05-10-00711-CV IN THE COURT OF APPEALS FOR THE FIFTH COURT OF

APPEALS DISTRICT A T DALLAS, TEXAS

PINNACLE ANESTHESIA CONSULTANTS, P.A., APPELLANT

v.

ST. PAUL MERCURY INSURANCE COMPANY, APPELLEE

On Appeal from the 193rd Judicial District Court Dallas County, Texas, Cause No. 07-12672

APPELLANT'S REPLY BRIEF

BLAKE S. EVANS State Bar No. 06706950 STEPHEN BURNETT State Bar No. 24006931

SCHUBERT & EVANS, P.C. 900 Jackson, Suite 630 Dallas, Texas 75202 Telephone: (214) 744-4400 Facsimile: (214) 744-4403

ATTORNEYS FOR APPELLANT PINNACLE ANESTHESIA CONSULTANTS, P.A.

ORAL ARGUMENT REQUESTED

IDENTITY OF PARTIES AND COUNSEL

1. Attorneys for Appellant Pinnacle Anesthesia Consultants, P .A.

Blake S. Evans Stephen Burnett Schubert & Evans, P.C. 900 Jackson, Suite 630 Dallas, Texas 75202

2. Attorneys for Appellee St. Paul Mercury Insurance Company

Price Collins Ashley Gilmore Wilson, Elser, Moskowitz, Edelmand & Dicker, L.L.P. 901 Main Street, #4800

. Dallas, TX 75202

TABLE OF CONTENTS

IDENTITY OF PARTIES AND COUNSEL. ...................................................................... i

TABLE OF CONTENTS .................................................................................................... ii

INDEX OF AUTHORITIES .............................................................................................. iii

ARGUMENT AND AUTHORITIES ................................................................................. 1

I. Pinnacle has Proffered a Reasonable Interpretation of the '"Amounts Owed Under Written Contract" Exclusion Which this Court Must Adopt. .................................... 1

II. St. Paul's Interpretation is Unreasonable................................................................... 5

A. St. Paul Ignores the Actual Words Used in the Policy ............................. 5

B. Cases Relied on by St. Paul Tum on Different Facts and, More Importantly, Different Policy Language ................................................... 7

C. Tenn "Amounts Owed" is Past Tense, Not an Example of the Passive Voice......................................................................................................... 9

PRAYER ........................................................................................................................... 10

CERTIFICATE OF SERVICE ......................................................................................... 12

.. II

INDEX OF AUTHORITIES

Cases

Balandran v. Safeco Ins. Co. ofAmerica, 972 S.W.2d 738 (Tex. 1998) ............................ 1

Contoocook Valley School District v. Graphic Arts Mut. Ins. Co., 788 A.2d 259 (N.H. 2001) ...................................................................................................................... 8

Convent ofthe Visitation School v. Continental Cas. Co., 707 F .Supp. 412 (D. Minn. 1989) ............................................................................................................... 8

Craft Mach. Works, Inc. v. U.S., 926 F.2d 1110 (Fed. Cir. 1991) ...................................... 3

Don 's Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20 (Tex. 2008) .................. 2

Durkin v. Equifax Check Services, Inc., 2002 WL 31426397 (N.D. Ill. 2002) ................ 10

Evanston Ins. Co. v. A TOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) ...................................................................................................................... 1

Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132 (Tex. 1994) .......................................... 2, 7

Gilbert Texas Const., L.P. v. Underwriters at Lloyd's London, --- S.W.3d ---, 2010 WL 5133658 (Tex. 2010) ................................................................................... 1,2

Gonzalez v. Mission American Ins. Co., 795 S.W.2d 734 (Tex. 1990) .......................... 2, 7

In re Ezukanma, --- S.W.3d ---, 2010 WL 4644462 (Tex.App.-Ft. Worth 2010, no pet. h.)..................... ......... ......... ...... ........... ............ ..................... ..... ......................... 10

Lamar Homes, Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1 (Tex. 2007) ...................... 2

