Opinion issued March 31, 2011. In The Court of Appeals For The First District of Texas ———————————— NO. 01-10-00271-CV ——————————— COMMERCE & INDUSTRY INSURANCE COMPANY, Appellant V. KIMBERLY FERGUSON-STEWART, BENEFICIARY TO BRUCE STEWART, DECEASED, Appellee On Appeal from the 133rd District Court Harris County, Texas Trial Court Case No. 2006-45381 O P I N I O N This appeal arises from a worker’s compensation case involving an injury to Bruce Stewart, deceased. After trial, the trial court entered judgment on the jury findings supporting the workers’ compensation award and also awarded attorneys’ 2 fees in favor of Kimberly Ferguson-Stewart, Stewart’s beneficiary. On appeal, CIIC challenges the trial court’s exclusion of evidence showing Stewart’s history of prescription pain medication use. CIIC also claims, based on Transcontinental Insurance Co. v. Crump, 330 S.W.3d 211 (Tex. 2010), that Stewart waived her right to recover the fees by trying the reasonableness and necessity of those fees to the bench rather than the jury. We hold that the trial court did not abuse its discretion in excluding certain evidence of Stewart’s prescription drug use. We further hold that, under Crump, CIIC was entitled to have jury findings on the attorneys’ fees issues. We therefore reverse the attorneys’ fee award in light of the change in law occasioned by Crump and remand that issue to the trial court for a jury trial. Background On May 25, 2004, Stewart reported an on-the-job injury in which he sustained injuries when a large bolt fell from above, striking him on the neck and shoulder. No one witnessed the accident. Stewart went to the emergency room, where he received medical treatment and a prescription for pain medication. Stewart attempted to return to work, but the medication’s side effects made him unable to do so. After exhausting its administrative remedies, CIIC sought judicial review of the findings that Bruce Stewart (1) sustained an injury in the course and scope of 3 employment on May 25, 2004, and (2) sustained disability from June 2, 2004 through September 21, 2004.1 The jury returned a verdict against CIIC, and the trial court entered judgment on the verdict. The trial court also entered an order granting Ferguson-Stewart’s motion for approval of attorneys’ fees, finding that the fees she incurred were reasonable and necessary. Discussion I. Workers’ Compensation Act Appeals The Texas Supreme Court has held that a Texas Workers’ Compensation Commission (TWCC) Appeals Panel’s final decision may be appealed to the courts under a ―modified de novo review.‖ Texas Workers’ Compensation Comm’n v. Garcia, 893 S.W.2d 504, 530 (Tex. 1995). Under this modified de novo review, all issues regarding compensability of the injury may be tried by the jury or court. Id. at 528; see TEX. LAB. CODE ANN. §§ 410.301, .304 (Vernon 2006). The court, although informed of the TWCC’s decision, is not required to accord it any particular weight. Garcia, 893 S.W.2d at at 515. The fact finder does not review the Appeals Panel’s decision for ―reasonableness,‖ but rather independently decides the issues by a preponderance of the evidence. Id. at 531. The party 1 Stewart died after the period of disability, but before the administrative proceedings had concluded. 4 appealing the TWCC’s ruling bears the burden of proof by a preponderance of the evidence. TEX. LAB. CODE ANN. § 410.303 (West 2006). II. Evidentiary challenge CIIC claims error in the trial court’s exclusion of: Medical records in which doctors described how Bruce Stewart engaged in drug-seeking behavior in connection with a prior work-related injury; Pharmacy records demonstrating that between 2001 and 2004, Bruce Stewart received prescriptions from four different physicians for, among other drugs, hydrocodone’ The DWC’s unredacted order granting benefits in this case, which recites that Bruce Stewart’s death resulted from hydrocodone toxicity; and Testimony from Bruce Stewart’s treating physician that Stewart’s ingestion of hydrocodone in excess of the prescribed amount did not comply with his treatment plan. We review a trial court’s decision to exclude testimony under an abuse of discretion standard. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 906 (Tex. 2000). The test for abuse of discretion is whether the trial court acted without reference to any guiding rules and principles. C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d 768, 798 (Tex. App.—Houston [1st Dist.] 2004, no pet.). We must uphold an evidentiary ruling if there is any legitimate basis for it. Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998). Even if the trial court erred in its evidentiary ruling, we reverse only if the error probably 5 caused the rendition of an improper judgment. Auld, 34 S.W.3d at 906; see TEX. R. APP. P. 81(b)(1). The record shows that CIIC, invoking Texas Rule of Evidence 402, sought to admit this evidence on general relevance grounds and for purposes of impeachment. See TEX. R. EVID. 402. Ferguson-Stewart objected to its admission on the grounds that the evidence was irrelevant or would have an unfairly prejudicial effect that would substantially outweigh any probative value. TEX. R. EVID. 401, 403. The workers’ compensation statute makes employees ineligible for benefits if they are intoxicated—by ingesting alcohol or other drugs—at the time of the injury. TEX. LAB. CODE ANN. § 406.032(a)(1) (West 2006) (providing that ―[a]n insurance carrier is not liable for compensation if the injury occurred while the employee was in a state of intoxication.‖); see Tex. Mut. Ins. Co. v. Havard, No. 01-07-00268-CV, 2008 WL 598347 (Tex. App.—Houston [1st Dist.] Mar. 6, 2008, no pet.) (mem. op.). CIIC did not raise intoxication as a defense in the administrative proceeding. When CIIC proffered the evidence to the trial court, Ferguson-Stewart responded that Bruce Stewart may have failed a past drug screen, but the fact is when he went back to work there, he passed the drug screen to start working, and then after the accident he passed another one. So the fact that he ever failed one before wouldn’t be relevant. 6 CIIC contends that the proffered evidence is relevant for the purposes of impeachment because it identifies a possible motive for Bruce Stewart to falsify or fabricate a worker’s compensation claim. Texas courts have consistently upheld the exclusion of evidence of a witness’s prior drug use for general impeachment purposes. See TEX. R. EVID. 608(b) (prohibiting use of ―specific instances of conduct of a witness, for the purpose of attacking or supporting the witness’[s] credibility, other than conviction of crime . . .‖); Lagrone v. State, 942 S.W.2d 602, 612 (Tex. Crim. App. 1997) (noting that, in adopting Rule 608(b), Texas courts ―implicitly abolished the impeachment of witnesses with evidence of drug addiction‖). Any connection between Bruce Stewart’s use of prescription pain medication and his worker’s compensation claim rests on speculation.2 The record thus supports the trial court’s exercise of discretion in excluding the evidence on the grounds that the danger of unfair prejudice substantially outweighed the evidence’s probative value. TEX. R. EVID. 403. 2 In particular, CIIC points to evidence that Stewart expressed his intent to ask for prescription pain medication to replace over-the-counter ibuprofen recommended by the doctor if he ―start[ed] hurting‖ and called for the prescription two hours later. This evidence equally supports an inference that Stewart needed stronger medication to combat his pain. See Lozano v. Lozano, 52 S.W.3d 141, 148 (Tex. 2001). The trial court was within its discretion to exclude this evidence, given the issues the jury was to decide. 7 III. Attorneys’ fees Under section 408.221(c) of the Labor Code, an insurance carrier that seeks judicial review of an appeals panel decision is liable for a claimant’s reasonable and necessary attorneys’ fees as a result of the appeal if the claimant prevails on an issue on which the carrier seeks judicial review. See TEX. LAB. CODE ANN. § 408.221(c) (West 2006). In her answer, Ferguson-Stewart pleaded for reasonable and necessary attorneys’ fees and expenses ―[u]nder Chapter 408, Subchapter L, § 408.221(c) of the Texas Labor Code.‖ We first address CIIC’s contention that Ferguson-Stewart failed to plead for attorneys’ fees. In Texas, a pleading must give fair and adequate notice to the opposing party sufficient to prepare a defense. Hagberg v. City of Pasadena, 224 S.W.3d 477, 482 (Tex. App.—Houston [1st Dist.] 2007, no pet.). Where the opposing party fails to use special exceptions to identify alleged defects in a pleading, we construe the pleadings liberally in favor of the pleader. