judgment during the appeal, Nautilus obtained supersedeas bonds from Berkley,
its sister company. When the appeals were exhausted, Nautilus paid what it
concluded it owed under the primary policy, and Berkley paid the remaining
$709,738.89 under its supersedeas bond after Philadelphia, which did not
participate in the appeal, denied responsibility for that amount. Through a
series of complex assignments that are unchallenged here,3 Berkley now owns
whatever rights Rouhani, Towers, and Nautilus had against Philadelphia.
Berkley, in turn, has allowed Nautilus to bring this lawsuit against Philadelphia
in Berkley’s name as assignee and subrogee.
       In the district court, both sides moved for summary judgment. The only
issue pertinent to this appeal is whether the failure to give Philadelphia notice
prior to the jury verdict forfeits coverage it may otherwise owe.4 In support of
its position that coverage had been forfeited, Philadelphia argued that its policy
requires prompt notice of any occurrence involving, inter alia, “permanent
disabilities,” “any coverage issue which may trigger a reservation of rights or



       3
         Though it seeks no relief as a result, Philadelphia notes that because of these various
assignments, it has lost any ability to make a Stowers claim through equitable subrogation.
See Am. Centennial Ins. Co. v. Canal Ins. Co., 843 S.W.2d 480, 481-83 (Tex. 1992) (allowing
equitable subrogation by an excess carrier to the insured’s Stowers claim against the primary
carrier); G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App.
1929, holding approved). It does not argue that it has a Stowers right through any other
vehicle. Thus, we express no opinion on that issue or on the issue of whether an insured can
defeat an excess carrier’s Stowers claim through the kind of transactions that took place here.
       4
         Philadelphia’s other defenses are not before us on appeal, and we express no opinion
as to their validity.

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                                  No. 11-50595

coverage declination,” and any “incurred exposure of $500,000 or above.” In
addition, Philadelphia pointed out that its policy further provides that “[w]hen
[Philadelphia] believe[s] that a claim may exceed the ‘underlying insurance’, [it]
may join with the insured and the ‘underlying insurer’ [Nautilus] in the
investigation, settlement and defense of all claims and ‘suits’ in connection with
such ‘occurrence’ . . . .   In such event, the insured must cooperate with
[Philadelphia].” According to Philadelphia, the circumstances surrounding the
underlying litigation triggered the notice requirement, and the lack of notice
prior to the adverse jury verdict caused prejudice, thereby precluding coverage.
      The district court, however, rejected Philadelphia’s position, concluding
instead that, as a matter of law, Philadelphia was not prejudiced by the lack of
notice prior to the adverse jury verdict.      It ultimately granted summary
judgment in favor of Berkley for the amount of the judgment in Rouhani in
excess of the amount paid under the Nautilus policy. This timely appeal
followed.
                            II. Standard of Review
      We review a district court’s award of summary judgment de novo, applying
the same standard as the district court. See, e.g., Trinity Universal Ins. Co. v.
Emp’rs Mut. Cas. Co., 592 F.3d 687, 690 (5th Cir. 2010). Summary judgment is
appropriate “if, viewing the evidence in the light most favorable to the non-
moving party, there is no genuine dispute as to any material fact and the movant
is entitled to judgment as a matter of law.” United States ex rel. Jamison v.
McKesson Corp., 649 F.3d 322, 326 (5th Cir. 2011); see FED. R. CIV. P. 56(a).
                                 III. Discussion
      The parties agree that Texas law applies to the question presented here:
Does the failure to give notice to an excess carrier until after an adverse jury




