Brady Natl Bank, et al v. Gulf Insurance Co

*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opinion should not be published and is not precedent except under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.
1
United States Court of Appeals
Fifth Circuit
F I L E D
April 6, 2004
Charles R. Fulbruge III
Clerk
UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 03-50464
BRADY NATIONAL BANK
and
TEXAS COUNTRY BANCSHARES, INC.
Plaintiffs-Appellees,
VERSUS
GULF INSURANCE COMPANY, et al.
Defendants,
GULF INSURANCE COMPANY
Defendant-Appellant.
Appeal from the United States District Court
For the Western District of Texas
(01-CV-392)
Before DEMOSS, DENNIS, and PRADO Circuit Judges.
DENNIS, Circuit Judge:*
In this case, we review summary judgments resolving coverage
disputes with respect to a financial institution special bond

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2
between Brady National Bank, the insured, and Gulf Insurance
Company, its insurer. Defendants-Appellants Gulf Insurance Co.,
et. al. (“Gulf”) appeal from the district court’s grant of summary
judgment in favor of Brady National Bank and Texas County
Bancshares, Inc. (“Brady National”), and the denial of Gulf’s Rule
59(e) motion. Gulf timely appealed. We AFFIRM the district court’s
grant of summary judgment on all issues except for the award of
$35,515.55 to Brady National for costs and attorneys’ fees incurred
because of its intervention as a plaintiff in a conspiracy to
defraud action in Texas state court. Because we conclude that the
district court’s summary judgment award and subsequent denial of
the Rule 59(e) motion with regard to those costs and fees is in
error, we REVERSE this part of the district court’s summary
judgment ruling and RENDER summary judgment on this issue in favor
of Gulf.
I. BACKGROUND
In early 1998, Brian Russell Stearns (“Stearns”) created a
Ponzi scheme that eventually defrauded investors of more than $50
million before his arrest in September of 1999. A few months prior
to that arrest, Stearns opened a personal checking account with
Brady National. Within days of opening that account, Stearns
instructed his attorneys to wire $12.5 million of funds Stearns had
obtained from his investor victims and deposit those funds in

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2The civil forfeiture statute under which the CDs were seized
prohibits forfeiture of property “to the extent of the interest of
an owner or lienholder” so long as that owner or lienholder has no
knowledge of the criminal violation that gave rise to the
3
Stearns’ newly opened checking account at Brady National. Stearns
immediately purchased a $1 million CD from Brady National using the
investor funds in his personal checking account. Stearns promptly
pledged that CD as collateral on an $800,000 personal letter of
credit loan and two personal credit card accounts, each with a
$100,000 limit.
Soon after these initial transactions, Stearns had his
attorneys wire an additional $6 million dollars of investors’ funds
to Stearns’ checking account at Brady National and with those
funds, he purchased a second CD in the amount of $100,000. Stearns
then pledged this second CD as collateral on a $41,000 personal
line of credit account. After these transactions, Stearns was
arrested, charged, and convicted in federal district court of 82
counts of mail fraud, wire fraud, securities fraud, money
laundering, social security fraud, false statements on loan
applications, and being a felon in possession of a firearm.
Along with Stearns’ arrest, the federal government seized both
CDs and initiated forfeiture proceedings in federal district court.
Brady National intervened as a claimant in those proceedings in
order to protect its interest in the CDs and asserted a defense of
innocent ownership.2 The district court ruled in favor of the

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forfeiture proceedings. See 18 U.S.C. § 981(a)(2).
3The record shows that as of May 12, 2000, Stearns owed: (1)
$849,835.51 in principal and interest on the $800,000 letter of
credit; (2) $115,155.03 and $99,959.04 in principal and interest on
each of the credit cards, respectively; and (3) $ 42,703.65 in
principal and interest on the $41,000 line of credit.
Additionally, attorneys’ fees were assessed in the amounts of: (1)
$26,459.86 on the $800,000 letter of credit; (2) $3,582.89 and
$3,110.09 on the credit cards; and (3) $3,252.87 on the line of
credit.
4
government, but the government never enforced the forfeiture order.
The CDs were ultimately returned to Brady National.
Just before the judgment of forfeiture was entered, Brady
National declared the sums borrowed by Stearns on an $800,000
letter of credit, two credit cards, and the $41,000 line of credit
in default and accelerated the due date on those sums.3 Brady
National then liquidated the CDs to pay off those debts.
After the CDs were applied toward Stearns’ debt to Brady
National, the investors Stearns had defrauded in the Ponzi scheme
sued Stearns and Brady National. Brady National eventually settled
with these investors. Soon after settling with the investors that
Stearns had defrauded, Brady National intervened as a plaintiff in
a lawsuit filed by Stearns’ investors against Stearns’ former law
firm. Brady National alleged, inter alia, that the law firm
conspired with Stearns to defraud the investors and Brady National.
As a result of the settlement with Stearns’ investors, and the
prior forfeiture action, Brady National claims a net loss under the

