FIFTH CIRCUIT REVERSES SUMMARY JUDGMENT IN FAVOR OF INSURER, INVALIDATES ASSIGNMENT UNDER GANDY

Last Friday, the Fifth Circuit reversed a summary judgment granted in favor of Nautilus Insurance Company in Nautilus Ins. Co. v. Villalta, 13-20298, --- Fed. Appx. ---, 2014 WL 890431 (5th Cir. Mar. 7, 2014) and invalidated the assignment of rights held by the claimant, holding it violated public policy as articulated in State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996).

In its extremely brief summary opinion, the Fifth Circuit noted the underlying suit arose from the shooting of Plaintiff by an employee of the insured security company.  After Nautilus declined to defend the security company, citing the assault and battery exclusion in its policy, the security company entered into a settlement with Plaintiff whereby it allowed a $2 million judgment to be taken against it, agreed not to appeal the judgment, and Plaintiff agreed not to execute on the judgment.  The security company then assigned its rights in the insurance policy to Plaintiff, who sued Nautilus to recover the agreed judgment. 

The district court granted sua sponte summary judgment in favor of Nautilus on the ground that the assault and battery exclusion barred coverage for the claim.  On appeal, the Fifth Circuit reversed the summary judgment.  However, the Fifth Circuit simultaneously invalidated the assignment of rights to Plaintiff, noting it violated Gandy, and observed that Plaintiff had no legitimate justiciable interest in any coverage dispute between Nautilus and its insured.