United States Court of Appeals
                                                               Fifth Circuit
                                                            F I L E D
              IN THE UNITED STATES COURT OF APPEALS
                                                           September 1, 2004
                        FOR THE FIFTH CIRCUIT
                                                        Charles R. Fulbruge III
                                                                Clerk

                            No. 03-10660




     RLI INSURANCE COMPANY,


                           Plaintiff-Counter-Defendant-Appellee,


          versus


     MAXXON SOUTHWEST INC, ET AL,
                           Defendants,


     MAXXON SOUTHWEST INC; GYPSUM
     FLOORS OF TEXAS INC; RAYMOND BREKKE;

                           Defendants-Counter Claimants-Appellants.


          Appeal from the United States District Court
               for the Northern District of Texas
                        (3:01-CV-2536-G)



Before GARWOOD,    HIGGINBOTHAM, and SMITH, Circuit Judges.*

GARWOOD, Circuit Judge:

     Defendants-counter claimants-appellants Maxxon Southwest, Inc.

(MSI), Gypsum Floors of Texas, Inc. (Gypsum), and Raymond Brekke


     *
     Pursuant to 5TH CIR. R. 47.5 the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
(Brekke), appeal the district court’s grant of summary judgment,

holding that appellants are not entitled to a defense or indemnity

under the umbrella liability policies issued to them by plaintiff-

counter defendant-appellee RLI Insurance Company (RLI). We affirm.

                     Facts and Proceedings Below

     Maxxon Corporation manufactured a product known as “gypsum

cement.”    MSI, one of Maxxon’s distributors, sold gypsum cement to

approximately twenty dealers, including both Gypsum and General

Supply.    Until July of 2000, Brekke owned (directly or indirectly)

both MSI and Gypsum.

     On April 1, 2000, RLI issued a Commercial Umbrella Liability

Policy to Gypsum, which ran from April 1, 2000 to April 1, 2001; on

April 1, 2001, RLI issued to Gypsum a renewal policy running from

April 1, 2001 to April 1, 2002.         MSI and Brekke were listed as

additional insureds on the supplementary schedules of each policy.

     On December 20, 2000, General Supply filed an antitrust

lawsuit (the underlying suit) against Brekke, MSI, and Gypsum

(defendants, insureds, or appellants) in the Northern District of

Texas.     General Supply alleged that the defendants violated the

Robinson-Patman    Act1   by   engaging   in   discriminatory   pricing.

Specifically, General Supply alleged that, at some point prior to


     1
      The Robinson-Patman Act provides, in part, “[i]t shall be
unlawful for any person engaged in commerce . . . to discriminate
in price between different purchasers of commodities of like
grade and quality, where either or any of the purchases involved
in such discrimination are in commerce . . .” 15 U.S.C. § 13(a).

                                    2
1996, MSI began its practice of selling gypsum cement at a cheaper

rate to Gypsum than to General Supply and other dealers, thereby

giving a competitive advantage to Gypsum.2   In its suit, General


     2
      General Supply’s complaint alleged that MSI used three
different price lists; the price list containing the lowest
prices was made available only to Gypsum, and one other dealer in
Denver, Colorado. The list with the mid-range prices was made
available to General Supply and diverse other dealers. A third
list provided other dealers even higher prices than those which
General Supply was paying. General Supply alleged that this
scheme was created by Brekke, MSI’s president, to give Gypsum an
unfair price advantage over its competition, including General
Supply.
     The complaint filed by General Supply – referred to therein
as “Gensco” – included the following allegations:
           “32. Upon information and belief, since at least
     1996, MSI has had two or more price lists for sales of
     gypsum cement to its customers, including Gensco.
           33. These different price lists are not based on
     the quality or quantity of the cement being purchased,
     but are rather based on the identity of the dealer
     purchasing the product.
     . . .
           37. Gensco will show that Brekke and MSI were
     giving favorable pricing to Gypsum Floors of Texas
     because such favorable pricing allowed Gypsum Floors of
     Texas to obtain a competitive advantage over Gensco,
     thus enabling Gypsum Floors and its owner, Brekke, to
     profit at Gensco’s expense.
     . . .
           47. At tome time before 1996 and continuing
     through at least June 2000, MSI had three different
     price lists for each grade of its gypsum cement. . . .
           48. Gensco was unaware of these disparate prices
     and different price lists until sometime in April or
     May 2000.
           49. In addition to the different price lists,
     upon information and belief, MSI offered additional
     special, unpublished discounts to certain dealers,
     including Gypsum Floors of Texas, which further reduced
     those selected dealers’ net wholesale price for the
     same materials Gensco was purchasing at substantially
     higher, un-discounted prices.
     . . .