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4The Bond in question is described by the parties as a “fidelity
policy,” which the parties agree is a first party insurance
contract that covers specific events and risks of loss.
5
CDs of $800,801.40. It also claims that the aggregate court costs
and attorneys’ fees it incurred in the forfeiture action and the
investors’ lawsuit was $448,864.29. Brady National contends that
it incurred $35,515.55 in costs and attorneys’ fees because of its
intervention as a plaintiff in the lawsuit against Stearns’ law
firm.
Gulf had previously issued a financial institution special
bond (the “Bond”)4 to Brady National. Brady National provided
proper notice of its impending claims and sought to be indemnified
by Gulf for both the loss and costs and attorneys’ fees.
Gulf denied coverage, claiming that Brady National’s loss was
not covered under the Bond. Brady National then filed suit in
district court seeking monetary damages in the amounts of: (1)
$800,801.40 resulting from the net loss related to two Certificates
of Deposit (“CDs”); (2) $448,864.29 in costs and attorneys’ fees
resulting from a forfeiture action commenced by the United States
Internal Revenue Service (“IRS”) and the investors’ lawsuit; (3)
$35,515.55 in additional costs and attorneys’ fees Brady National
has incurred in asserting a claim for conspiracy to defraud against
Stearns’ former law firm; and (4) $15,130.33 in costs and
attorneys’ fees incurred in bringing this lawsuit.

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6
Brady National and Gulf filed cross-motions for summary
judgment. The district court determined that Brady National’s loss
was covered under the Bond, and awarded it complete relief. Gulf
filed a motion to alter or amend the judgment under Federal Rule of
Civil Procedure 59(e), but the district court summarily denied that
motion. Gulf timely appealed.
II. ANALYSIS
We review this grant of summary judgment de novo. See Beeler
v. Rounsavall, 328 F.3d 813, 816 (5th Cir. 2003). The parties
agree that the substantive law of Texas applies to resolve the
dispute in this diversity case. In Texas, courts employ general
rules of contract construction to insurance policies. See
Balandran v. Safeco Ins. Co. of Am., 972 S.W. 2d 738, 740-41 (Tex.
1998). The terms of an insurance policy are unambiguous as a
matter of law if they can be given a definite or certain legal
meaning. Nat’l Union Fire Ins. CO. v. CBI Indus., Inc., 907 S.W.
2d 517, 520 (Tex. 1983). Absent an ambiguity, our duty is to
enforce the policy according to its plain meaning. See Puckett v.
United States Fire Ins. Co., 678 S.W. 2d 936, 938 (Tex. 1984).
Disagreement between the parties regarding the question of coverage
“does not create an ambiguity.” Sharp v. State Farm Fire & Cas.
Ins. Co., 115 F.3d 1258, 1261 (5th Cir. 1997)(applying Texas law).
If terms in an insurance contract are subject to more than one

