'I'm not so sure': Judge Ho splits with majority over $1.4M strip club feud

An insurance company trying to dodge a $1.4 million judgment for 16 models who sued strip clubs in Houston got a win on appeal, but a dissenting judge said the court should have deferred to the Texas Supreme Court.

Judge James Ho of the U.S. Court of Appeals for the Fifth Circuit said the majority, looking at a policy with two provisions “in irreconcilable conflict,” opted on rendering a reasonable guess, rather than sending the issue to the state.

The lawsuit involves a declaratory judgment sought by the insurance company in The Princeton Excess and Surplus Lines Insurance v. Centerfolds.

Sixteen models sued the Houston-area strip clubs after the models’ images were used on billboards that the women alleged gave the impression they endorsed or worked as strippers at the clubs.

A trial court granted summary judgment for the models, and awarded $1.4 million damages.

An appeal by the clubs is pending at the First District Court of Appeals.

Illusory?

The clubs had two commercial liability insurance policies in effect with insurer Princeton Excess, and the insurance company filed suit, naming the clubs and the models, in its effort to avoid indemnity.

A federal district court ruled in favor of the defendants, and the insurer appealed.

Writing for the majority panel, Circuit Judge Cory T. Wilson considered the language in Coverage B of one policy that listed five exclusions.

Princeton Excess argued the only applicable coverage that survived was “use of another’s advertising idea.” But the second policy provides an exclusion for “use of another’s advertising idea in your advertisement,” Wilson noted.

Wilson recognized how Texas courts disfavor construing insurance contracts such that coverage is rendered illusory. He disagreed with the district court’s method of interpretation.

Princeton Excess contended the exclusion is not illusory, because it leaves significant coverage in place for “Personal and Advertising Injury-just none that applies in this case.”

Whether or not the policies are illusory and therefore unenforceable turn on whether the policy’s “Personal and Advertising Injury coverage should be viewed as one ‘umbrella’ of coverage or carved into subcategories,” Wilson said. “The district court took the latter approach and considered the exclusion’s effect on subsections d. through g. in isolation.”

Princeton Excess argued for the opposite approach, and Wilson agreed, asserting the court was not persuaded that these liability policies “have traditionally separated advertising injury coverage from personal injury coverage.”

“Personal and advertising injury” coverage is one of seven types listed and “advertising injury’ is nowhere defined separately, the majority opinion said.

The clubs and the models also asserted the images used constituted use of their “advertising idea,” thereby bringing the model’s underlying claims within the policy.

Wilson noted that “the Fifth Circuit and Texas courts have not spoken directly to the definition of an advertising idea in commercial general liabilities policies.” Nevertheless, he sided with Princeton Excess, based on a 2017 Fifth Circuit opinion, Laney Chiropractic & Sports Therapy v. Nationwide Mutual Insurance.

“Following that case’s reasoning, the clubs’ misappropriation of the models’ images did not amount to use of their ‘advertising idea’ because at essence, the models’ images are their products, not their advertising ideas,” Wilson said.

‘How is the reader supposed to now?’

Ho dissented, stating the conflict between provisions appears irreconcilable, adding, “What one provision giveth, the other taketh away.”

“Do we apply the coverage provision? Or do we enforce the exclusion? It’s impossible to give effect to both provisions. So how is the reader supposed to know which one to apply, and which one to ignore?” Ho asked.

If there is no way to reconcile the conflict, the proper resolution would be to find them unintelligible and deny the effect of both, Ho said.

“Texas law generally provides that, if an insurance contract is susceptible of more than one reasonable interpretation, courts must “resolve the uncertainty by adopting the construction that most favors the insured,” Ho argued.

The panel majority seems to say that the “slight difference” of a policy that covers an enumerated risk but then eliminates “most, but not all” risks matters, Ho said.

“The panel theorizes that the answer varies depending on ‘whether the policy’s Personal and Advertising Injury coverage should be viewed as one ‘umbrella’ of coverage or carved into subcategories, i.e., bifurcated into personal injury coverage and advertising injury coverage,’” Ho said. ”I’m not so sure.”

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