Lennar Corp. v. Great American Ins. Co., 200 S.W.3d 651 (Tex.App.­Houston [ 14th Dist.] 2006, pet. denied) ........................................................................... 9

National Union Fire Ins. Co. ofPittsburgh, Pa. v. Hudson Energy Co., Inc., 811 S.W.2d 552 (Tex. 1991) ........................................................................................... 1

National Union Fire Ins., Inc. v. Hospital Affiliates Mgmt. Corp., 363 N.W.2d 494 (Minn.Ct.App. 1985) ............................................................................................. : ......... 7

New Madrid County Reorganized School District No.1, Enlarged v. Continental Cas. Co., 904 F.2d 1236 (8th Cir. 1990) .................................................. 8, 9

111

Nicolet High School Dist. v. Continental Cas. Co., 914 F.2d 260, 1990 WL 135920 (7'h Cir. 1990) .................................................................................... 7

Ratchford v. US. Central Underwriters Agency, Inc., 492 F.Supp. 137 (E.D. Mo. 1980) ............................................................................................................. 10

State ex rei. Public Employees Retirement Ass 'n v. Longacre, 59 P.3d 500 (N.M. 2002) ................................................................................................................... 10

Town ofGeraldine v. Montana Muni. Ins. Authority, 347 Mont. 267, 198 P .3d 796 (Mont. 2008) ............................................................................................. 7

Transpace Carriers, Inc. v. Us., 22 Cl.Ct. 80 (Cl.Ct. 1990) ............................................. 3

Utica Nat. Ins. Co. a/Texas v. American Indem. Co., 141 S.W.3d 198 (Tex. 2004) ...................................................................................................................... 2

Worth Construction Co. v. State Department ofPublic Works, 2010 WL 4884266 (Conn. Super. 2010) ..................................................................................................... 3, 4

Other Authorities

Wheaton College Writing Center, Writing Resources: Passive and Active Voices, http://wheaton.edullearnres/writectr/Resources/activevoice.htm .................................. 10

IV

ARGUMENT AND AUTHORITIES

I. Pinnacle has Proffered a Reasonable Interpretation of the "Amounts Owed Under Written Contract" Exclusion Which this Court Must Adopt.

Under time-honored rules of construction, Pinnacle must prevail in this appeal as

long as its interpretation of the "amounts owed under written contract" exclusion is

reasonable. See Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660,

668 (Tex. 2008); Balandran v. Safeco Ins. Co. ofAmerica, 972 S.W.2d 738, 741 (Tex.

1998); National Union Fire Ins. Co. ofPittsburgh, Pa. v. Hudson Energy Co., Inc., 811

S.W.2d 552, 555 (Tex. 1991). This remains true even if the Court finds St. Paul's

interpretation as, or perhaps more, reasonable. Id. While Pinnacle maintains that its

interpretation is the only reasonable interpretation of the exclusion, at a minimum, it is a

reasonable one.

Pinnacle contends that the exclusion can only fairly be read to narrowly preclude

coverage for a limited subset of contract damages consisting solely of amounts owed per

the terms of Dr. Fisher's Employment Agreement at the time he was terminated. St. Paul

criticizes Pinnacle for "isolating" words and phrases and "distort[ing]" the policy

language in arriving at its interpretation. (Brief of Appellee, p.17). To the contrary, and

unlike St. Paul, Pinnacle carefully examined the actual language contained in the

exclusion and gave each word its plain and precise meaning. The Texas Supreme Court

has offered clear guidance in the area of insurance policy construction, noting in several

recent cases that courts should be primarily concerned with the actual words chosen by

the insurer to insert in the policy. See, e.g., Gilbert Texas Const., L.P. v. Underwriters at

Lloyd's London, --- S.W.3d ---, 20lO WL 5133658, *5, 10 (Tex. 2010); Dan's Bldg.

Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20, 29-30 (Tex. 2008); Lamar Homes,

Inc. v. Mid-Continent Cas. Co., 242 S.W.3d 1, 10 (Tex. 2007); Utica Nat. Ins. Co. oj

Texas v. American Indem. Co., 141 S.W.3d 198,203 (Tex. 2004). By breaking down the

exclusion into its component parts and examining the phrases "that part of Loss,"

"constitutes," "amounts owed" and "under a written contract," in light of fundamental

grammatical rules and pertinent caselaw, Pinnacle's interpretation faithfully follows the

Texas Supreme Court's directive.

Pinnacle also properly interpreted the exclusion within the overall context of the

Policy. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133-34 (Tex. 1994) (holding

that courts must construe contracts as a whole and give effect to all provisions); Gonzalez

v. Mission American Ins. Co., 795 S.W.2d 734, 736 (Tex. 1990). The Policy

undisputedly covers a laundry list of "Employment Practices Acts," including both

"wrongful discharge or termination ... " and "breach of an actual or implied employment

contract." I (CR 223-4). Within this context, Pinnacle offers its interpretation that the

Policy generally provides coverage for breach of contract, but narrowly excludes that

"part" of contract damages constituting amounts owed to an employee per the express

terms of a written employment contract at the time of the termination. If the exclusion

could be read to apply to all breach of contract claims, then it would swallow the

I S1. Paul stipulated to this fact. (Brief of Appellee, pp.ll-12). Significantly, St. Paul argues that it is "inequitable" for an insured to "benefit" from receiving coverage for a breach of contract claim. (Brief of Appellee, pp.26-27). If this were true, why would St. Paul have chosen to specifically delineate breach ofcontract as a covered act?

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coverage afforded for such claims as a listed "Employment Practices Act" Accordingly,

the exclusion must refer to a discrete subset of contract damages generally, or else the

"Employment Practices Act" grant of coverage is rendered meaningless.

To be clear, there are damages awarded for the breach of an employment

agreement that fall within the ambit of the exclusion. For instance, Pinnacle paid Dr.

Fisher more than $80,000 in accrued benefits after his tennination per the Employment

Agreement requiring Pinnacle to make shareholder distributions (CR 340-1 [p.32, In. 1 1

p.33, In.l]), repurchase Dr. Fisher's stock (CR 363 [p.I79, In.l4-17]) and make

contractually-mandated salary continuation payments. (CR 428-9; CR 402 [p.98, In.2­

1OJ). The jury found, however, that Pinnacle wrongfully withheld $36,000 from these

payments and awarded that amount as damages for Dr. Fisher's conversion claim. (CR

204 [~112]; CR 315-6; CR 361-2 [p.l72, In.23 p.173, In.6]; CR 428-9).

The conversion award represents an '''amount owed under" Dr. Fisher's

Employment Agreement because it was a fixed sum that was owed to Dr. Fisher at the

time he was tenninated. As such, that award does fall within the reach of the exclusion.

See, e.g., Craft Mach. Works, Inc. v. u.s., 926 F.2d 1110, 1113-1114 (Fed. Cir. 1991)

(holding that "supplies to be furnished under this contract" only referred to those

supplies that were specifically defined in the contract) (emphasis added); see also

Transpace Carriers, Inc. v. u.s., 22 Cl.Ct 80, 82 (CtCt 1990) (pointing out that

historically the phrase "arising under this contract" limited the clause's scope "only to

cover disputes for which a specific contract provision gives a remedy" and not to disputes

involving breaches of contract) (emphasis in original); Worth Construction Co. v. State

3

Department ofPublic Works, 2010 WL 4884266, *5 (Conn. Super. 2010) (not designated

for publication) (ruling that the word "under" is not as broad of a term as "related to,"

"connected with" or "derived from").

On the other hand, the Employment Agreement contained no provision requiring

Pinnacle to pay anything-let alone $5.9 million-to Dr. Fisher representing an amount

he would have earned years into the future had he continued working at Pinnacle. These

"lost earnings" are damages the jury found flowed from the breach of the Employment

Agreement, rather than amounts that were owed per its express terms. The award was

based on calculations using the same damage methodology used in wrongful termination

cases where there are no employment contracts and in bodily injury cases where the

plaintiffs ability to work has been impaired. In fact, the damages-related evidence in the

Fisher Lawsuit virtually ignored the contract itself, but focused instead to a large extent

on Dr. Fisher's salary history during the six-plus year period prior to his employment

with Pinnacle. (CR 334-5 [p.8, In.l - p.ll, In.l5]; CR 338 [p.21, In.l5-2ID.