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                                        No. 11-50595

verdict constitute evidence of prejudice that forfeits coverage?5
       The Texas Supreme Court first delved into the area of notice provisions in
Members Mutual Insurance Co. v. Cutaia, 476 S.W.2d 278 (Tex. 1972). There,
the court addressed “[o]nly the condition regarding the forwarding of suit
papers,” and concluded that in light of the plain wording of the contract,6 as well
as the prior holdings of the court, the notice-of-suit requirement contained in the
automobile liability policy at issue was a condition precedent such that
noncompliance yielded forfeiture of coverage. Id. at 278-81. In reaching this
conclusion, however, the court acknowledged “the apparent injustice which
result[ed] in this particular case,” stating further that it “share[d] some of the
impatience which naturally arises when a reasonable provision or condition in
an insurance policy is used by the insurance company to defeat what appears to
be a valid claim.” Id. at 281.
       Nevertheless, the Cutaia court asserted that it would not rewrite
insurance contracts in order to remedy this apparent injustice, noting rather
that it was up to the State Board of Insurance or the legislature to “insert a
provision that violations of conditions precedent will be excused if no harm




       5
        Some sub-issues arise under this question, but it nonetheless appropriately frames
our analysis of Texas law.
       6
           According to the Cutaia court,
       [t]he policy of insurance expressly provided certain conditions. Among the
       conditions were those which required [the insured] to give notice of any accident
       and to forward any suit papers immediately to the company. . . . The policy
       further provided that “no action shall lie against the company unless, as a
       condition precedent thereto, the insured shall have fully complied with all the
       terms of this policy. . . .” There is no provision in the policy that failure to
       comply with the conditions precedent would be excused if no harm or prejudice
       were suffered by the insurer; and such a provision would have to be inserted
       into the policy by implication.
Id. at 278.

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                                       No. 11-50595

results from their violation.”7 Id. The next year, by issuing Board Order 23080,
the State Board of Insurance did just that:
       As respects bodily injury liability coverage and property damage
       liability coverage, unless the company is prejudiced by the insured’s
       failure to comply with the requirement, any provision of this policy
       requiring the insured to give notice of action, occurrence or loss, or
       requiring the insured to forward demands, notices, summons or
       other legal process, shall not bar liability under this policy.
State Bd. of Ins., Revision of Texas Standard Provision for General Liability
Policies—Amendatory Endorsement—Notice, Order No. 23080 (Mar. 13, 1973),
available at http://www.tdi.state.tx.us/commercial/pcck23080.html. Thus, Board
Order 23080 effectively superseded Cutaia’s discussion of prejudice as to certain
policies.8
      Thereafter, cases involving an insured’s failure to comply with notice and
related requirements consistently recognized that although the policy provisions
imposing these requirements were valid, no forfeiture of coverage from breaching
such obligations would result absent prejudice to the insurer. See, e.g., Harwell
v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170, 174 (Tex. 1995) (“The
insured’s failure to notify the insurer of a suit against her does not relieve the
insurer from liability for the underlying judgment unless the lack of notice
prejudices the insurer.”). These cases based their reasoning on the contractual
nature of insurance policies and the general rules of contract construction. See
Cont’l Cas. Co. v. N. Am. Capacity Ins. Co., 683 F.3d 79, 89 (5th Cir. 2012)


       7
        Importantly, as recognized in PAJ, Inc. v. Hanover Insurance Co., 243 S.W.3d 630
(Tex. 2008), “[t]he ‘as a condition precedent’ language was deleted from the standard
[Commercial General Liability] policy following [the court’s] decision in Cutaia . . . .” Id. at
636. Like the policy at issue in PAJ, the Philadelphia policy does not contain this language.
       8
          Notably, however, Cutaia remained valid in cases not covered by Board Order 23080.
See, e.g., Weaver v. Hartford Accident & Indem. Co., 570 S.W.2d 367, 369-70 (Tex. 1978) (citing
the holding in Cutaia in another case involving the duty to forward process where an
additional insured failed to comply with the policy’s notice-of-suit provision).