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5Alternatively, Brady National sought coverage under the “On
Premises” provision of the Bond. Because we conclude that the CDs
were “stolen” and therefore covered under the “Securities”
provision of the Bond, we need not consider the question of
coverage under the “On Premises” provision.
7
reasonable interpretation, however, those terms are ambiguous. See
CBI Indus., 907 S.W.2d at 520. Under Texas law, ambiguous terms
are construed in favor of coverage. See Barnett v. Aetna Life Ins.
Co., 723 S.W.2d 663, 665 (Tex. 1987). Because the Bond itself is
equivalent to a “fidelity policy,” and the same liberal rules of
construction that are applied to insurance contracts are applied to
fidelity policies under Texas law, see Federal Deposit Ins. Corp.
v. Aetna Cas. & Surety Co., 426 F.2d 729, 736 (5th Cir. 1970);
Great Am. Ins. Co. v. Langdeau, 279 S.W.2d 62, 65 (Tex. 1964), any
ambiguity in the Bond provisions will be construed against Gulf and
in favor of coverage. See Snyder Nat’l Bank v. Westchester Fire
Ins. Co., 425 F.2d 849, 852 (5th Cir. 1970).
Whether Brady National was afforded coverage depends on (1)
whether the CDs were “stolen” for the purposes of the “Securities”
provision of the Bond,5 and if so, (2) whether Brady National’s
loss was caused directly by the stolen CDs. Finally, we must
consider whether the Bond permits Brady National to recover any of
its claimed costs and attorneys’ fees.
A. “Stolen”
Brady National contends that its net loss under the CDs of

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8
$800,801.40 is covered under the “Securities” and “Court Costs and
Attorneys’ Fees” provisions of the Bond. The relevant portion of
the “Securities” provision is as follows:
Loss resulting directly from the insured having in good faith
and in the usual course of business, whether for its own
account or for the account of others:
A. Purchased or otherwise acquired, accepted or
received, or sold or delivered, or given any value,
extended any credit or assumed any liability on the
faith of any Certificated Security which. . . (2)
is lost or stolen. . . .
Both parties agree that CDs are “Certificated Securities,” and
Gulf does not challenge the extent of Brady National’s claimed
loss, so the critical issue is whether the CDs were “stolen.”
Although the Bond does not expressly define the term “stolen,” Gulf
argues that the generally accepted definition of “stolen” does not
encompass CDs purchased with stolen money. Gulf further argues
that the term “stolen” is not an ambiguous term as it is used in
the Bond.
Brady National contends that it is only logical to find that
a CD purchased with stolen money is “stolen” for the purposes of
the “Securities” provision, relying on our prior decision in Bank
of the Southwest v. Nat’l Surety Co., 477 F.2d 73, 76 (5th Cir.
1973). Brady National also contends that the term “stolen” is
ambiguous as it is used in the Bond. In ruling for Brady National,
the district court concluded that the CDs were “stolen” for the

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9
purposes of the Bond because they were acquired with stolen money.
We agree.
First, we find that the contention that “stolen” has a
generally accepted definition and that the term is therefore
unambiguous as it is used in the Bond is incorrect. Not only does
the Bond itself fail to define the term “stolen,” the Supreme Court
has previously stated that the term “‘stolen’ has no accepted or
common-law meaning.” See United States v. Turley, 352 U.S. 407,
411-12 (1957).
Second, we find that the term “stolen” may be defined more
broadly than Gulf contends. Gulf argues that the CDs were not
“stolen” because Stearns “bought” them from Brady National, and
because they were “bought” they were not “tak[en] from another
party dishonestly.” See Defs’ Reply Br. at pg. 3 (citing the
WEBSTER’S NEW WORLD DICTIONARY 585 (1979)). But Black’s Law Dictionary
has a more expansive definition of “stolen.” Black’s defines
“stolen” as “[a]cquired, or possessed, as a result of some wrongful
or dishonest act or taking, whereby a person willfully obtains or
retains possession of property which belongs to another, without or
beyond any permission given, and with the intent to deprive the
owner of the benefit of ownership.” See BLACKS’ LAW DICTIONARY 1419
(6th ed. 1991). See also OXFORD ENGLISH DICTIONARY (2d ed.
1989)(defining “stolen” as the past participle of steal, “to take