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 897 (Tex. 2000). CIIC asserts that, by identifying some of her named attorneys in her fee request but not others, Ferguson-Stewart limited her recovery to the fees she incurred in connection with the named attorneys’ representation only. The pleading, however, contains no such exclusive language, and CIIC did not specially except to Ferguson-Stewart’s pleadings on that ground. We hold that 8 Ferguson-Stewart’s pleading gave CIIC fair and adequate notice of her intent to seek recovery of all reasonable and necessary attorneys’ fees she incurred in her defense. In its main contention on this issue, CIIC claims that Ferguson-Stewart waived her right to recover attorneys’ fees because she failed to secure jury findings on the reasonableness and necessity of the fees, instead submitting the fee request to the trial court in a post-trial motion. CIIC relies on Transcontinental Insurance Co. v. Crump, decided after the conclusion of trial in this case, in which the Texas Supreme Court held that ―an insurance carrier is entitled to have a jury determine the disputed amount of reasonable and necessary fees for which it is liable under 408.221(c).‖ 330 S.W.3d 211, 232 (Tex. 2010). We agree that, in light of Crump, CIIC was entitled to jury findings on fees. Thus, we hold that the attorneys’ fees award must be reversed. CIIC states that we must go further—and render judgment in its favor upon our reversal—because Ferguson-Stewart waived her claim for fees by failing to secure jury findings in its support. We disagree. The trial court’s order recites that it held a hearing on the reasonableness and necessity of Ferguson-Stewart’s attorneys’ fees, and the trial court found that the fees incurred were reasonable and necessary.3 Ferguson- 3 The reporter’s record does not include this hearing, and CIIC does not challenge the legal sufficiency of the evidence before the trial court on the reasonableness and necessity of Ferguson-Stewart’s attorneys’ fees. We presume the evidence 9 Stewart pursued her claim for fees and obtained findings, albeit from the incorrect factfinder. When a party produces some evidence of fees, and the trial court errs in determining them, remand is appropriate. Cf. Tony Gullo Motors v. Chapa, 212 S.W.3d 299, 314–15 (Tex. 2006) (holding that plaintiff did not waive her request for attorney’s fees by failing to segregate recoverable fees from unrecoverable ones and remanding for new trial on issue); Lubbock Cnty. v. Strube, 953 S.W.2d 847, 858 (Tex. App.—Austin 1997, pet. denied) (remanding for new trial on attorney’s fees issue). Remand for a jury trial is appropriate when a trial court improperly fails to heed the request for a jury. See Gen. Motors Corp. v. Gayle, 951 S.W.2d 469, 477 (Tex. 1997) (instructing trial court to conduct jury trial where trial court refused to empanel a jury). The remedy here is not a judgment on the merits, but instead a trial before the appropriate fact finder. Unlike most fee-shifting statutes, which allow, but do not require, a prevailing party to recover attorneys’ fees, the provision applicable to this proceeding makes the insurer liable for the claimant’s fees when the insurer seeks judicial review of compensability or eligibility issues and the claimant prevails. Compare TEX. CIV. PRAC. & REM. CODE ANN. § 38.001 (providing that ―a person may recover reasonable attorneys’ fees from an presented at the hearing supports the trial court’s ruling. See TEX. R. APP. P. 34.6(c); Mason v. Our Lady Star of Sea Catholic Church, 154 S.W.3d 816, 819 (Tex. App.—Houston [14th Dist.] 2005, no pet). 10 individual or corporation . . .‖) with TEX. LAB. CODE ANN. § 408.221(c) (providing that ―an insurance carrier that seeks judicial review . . . of a final decision of the appeals panel regarding compensability or eligibility for, or the amount of, income or death benefits is liable for reasonable and necessary attorney’s fees . . . incurred by the claimant . . . if the claimant prevails on an issue on which judicial review is sought by the insurance carrier‖) (emphasis added). The supreme court’s analysis in Crump shows that its conclusion was not an obvious one. As the court observed, section 408.221 not only ―is silent on the critical judge-or-jury question,‖ but is also ambiguous, reasonably supporting conflicting conclusions on the issue. Id. at 229. The court also noted that, before the fee-shifting provision was added in 2001, the trial court, ―without the aid of a jury,‖ determined the amount of fees that a claimant’s attorney could recover. Id. at 229–30. We reverse the award of attorneys’ fees contained in the judgment and remand the issue of attorneys’ fees for jury trial. Conclusion We hold that the trial court did not abuse its discretion in excluding the evidence of Bruce Stewart’s history of prescription drug use. Following Crump, 11 we also reverse the award of attorneys’ fees contained in the judgment and remand the issue of Ferguson-Stewart’s attorneys’ fees for trial. We affirm the remainder of the judgment. Jane Bland Justice Panel consists of Chief Justice Radack and Justices Alcala and Bland.