Pinnacle's interpretation does not render the "compensation earned" exclusion

meaningless as St. Paul claims. (Brief of Appellee, pp.21-22). The "compensation

earned" exclusion, which is not limited to written contracts as the exclusion at issue, bars

coverage for claims from persons without any employment contract, such as Payday Act

claims or quantum meruit claims. Conversely, the "amounts owed under written

contract" exclusion bars claims that the "compensation earned" exclusion does not

because an insured can owe an amount under a contract that does not equate to earned

compensation, such as the reimbursement of company-related expenses. The two

4

exceptions encompass different types of claims; and Pinnacle's interpretation does

nothing to change that fact.

II. St. Paul's Interpretation is Unreasonable.

A. St. Paul Ignores the Actual Words Used in the Policy.

St. Paul summarily, and without substantial analysis, concludes that the exclusion

encompasses all "contract damages." St. Paul repeatedly refers to it as a "contract

damages exclusion," yet S1. Paul's characterization crumbles every time they try to apply

the specific words of the exclusion. St. Paul contends that the jury awarded Dr. Fisher

damages for his breach of contract claim; therefore, because the exclusion precludes

coverage for all contract damages, those damages must necessarily constitute amounts

owed under Dr. Fisher's Employment Agreement. As Pinnacle previously explained,

however, the exclusion at issue is much more narrow.

S1. Paul offers that its interpretation is limited, not by pointing to the meaning of

the words of the primary exclusionary language, but rather by citing some separate

exceptions which follow the primary exclusionary language for defense costs and other

items. (Brief of Appellee, p.l2). St. Paul's position is that the primary exclusionary

language itself is not limited in any way and would operate to exclude all breach of

contract damages but for the exceptions.

There is no need to ever consider the exceptions to the exclusion to determine that

the primary exclusionary language does not apply to all contract damages. Focusing

carefully on the words "amounts owed under a written contract" establishes that the

exclusion bars something less than all contract damages. The exceptions are irrelevant in

5

this matter, because the lost earnings award does not fall within the narrow, limited

primary exclusionary language.

St. Paul repeatedly ignores the actual words of the policy. For instance, St. Paul

contends that Dr. Fisher's lost earnings were "based on" his Employment Agreement and

therefore "constitute" the amounts owed by Pinnacle. (Brief of Appellee, p.16). Yet,

"based on," which means "'but for" causation, is much broader than the actual term used

in the contract--"constitutes." St. Paul strays from the words of the Policy in a strained

effort to impermissibly broaden the exclusion beyond its clear meaning to encompass the

future lost earnings award. (Appellant's Brief, pp.14-16).

St. Paul concludes that the jury award for $5.9 million that Dr. Fisher would have

made if he had remained at Pinnacle until the age of66 was necessarily an "amount owed

under a written contract." Tellingly, however, Pinnacle never cites to any contract

provision pursuant to which this amount was owed. They cannot because the contract

was terminated in 2004.

If St. Paul had wanted this exclusion to preclude coverage for all contract-related

damages, then it could have done so as it did in other parts of the policy. For example, in

the same EPL Agreement, St. Paul excluded "Loss on account of any Claim: ... for any

actual or alleged breach ofany express contract or agreement between the Company and

any Independent Contractor ..." (CR 241 [~5]).2 Therefore, the fact that St. Paul chose

to use different, more limiting terms in the "amounts owed under written contract"

2 Similarly, the Policy's Management Liability Insuring Agreement excludes "Loss on account of any Claim ... Based upon. arising out oj; or attributable to liability ofthe company under any contract or agreement, either oral or written." (CR 239 [~l D.

