United States Court of Appeals for the Fifth Circuit United States Court of Appeals Fifth Circuit

____________ FILED May 9, 2023 No. 22-50218 Lyle W. Cayce ____________ Clerk

Windermere Oaks Water Supply Corporation; Dana Martin; William Earnest; Thomas Michael Madden; Robert Mebane; Patrick Mulligan; Joe Gimenez; David Bertino; Mike Nelson; Dorothy Taylor; Norman Morse,

Plaintiffs—Appellees,

versus

Allied World Specialty Insurance Company,

Defendant—Appellant. ______________________________

Appeal from the United States District Court for the Western District of Texas USDC No. 1:21-CV-258 ______________________________

Before Ho, Oldham, and Douglas, Circuit Judges. James C. Ho, Circuit Judge: This insurance dispute turns on a simple principle of law: A claim for breach of fiduciary duty is not a claim for breach of contract, and is therefore not subject to exclusion from coverage under a contractual liability exclusion. That’s what the district court found here in granting summary judgment in favor of the insured. We accordingly affirm. Case: 22-50218 Document: 00516743514 Page: 2 Date Filed: 05/09/2023

No. 22-50218

I. Allied World Specialty Insurance Company issued a WaterPlus Package Insurance Policy to the Windermere Oaks Water Supply Corporation. That policy includes coverage for Public Officials and Management Liability. But it also includes various exclusions from coverage. At issue in this appeal is the exclusion for contractual liability. That provision states that coverage excludes: “[d]amages,” “defense expenses,” costs or loss based upon, attributed to, arising out of, in consequence of, or in any way related to any contract or agreement to which the insured is a party or a third-party beneficiary, including, but not limited to, any representations made in anticipation of a contract or any interference with the performance of a contract. Three individual members and partial owners of Windermere brought a suit (the “Underlying Suit”) against it, its various officials, and relevant others. This suit alleges that Windermere sold a valuable tract of land at Spicewood Airport to a commercial entity controlled by Windermere board member Dana Martin “for pennies on the dollar.” Because of this sale—as well as a subsequent settlement that “left the . . . fire sale transaction largely intact and gave Martin even more valuable W[indermere] property for no consideration”—the suit contends that Windermere’s losses have exceeded $1,000,000, resulting in rate hikes and fee increases. In doing so, the suit claims that Windermere “exceeded its powers” and the board of directors “exceeded their authority and breached their duties,” specifically alleging various ultra vires acts committed in violation of Section 20.002(c) of the Texas Business Organizations Code. These included: the unauthorized conveyance of property; improper use of the cooperative’s assets; improper

2 Case: 22-50218 Document: 00516743514 Page: 3 Date Filed: 0