United States Court of Appeals
                                                                                 Fifth Circuit
                                                                              F I L E D
                 IN THE UNITED STATES COURT OF APPEALS                          April 17, 2006

                              FOR THE FIFTH CIRCUIT                        Charles R. Fulbruge III
                                                                                   Clerk



                                     No. 05-10300




      CLARENDON NATIONAL INSURANCE CO.,

                                                  Plaintiff-Appellee,

                                         versus

      FFE TRANSPORTATION SERVICES, INC., FROZEN FOOD EXPRESS
      INDUSTRIES, INC.,
                                Defendants-Appellants.



               Appeal from the United States District Court for
                        the Northern District of Texas
                         (USDC No. 3:03-CV-1752)
      _________________________________________________________

Before REAVLEY, JOLLY and DeMOSS, Circuit Judges.

PER CURIAM:*



      *
        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not be published and is not precedent except under the limited circumstances set forth in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.

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      Appellants-Defendants FFE Transportation Services, Inc. and Frozen Food

Express Industries, Inc. (collectively “FFE”) appeal the magistrate judge’s judgment

granting Appellee-Plaintiff Clarendon National Insurance Co.’s motion for summary

judgment and denying FFE’s cross-motion for summary judgment. We affirm.

                                          I.

      Clarendon issued Business Auto Policy No. T 07701905 (the “policy”) to

Frozen Foods. The policy was in effect from December 1, 1996 to December 1,

1997. FFE Transportation was a named insured under the policy. The policy

provided $2 million in insurance coverage subject to a Self-Insured Retention (SIR)

of $1 million. The SIR functioned essentially as a deductible in that FFE was

responsible for the first $1 million in damages arising from an accident. Clarendon

then provided $1 million in excess coverage above the SIR.

      Under the policy, FFE had a duty to report both accidents and claims in

which it was involved. First, the policy required “prompt notice” of any “accident,

claim, suit or loss.” Additionally, Endorsement #9 of the policy required

“immediate notice” to Clarendon of “[a]ny claim in which the requested damage

exceeds the self retained amount,” in this case $1 million. Endorsement #9 further

required notice of an occurrence of any injury, death, or disease paid or reserved for

25% or more of the amounts stated in the schedule of underlying insurance.

                                          2
      The policy provided that in the event the notice provisions were not followed

Clarendon would (1) not be liable on the policy if Clarendon was prejudiced by the

lack of notice, and (2) would be eligible for reimbursement from the insured for any

amounts paid on claims involving a breach of the policy. The policy explicitly

provided Clarendon the right to investigate, defend, and settle any claim at its

discretion.

      On January 9, 1997, one of FFE Transportation’s vehicles was involved in an

accident which resulted in several claims against FFE. All but one of these claims

were settled by FFE for a cumulative pay out of $219,861.99. The remaining claim

was brought as a tort action against FFE by Ray Stewart in state court in Missouri.

      Although FFE appears to dispute exactly when it should have given notice of

the accident and resulting claims, the parties agree that notice was not given until

after trial on the Stewart claim, and that the timing of this notice breached the

policy. Further, FFE admits that Stewart offered to settle his claim for $700,000 in

the spring of 2001. FFE did not notify Clarendon of this offer. FFE rejected the

settlement offer and the case proceeded to trial. The jury rendered a verdict of $1.1

million in favor of Stewart and judgment was entered on April 5, 2001. On July 18,

2001, more than three months later, FFE gave its first notice to Clarendon of the

January 1997 accident and the resulting claims. After reserving its right to seek

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reimbursement from FFE, Clarendon participated in post-judgment settlement efforts

of the Stewart claim which resulted in a $1 million settlement. Clarendon

contributed approximately $220,000 toward that settlement.2 Clarendon then sought

reimbursement of the $220,000 from FFE. FFE refused and Clarendon brought this

lawsuit.

      The parties agreed that there were no genuine issues of material fact and

submitted cross-motions for summary judgment by agreement to the magistrate

judge. Clarendon sought reimbursement arguing that: (1) FFE breached the notice

provisions of the policy; (2) Clarendon was prejudiced by the lack of notice; and (3)

because of the prejudicial breach by FFE, Clarendon had no liability under the

policy. FFE argued that, under Texas law, Clarendon must prove actual prejudice,

which it contended Clarendon could not do. Thus, FFE sought a declaratory

judgment that Clarendon was not entitled to any relief. Judgment was entered for

Clarendon and FFE appeals.