                                3
Supply sought treble damages, injunctive relief, and attorneys’

fees.

     The insureds tendered the defense of the underlying lawsuit to

RLI under the RLI policies, and RLI accepted the tender of that

defense, subject to a reservation of rights set out in their July

23, 2001 letter to Brekke.   On November 30, 2001, RLI withdrew from

the defense of the underlying antitrust lawsuit claiming that the

insureds were not covered, and simultaneously filed this suit

seeking a declaration that they had no duty to defend the Brekke



          51. Upon information and belief, Gypsum Floors of
     Texas knew it was on the first price list and actively
     solicited and received substantially lower net
     wholesale prices from MSI than were offered to Gensco.
     Gensco asserts that Gypsum Floors of Texas
     intentionally and knowingly obtained said lower prices
     and higher discounts from MSI and MAXXON Corporation
     and used its wholesale price advantage to knowingly and
     successfully underbid Gensco on construction jobs both
     companies were attempting to acquire.
          52. Upon information and belief, Defendant Ray
     Brekke, the president of MSI and owner of Gypsum Floors
     of Texas, intentionally and knowingly set up the
     discriminatory pricing schedules used by MSI with the
     purpose of allowing his dealer, Gypsum Floors of Texas,
     to gain a price advantage over Gypsum Floor’s
     competition, including Gensco, and that pricing
     actually gave Gypsum Floors a price advantage as
     anticipated . . .
          53. Defendants Brekke, MSI and Gypsum Floors of
     Texas thus engaged in an unlawful conspiracy to violate
     federal antitrust laws and to harm and disparage the
     business and economic well-being of Gensco to the
     benefit of the Defendants, including by unlawfully
     interfering in the present and prospective business
     relations of Gensco.”
     The underlying suit also names Maxxon Corporation as a
defendant. Maxxon Corporation is not an insured (or additional
insured) under either RLI policy.

                                  4
defendants against the underlying antitrust lawsuit.   The insureds

responded claiming that RLI could not avoid coverage under its

policies, and that RLI breached its duty to defend.3

     Meanwhile, on November 19, 2001, the district court in the

underlying antitrust lawsuit granted partial summary judgment to

MSI, Gypsum, and Brekke as to a portion of General Supply’s cause

of action for price discrimination under the Robinson-Patman Act.

The court ruled that because MSI, Brekke and Gypsum were “related

entities” until July of 2000 when Brekke sold MSI to Maxxon

Corporation, an entity unrelated to Brekke, there were no transfers

that could be considered “sales” under the Robinson-Patman Act

prior to July, 2000.   Therefore, the court ruled, General Supply

could only offer evidence of injuries occurring after July of 2000.

     Without defense from RLI, General Supply and the defendants

settled the underlying antitrust lawsuit in April of 2002.   Under

the settlement, Maxxon Corporation and Gypsum paid $600,000 to

General Supply; Gypsum paying $300,000 of the $600,000 on behalf of

itself, MSI and Brekke, in exchange for a release of all of the

claims asserted against all of them in that litigation.   In April

2002, the district court then entered an order dismissing the case

as settled.



     3
      The defendants subsequently amended their pleadings to
seek an indemnification for $300,000 that they had to pay under
the settlement (addressed infra), and damages under the Texas
Insurance Code.

                                 5
     On September 23, 2002, RLI filed its motion for partial

summary judgment, claiming that price discrimination did not fall

within the coverage of its policy, and alternatively, that coverage

under the policies was barred under the fortuity doctrine.                        The

insureds    cross-moved         for    partial   summary   judgment      seeking   a

declaration      that    RLI    was    obligated   to   defend     the   underlying

lawsuit, to indemnify the insureds for the settlement, and for

breach of contract by RLI in failing to honor its obligations under

the policies.      The district court ruled in favor of RLI on April

22, 2003, determining that the fortuity doctrine, also known as the

loss-in-progress doctrine, barred coverage for MSI, Gypsum, and

Brekke, and therefore RLI owed no duty to defend or indemnify its

insureds in the underlying lawsuit.4               On May 1, 2003 the district

court entered judgment in favor of RLI.

