Prophet Equity was entitled to coverage by its insurer when it lost a wrongful termination dispute with its former chief operating officer and thus should be awarded more than $4 million in uncovered claims, the Dallas Court of Appeals ruled on Monday.
In a 36-page opinion, a three-judge panel unanimously reversed a summary judgment that Dallas District Judge Dale Tillery had issued in favor of the insurer, Twin City Fire Insurance Company. It also remanded certain issues back to Tillery’s court.
Although Prophet Equity’s lawyer, Tom Melsheimer, said the ruling “doesn’t break new ground” in Texas law, “it reaffirms a lot of Texas law that is very favorable to the insured in any dispute with an insurance company.”
“It’s really the one area of law where the courts make it hard for the defendant insurance company to win,” Melsheimer said. “Almost every presumption is indulged in favor of the insured.”
Jeff Tillotson, one of Twin City’s lawyers, declined to comment on the ruling.
The dispute dates back to October 2011, when Prophet Equity Managing Partner Ross Gatlin removed his co-founder, George Stelling, as the Southlake firm’s COO and interim CEO. The termination led to a legal battle in which Stelling claimed Gatlin fired him to interfere with his contract rights and partnership benefits and that his former employer was spreading rumors to harm is reputation and damage his career. Stelling claimed $57.5 million in damages.
The dispute ended up in arbitration, which resulted in a ruling that ordered Gatlin and Prophet Equity to pay Stelling more than $7 million. All three of Prophet’s insurance carriers — Twin City, HCC Specialty Insurance Co. and Great American Insurance Co. — initially denied coverage, but after mediation, HCC and Great American agreed to pay for some of Prophet Equity’s losses.
Twin City continued to deny paying, so the dispute over Prophet Equity’s remaining $4 million in losses proceeded to litigation in a lawsuit in Dallas County. Prophet Equity alleged contract breach, insurance code violations and bad faith coverage denial. Both parties moved for summary judgment, and Judge Tillery granted Twin City’s and denied Prophet Equity’s.
Prophet Equity appealed the ruling, arguing that the trial court erred in its ruling.
Monday’s appellate ruling, written by Justice Bill Whitehill, sided with Prophet Equity.
“Prophet and Gatlin conclusively established that they suffered sufficient losses related to the Swelling claim to reach Twin City’s layer and Twin City did not carry its burden to create a fact issue based on its asserted [insured versus insured] exclusion or other coverage defenses,” Justice Whitehill writes.
According to the opinion, Twin City had claimed that the nature of the legal fight changed from an employment-related claim to a partnership dispute, which was outside the scope of coverage.
The court of appeals rejected that argument, pointing out that it ignores policy language that says “more than one claim involving the same wrongful act or interrelated wrongful acts shall be deemed to constitute a single claim.”
Moreover, “Twin City’s argument is based on an overly narrow reading of the policy’s language and an isolated reading of Stelling’s arbitration statement,” the opinion says.
The court did rule for Twin City in one area: it upheld a breach of confidentiality ruling that Judge Tillery had made in Twin City’s favor, because Prophet Equity never provided a response to Twin City’s arguments attacking that claim.
Others on the court of appeals panel included Justices David Bridges and Ada Brown.