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10
or appropriate the property of another dishonestly); AMERICAN HERITAGE
DICTIONARY 1337 (3d ed. 1993) (defining “stolen” as the past
participle of steal, “to take the property of another without right
or permission”).
Because “stolen” is not defined in the Bond, has no generally
accepted or common-law meaning, and because it is defined narrowly
or expansively depending on the selected dictionary meaning, we
conclude that the term is subject to more than one reasonable
interpretation. Under Texas law, terms in insurance contracts that
are subject to more than one reasonable interpretation are
ambiguous, CBI Indus., 907 S.W.2d at 520, and construed in favor of
coverage. See Barnett, 723 S.W.2d at 665. Therefore, we conclude
that the definition of “stolen” as used in Bond should be construed
in favor of coverage and would encompass the CDs in this case
because the CDs were “acquired, or possessed as a result of some
dishonest act or taking.” See BLACKS’ LAW DICTIONARY 1419 (6th ed.
1991).
Our prior decision in Bank of the Southwest v. Nat’l Surety
Co.,477 F.2d 73, reinforces this conclusion. In Bank of the
Southwest, a plaintiff bank sought recovery under a banker’s
blanket bond for losses sustained on three collateral loan
transactions. See 477 F.2d at 75. The bank loaned a person
representing himself as a wholesale automobile dealer, and accepted

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certain documents purporting to convey a security interest in two
automobiles and stock shares as collateral. Id. Soon after the
loans were made, the bank discovered that the documents tendered by
the dealer did not give the bank any rights to the pledged
collateral. Id. at 75. Additionally, the stock certificates
pledged to the bank were never delivered by the dealer as promised.
Id. Instead, the dealer converted the stock certificates to his own
use. Id.
In order to determine whether the documents were “stolen,” and
therefore entitled to coverage, we focused on whether there was any
evidence that the bank had to give up the allegedly stolen document
to the rightful owner. Id. at 77 (citing Maryland Cas. Co. v. State
Bank & Trust Co., 425 F.2d 979). Because there was no such
evidence in the Bank of the Southwest case, we determined that the
documents were not “stolen.” Id. But in this case, there is ample
evidence that Brady National would have had to give up the CDs.
First, in the forfeiture proceedings, the district court found
that the CDs were subject to forfeiture. Second, Texas law dealing
with constructive trusts further indicates that the CDs would have
had to be returned to their rightful owners for summary judgment
purposes. In Texas, constructive trusts may be imposed when a
party holds property or funds that in equity and good conscience
belongs to another. See Ginther v. Taub, 675 S.W.2d 724, 728 (Tex.

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1984). Stearns’ criminal conviction leaves no doubt in this case
that all the funds used to purchase the CDs were acquired by fraud
and that the CDs rightfully belonged to Stearns’ investors.
Moreover, Texas courts would impose a constructive trust on the CDs
in favor of Stearns’ investors even though Brady National was
unaware of Stearns’ fraud. See Pope v. Garrett, 211 S.W.2d 559,
562 (Tex. 1948).
Therefore, due to the ambiguity of the term “stolen,” and
under the analysis in Bank of the Southwest, we conclude that the
CDs were “stolen” as that term is used in the “Securities”
provision of the Bond. Because the Securities provision of the
Bond only provides coverage for “loss resulting directly” from
Brady National’s extension of credit based on the CDs, we must now
determine whether the CDs directly caused Brady National’s loss.
B. “Directly Caused”
Brady National contends that its losses were directly based on
its extension of credit secured by the stolen CDs. Brady National
reasons that if the CDs not been “stolen” at the time it extended
credit, the CDs would not have been subject to forfeiture or the
investors’ claims. The district court accepted Brady National’s
reasoning and ruled in Brady National’s favor. Gulf argues that
Brady National’s loss did not directly result from the CDs, and
therefore that the district court erred in ruling for Brady

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National, for two reasons. First, Gulf argues that in order for
Brady National’s loss to have directly resulted from the stolen
CDs, the CDs must have had a defect in title at the time the CDs
were pledged to Brady National. Second, Gulf argues that it was
not the stolen CDs that directly caused Brady National’s loss but
rather Brady National’s subsequent settlement of the investors’
claims against the CDs.
In support of its first argument, Gulf cites Resolution Trust
Corp. v. Aetna Casualty & Surety Co., 25 F.3d 570 (7th Cir. 1994).
But while we find the language of the relevant bond provision in
Resolution Trust similar to the “Securities” provision here, we
find Gulf’s first argument unpersuasive. In Resolution Trust, one
of the issues was whether the insured met the condition precedent
of “possession” in order to be eligible for coverage. See 25 F.3d
at 580. Because the policy at issue in Resolution Trust required
the insured to have “in good faith acquired” the stolen security,
the insured in Resolution Trust must have had possession of the
security. Id. The Seventh Circuit reasoned that the insured could
not have in “good faith” acquired a security if the insured did not
simultaneously possess that security. Id. Moreover, in order to
be a stolen security eligible for coverage, that security had to
“have a defect in title” at the time the insured first possessed
it. Id. Because the security at issue in Resolution Trust was