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Court of Appeals Ninth District of Texas at Beaumont
____________________ NO. 09-06-305 CV
____________________ LIBERTY MUTUAL INSURANCE CO., Appellant
MARIO CAMACHO, Appellee On Appeal from the 359th District Court
Montgomery County, Texas
Trial Cause No. 01-10-06715-CV
We resolve two principal questions in this appeal. First, we determine if the evidence in this workers’ compensation case is legally sufficient to support the jury’s finding that Mario Camacho suffered a skull injury. Second, we decide whether the trial court improperly instructed the jury to give the decision of the Texas Workers’ Compensation Commission no special weight. We answer both questions in the affirmative and reverse and remand the case for a new trial.
TRIAL TESTIMONY AND VERDICT
Camacho was a rancher with more than twenty years’ experience at the time of his injury and a long-term employee of JMR Ranching. In September 1991, Camacho’s horse reared up and struck him in the face. He fell from the horse to the ground. Selma Steele, co-owner of the ranch, received a telephone call about Camacho’s accident and arrived at the scene shortly thereafter. When she arrived, Camacho “had a big knot on his head and a knot over the left eye and his nose was bleeding.” While on the way to Steele’s home in her car, Camacho fell over and appeared to have gone to sleep. Steele took Camacho to the hospital. Camacho was initially treated at the Tomball Regional Hospital Emergency Room. Dr. John Sanders, the emergency room physician, diagnosed Camacho as having suffered a concussion. Dr. Sanders ordered the following tests: (1) a CT scan of the head, without contrast, which was reported as normal; (2) a bone scan, which was reported as normal with the exception of degenerative changes in the cervical spine; (3) an x-ray of the nasal bones, which was reported as showing no evidence of fracture; and (4) an x-ray of the cervical spine, which was reported as showing no acute fracture.
Dr. Susan Garrison, a physician certified by the American Board of Physical Medicine and Rehabilitation, reviewed Camacho’s records at Liberty Mutual’s request in 2005 in order to address whether Camacho suffered a skull injury due to his 1991 fall. Dr. Garrison, the only medical doctor to testify at trial, stated that Camacho’s tests, x-rays, bone scans, and CT scans showed “no evidence of injury to the skull as a result of that accident.” In her opinion, Camacho had a closed head injury but he “did not have an injury to the skull.” Dr. Garrison clarified that her opinions were based upon the reports of the tests administered at Tomball Regional because the actual films of the tests had been destroyed by the hospital. Dr. Garrison further testified that because the bone scan was done with contrast material, if Camacho had suffered a bone bruise of the skull, the test “would have lighted up, and it didn’t light up.” Dr. Garrison did not see or treat Camacho.
Dr. Richard Pollock, a neuropsychologist, testified that he began treating Camacho in 1994. According to Dr. Pollock, Camacho’s hospital records reflected that he suffered a closed head injury in the accident. Dr. Pollock categorized Camacho as an incurable imbecile and testified that Camacho’s condition was permanent. Dr. Pollock also opined that Camacho “is not capable of living independently.”
Camacho testified at trial regarding the effects of his injury on his ability to work and to engage in daily activities of living. He did not testify about how his injury occurred.
At the conclusion of the trial, the trial court submitted one issue to the jury accompanied by instructions. The court submitted the following instructions pertinent to this appeal:
You are instructed that the Texas Workers’ Compensation Commission Appeals found that the Plaintiff did not sustain an injury to the skull that resulted in incurable imbecility. The party dissatisfied with the decision of the Appeals Panel may file suit in District Court for Judicial Review. The decisions of the Texas Workers’ Compensation Commission are to be given no special weight. You, as jurors, decide the weight and credibility of the evidence submitted before you. The jury returned its verdict, finding that Camacho “sustained an injury to his skull that resulted in incurable imbecility.” Subsequently, the trial court awarded Camacho lifetime income benefits in accordance with the jury’s verdict.
SKULL INJURY ISSUE
Liberty Mutual contends that Camacho failed to present legally sufficient evidence establishing that he suffered a skull injury. Although at trial it challenged whether Camacho’s injury caused his imbecility, on appeal, Liberty Mutual does not challenge that aspect of the jury’s finding. Rather, Liberty Mutual argues that the lifetime benefits provision required Camacho to prove an injury to the bones of his skull in order to recover lifetime benefits. The statutory language in effect at the time of Camacho’s injury provided, in pertinent part:
(a) Income benefits shall be paid until the death of the employee for:
. . . .
(6) an injury to the skull resulting in incurable insanity or imbecility.