6

exclusion must mean that they intended not to give the exclusion the same broad scope as

the other "contract damages" exclusions in the policy. See Forbau, 876 S.W.2d at 133­

34; Gonzalez, 795 S.W.2d at 736. As such, St. Paul's interpretation of the exclusion is

unreasonable.

B. Cases Relied on by St. Paul Tum on Different Facts and, More Importantly, Different Policy Language.

In Appellant's Brief, Pinnacle anticipated the key cases upon which SL Paul

relies-Nicolet High School Dist. v. Continental Cas. Co., 914 F.2d 260, 1990 WL

135920 (7'h Cir. 1990) (not designated for publication) and National Union Fire Ins., Inc.

v. Hospital Affiliates Mgmt. Corp., 363 N.W.2d 494 (Minn.CLApp. 1985). (Appellant's

Brief, pp30-31.) These and the other cases cited by St. Paul are inapposite, however,

because they all focus on exclusions with different language than the one at issue here.

For instance, the exclusion in Town of Geraldine v. Montana Muni. Ins. Authority, 347

Mont. 267, 271, 198 P3d 796 (Mont. 2008) applied to "[a ]ny liability arising out of

failure to perform, or breach of, a contractual obligation." (emphasis added). The St.

Paul Policy contains the more restrictive "constitutes amounts owed" verbiage in the

exclusion.

St. Paul also relies on several cases cited for the proposition that courts decline to

apply "similar contract damages exclusions ... only where the insured faces liability for

breach of contract and statutory or constitutional violations." (Brief of Appellee, pp.24­

25.) As an initial matter, Pinnacle notes that courts in two of these cases found the

"similar exclusion" to be ambiguous, and therefore unenforceable against an insured. See

7

Contoocook Valley School District v. Graphic Arts Mut. Ins. Co., 788 A.2d 259, 261

(N.H. 2001); see also Convent oj the Visitation School v. Continental Cas. Co., 707

F.Supp. 412, 415 (D. Minn. 1989).

Moreover, the holdings are not as broad as St. Paul contends. It is true that the

courts in those cases refused to apply a "contract damages" exclusion to claims involving

statutory or constitutional violations. It is too great a leap, however, to cite those cases

for the proposition that the only time when the exclusion does not apply to all contract

claims is when statutory and constitutional issues are also involved. Simply because

those courts found that particular types of claims (i.e. statutory and constitutional) did not

fall within the exclusion at issue does not mean that all other types of contract-related

claims necessarily fall within the exclusion's reach.

The cases cited by St. Paul involved different factual scenarios) and differently-

worded contract exclusions.4 Simply put, the cases St. Paul cites involving policy

language precluding coverage for all contract damages or concerning different types of

claims have no bearing on the proper interpretation of the more narrow exclusion at issue

here. Accordingly, those cases offer no guidance with respect to the "amounts owed

under written contract" exclusion or its application to the Fisher Lawsuit.

) For example, the underlying suit in New Madrid County Reorganized School District No. I, Enlarged v. Continental Cas. Co., 904 F.2d J236 (8th Cir. 1990) was for "back wages and other contractual benefits." In contrast, the jury awarded Dr. Fisher future damages for a number of years after his Employment Agreement was terminated. 4 For instance, the exclusion at issue in Convent applied to "loss in connection with (i.e. broader than "constitutes") any claim ... [fjor any amounts due (i.e. present tense) under the terms of any contractual obligations." 707 F .Supp. at 415.

8

One of the cases cited by St. Paul is nonetheless worth discussing. In New Madrid

County Reorganized School District No.1, Enlarged v. Continental Cas. Co., 904 F.2d

1236 (8th Cir. 1990), the court ruled that all employment suits between teachers and the

school district defendant necessarily "emanate from" the teacher contracts, but not all

employment-related suits brought by teachers are necessarily for breach of contract. Id.

at 1242. Similarly, just because Dr. Fisher's breach of contract suit may have emanated

from his Employment Agreement does not mean his "lost earnings" that flowed from his

wrongful termination strictly "constitute amounts owed under" the Employment

Agreement. What is expressly "owed under a contract" is not necessarily equal to or

synonymous with what remedies are available for a breach of a contract and, by analogy,

St. Paul's own cases make this very point.