     On    May   6,     2003,    the    insureds   then    filed    a    motion   for

reconsideration and, in the alternative, a motion for new trial,

asserting for the first time that the partial summary judgment

ruling in the underlying lawsuit undercut RLI’s fortuity defense.5


     4
      The district court did not rule on whether there would
have otherwise been coverage under the terms of the policy.
     5
      Their claim was that based on the partial summary judgment
determinative in the underlying lawsuit, before July 2000, there
was no violation of the Robinson-Patman Act because MSI and
Gypsum were, in effect, under sufficiently common ownership by
Brekke, and therefore there were no “sales,” for the purposes of
the Robinson-Patman Act, between the defendants. Hence, they
argued that the fortuity doctrine could not apply to the April 1,
2000 - April 1, 2001 policy because the only sales contrary to

                                           6
RLI opposed the motion, urging, inter alia, that it raised for the

first time facts and issues which should have been raised in

opposition to RLI’s motion for summary judgment. In a one sentence

order dated June 13, 2003, the district court denied the insured’s

motion.     On July 2, 2003, MSI, Gypsum, and Brekke appealed the

order granting RLI’s motion for partial summary judgment and

denying their motion for partial summary judgment, as well as the

order denying their motion for reconsideration and new trial.

                                Discussion

1.   Standard of Review

     This Court reviews a grant of partial summary judgment de novo

and applies the same standard as the district court.             William v.

Bramer, 

, 702 (5th Cir. 1999).         Because RLI filed its

motion for declaratory judgment in federal court pursuant to

diversity jurisdiction, Texas substantive law applies.            Erie R.R.

v. Tompkins, 

(1938).

2.   The Fortuity Doctrine

     The district court held that coverage for the General Supply

litigation, as well as the settlement arising therefrom, was

precluded    under   the   fortuity   doctrine   because   the   underlying

antitrust claims constituted a “loss in progress.”           The fortuity

doctrine relieves insurers from covering certain behaviors that the



the Robinson-Patman Act would have occurred after June 2000, when
that policy was already in effect.

                                      7
insured undertook prior to purchasing the policy.           “Because the

purpose of insurance is to protect insureds against unknown, or

fortuitous, risks, fortuity is an inherent requirement of all risk

insurance policies.” Scottsdale Ins. Co. v. Travis Maintenance, 

, 75 (Tex. App.-Dallas [5th Dist.] 2001, pet. denied).

Combining the priciples of “known loss” and “loss in progress,” the

fortuity doctrine holds that “[i]nsurance coverage is precluded

where the insured is or should be aware of an ongoing progressive

or known loss at the time the policy is purchased.” 

Pesos, Inc. v. Gulf Ins. Co., 

, 502 (Tex. App.-

Houston [14th Dist.] 1995, no writ)) (emphasis added); see also

Burch v. Commonwealth Mut. Ins. Co., 

, 840 (Tex.

1970) (“A person may not, with knowledge of a loss, transfer the

risk from one company to another or make a contract by accepting a

policy issued   under   such   circumstances   that   he   was   under   no

obligation with respect thereto.”).

     If an insured knows, or should have known, at the time it

purchased the insurance policy, that its current behavior is

wrongful and could result in liability, it effectively removes the

risk element inherent in insurance, and therefore a Texas court

will not require the insurer to pay.           See Franklin v. Fugro-

McClelland (Southwest), Inc., 

, 737 (S.D. Tex.

1997).   Because the behavior that led to the underlying antitrust

suit, price discrimination, allegedly originated well prior to


                                   8
April 2000, the district court held that the fortuity doctrine

barred coverage in the case sub judice.

3.   Arguments on Appeal

     On appeal, the insureds argue first that the fortuity doctrine

should    not   have   been     applied       to   them   because    there   was    no

“watershed event” informing them that they were doing anything

wrong.    They next claim that, in any event, they in fact were not

doing anything that could have exposed them to liability before the

April 2000 - April 2001 policy was in effect.                       They base this

latter contention on the unity of ownership reasoning behind the

district    court’s     grant    of   partial        summary   judgment      in    the

underlying suit.       We address these contentions in turn.6

     A.    Watershed event

     After the district court rendered summary judgment in response

to RLI’s motion, finding that the fortuity doctrine controlled, the

insureds’ only remaining defense appeared to be that the complaint

in the underlying suit made no allegations that they received any

pre-policy notice or had any independent knowledge that they were

engaging in activities that would have exposed them to liability.

