⚖ Oral Arguments, with Context

The United States Court of Appeals for the Fifth Circuit hears oral argument in Carpenter versus Twin City Fire Insurance Company. The core legal issue is whether an employment practices liability insurance policy, known as an EPLI policy, covers a judgment that Carpenter obtained against his former employer for breach of a contractual agreement to pay bonus compensation. An employment practices liability policy is the coverage an employer buys for claims like wrongful termination, discrimination, and harassment. Twin City Fire provided a defense to the employer but denies coverage for the judgment itself. A liability policy can create two separate obligations: a duty to defend, which is paying for the insured's lawyers, and a duty to indemnify, which is paying the judgment. Texas law governs this policy, and under Texas law those are distinct duties, with the duty to defend the broader of the two, so an insurer can owe a defense in a case where it ends up owing nothing on the judgment. Twin City paid for the defense; what it disputes is indemnity, and it argues that two provisions of the policy bar it. The first is a definition in the policy's grant of coverage: the term "loss" is defined to exclude salaries, wages, or bonuses, except as a component of a front or back pay award. The second is an exclusion for employment termination severance payments. The underlying facts involve a company that was selling its assets and wanted key employees, including Carpenter, to stay through the transaction. A Dallas County jury later found that Carpenter and his employer had agreed he would be paid three percent of the asset sale revenue to the sellers, less normal closing costs and less the sale proceeds bonuses paid to other employees, if he stayed as long as needed to help make the sale happen. When the sale closed, Carpenter was not paid. He sued for breach of contract, won a jury verdict, and a Texas appeals court affirmed the judgment. That judgment exceeded the limits of the policy. Carpenter had offered to settle within the limits and Twin City had refused, so the court in the employment case assigned the employer's failure-to-settle claim against the insurer to Carpenter, and Carpenter brought this suit. The district court granted Carpenter summary judgment, holding the disputed policy language ambiguous and adopting the insured's reading. Twin City appeals.

Carpenter v. Twin City Fire (No. 25-10679) — U.S. Court of Appeals for the Fifth Circuit, argued August 3, 2026.