Houston Casualty Company v. Truist Financial Corporation

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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No. 22-1273
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HOUSTON CASUALTY COMPANY,
Appellant
WSFS FINANCIAL CORPORATION;
WILMINGTON SAVINGS FUND SOCIETY, FSB (Intervenor Plaintiffs)
v.
TRUIST FINANCIAL CORPORATION
__________
On Appeal from the United States District Court
for the District of Delaware
(District Court No. 1-18-cv-01472)
District Judge: Honorable Stephanos Bibas*, U.S.C.J., by designation
__________
Submitted Under Third Circuit L.A.R. 34.1(a)
on January 25, 2023
Before: HARDIMAN, KRAUSE, and MATEY, Circuit Judges
(Filed: February 7, 2023)
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OPINION†
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* The Honorable Stephanos Bibas, Circuit Judge sitting by designation pursuant to 28
U.S.C. § 291(b).
† This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.

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KRAUSE, Circuit Judge.
Appellant Houston Casualty Company (HCC) seeks to recoup its $5 million
insurance payout to policyholder WSFS Financial Corporation (WSFS) from Appellee
Truist Financial Corporation (Truist). HCC asserts that Truist promised to indemnify
WSFS for the losses underlying the insurance payout and that HCC, as WSFS’s insurer,
has a subrogation right to indemnification for that payout. But the terms of the
indemnification agreement between Truist and WSFS unambiguously state that Truist’s
obligations are “net of any insurance proceeds received by [WSFS],” App. 212, and that
plain text precludes WSFS from recovering the $5 million from Truist, which necessarily
precludes HCC—as WSFS’s subrogee—from recovering it as well. Accordingly, we will
affirm the District Court’s grant of summary judgment in favor of Truist.
I. F ACTUAL AND P ROCEDURAL BACKGROUND
In 2010, WSFS purchased Christiana Bank & Trust Company (Christiana) from
Truist’s predecessor-in-interest. The Stock Purchase Agreement (SPA) governing this
purchase set forth each party’s indemnification obligations and all applicable
“[l]imitations on [i]ndemnification.” App. 212. In relevant part, that provision states:
“All payments for Damages . . . by [Truist] to [WSFS] shall be paid by [Truist] . . . net of
any insurance proceeds received by [WSFS] with respect to such Damages.” Id.
(emphasis added).
In 2014, a trust managed by Christiana was scammed. The beneficiary of that
trust immediately threatened litigation and, in 2015, ultimately instigated arbitration
proceedings. WSFS requested coverage for these legal proceedings; first from HCC as

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its insurer, and then from Truist as its indemnitor. For years, Truist refused to concede
liability, maintaining that the damages at issue were not covered by the SPA. Likewise,
HCC repeatedly denied coverage for the dispute, claiming that its policy only covered
wrongful conduct that had occurred well before the scam here. WSFS eventually settled
its dispute without assistance from HCC or Truist, paying $12 million out of pocket.
WSFS then brought suit against HCC, seeking reimbursement for this $12 million
payout. Without admitting liability, HCC settled for $5 million.
Following that settlement, HCC initiated the current suit against Truist, seeking to
recover the $5 million that it had just paid out. WSFS intervened, alleging that Truist, as
WSFS’s indemnitor, was further liable for the remaining portion of its $12 million payout
to the injured beneficiary. The case proceeded through discovery, and all parties moved
for summary judgment. The District Court granted both WSFS’s and Truist’s motions,
finding that (1) Truist was liable to WSFS for the remaining portion of WSFS’s $12
million payout, but that (2) HCC could not recover from Truist its $5 million payout to
WSFS. Of particular relevance on appeal, the District Court found that the SPA
unambiguously required Truist to indemnify WSFS for damages “net of any insurance
proceeds,” and that “[HCC’s] $5 million payment to [WSFS]—which it itself styled as
insurance proceeds,” was exactly that. App. 22 (emphasis in original). As such, the
District Court held that HCC was “not entitled to anything from [Truist],” as “[the SPA]
expressly forbid[] it.” Id. It is that decision that HCC now appeals.