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14
stolen after the insured acquired it, the Seventh Circuit
determined that there was no coverage. Id.
Here, the Bond’s “Securities” provision is similar to the one
in Resolution Trust because Brady National must have “in good faith
and in the usual course of business. . .extended any credit. . .on
the faith of any [CD] which. . .is stolen.” Additionally, Brady
National must also have “actual physical possession of [the CD]” at
the time it extended credit in order to be eligible for coverage.
But unlike the security in Resolution Trust, the CDs in this case
had a defect in title at very moment that Brady National extended
credit to Stearns.
First, neither party has alleged that Stearns ever had any
personal right to the funds he deposited in Brady National and used
to buy the CDs. The record shows that those funds were wired to
him directly from investors and Stearns then wired those funds into
his newly opened personal checking account, which was in
contravention of Stearns’ agreement to immediately invest those
funds for the benefit of the investors. The CDs purchased by
Stearns with those funds were then pledged as collateral for
personal line of credit loans and credit cards for his personal
use. A review of the record shows those accounts were used to buy
things such as jewelry, automobiles, private jets, and Las Vegas
vacations.

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6See R. 242-245.
718 U.S.C. § 1341 (mail fraud statute); 18 U.S.C. § 1343 (wire
fraud statute).
15
Second, there is no indication or allegation that these
purchases were intended for the benefit of Stearns’ investors and
the parties have not contended that any of these purchases were
intended to be investments. In convicting Stearns on all wire
fraud and securities fraud counts, including the counts tied to the
transactions with Brady National,6 the district court necessarily
made a finding that Stearns intended to defraud his investors at
the time he took the funds and wired those funds to Brady
National.7 Thus, because the record shows that Stearns never had
any right to the CDs, it also shows that the CDs had a defect in
title at the time Brady National extended credit on those CDs.
Given that the record amply indicates that the CDs were in Brady
National’s possession at the time Brady National extended credit to
Stearns, we reject Gulf’s first argument.
Gulf’s second argument is more easily dismissed. Gulf argues
that the harm suffered by Brady National resulted from the
settlement of the investors’ claims instead of reliance on the
stolen CDs. But under Texas law, mere settlement of a claim
resulting from a harm that would be covered by an insurance policy
does not mean that the loss came from the settlement as opposed to

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the covered harm. See Willcox v. Am. Home Assur. Co., 900 F. Supp.
850, 856 (S.D. Tex. 1995); See ANN. BANKER’S BLANKET BOND, FIRST SUPPL.
5 (Am. Bar Assn. 1983). And the language of the provision itself
provides coverage so long as Brady National, “in good faith and in
the usual course of business. . .extended any credit or assumed any
liability on the faith of any Certificated Security which. . . (2)
is lost or stolen.”
Because settlement of a claim resulting from a covered harm
under an insurance policy does not constitute a loss resulting from
the settlement as opposed to the covered harm, see Willcox, 900 F.
Supp. at 856, it is undisputed that Brady National extended credit
based on the CDs in “good faith,” and we have concluded that those
CDs were “stolen,” then the loss attributable to Brady National’s
settlement of the investors’ claims against the CDs is a covered
loss under the Bond.
C. Court Costs and Attorneys’ Fees
According to Brady National, because its loss attributable to
the CDs was covered under the Bond, all of the court costs and
attorneys’ fees it incurred in connection with its loss are
recoverable under the “Court Costs and Attorneys’ Fees” provision
of the Bond. That provision reads:
Sums incurred and paid by the Insured as court costs and
reasonable attorneys’ fees in defending any suit or proceeding
bought against the Insured to enforce the liability or alleged