Act of Dec. 12, 1989, 71st Leg., 2d C.S., ch. 1 § 4.31, 1989 Tex. Gen. Laws 42 (amended 1997) (current version at Tex. Lab. Code Ann. § 408.161(6) (Vernon 2006)).
Liberty Mutual contends that an injury to the “skull” is an absolute requirement under the version of the statute at issue, and that a brain or head injury, without a skull injury, is insufficient. (1) In support of its argument, Liberty Mutual cites Barchus v. State Farm Fire & Casualty Co., 167 S.W.3d 575 (Tex. App.-Houston [14th Dist.] 2005, pet. denied), and asserts that the Fourteenth Court of Appeals decided that the statute at issue requires an injury to the skull. However, in Barchus, the trial court’s finding that Barchus had sustained an injury to his skull was not challenged on appeal. Id. at 580. Rather, the issue addressed was whether the Compensation Act required the claimant to prove that his skull had been fractured in order to receive lifetime income benefits. See id. In contrast, the case before us requires that we interpret the statute’s meaning in its use of the term “skull” in order to determine whether a blow to the head, which results in imbecility, fulfills the requirements of the statute.
Standard of Review
The jury found that Camacho sustained an injury to his skull that resulted in incurable imbecility. Because Camacho’s claim was denied at the administrative level, Camacho had the burden to prove by a preponderance of the evidence that he sustained an injury to his skull. Tex. Lab. Code Ann. § 410.303 (Vernon 2006). In reviewing a jury verdict for legal sufficiency, we consider all of the evidence in the light most favorable to the prevailing party, “crediting favorable evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not.” City of Keller v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005); Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 285-86 (Tex. 1998). Thus, on this record we must credit favorable evidence for Camacho if reasonable jurors could, and disregard evidence contrary to the jury’s finding that Camacho suffered a skull injury, unless reasonable jurors could not.
To resolve this appeal, we must determine whether a severe blow to the head causing bruising and a concussion that renders an employee an imbecile constitutes a skull injury for purposes of the lifetime benefits provision of the Workers’ Compensation Act. See Act of Dec. 12, 1989, 71st Leg., 2d C.S., ch. 1 § 4.31, 1989 Tex. Gen. Laws 42 (amended 1997). The Act has never defined the term “skull.” See id.; see also Tex. Lab. Code Ann. § 401.011(Vernon 2006).
A court’s objective in construing a statute is to “determine and give effect to the Legislature’s intent.” Nat’l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000). When the meaning of a word in a statute is not ambiguous, we ordinarily give the word its common meaning. Id.; Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865 (Tex. 1999). In ascertaining legislative intent, our review is not confined to isolated words, phrases, or clauses; rather, we examine the entire act. Meritor Auto., Inc. v. Ruan Leasing Co., 44 S.W.3d 86, 90 (Tex. 2001); see Tex. Gov’t Code Ann. § 311.011(a) (Vernon 2005) (instructing courts to construe words and phrases in context).
The Code Construction Act lists factors that may be considered in construing a statute, whether or not the statute is ambiguous on its face. Tex. Gov’t Code Ann. § 311.023 (Vernon 2005). These factors include, among other things, (1) the statute’s objectives; (2) the circumstances under which the statute was enacted; (3) the statute’s legislative history; (4) common law, former law, and similar provisions; (5) the consequences of the statutory construction; and (6) administrative construction of the statute. Id. § 311.023(1)-(6); In re Canales, 52 S.W.3d 698, 702 (Tex. 2001). We also presume that the Legislature intended a just and reasonable result. Tex. Gov’t Code Ann. § 311.021(3) (Vernon 2005); Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 493 (Tex. 2001).
Commonly used dictionaries assist in determining a word’s common use. See generally Powell v. Stover, 165 S.W.3d 322, 326 (Tex. 2005); Tex. Dep’t of Protective & Regulatory Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 196 (Tex. 2004). One dictionary defines “skull” to mean:
1 a: the skeleton of the head of a vertebrate : the bony or cartilaginous case or framework that encloses and protects the brain and chief sense organs, supports the jaws, . . . and consists of the cranium, the bony capsules of the nose, ear, and eye, and the jaws b: the cranium together with those bones that are immovably fused with it (as the mammalian upper jaw) 2 : the seat of understanding or intelligence : MIND . . . .