See, e.g., 

(Under the fortuity



     6
      The insureds also make certain policy coverage arguments,
asserting that the injuries alleged in the underlying antitrust
suit, like price discrimination, should be covered under the RLI
policy as a personal injury from, inter alia, “discrimination.”
We need not reach these questions as we affirm on the basis of
the district court’s opinion, namely on the fortuity doctrine.

                                          9
doctrine, “[t]he relevant inquiry is whether [the insureds] knew at

the time they entered the insurance policy that they were engaging

in activities for which they could possibly be found liable.”).      It

is undisputed that the insureds had not received a complaint from

General Supply before the suit, or before the purchase of the

original RLI policy.

     However, the district court correctly pointed out that, when

determining coverage under the fortuity doctrine, the key inquiry

is not whether the insureds actually knew of the underlying loss or

potential liability, but rather whether they knew, at the inception

of coverage that they were “engaging in activities” which might

reasonably be expected to expose them to or result in liability.

.    Here, the behavior began no later

than 1996, four years prior to the initial purchase of the RLI

policy, and the underlying suit alleges that Gypsum “intentionally

and knowingly obtained said lower prices and higher discounts from

MSI . . . and used its wholesale price advantage to successfully

underbid   Gensco   [General   Supply]   on   construction   jobs   both

companies were attempting to acquire” and that the discriminatory

prices were “intentionally and knowingly set up” by the insureds

“with the purpose of allowing” Gypsum “to gain a price advantage

over Gypsum Floors’ competition, including Gensco, and that pricing

actually gave Gypsum Floors a price advantage as anticipated” and

that the insureds “engaged in an unlawful conspiracy to violate



                                   10
federal antitrust laws and to harm and disparage the business and

economic well being of Gensco to the benefit of” the insureds.

These allegations sufficiently reflect that the insureds knowingly

engaged in conduct which they knew and intended would economically

harm General Supply and which they knew or should have known could

reasonably be expected to expose them to legal liability.

     On appeal, the insureds again focus on the scienter element of

the fortuity doctrine, asserting that they did not possess the

requisite    knowledge   that   their    behavior   might   give   rise   to

liability.    The appellants claim that, based upon analysis of a

number of Texas cases, some sort of “watershed event” is required

to give an insured sufficient notice that he or she is subject to

potential liability arising out of actions prior to the issuance of

a policy.7   They note that typically, this event is the receipt of

a demand or cease and desist letter from a plaintiff, or the filing

of a lawsuit before insurance has been purchased.

     Although they are likely correct in their assertion that most

cases do in fact involve a “watershed event” of some sort, nowhere

in the case law is there any statement that such an event is

required. Rather, we consider whether the party knowingly acted in

a manner in which it “‘could possibly be found liable.’” Matagora


     7
      The appellants describe a watershed event as “an event
beyond everyday ‘business as usual conduct,’ [that] caused the
insureds to cross the line from engaging in mere conduct to
becoming aware that they were engaging in conduct for which they
could be held liable.”

                                    11
Ventures v. Travelers Lloyds, 

, 691 (S.D. Tex.

2001) (quoting 

).

     Moreover, we can point to at least one case, Scottsdale v.

Travis, where the Texas Court of Appeals applied the fortuity

doctrine in the absence of any watershed, or threshold, event. The

appellants attempt to distinguish Scottsdale, claiming that in that

case, “the insured’s actions were so egregious that the court

determined that the insured had, in effect, engaged in essentially

fraudulent activities for which it knew it could be held liable.”

However, there was undeniably no threshold event; in that case, the

district   court    looked   to   the       allegations   contained     in   the

underlying complaint, and held that “because the petition alleges

the acts involved were intentional[,] we are not persuaded that .

. . there is no allegation that [insured] knew it was engaged in

activities    for   which    it   could       possibly    be   held   liable.”

   (internal     quotations      omitted).

Because, as was the case in Scottsdale, the underlying complaint in

the case sub judice informs the court as to whether the insureds

possessed the requisite mens rea, and as above noted General Supply

alleged that the defendants intentionally created their price

discrimination regime for the purpose and with effect of gaining a

competitive advantage over and harming General Supply, the district

court did not err in applying the fortuity doctrine in the absence

of a “watershed event.”