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8See R. 69, Defs’ Mot. S.J., “Point VII–BECAUSE THERE WAS NO
COVERED LOSS UNDER THE BOND, THERE IS NO COVERAGE FOR COURT COSTS
AND ATTORNEYS’ FEES.”; R. 727, Defs’ Reply to Pls’ Mot. S.J.,
(same).
17
liability of the Insured for any loss, claim or damage, which
would constitute a valid and collectible loss under this bond.
Gulf does not challenge the reasonableness of the costs and
fees sought by Brady. Gulf’s sole argument at summary judgment on
this issue was that because there is no coverage under the Bond for
any of Brady National’s losses, there is no coverage for costs and
attorneys’ fees.8 The district court rejected that argument and
ruled in favor of Brady National. Gulf then filed a Rule 59(e)
motion challenging only part of the district court’s costs and
attorneys’ fees ruling. Specifically, Gulf challenged the district
court’s award of $35,515.55 resulting from Brady National’s
intervention in the conspiracy lawsuit filed against Stearns’
former law firm.
On appeal, Gulf reiterates its argument that no costs and fees
should be recoverable because Brady National has not suffered a
covered loss. Gulf also claims that even if there is a covered
loss under the Bond, Brady National is not entitled to recover any
of the costs and attorneys’ fees it seeks because Brady National
was not a “defendant” in the three legal actions in which it
incurred those costs and fees.

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18
We need not consider Gulf’s first argument, because we agree
with the district court that Brady National has suffered a covered
loss attributable from the “stolen” CDs. But Gulf’s second
argument on appeal does not dissolve upon a finding of coverage for
the CDs. Thus, we must consider Gulf’s second appellate argument,
and in so doing, consider the scope of that argument as well as the
applicable standard of review.
Brady National claims that part of Gulf’s second argument on
appeal, which challenges the $448,864.29 incurred in the forfeiture
proceeding and the investors’ lawsuit, is waived because Gulf
failed to raise that part of its argument in the district court.
Brady National also claims that Gulf’s challenge to the $35,515.55
in costs is subject to a lesser standard of review because Gulf did
not raise that part of its argument until Gulf moved to amend or
alter the judgment pursuant to Rule 59(e). In response, Gulf
contends that its motion for summary judgment did raise the
entirety of its second appellate argument. In support of this
contention, Gulf points to a single paragraph in its initial
summary judgment brief.
After reading that three sentence paragraph, we disagree that
Gulf has raised the same argument it wishes to present on appeal.
In its motion for summary judgment, Gulf paraphrased the costs and
attorneys’ fees provision, described the investors’ suit against

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19
Brady National, and argued that the suit filed against Brady
National “did not contain any allegations which, if proven true,
would have resulted in a covered loss under the Bond.” Defs’ Mot.
S.J., at pg. 9. Moreover, the argument was captioned: “BECAUSE
THERE WAS NO COVERED LOSS UNDER THE BOND, THERE IS NO COVERAGE FOR
COURT COSTS AND ATTORNEYS’ FEES.” Id. Therefore, the district
court could not have reasonably interpreted Gulf’s summary judgment
costs and attorneys’ fees argument as an argument that Brady
National had to be an actual “defendant” in order to recover those
costs and fees even if the loss in this case was a covered loss.
That Gulf’s Rule 59(e) motion conceded the award of court costs and
attorney’s fees sought by Brady National with the exception of the
$35,515.55 incurred in the conspiracy action against Stearns’
former law firm in the event that the district court did not alter
its prior coverage ruling reinforces our conclusion.
“Although we can affirm a summary judgment on grounds not
relied on by the district court, those grounds must at least have
been proposed or asserted in that court by the movant." Johnson v.
Sawyer, 120 F.3d 1307, 1316 (5th Cir. 1997); see also FDIC v.
Laguarata, 939 F.2d 1231, 1240 (5th Cir. 1991)(refusing to affirm
summary judgment on grounds “neither raised below ... nor even
raised sua sponte by the district court”). In this case, Gulf did
not assert its appellate argument regarding court costs and