Webster’s Third New International Dictionary 2135 (2002). In construing a statute, we are also required to examine the context of the statute and the Legislature’s intent. The context of the statute at issue does not limit itself to injuries to the bones of the skull; in fact, an injury to the bones of the skull that did not result in imbecility would not result in the award of lifetime income benefits. Thus, the statute appears to be triggered by two events: a blow to the head and an injury to the brain that results in imbecility or insanity. Thus, the context of the statute supports defining the term “skull” in a manner that includes a blow to the head that causes imbecility.
“The primary purpose of the Texas Workers’ Compensation Act is to benefit and protect injured employees.” Barchus, 167 S.W.3d at 578. If we accepted Liberty Mutual’s contention regarding the meaning of the word “skull,” imbeciles receiving a fracture or bone bruise would receive lifetime benefits, while imbeciles whose skulls had been harmed by a blow but who had no demonstrable bone injury would not. Since the purpose of the statute is to benefit and protect injured workers, and because both of these classes suffer from severe, permanent, and disabling injuries, it appears more consistent with the purposes of the Act to apply the broader definition of the term “skull” to allow the recovery of lifetime benefits to both classes of injured employees. “It is well settled that the Workers’ Compensation Act should be liberally construed in favor of the worker.” Lujan v. Houston Gen. Ins. Co., 756 S.W.2d 295, 297 (Tex. 1988) (citing Hargrove v. Trinity Universal Ins. Co., 152 Tex. 243, 245, 256 S.W.2d 73, 75 (1953)). Construing the term “skull” to require an injury to the bones of the skull, as opposed to an injury to “the seat of understanding,” would not protect workers who receive severe blows to the head but who do not suffer a skull fracture or other identifiable injury to the bones of the skull.
Liberty Mutual argues that we should utilize the more narrow definition of the term “skull” used by the Texas Workers’ Compensation Commission. While we generally consider an administrative agency’s interpretation of a term, it is not binding and carries no presumption of validity. Barchus, 167 S.W.3d at 578. The Barchus court stated: “To the extent the Commission has concluded that a claimant must show evidence that he fractured his skull to be entitled to [lifetime income benefits], we find that such conclusion is inconsistent with the plain language of the statute.” Id. at 580. We agree that adopting a narrow definition of “skull injury” that would require evidence of skeletal damage is inconsistent with the Legislature’s intent to compensate for life severely injured employees who are injured directly by a blow to their head. See id.
Finally, we note that the lifetime benefits provision at issue requires proof of an “injury” to the skull. Act of Dec. 12, 1989, 71st Leg., 2d C.S., ch. 1 § 4.31, 1989 Tex. Gen. Laws 42 (amended 1997). The term “injury” was broadly defined as “damage or harm to the physical structure of the body and those diseases or infections naturally resulting from the damage or harm.” Id., 1989 Tex. Gen. Laws 3 (see current version at Tex. Lab. Code Ann. § 401.011(26) (Vernon 2006) wherein the term is similarly defined). In this case, it was not disputed that Camacho suffered a closed head injury. A blow to the head that causes bruising and unconsciousness and results in a diagnosis of a closed head injury is, in our opinion, sufficient harm to the skull to meet this statute’s requirement of a skull injury. Therefore, we overrule Liberty Mutual’s legal sufficiency challenge to the jury’s finding that Camacho sustained a skull injury. Issue one is overruled.
In issue three, Liberty Mutual asserts that the trial judge improperly instructed the jury to “give no special weight” to the decision of the Texas Workers’ Compensation Commission. Camacho responds that the trial court’s instruction “was a correct statement of the law.” We review whether a trial court erred in giving a jury instruction under an abuse of discretion standard. Tex. Dep’t of Human Servs. v. E.B., 802 S.W.2d 647, 649 (Tex. 1990).
In jury trials, the Workers’ Compensation Act requires the trial court to inform the jury “of the appeals panel decision on each disputed issue . . . that is submitted to the jury.” Tex. Lab. Code Ann. § 410.304(a) (Vernon 2006). Following the Legislature’s enactment of the Act, the Texas Supreme Court in Texas Workers’ Compensation Commission v. Garcia, 893 S.W.2d 504, 528 (Tex. 1995), rejected a challenge to the constitutionality of this particular provision of the Act. The Supreme Court stated:
The Act does specify certain limiting procedures not found in a pure trial de novo. First, the jury is informed of the Commission’s decision. Because the jury is not required to accord that decision any particular weight, however, this procedure does not impinge on the jury’s discretion in deciding the relevant factual issues. We hold that this procedure does not violate a claimant’s right to trial by jury.