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                                    No. 11-50595

(“Insurance policies are interpreted using the same rules governing other
contracts.”).
      For example, in Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex.
1994), the Texas Supreme Court held that where an insurer is not prejudiced by
the insured’s breach, the insurer is “not excused from its obligation to perform
under the contract.” Id. at 694. In reaching its conclusion, the court recognized
that “[i]nsurance policies are contracts, and as such are subject to rules
applicable to contracts generally.” Id. at 692. The court further noted that “[a]
fundamental principle of contract law is that when one party to a contract
commits a material breach of that contract, the other party is discharged or
excused from any obligation to perform.”           Id.   The court explained that
“materiality of a breach” depends on, inter alia, “the extent to which the
nonbreaching party will be deprived of the benefit that it could have reasonably
anticipated from full performance.” Id. at 693. Accordingly, “[t]he less the non-
breaching party is deprived of the expected benefit, the less material the breach.”
Id. The Hernandez court thereby held that the insureds’ failure in that case to
obtain the insurer’s consent before settling was not a material breach:
      Gulf . . . stipulated that it “has not incurred any financial losses . . .
      with regard to its subrogation rights by the failure of the
      [Hernandezes] to obtain [its] consent before settling with
      McCullough and releasing him from all liability.” Gulf, therefore,
      remains in the same position it would have occupied had the
      Hernandezes complied with the settlement-without-consent clause.
      Since Gulf has not been prejudiced by the Hernandezes’ breach, the
      breach is not material, and Gulf therefore is not excused from its
      obligation to perform under the contract.
Id. at 693-94(aleterations in original)(footnote omitted); see also Hanson Prod. Co.
v. Ams. Ins. Co., 108 F.3d 627, 630 (5th Cir. 1997) (noting that the Texas
Supreme Court in Hernandez held that “where the insurer is not prejudiced by
the breach, the breach is not material, the insurer has not been deprived of the


                                          7
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                                        No. 11-50595

benefit of the bargain, and it should not be relieved of its obligation to provide
coverage”).
      Whereas Hernandez involved the breach of a consent-to-settle provision,
most recently in PAJ and National Union Fire Insurance Co. v. Crocker, 246
S.W.3d 603 (Tex. 2008),9 the Texas Supreme Court analyzed breach of notice
provisions in like manner. Specifically, in PAJ, the court addressed “whether an
insured’s failure to timely notify its insurer of a claim defeats coverage under the
policy if the insurer was not prejudiced by the delay.” 243 S.W.3d at 631. After
discussing the development of relevant caselaw, such as Cutaia and Hernandez,
and considering the impact of Board Order 23080, see id. at 632-34, the PAJ court
relied on contract principles in holding that “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,” id. at 636-37.10 The court further indicated, “[w]e hold,
as we did in Hernandez[,] . . . that an immaterial breach does not deprive the
insurer of the benefit of the bargain and thus cannot relieve the insurer of the
contractual coverage obligation.” Id. at 631; cf. Coastal Ref. & Mktg., Inc. v. U.S.
Fid. & Guar. Co., 218 S.W.3d 279, 296 (Tex. App.—Houston [14th Dist.] 2007,
pet. denied) (“[T]he standard for determining if the insurer has been prejudiced
by late notice is whether the insured has suffered an adverse change in position
due to the delay.”).



       9
         As in the instant case, PAJ and Crocker involved “occurrence” policies. An
“occurrence” policy is one in which the covered event must “occur” during the policy period
regardless of when a claim is made or suit is filed. This is in contrast to a “claims made” policy
in which the claim is covered if it is first made during the policy period. The Texas Supreme
Court recently addressed “claims made” notice issues in Prodigy Communications Corp. v.
Agricultural Excess & Surplus Insurance Co., 288 S.W.3d 374 (Tex. 2009).
       10
         Unlike the parties here, the parties in PAJ stipulated that the insured had failed to
timely notify the insurer by not notifying the insurer until four to six months after litigation
commenced, but that the insurer was not prejudiced by the untimely notice. 243 S.W.3d at
631.