C. Term "Amounts Owed" is Past Tense, Not an Example of the Passive Voice.

St. Paul argues that the term "amounts owed" is not used in the past tense, as

Pinnacle suggests, but rather written in the passive voice. St. Paul relies on Lennar Corp.

v. Great American Ins. Co., 200 S.W.3d 651,692 (Tex.App.-Houston [14th Dist.] 2006,

pet. denied) for this proposition. Contrary to St. Paul's analysis of the opinion, the

Lennar court did not conclude that the words "leased, occupied, or owned" were written

in the passive voice. (Brief of Appellee, p.20.) Rather, the policy at issue in Lennar

considered "the words 'occupied by, used by, or owned by,' instead of 'occupy, use, or

own.", Id. (emphasis added). The court concluded these terms were written in the

passive voice for good reason. One of the teU-tale signs of the passive voice is the verb

9

being followed by the word "by," such as "owned by any Insured." See Wheaton College

Writing Center, Writing Resources: Passive and Active Voices,

http://wheaton.eduilearnres/writectr/Resources/activevoice.htm. Such essential verbiage

is notably absent in the "amounts owed under written contract" exclusion in the St. Paul

Policy.

Fundamental grammar rules and common sense establish that the phrase "amounts

owed" is unquestionably stated in the past tense. Texas courts concur with this

interpretation. In In re Ezukanma, --- S.W.3d ---, 2010 WL 4644462 (Tex.App.

Worth 2010, no pet. h.), the court analyzed a family code statute, noting:

The use of past tense in prescribing the contents of an enforcement motion in which a contempt order is sought-for example, 'amount owed' ... ­indicates that the legislature intended such a motion to include only those violations that have already occurred at the time the motion for contempt was filed.

Id. at *4 (italics in original, underline added).5 Similarly, because the exclusion uses the

past tense "amounts owed," it can only include amounts owed to Dr. Fisher per the terms

of his contract at the time he was terminated.

PRAYER

Appellant Pinnacle Anesthesia Consultants, P.A. prays that the Court reverse the

trial court's Summary Judgment Order and that portion of the Order of Dismissal

granting St. Paul's Motion for Partial Summary Judgment and denying Pinnacle's Motion

5 A number of other courts have also reviewed the word "owed" and found that it is used in the past tense. See, e.g., Ratchford v. u.s. Central Underwriters Agency, Inc., 492 F.Supp. 137, 143 (ED. Mo. 1980); see also State ex reI. Public Employees Retirement Ass 'n v. Longacre, 59 P.3d 500, 505-6, n.6 (N.M. 2002); Durkin v. Equifax Check Services, Inc., 2002 WL 31426397, *3 (N.D. Ill. 2002) (not designated for publication). (Appellant's Brief, pp.l7-19).

10

for Partial Summary Judgment. Pinnacle further prays that the Court render

judgment granting Pinnacle's Motion for Partial Summary Judgment and denying St

Paul's Motion for Partial Summary Judgment and further render a judgment declaring

that St. Paul owes Pinnacle its applicable policy limits as indemnity for the Amended

Final Judgment in the underlying Fisher Lawsuit.

Respectfully submitted,

STEPHEN W. BURNETT State Bar No. 24006931

SCHUBERT & EVANS, P.C. 900 Jackson Street, Suite 630 Dallas, Texas 75202 Telephone: 214-744-4400 Facsimile: 214-744-4403

COUNSEL FOR APPELLANT PINNACLE ANESTHESIA CONSULTANTS, P.A.

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CERTIFICATE OF SERVICE

This is to certify that on the /r~ay of January 2011, a true and correct copy of this Appellant's Brief was forwarded to those identified below via hand delivery.

Counselfor Appellee St. Paul Mercury Insurance Company

Price Collins Ashley Gilmore Wilson, Elser, Moskowitz, Edelmand & Dicker, L.L.P. 901 Main Street, #4800 Dallas, TX 75202

12