      Reviewing the magistrate judge’s grant of summary judgment de novo, we

consider the parties’ arguments below.

                                         II.


      2
         FFE paid approximately $780,000 which, along with the $219,861.99 paid
to settle the other claims, met the SIR.
                                          4
      The parties agree that Texas law applies to this case, and that Clarendon must

prove that FFE’s failure to give notice prejudiced Clarendon in order for coverage to

be forfeited. Thus, this case turns on what proof must be offered to establish

prejudice. Clarendon argues that prejudice can be established in two ways and that

it has put forth sufficient evidence to meet both standards. First, it argues that in

certain situations the prejudice can be presumed – presumed prejudice or prejudice

as a matter of law. Second, Clarendon contends that where prejudice is not

presumed the insurer can still avoid coverage by demonstrating actual prejudice.

FFE argues that the presumed prejudice standard is no longer good law and that

Clarendon failed to prove actual prejudice. We need not decide whether the

presumed prejudice rule is still good law as Clarendon has shown actual prejudice.

      Clarendon contends that FFE’s breach of the notice provision prevented it

from exercising valuable rights. Clarendon points to Section II.A. of the Trucker’s

coverage form providing Clarendon with the absolute right to settle the claim as it

“deems appropriate.” Stewart offered to settle the claim for $700,000. FFE refused

and a judgment of $1.1 million resulted. Consequently, Clarendon argues that the

breach of the notice provision by FFE resulted in the deprivation of Clarendon’s




                                            5
right to settle which proved to be worth $400,000.3 Had the Stewart claim settled

for $700,000, the total payout on all claims resulting from the January 8, 1997

collision would have been $919,861.994 – within the SIR, resulting in no cost on the

claim to Clarendon. However, with the post-judgment settlement of $1 million, the

total payout on the claim was $1,219,861.99, resulting in a cost of $219,861.99 to

Clarendon. Clarendon argues that this evidence demonstrates actual prejudice.

      FFE counters that this is insufficient evidence of actual prejudice. It contends

that Clarendon must establish, not that it could have settled the claim for $700,000,

but that it would have settled had FFE given notice. We disagree and hold that

Clarendon has shown that it suffered actual prejudice. It is beyond dispute that,

pursuant to the express terms of the policy and in its unfettered discretion,

Clarendon could have settled the Stewart action for a sum that would have resulted

in no cost on the claim to Clarendon.

      The Texas Supreme Court has held that prejudice is the loss of a valuable

right or benefit. Hernandez v. Gulf Group Lloyds, 

, 693 (Tex.


      3
       The $1.1 million judgment was reduced in post-trial settlement negotiations
to $1 million, which would reduce the value of the missed settlement opportunity to
$300,000.
      4
         This figure comes from the $700,000 offered settlement in the Stewart
claim, plus the $219,861.99 FFE paid in cumulative settlement on all other claims
arising from the January 8 accident.
                                           6
1994) (holding that where the “expected benefit” lost due to the breach “has no

value. . . . the insurer is not prejudiced by the breach” and thus the insured cannot

deny coverage). The primary concern of Hernandez is that the insured must suffer

the loss of a valuable right in order to avoid payment. Thus, whether Clarendon

would have accepted the settlement offer, as FFE urges, is immaterial to this point.

The fact remains that FFE’s failure to give notice caused Clarendon to lose a

valuable settlement right. See Motiva Enters. v. St. Paul Fire & Marine Ins. Co.,

-- F.3d --, 

, at *4 (5th Cir. Mar. 28, 2006) (holding that “when ...

the insurer is not consulted about the settlement, the settlement is not tendered to it

and the insurer has no opportunity to participate in or consent to the ultimate

settlement decision, we conclude that the insurer is prejudiced as a matter of law”).

This satisfies the concerns of Hernandez and sufficiently establishes Clarendon’s

prejudice.

       We do not believe that Clarendon must show precisely what the outcome of

the underlying case would have been had notice been given to make a showing of

actual prejudice. Clarendon is required to show the precise manner in which its

interests have suffered. Clarendon has done so, and thus, has demonstrated actual

prejudice.

                                          III.

                                           7
      For the reasons stated above, we affirm the magistrate judge’s judgment

granting Clarendon’s motion for summary judgment and denying FFE’s cross-

motion for summary judgment.

AFFIRMED.




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