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                                        No. 11-50595

        One month after PAJ, the Texas Supreme Court decided Crocker. In
Crocker, the plaintiff, a resident of a nursing home owned by Emeritus
Corporation (“Emeritus”), filed a lawsuit against Emeritus and Richard Morris
(“Morris”), a nursing home employee, “seeking compensation for injuries suffered
when she was hit by a door swung open by Morris.” 246 S.W.3d at 604. Emeritus
had a commercial general liability policy issued by National Union Fire
Insurance Company of Pittsburgh (“National Union”) that covered the plaintiff’s
claims. Id. Unbeknownst to Morris, however, since “Morris was acting within
the course and scope of his employment when the accident occurred, he qualified
as an additional insured under the policy.” Id. Nevertheless, although National
Union defended the lawsuit against Emeritus, it took no action on behalf of
Morris who did not appear at trial or otherwise defend the case. Id. at 604-05.
        At trial, the court severed the plaintiff’s claims against Morris from her
claims against Emeritus. Id. at 605. Emeritus received a jury verdict in its
favor, but a default judgment was entered against Morris for $1 million.11 Id.
With the default judgment in hand, the plaintiff sued National Union as Morris’s
judgment creditor, contending that “even though Morris did not comply with the
notice-of-suit provision, National Union had actual knowledge of [the underlying]
suit, and hence was not prejudiced by Morris’s failure to forward the suit papers.”
Id.
        The Texas Supreme Court first determined that National Union had no
duty to notify Morris of his potential coverage as an additional insured.12 Id. at

         11
         The Crocker court noted that the default judgment against Morris was “directly
contrary” to the jury verdict in favor of Emeritus because the jury rejected the plaintiff’s claim
against Emeritus based on its refusal to find the actions of Morris, Emeritus’ agent, negligent.
246 S.W.3d at 607 n.22.
        12
         The court made this determination in response to the following certified question
from our court: “Where an additional insured does not and cannot be presumed to know of
coverage under an insurer’s liability policy, does an insurer that has knowledge that a suit
implicating policy coverage has been filed against its additional insured have a duty to inform

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                                      No. 11-50595

606-08. According to the court, “an insurer that has not been notified that a
defense is expected bears no extra-contractual duty to provide notice that a
defense is available to an additional insured who has not requested one.” Id. at
608. It then turned to the prejudice issue, and addressed a question certified
from this court:
      Does proof of an insurer’s actual knowledge of service of process in
      a suit against its additional insured, when such knowledge is
      obtained in sufficient time to provide a defense for the insured,
      establish as a matter of law the absence of prejudice to the insurer
      from the additional insured’s failure to comply with the notice-of-suit
      provisions of the policy?
Id. at 609 (citation omitted). Noting that “National Union had no duty to notify
Morris of coverage and no duty to defend Morris until Morris notified National
Union that he had been served with process and expected National Union to
answer on his behalf,” and that “[a]bsent a threshold duty to defend, there can
be no liability to Morris, or to [the plaintiff] derivatively,” the court answered “no”
to the question we raised.13 Id.
      Unlike the instant case, Crocker involved a primary insurer. Crocker
thereby focused on the need for notice of suit to trigger the duty to defend. Id.
Importantly, however, the Crocker court did not hold that notice is necessary only
in cases where a duty to defend is owed, and other cases have suggested the
contrary. Notice of a claim or occurrence “enable[s] an insurer to investigate the
circumstances of an accident . . . so that it may adequately prepare to adjust or
defend any claims that may be then or thereafter asserted against persons


the additional insured of the available coverage?” Id. at 606 (quoting Crocker v. Nat’l Union
Fire Ins. Co. of Pittsburgh, 466 F.3d 347, 359 (5th Cir. 2006) (per curiam)).
       13
         Although the Crocker court acknowledged that the question before it was “not
whether National Union suffered exposure to a financial risk, but whether it should be
estopped to deny coverage because it was aware that Morris had been sued and served and
had ample time to defend him,” it nonetheless observed that “National Union was obviously
prejudiced in the sense that it was exposed to a $1 million judgment.” Id.