Id. The Supreme Court stated that the jury is not required to give the decision any “particular weight;” however, the Court did not affirmatively direct that juries are to give appeals-panel decisions “no special weight.” Id. Further, the Supreme Court did not direct trial courts to give an instruction to the jury regarding the weight, or lack thereof, of the appeals-panel’s decision. Id.
The Supreme Court’s language in Garcia suggests that a juror is free to give the appeals-panel decision no weight, some weight, or significant weight, depending on that particular juror’s view of the evidence. See id. Although the jury is not bound to follow the appeals-panel decision, it may give it weight if it so chooses. In this case, however, by affirmatively instructing the jury to give the decision “no special weight,” the jurors were instructed to all but disregard the decision of the appeals-panel. There is a material difference between an instruction that leaves the jury free to accord the decision of the appeals-panel the weight the jury thinks it deserves, and an instruction that tells the jury to discount, if not disregard, the decision. Lemos v. Montez, 680 S.W.2d 798, 801 (Tex. 1984) (“There is a material difference between an instruction that the happening ‘is not’ negligence and an instruction that the happening ‘does not necessarily imply’ negligence.”). “The jury does not need either instruction. This court has treated addenda to the charge as impermissible comments that tilt or nudge the jury one way or the other.” Id.
An instruction by a trial court that misstates the law or misleads the jury is improper. Steak & Ale of Tex., Inc. v. Borneman, 62 S.W.3d 898, 905 (Tex. App.-Fort Worth 2001, no pet.) (citing Jackson v. Fontaine’s Clinics, Inc., 499 S.W.2d 87, 90 (Tex. 1973)). “A requested instruction that is affirmatively incorrect is not ‘substantially correct’ as that term is used in Rule 278’s requirement that proposed questions and instructions be substantially correct.” Baylor Univ. v. Coley, 50 Tex. Sup. Ct. J. 621, 2007 WL 1162489, at *7 (Tex. April 20, 2007) (Johnson, J., concurring). Moreover, the Rules of Civil Procedure prohibit the trial court from making a “comment directly on the weight of the evidence” in its jury charge. See Tex. R. Civ. P. 277.
In some instances, it is error for the trial court to give the jury an instruction even when it is a substantially correct statement of the law. For example, in Acord v. General Motors Corporation, 669 S.W.2d 111 (Tex. 1984), the Supreme Court reversed a jury verdict based on charge error when the trial court instructed the jury that a manufacturer is not an insurer of the product it designs. 669 S.W.2d at 113, 116. Although the instruction was a correct statement of law, the Supreme Court found harmful error and said: “In a closely contested case as is the one at bar, to single out for the jury that General Motors was neither an insurer nor a guarantor of a perfect or accident-proof product, which incorporated ultimate safety features, was a comment on the case as a whole. As such, it constituted harmful error.” Id. at 116.
We hold that the instruction submitted by the trial court in this case constituted an impermissible comment that tilted or nudged the jury’s consideration of the decision of the appeals-panel. The instruction to the jury singled out one piece of evidence admitted at trial, and implied that the jury should treat the appeals-panel decision differently than it was to treat the other evidence admitted at trial; in that way, the instruction served to comment on the case as a whole. We further hold that the instruction the trial court submitted was not a substantially correct statement of law. For these two reasons, we conclude the trial court erred in instructing the jury to give the appeals-panel decision “no special weight.”
In cases involving an incorrect jury instruction, an appeals court reverses only if the instruction “‘was reasonably calculated to and probably did cause the rendition of an improper judgment.'” Bed, Bath & Beyond, Inc. v. Urista, 211 S.W.3d 753, 757 (Tex. 2006) (quoting Reinhart v. Young, 906 S.W.2d 471, 473 (Tex. 1995)). We examine the entire record to evaluate whether the instruction probably caused the rendition of an improper verdict. Id.
The appeals-panel decision involved both the issue of Camacho’s injury and the issue of his imbecility. The issue at trial regarding Camacho’s imbecility was closely contested. Dr. Garrison testified that Camacho was not an imbecile. The jury also heard Dr. Pollock’s testimony that Camacho’s testing showed that he functioned below a first grade level and that he had an IQ score in the upper 60’s. Dr. Pollock additionally testified that Camacho was not capable of independent living because of his severe cognitive impairment and that he functioned at an imbecilic level. However, Dr. Pollock acknowledged that the records of another neuropsychologist contained a contrary opinion that Camacho did not suffer from incurable imbecility. Liberty Mutual’s evidence also included a letter from Dr. Francisco Perez, a neuropsychologist. Dr. Perez’s letter states, “I don’t believe there is any evidence of a cerebral dysfunction or any sequela from a head injury.” The record also contains a report by Dr. Jeremiah Twomey, who practices occupational medicine, in which he opined, “I do not feel that the records I reviewed qualify him for lifetime benefits on the basis of psychological impairment to the level of imbecility.” Finally, the report of Dr. John Cassidy, a psychiatrist, states: “This patient does not meet [the] criteria of statute 408.161 (a) (6) of the TWCC Act for incurable insanity or imbecility.”