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II. D ISCUSSION1
Under Delaware law, which governs this dispute, we review the SPA de novo and
we must read the agreement as an objective, reasonable third party would. Exelon
Generation Acquisitions, LLC v. Deere & Co., 176 A.3d 1262, 1266–67 (Del. 2017). In
so doing, we may not consider “extrinsic evidence . . . to interpret the intent of the
parties, to vary the terms, . . . or to create an ambiguity,” unless the agreement is
ambiguous on its face. Id. at 1267.
Here, there is no such ambiguity. The SPA requires Truist to indemnify WSFS for
certain litigation-related damages—including those suffered by WSFS here—“net of any
insurance proceeds received by [WSFS] with respect to such Damages.” App. 211–12.
The phrase “net of,” as used here, plainly means that Truist’s indemnity obligation
excludes any insurance proceeds that WSFS receives. See, e.g., Black’s Law Dictionary
(9th ed. 2009) (defining the term “net” as “[a]n amount of money remaining . . . minus
any deductions”). This clause, embedded within the “[l]imitations on [i]ndemnification”
section of the SPA, places a clear and unqualified restriction on that which WSFS can
recover from Truist. App. 212.
The upshot is that, when an insurer covers a given WSFS loss that would
otherwise be indemnifiable by Truist, Truist is exempt from liability for that loss, and
Delaware law makes clear in this situation that WSFS’s subrogee HCC is likewise
1 The District Court had subject-matter jurisdiction under 28 U.S.C. § 1332. We have
appellate jurisdiction under 28 U.S.C. § 1291.

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precluded from recovering. See e.g., Great Am. Assur. Co. v. Fisher Controls Int’l, Inc.,
No. Civ. A. 02C-05-168 JR, 2003 WL 21901094, at *4 (Del. Super. Ct. Aug. 4, 2003).
That is because HCC, as WSFS’s subrogee, “can take nothing by subrogation but the
rights of the insured.” Id. (citation omitted). Rather, by “step[ping] into the shoes of its
insured,” HCC becomes bound by the same indemnification limitations as WSFS. In re
Frescati Shipping Co., Ltd., 886 F.3d 291, 309 (3d Cir. 2018). So because the SPA
expressly carves out Truist’s liability for the very payout that HCC now seeks to recoup,
that payout cannot be recouped by HCC either.
In an attempt to circumvent this clear contractual limitation, HCC asserts that the
background principles of subrogation dictate a different outcome. But as the District
Court correctly observed, “background principles . . . cannot overcome explicit
contractual terms.” App. 21; see also Paul v. Deloitte & Touche, LLP, 974 A.2d 140,
145 (Del. 2009); GMG Cap. Invs., LLC v. Athenian Venture Partners I, L.P., 36 A.3d
776, 780 (Del. 2012). And the terms of the SPA negate the need to draw upon any such
principles here. For instance, HCC contends that Truist is “primarily liable,” meaning
that Truist is required to indemnify WSFS before HCC provides insurance coverage.
Even if that were correct, however, HCC fails to grapple with the fact the SPA’s
indemnification limitations impose no similar corresponding deadline. To the contrary,
the SPA ropes in “any insurance proceeds received,” without limitation. Thus, under the
SPA, an HCC payment reduces Truist’s liability for a given loss, regardless of whether
Truist is primarily liable.

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HCC fights the unqualified nature of the “net of any insurance proceeds” language
by drawing our attention to a parallel SPA provision that addresses third-party indemnitor
payouts. For these payouts, the SPA provides that Truist’s obligations are to be reduced
“regardless of whether the payments under [a third-party indemnity agreement are]
received before or after payment made by [Truist].” App. 213. True, this parallel
provision is distinguishable from the insurance proceeds provision, given that the latter
lacks a “before or after” clause. But HCC misconstrues the key point of differentiation.
The absence of a similar clause for insurance proceeds does not suggest, as HCC hopes it
might, that the insurance proceeds provision is somehow devoid of meaning or frozen in
time at the moment WSFS became entitled to indemnification. It simply means that
Truist is not entitled to a liability reduction if it has already indemnified WSFS for a loss.
Indeed, when we read the insurance and third-party indemnity provisions in tandem, as
HCC implores us to do, it becomes clear that timing of payment, rather than timing of
breach, is the crucial determinant for both.
Thus, we find that the SPA unambiguously requires all “insurance proceeds
received” to be subtracted from Truist’s indemnifications obligations, provided that such
proceeds are received prior to Truist’s indemnification payout. And here, HCC’s
settlement payout to WSFS occurred in 2018, well before any corresponding Truist
payment. Because that settlement wiped out Truist’s liability to indemnify WSFS (and
HCC by extension) for insurance proceeds, we will affirm the District Court’s grant of
summary judgment.

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