Voters approved the Traditional Family Values Ordinance. The El Paso City Council subsequently amended the ordinance to restore benefits to individuals who would have lost their benefits. Mayor John F. Cook cast the tie-breaking vote in favor of amending the ordinance.

Pastor Brown and EPTFV then began circulating recall petitions seeking a recall election to remove Mayor Cook and two other elected representatives from office.

Pastor Brown announced the recall campaign from the Church pulpit.

A Texas appellate court later found that:

(1) Pastor Brown used the Church/TBM website to recruit volunteers to circulate recall petitions;

(2) The website provided an electronic form through which people could register to circulate recall petitions;

(3) The website added a list of locations, including the Church, where recall petitions could be found; and

(4) The website included a link for the recall of the mayor and representatives.

The site also listed a disclaimer stating, “This internet site is owned by Tom Brown and not the Church. Tom Brown in his official capacity as pastor of Word of Life Church neither encourages or [sic] discourages the recall of the [m]ayor and [r]epresentatives.” Pastor Brown also wrote in a statement on the Church website that the purpose of the recall was “to help restore the rights of the voters.”

Mayor Cook sued the Church, alleging that it violated Texas Election Code §§ 253.094(b) and 253.031(b) in circulating and submitting the recall petitions and raising and spending money for the recall effort. Section 253.094(b) regulates corporate political contributions in the context of a recall election, while Section 253.031(b) regulates political committees' political expenditures and acceptance of political contributions when the committee lacks a campaign treasurer.

The trial court issued a temporary restraining order enjoining any further circulation of recall petitions. Pastor Brown intervened, seeking to dissolve the TRO. The trial court then dissolved portions of the TRO and denied Mayor Cook's request for injunctive relief.

Mayor Cook appealed, and the court of appeals reversed the trial court's order denying injunctive relief. In so doing, the court of appeals found violations of Texas Election Code §§ 253.094(b) and 253.031(b). The court of appeals concluded that the Church “made campaign contributions from its own property in connection with a measure-only recall election without properly making the contributions to a measure-only committee” in violation of Texas Election Code § 253.096. It further concluded that the Church, “a corporation, made a political contribution in connection with a recall election, including the circulation and submission of petitions to call an election, and failed to make such contribution to a political committee” in violation of Texas Election Code §§ 253.096 and 253.094(b).

The court of appeals ordered the city clerk of El Paso to decertify the recall petition and rescind the scheduled recall election. The Church appealed to the Texas Supreme Court, but the court denied the Church's petition for review.

The trial court then entered an order granting Mayor Cook's motion for partial summary judgment and finding Pastor Brown and the Church liable to Mayor Cook for violations of the Texas Election Code. Before the case could proceed to trial, the Church and Pastor Brown entered into an agreed judgment with Mayor Cook stating that they were liable to him for $475,000 in damages.

The Church submitted a claim to its insurer, State Farm Lloyds, for $475,000 plus interest based on the agreed judgment in the Cook lawsuit, along with an additional $450,000 plus interest for attorneys' fees. State Farm responded that no basis existed to reimburse or indemnify Pastor Brown and the Church because the policy did not cover their claim.

Pastor Brown and the Church sued State Farm for breach of contract, unjust enrichment, and bad faith insurance dealing.

State Farm moved for summary judgment.

The U.S. District Court for the Western District of Texas concluded that State Farm did not have a duty to defend Pastor Brown because his alleged actions in leading the recall campaign were not “directly related to the operations of” the Church.

The Church and Pastor Brown appealed to the Fifth Circuit.

The State Farm Lloyds Insurance Policy

The State Farm Lloyds insurance policy contained a “duty to defend” clause giving State Farm:

the right and duty to defend any claim or suit seeking damages payable under this policy even though the allegations of the suit may be groundless, false or fraudulent.

The policy also includes a directors, officers, and trustees liability provision (the “D&O Provision”) that stated:

[State Farm] will pay those sums that the insured becomes legally obligated to pay as damages because of “wrongful acts” committed by an insured solely in the conduct of their management responsibilities for the church.

The D&O Provision defined “wrongful acts” as:

any negligent acts, errors, omissions, or breach of duty directly related to the operations of your church.

The criminal acts exclusion to the D&O Provision stated that D&O coverage:

does not apply to . . . any dishonest, fraudulent, criminal or malicious act, including fines and penalties resulting from these acts.

The Fifth Circuit's Decision

The Fifth Circuit reversed.

In its decision, the circuit court explained that Mayor Cook alleged that Pastor Brown was liable for violating Election Code provisions that govern corporations, not individuals, based on his status as a director of the Church. Mayor Cook essentially claimed that Pastor Brown had caused the Church to violate the Election Code. According to the circuit court, he alleged that Pastor Brown's activities were directly related to the Church's operations.

The Fifth Circuit then ruled that, looking only to Mayor Cook's allegations and the D&O Provision, State Farm's duty to defend was triggered.

The circuit court acknowledged that the district court concluded that Pastor Brown acted “to help restore the rights of the voters” and that political activities like the recall campaign were not “typical of the operations of a religious organization.” According to the Fifth Circuit, however, the D&O Provision gave “no indication” that Church “operations” did not encompass voting rights work or other activities outside the realm of traditional church ministries.

The Fifth Circuit rejected State Farm's argument that the director and officers provision's criminal acts exclusion barred coverage, observing that Mayor Cook alleged facts supporting potential noncriminal violations of the Election Code.

Finally, the Fifth Circuit found that a genuine issue of material fact existed regarding whether Pastor Brown's actions were “directly related to the operations of” the Church and thus subject to indemnity by State Farm, and whether the policy's criminal acts exclusion barred State Farm's duty to indemnify. The circuit court remanded the case to the district court to consider these issues.

The case is Word of Life Church of El Paso v. State Farm Lloyds, No. 18-50108 (5th Cir. March 22, 2019). Attorneys involved include: For WORD OF LIFE CHURCH OF EL PASO, TOM BROWN, Plaintiffs – Appellants: Joel Lee Oster, Oster Law Firm, Shawnee, KS; Troy Chandler Brown, Esq., El Paso, TX. For STATE FARM LLOYDS, Defendant – Appellee: Peter Andrew Nolan, Litigation Counsel, Linda Jene Burgess, Andrew J. Schumacher, Winstead, P.C., Austin, TX.