Fifth Circuit Court Cases - Case Law and Opinions from the 5th Circuit Federal Court - Court of Appeals

	ROMINGER LEGAL
		Fifth Circuit Court of Appeals Opinions - 5th Circuit
					Need Legal Help?
					Need Legal Help?
LEGAL RESEARCH CENTER
LEGAL RESEARCH CENTER			LEGAL HEADLINES - CASE LAW - LEGAL FORMS	NOT FINDING WHAT YOU NEED? -CLICK HERE

This opinion or court case is from the Fifth Circuit Court or Appeals. Search our site for more cases - CLICK HERE

LEGAL RESEARCH

COURT REPORTERS

PRIVATE INVESTIGATORS

PROCESS SERVERS

DOCUMENT RETRIEVERS

EXPERT WITNESSES

Find a Private Investigator

Find an Expert Witness

Find a Process Server

Case Law - save on Lexis / WestLaw.

Legal News - Legal Headlines

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 92-5084

AMERICAN STAR INSURANCE CO.,
f/k/a Classified Insurance
Corporation,
Plaintiff-Appellee,
versus
ROBERT F. GIRDLEY and
VIRGINIA L. GIRDLEY,
Defendants-Appellants.

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

(April 14, 1994)
Before HIGGINBOTHAM, DAVIS, and SMITH, Circuit Judges.
HIGGINBOTHAM, Circuit Judge:
We hold that an agreement requiring the agent of a bail bond
company to indemnify the company is not an illegal reinsurance
contract under Texas law.
I
Robert F. Girdley and Virginia L. Girdley agreed to act as
agents of American Star Insurance Company1 in the bail bond
business. The contract required the Girdleys to indemnify American
Star for any loss incurred on a bail bond issued by the Girdleys on
1 At the time of the contract, the insurance company's name
was Classified Insurance Company. The company later changed its
name to American Star Insurance Company.

American Star's behalf. American Star here sued the Girdleys under
the indemnification provision.
Both American Star and the Girdleys moved for summary
judgment, the motions turning on whether the indemnification
provision is an insurance contract. If it is, the Girdleys argued,
then the agreement was void because the Girdleys were not licensed
as insurers. This is their only defense on appeal.
The district court applied Texas law in granting summary
judgment for American Star, despite a provision in the agreement
specifying California law as controlling. The court concluded that
the indemnity provision was incidental to the agency agreement and
therefore that it did not require the Girdleys to provide
insurance. As a result, the agreement was enforceable.2 From this
judgment, defendants timely appeal.
II
We must first address whether the district court erred in
applying Texas law in spite of the parties' choice of California
law. The issue in this case is whether the indemnification
provision in the agreement between the Girdleys and American Star
is enforceable as a matter of law. Because the Girdleys do not
contest American Star's position that the provision would be
2 After the district court entered final judgment, the
Girdleys asked that the court amend its findings pursuant to
Fed.R.Civ.P. 52(b) to reflect the fact that the bail bond
business was not the Girdleys' but, rather, was American Star's.
The district court made this alteration but nevertheless held
that American Star was entitled to summary judgment.
2

enforceable under California law,3 and because we hold below that
the provision is enforceable under Texas law, we need not decide if
the district court erred in applying Texas law. See Eugene F.
Scoles & Peter Hay, Conflict of Laws 17 (1984) ("'false conflict'
exists when the potentially applicable laws do not differ").
III
We hold that the indemnification provision was incidental to
the lawful agreement that the Girdleys would serve as American
Star's agents. It therefore did not constitute, or transform the
agreement into, an illegal insurance contract. As a result, we
need not decide whether providers of bail bonds are in the
insurance business or, alternatively, whether a party may shirk its
commitments by claiming that it has acted illegally.
All parties agree that the Girdleys could lawfully serve as
agents of American Star in the bail bond business. The question is
whether the Girdleys' indemnification of American Star qualifies as
reinsurance. We note at the outset that "when a contract is
susceptible of two constructions the construction which makes it
legal and valid will be adopted." Board of Ins. Com'rs v. Kansas
3 Indeed, it appears that such a provision would be
enforceable under California law. See, e.g., Tischhauser v.
Jarvis, 273 P. 66, 67 (Cal. Ct. App. 1928) ("an agreement to
indemnify a surety on a bail bond is not against public policy");
McDonough v. Chu Chew Shong, 68 P.2d 976, 977 (Cal. Ct. App.
1937) ("Action upon an indemnity contract to guarantee plaintiffs
from loss by reason by their furnishing bail."); People v. Silva,
170 Cal. Rptr. 713, 719 (Cal. Ct. App. 1981) (bail agent of
corporate surety, as indemnitor, has standing to challenge bail
bond forfeiture); see generally J.E. Macy, Annotation, Right of
Surety on Recognizance or Bail Bond to Indemnity or Contribution,
170 A.L.R. 1161 (1947).
3