                                       12
     B.    Partial Summary Judgment and the lack of a “sale”

     Before their motion for new trial and to reconsider, the

insureds had not mentioned the partial summary judgment holding in

the underlying antitrust suit to the district court.                    Nor do

appellants contend that before their motion for reconsideration

they had made any assertion in the present case about common

ownership or that because of common ownership their conduct prior

to July 2000 was not such as to expose them to liability or to

invoke the fortuity or loss in progress doctrine; and indeed the

district court’s opinion does not reflect that the insureds made

any contention whatever with regard to common ownership.            Rather,

the insureds’ main argument, excluding the policy coverage claims,

was that there was no watershed event that could have given them

warning.

     It was in the defendants’ motion for reconsideration, and in

the alternative    for   new   trial,    that   they   first   raised    their

underlying suit partial summary judgment order, in which the

district court in the underlying action found that before July

2000, the defendants committed no anti-trust violations, as the

sales to Gypsum were not in fact “sales” for purposes of the

Robinson-Patman Act due to common ownership.

     RLI responded to this contention, asserting that it was waived

because it had not been raised earlier.                The district court

summarily dismissed the motion for reconsideration and new trial,



                                    13
and does not appear to have considered the partial summary judgment

ruling in the underlying suit.8                On appeal, the appellants assert

that       the   application      of    the    fortuity    doctrine      to   them    is

inappropriate because in the underlying action the district court

granted them “partial summary judgment[,]. . . determining that

because of the unity of interest between the Insureds, no transfers

could be considered actionable ‘sales’ under the Robinson-Patman

Act.”       RLI again retorts that the defendants’ underlying suit

partial summary judgment argument has been waived because it was

not earlier presented to the district court, and the partial

summary judgment had been issued some ten months before RLI’s

motion for summary judgment in this case was filed.

       We find no error in the district court’s decision to deny the

motion for new trial and to reconsider.                    Although the district

court      might    have    had   discretion       to   consider   the   defendants’

argument, though first raised in their motion to reconsider, it was

not required to do so.            See Simmons v. Reliant Standard Life Ins.

Co. of Texas, 

, 868 (5th Cir. 2002) (noting that when

responding         to   a   motion     for    reconsideration,     the     court     has

discretion to reopen a case that has been closed and may change its


       8
      The district court’s order stated, “The defendants’ motion
to reconsider the memorandum order on cross motions for partial
summary judgment, and in the alternative, motion for a new trial
is DENIED.” Therefore, because it made no mention of the
underlying partial summary judgment, we assume that it did not
consider the argument. Moreover, there had already been a final
judgment issued in this case.

                                              14
ruling on the merits).

     Moreover, there was no reason for the defendants not to have

raised the issue sooner, nor do they give any reason.9   Therefore,

the district court did not abuse its discretion.   See Rosenzweig v.

Axurix Corp., 

, 863 (5th Cir. 2003) (“a motion to alter

or amend the judgment under Rule 59(e) ‘must clearly establish

either a manifest error of law or fact or must present newly

discovered evidence’ and ‘cannot be used to raise arguments which

could, and should, have been made before the judgment issued.’”)

(quoting Simon v. United States, 

, 1159 (5th Cir.

1990)).10

     Under Texas law, the duty to defend is determined only by the

pleadings and the language contained in the insurance policy.   See

National Union Fire Ins. Co v. Merchants Fast Motor Lines, Inc.,

, 141 (Tex. 1997).     Moreover, the loss in progress

     9
      The underlying partial summary judgment order on which
appellants now rely was entered on November 19, 2001, some 10
months before RLI filed its motion for summary judgment and over
a year before the district court’s grant of RLI’s summary
judgment motion on April 22, 2003.
     10
       We also point out that the underlying partial summary
judgment order was interlocutory at all times. Because the
entire case was settled, no final judgment was ever entered, and
RLI never admitted or agreed that there were no violations before
July 2000 (nor did General Supply). See Avondale Shipyards, Inc.
v. Insured Lloyd’s,786 F.2d 1265, 1269-72 (5th Cir. 1986).
Additionally, even if there was a unity of ownership between the
insureds, there was another dealer, in Denver, that was also a
recipient of the most discounted price list. The partial summary
judgment holding has no effect on the sales between the insureds
and other parties receiving discounted rates.

                                15
doctrine is also triggered by the allegations in the pleadings.

See 

.            Here, an examination of the

allegations in the pleadings, as well as a consideration of the

general rule   that   parties    are     charged   with   knowing   the   law,

reflects that the district court properly applied the fortuity

doctrine to bar coverage.   Because we affirm the district court on

this ground, we need not address the appellants’ other contentions.

                                Conclusion

     For the foregoing reasons, the district court’s grant of

summary judgment is

                                  AFFIRMED.




                                       16