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                                     No. 11-50595

covered by its policy,” Employers Casualty Co. v. Glens Falls Insurance Co., 484
S.W.2d 570, 575 (Tex. 1972).
      Indeed, “[w]hen an insurer must prove it was prejudiced by the insured’s
failure to comply with the notice provisions, the recognized purposes of the notice
requirements form the boundaries of the insurer’s argument that it was
prejudiced; a showing of prejudice generally requires a showing that one of the
recognized purposes has been impaired.” Blanton v. Vesta Lloyds Ins. Co., 185
S.W.3d 607, 612 (Tex. App.—Dallas 2006, no pet.) (citation and internal quotation
marks omitted). Against that backdrop, the rights afforded the insurer by the
notice requirement—including, but not limited to, the rights to “join in” the
investigation, to settle a case or claim, and to interpose and control the
defense—are considered valuable rights that if deprived, may prejudice the
insurer. See, e.g., Trumble Steel Erectors, Inc. v. Moss, 304 F. App’x 236, 239, 244
(5th Cir. 2008) (per curiam) (unpublished) (recognizing that under Texas law
“‘[p]rejudice’ is the loss of a valuable right or benefit”; noting that prejudice may
result when the failure to timely notify an insurer deprives the insurer of its right
“to investigate when and in the manner that an insurer would have liked”);
Clarendon Nat’l Ins. Co. v. FFE Transp. Servs., 176 F. App’x 559, 561-62 (5th Cir.
2006) (unpublished)14 (concluding that the insured’s failure to give notice caused
prejudice to the insurer by denying the insurer a “valuable right” within the
meaning of Texas law, specifically, the right to settle the case); Blanton, 185
S.W.3d at 615 (“[P]rejudice from failure to notify timely arises from inability to
investigate the circumstances of an occurrence to prepare adequately to adjust
or defend any claims, not merely to prepare for trial.”); cf. Hernandez, 875 S.W.2d
at 693 (concluding that when an insured’s breach does not deprive the insurer of
a valuable right afforded by the policy, the breach does not prejudice the insurer).

       14
         Although Trumble and Clarendon are unpublished and therefore not binding, they
address similar factual situations and thus provide helpful and persuasive authority here.

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                                         No. 11-50595

      From the foregoing, we distill various principles applicable to the instant
case. Whereas certain contractual obligations in a general liability policy, such
as the duty to defend15 and the duty to indemnify, protect the insured, other
obligations protect the insurer. For example, generally, under a liability policy,
the insured must notify the insurer of an occurrence or claim for which damages
within coverage of the policy may be sought and/or a resulting suit,16 and it must
give notice to, or obtain consent from, the insurer prior to settling any such case
or claim. In this way, the insurer protects, at minimum, its right to participate
in the underlying liability litigation, and it also preserves the opportunity to
minimize its losses.17          Notice requirements thus afford valuable rights.
Nevertheless, it is likewise clear that in order for an insured’s breach to defeat
coverage, the breach must prejudice the insurer in some tangible way. See, e.g.,
PAJ, 243 S.W.3d at 636-37. Although we distill these principles from cases
involving primary carriers, we discern no basis for a different rule for excess
carriers. While their responsibilities are different and, thus, they may not suffer
prejudice in all of the circumstances where a primary carrier would, they
nonetheless have a contract with the insured and are entitled to rely upon the
same contract principles discussed above. See E. Tex. Med. Ctr., 575 F.3d at 529-
30 (applying same rules of contract construction and notice-prejudice rule to an
excess carrier as apply to a primary carrier); see also Prince George’s Cnty. v.
Local Gov’t Ins. Trust, 879 A.2d 81 (Md. 2005) (applying Maryland law and

       15
            The right to defend can also be a valuable right to the insurer.
       16
         See E. Tex. Med. Ctr. Reg’l Healthcare Sys. v. Lexington Ins. Co., 575 F.3d 520, 529-30
(5th Cir. 2009) (discussing the difference between notice of a claim and notice of a suit).
Philadelphia contends it received no notice of anything involving Rouhani until the verdict-day
notice.
       17
          Notably, no binding case has held that notice provisions are unenforceable or
irrelevant. Indeed, no one disputes the salutary purpose of requiring the insured to provide
notice. Nor would anyone dispute that prompt notice to all potentially affected insurers is the
best approach where coverage is sought.