City Title Ins. Co., 217 S.W.2d 695, 697-98 (Tex. Civ. App. Austin
1949, writ ref'd n.r.e.).
We recently interpreted Texas law as establishing that "one
party to a contract for services is not an 'insurer' of the other
party to the contract solely because the first party indemnifies
the second party pursuant to an indemnity clause." Vesta Insurance
Co. v. Amoco Production Co., 986 F.2d 981, 985 (5th Cir.), cert.
denied, 114 S.Ct. 80 (1993). This court relied in Vesta on Board
of Ins. Com'rs. Vesta, 986 F.2d at 986 n.12 (citing Board of Ins.
Com'rs v. Kansas City Title Ins. Co., 217 S.W.2d 695 (Tex. Civ.
App. Austin 1949, writ ref'd n.r.e.)). In Board of Ins. Com'rs.,
the court addressed an indemnification provision in a contract
between a vendor of title abstracts and a provider of title
insurance. The vendor agreed to serve as the title insurance
company's agent. The indemnification provision held the vendor
liable to the title insurance company for obligations arising from
the policies the vendor sold on the insurance company's behalf. If
the indemnity provision was a reinsurance contract, it violated
Texas law by enabling the vendor to act as an unlicensed insurer.
The court held that the provision was not a reinsurance contract
but rather was incidental to the agency relationship. Id. at 697-
98.
In reaching this conclusion, the court looked to the likely
effect on the "public interest" of invalidating the indemnification
agreement. Id. at 698. By tracing the court's reasoning, we heed
the stated purpose for enacting the statute requiring the licensing
4

and regulation of bail bondsmen, that is, regulation of "a business
affecting the public interest." Tex. Rev. Civ. Stat. Ann. art.
2372p-3 �1 (Supp. 1994). See also Board of Ins. Com'rs, 217 S.W.2d
at 698 ("Title insurance is a business affected by public interest
and subject to legislative control").
The court in Board of Insurance Commissioners noted that the
indemnification provision neither allowed the vendor to "hold
itself out as engaging in the insurance business" nor caused people
to "rely upon the responsibility" of the vendor. 217 S.W.2d at
698. A Texas court addressing a similar issue noted that in Board
of Ins. Com'rs the title company "had not by [the] contract
relieved itself of liability to the policyholder, and that the
public was buying insurance from the [insurer] and not [the
vendor]." Manning v. State, 423 S.W.2d 406, 412 (Tex. Civ. App.
Austin 1967, writ ref'd n.r.e.) (citing Board of Ins. Com'rs, 217
S.W.2d 695, 698 (Tex. Civ. App. Austin, writ ref'd 1949 writ ref'd
n.r.e.)). The court in Manning seized on the fact that the agent
before it had "assumed all liability to the policyholder" whereas
the agent in Board of Ins. Com'rs had not. For this reason, the
Manning court found that the agent had provided insurance and had
not merely formed "a contract of indemnity." Id.
The same distinction applies to the present case. The
Girdleys could, and did, present themselves only as American Star's
agents. By the terms of the agreement, American Star acted "as
surety for bail bonds solicited in its name." The Girdleys do not
claim that American Star could have avoided its obligations as a
5

result of the indemnification provision. That provision was a
purely private agreement between American Star and the Girdleys.
It would be ironic if in an effort to protect an unwary government
institution or member of the public, neither of which had reason to
rely on the Girdleys as bail bondsmen, we were to keep American
Star from enforcing the Girdleys' obligations. The court in Board
of Ins. Com'rs rejected this approach to distinguishing between
indemnification and reinsurance. Board of Ins. Com'rs, 217 S.W.2d
at 698 (treating an indemnity provision as an illegal insurance
contract would be error where it would expose to risk parties that
the law was designed to protect). No interest that Texas might
wish to protect would be served by allowing the Girdleys to escape
liability.
AFFIRMED.
6