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9Additionally, the substantive law of Texas does not apply to
resolve this procedural question in this diversity case. See Exxon
Corp. v. Burglin, 42 F.3d 948, 950 (5th Cir. 1995)(citing Erie R.R.
v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938)).
20
attorneys’ fees as to the $448,864.29 before the district court.
Arguments not raised in district court are waived, because this
court does not hear arguments raised for the first time on appeal.
See Forbush v. J.C. Penny Co., 98 F.3d 817, 822 (5th Cir. 1996).
Gulf argues that under the rule set forth in Republic Ins. Co.
v. Silverton Elevators., Inc., 493 S.W. 2d 748 (Tex. 1973), waiver
cannot be applied to an insurer seeking to contest coverage, and
thus Gulf is immune from our procedurally based waiver ruling. But
that rule regarding waiver in Republic Insurance relied on caselaw
holding that an insurer does not waive its defenses to coverage by
prematurely or erroneously paying benefits. See id. Hence, we do
not read the rule in Republic Insurance to confer upon insurers any
immunity from procedurally based rulings.9
The only defense Gulf might raise to procedural waiver in this
circumstance is that the waiver will result in a “manifest
injustice.” See Jackson v. United States Postal Service, 666 F.2d
258, 260-61 (5th Cir.1982); West India Indus., Inc. v. Tradex, 664
F.2d 946, 951-52 (5th Cir. 1981). But Gulf has not articulated any
argument that adherence to the general procedural rule will result
in a manifest injustice and we do not believe waiver here will

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21
result in any injustice. It is undisputed that Brady National was
a defendant in the investors’ lawsuit, and the record shows that
Brady National had to file a defense in order to challenge the
government’s forfeiture petition. Thus, because Gulf’s second
appellate argument challenging the award of $448,864.29 in court
costs and attorney’s fees incurred in the forfeiture and investor
lawsuits was not raised before the district court, it is waived on
appeal. Therefore, we affirm the district court’s summary judgment
imposing those court costs and attorneys’ fees.
It is undisputed, however, that Gulf properly raised in its
Rule 59(e) motion the argument that the Bond did not provide
coverage for the $35,515.55 in costs and attorneys’ fees incurred
by Brady National in its intervention. The district court denied
Gulf’s Rule 59(e) motion on this point without discussion. We
review de novo, as questions of law, alleged errors in contract and
insurance policy interpretation. See T.L. James & Co., Inc. v.
Traylor Bros., Inc., 294 F.3d 743 (5th Cir. 2002); Performance
Autoplex II LTD v. Mid-Continental Casualty Co., 322 F.3d 847, 853
(5th Cir. 2003)(internal citations omitted).
We agree with Gulf that the Bond’s “Costs and Attorneys’ Fees”
provision can not reasonably be interpreted to cover Brady
National’s costs and fees associated with its intervention in the
state civil conspiracy action. The Bond provision affords coverage

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22
for Brady National’s “liability or alleged liability. . .for any
loss, claim or damage, which would constitute a valid and
collectible loss under” the Bond. Thus, the Bond provision does
not afford coverage for the $35,515.55 in costs and attorneys’ fees
because they were incurred by Brady National in an action for
damages against another rather than defending against a claim by a
third party seeking to hold Brady National liable for that party’s
loss. Therefore we find that the district court’s award of
$35,515.55 in costs and attorneys’ fees incurred in asserting a
claim for conspiracy to defraud is in error. Accordingly, we
reverse the district court’s grant of summary judgment to Brady
National and denial of Gulf’s Rule 59(e) request to modify the
final judgment with regard to these specific costs and fees.
VI. CONCLUSION
Because we have concluded that the term “stolen” is ambiguous
as it is used in the “Securities” provision, and that a reasonable
interpretation of that term could encompass coverage for losses
sustained resulting from the “stolen” CDs in this case, we find no
error in the district court’s grant of summary judgment in favor of
Brady National for the $800,801.40 loss resulting from the CDs. We
also find no error in the district court’s grant of summary
judgment in favor of Brady National for $448,864.29 in costs and
attorneys’ fees resulting from the forfeiture action and investors’

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lawsuit. Accordingly, we affirm the summary judgment favoring
Brady National against Gulf for recovery with respect to Brady
National’s loss relating to the stolen CDs and Brady National’s
costs and attorneys’ fees relating to the forfeiture action and the
investors’ lawsuit. Because we conclude that the “Court Costs and
Attorneys’ Fees” provision of the Bond does not afford coverage for
the $35,515.55 in costs and attorneys’ fees Brady National incurred
as an intervener in the conspiracy to defraud lawsuit against
Stearns’ former law firm, we reverse the summary judgment for Brady
National against Gulf and render summary judgment in favor of Gulf
on this part of the case.
AFFIRMED in part; REVERSED in part; and RENDERED

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