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                                      No. 11-50595

concluding that the requirement to show prejudice applies to excess carriers as
well as primary carriers and finding prejudice as a matter of law where excess
carrier did not receive notice until ten days after a large jury verdict).18
      Defining the contours of prejudice from the breach of a notice requirement,
however, is not always easy. It is true that when an insurer first receives notice
of a suit after a default judgment has been entered, prejudice exists as a matter
of law. See, e.g., Liberty Mut. Ins. Co. v. Cruz, 883 S.W.2d 164, 166 (Tex. 1993)
(per curiam) (“[A]n insurer that is not notified of suit against its insured until a
default judgment has become final . . . is prejudiced as a matter of law.”); Kimble
v. Aetna Cas. & Sur. Co., 767 S.W.2d 846, 849-51 (Tex. App.—Amarillo 1989, writ
denied) (finding prejudice as a matter of law in a notice-after-default case even
though the insurer learned of the default judgment entered against its insured
before it became final).
      Moreover, once the case is “over,” notice is clearly too late. See Md. Cas.
Co. v. Am. Home Assurance Co., 277 S.W.3d 107, 117 (Tex. App.—Houston [1st
Dist.] 2009, pet. dism’d) (concluding that insurer had established, as a matter of
law, that it was prejudiced because “notice—provided only after the claims had
been settled—was so late that it wholly deprived [the insurer] of its ability to
defend the lawsuit”). Indeed, the Texas Supreme Court indicated as much in
distinguishing Crocker from PAJ: “[I]n PAJ, the named insured made a request
for coverage under the policy, albeit several months after ‘as soon as [was]
practicable.’ In the pending case, however, the additional insured’s notice was
not merely late; it was wholly lacking. PAJ’s notice was tardy; Morris’s was
nonexistent.” Crocker, 246 S.W.3d at 609(alteration in original); see also Md.


       18
          Like Texas, Maryland is a “notice-prejudice rule” state. See Prince George’s Cnty.,
879 A.2d at 94 n.9 (cataloging states with the same rule as Maryland, including Texas); see
also PAJ, 243 S.W.3d at 634 (citing Prince George’s County for proposition that Texas is a
“notice-prejudice rule” state). Prince George’s County involved an insurance pool trust
functioning as an excess carrier. 879 A.2d at 84.

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                                   No. 11-50595

Cas., 277 S.W.3d at 118-19 (“[A]s the supreme court has noted, determining
whether prejudice arises from a tardy notice is a different inquiry than
determining whether prejudice arises from a complete lack of notice. As in
Crocker, the notice here was wholly lacking. Under the circumstances presented
in the instant case, wholly lacking notice, as opposed to merely late notice,
supports a finding of prejudice as a matter of law.” (citations omitted)).
      On the other hand, learning about a case before verdict—even when it is
already well “down the road”—does not necessarily mean that the insurer was
prejudiced as a matter of law. See Coastal Ref., 218 S.W.3d at 290-92 (reversing
summary judgment for insurer on a late notice case; evidence showed that
although the insurer was notified of the suit before trial and invited to participate
in settlement negotiations, it failed to join; insurer could not show it was
prevented “from defending the suit or controlling settlement negotiations after
notice was received”; insurer could not show that delayed notification prevented
its investigation).
      Berkley argues that this case is more like the “better late than never” cases
and not like Crocker because no default was entered; rather, the case was
litigated by competent counsel to a jury verdict. We disagree with Berkley.
Construing, as we must, the facts in the light most favorable to the non-moving
party, Philadelphia was not just notified “late,” it was notified after all material
aspects of the trial process had concluded and an adverse jury verdict was
entered. It lost the ability to do any investigation or conduct its own analysis of
the case, as well as the ability to “join in” Nautilus’s evaluation of the case.
      Most importantly, however, Philadelphia lost a seat at the mediation table.
Mediation, by nature, is a dynamic process, and for that very reason, parties are
expected (and usually ordered) to appear ready to negotiate and with “full”
settlement authority. See Decker v. Lindsay, 824 S.W.2d 247, 250-52 (Tex.
App.—Houston [1st Dist.] 1992, no writ) (holding that a court is allowed to order

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                                         No. 11-50595

parties to mediate but cannot order them to “negotiate in good faith”); cf. In re
United States, 149 F.3d 332, 333 (5th Cir. 1998) (per curiam) (holding that the
trial court did not abuse its discretion in “mandating that the United States be
represented at mediation by a person with full settlement authority”).
      Thus, we cannot fully know what effect, if any, Philadelphia’s participation
would have had on this process—e.g., convincing Nautilus to take Rouhani’s offer
of $215,000, convincing Rouhani to come down further or accept Nautilus’ offer
of $150,000 , or even “dropping down” to pay the $65,000 difference between the
parties’ offers (with or without a side agreement between itself and Nautilus to
litigate who must ultimately pay that amount). All of these rights were lost,
leaving Philadelphia holding the bag for more than $700,000 in excess liability
if Berkley prevails.        Cf. Coastal Ref., 218 S.W.3d at 291 (distinguishing
Clarendon because there the insurer “proved actual prejudice in that it lost the
opportunity to settle the case for an amount within the insured’s self-insured
retention”). Certainly, once a jury verdict that dwarfs the settlement demand is
entered, the settlement and litigation posture changes. See Prince George’s Cnty.,
879 A.2d at 100 (concluding that excess carrier was prejudiced by being
“precluded . . . from exercising any of its rights”).                 Additionally, Berkley’s
argument that Philadelphia could have participated in the appeal rings hollow
when one reviews the standards of review applicable to the appellate issues
presented in the underlying case.19 The cows had long since left the barn when
Philadelphia was invited to close the barn door.20

       19
          In Rouhani, Towers challenged legal sufficiency and the absence of a certain
requested jury instruction. 296 S.W.3d at 293. As asserted by the Rouhani court, “[i]n a legal
sufficiency challenge, [the court] review[s] the evidence in the light most favorable to the
judgment . . . .” Id. at 295. In addition, the court “review[s] the trial court’s decision to submit
or refuse a particular instruction under an abuse-of-discretion standard,” and gives the trial
court “more discretion when submitting instructions than when submitting questions.” Id.
       20
         Thus, we need not reach the question discussed in St. Paul Guardian Insurance Co.
v. Centrum G.S. Ltd., 383 F. Supp. 2d 891 (N.D. Tex. 2003), of whether the failure to give

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                                       No. 11-50595

      Philadelphia’s representative William Gross provided an affidavit in which
he stated: “Philadelphia was deprived of the opportunity to investigate the
accident, to contribute to the development of a defense strategy, to participate in
the lawsuit, to evaluate the settlement demands, to accept or reject any of the
settlement demands, or to otherwise represent its interests during the pendency
of the underlying litigation . . . . Philadelphia would have exercised these rights
had it been given the opportunity by being put on notice.”                       Under the
circumstances, in light of (1) this affidavit, (2) the fact that significant settlement
demands and a mediation occurred without Philadelphia’s knowledge, and (3) the
rendering of a jury verdict before notice was given, we conclude that Philadelphia
has presented sufficient facts in support of its position that it suffered prejudice
to avoid summary judgment.21            We thus REVERSE the grant of summary
judgment to Berkley and REMAND for further proceedings consistent with this
opinion.
      Philadelphia also argues that it is entitled to summary judgment in its
favor. We are unable to reach this issue because fact issues exist.22 Accordingly,
we leave it to the district court to address Philadelphia’s argument in the first
instance in light of the analysis here provided.
      REVERSED AND REMANDED.




notice before a low-dollar settlement opportunity is lost can, without more, constitute
prejudice. See id. at 902-03.
       21
         Additionally, Berkley argues that Philadelphia is not entitled to assert the notice
defense because it also asserted other coverage defenses when it finally received notice of the
claim after the verdict. Finding no support for this proposition in Texas law, we reject this
argument.
       22
         Furthermore, the only motion for summary judgment Philadelphia filed that we
located in the record did not move on the “late notice” ground but rather on an “anti-
assignment” argument not raised on appeal.

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