Camacho also addressed his physical limitations during his testimony at trial. Camacho testified that he continued to drive on the ranch, but not in the city, and that he could no longer train horses. Camacho indicated that he could bathe and dress himself, saddle and water horses, sometimes feed the cattle, load light things, participate in moving cattle from one pen to another, and assist in taking cattle to auctions.
The trial court instructed the jury that an imbecile was “a mentally deficient person, especially a feebleminded person having a mental age of three to seven years and requiring supervision in the performance of routine daily tasks or caring for himself.” From the above discussion, it is apparent that the evidence on whether Camacho functioned as an imbecile conflicted.
The purpose of instructing the jury on the decision of the appeals-panel distinguishes it from cases when courts have found general instructions to the jury improper, but nevertheless, harmless. See generally Urista, 211 S.W.3d at 756 (harmless error rule applied to improper submission of unavoidable accident instruction). In this case, the instruction regards a specific piece of evidence: the appeals-panel decision. Because the instruction applies to specific evidence, there is a danger that the jury may infer from the instruction given here, that the trial judge disagrees with the appeals-panel’s resolution of the dispute. Also, the instruction in Urista was a substantially correct statement of law; here, the instruction is not substantially correct. Finally, under Urista’s facts, it was unclear whether the instruction caused the jury to find as it did. See id. at 758. Here, the jury rejected Liberty Mutual’s case that was supported by evidence from several physicians while accepting Camacho’s case that relied on the testimony of one expert witness who was not a physician.
In conclusion, the jury was entitled to give the decision of the appeals-panel whatever weight it thought the decision deserved. The trial court’s instruction to give the decision “no special weight” was an incorrect statement of the law and served to nudge the jury toward responding affirmatively in deciding whether the injury resulted in incurable imbecility. We hold that the erroneous submission of the instruction at issue probably caused the rendition of an improper verdict.
In issues two, four and five, Liberty Mutual raises additional issues. Because reviewing these issues would afford Liberty Mutual no greater relief than the relief granted herein, we do not address these three issues. See Tex. R. App. P. 47.1. Because the trial judge improperly instructed the jury, we reverse the judgment and remand this cause for the purpose of a new trial.
REVERSED AND REMANDED.
Submitted on March 22, 2007
Opinion Delivered June 21, 2007
Before Gaultney, Kreger, and Horton, JJ.
1. In contrast, since 1997, the compensation statute provides for lifetime benefits for “a physically traumatic injury to the brain resulting in incurable insanity or imbecility.” Tex. Lab. Code Ann. § 408.161 (a)(6) (Vernon 2006).
Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Fort Worth, Texas civil litigation and work injury defense attorneys in Tarrant County who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.
PROGRESSIVE COUNTY MUTUAL INSURANCE COMPANY, Appellee.
April 23, 2009.
Chief Justice HEDGES and Justices ANDERSON and SEYMORE.
JOHN S. ANDERSON, Justice.
Appellant, Charles Hartland, filed suit against appellee, Progressive County Mutual Insurance Company, after the denial of an auto-insurance claim for a single-car accident. The jury found appellant did not mail the premium to renew the policy until after the policy had expired; therefore, appellant did not have insurance when the accident occurred. On appeal, appellant contends the parties formed a contract under the terms of the original renewal policy when appellee accepted his premium payment, and therefore, the policy cov-ered the accident. In addition, appellant argues appellee violated the Texas Administrative Code when it denied his claim. We affirm.
Factual and Procedural Background
Appellant, Charles Hartland, obtained auto insurance through appellee, Progressive County Mutual Insurance Company. Policy number 37156966-1 began on November 9, 2003, at 12:01 a.m. and ended on May 9, 2004, at 12:01 a.m. Appellee sent appellant a renewal bill on April 14, and a renewal reminder on April 23, stating the renewal policy period would run from May 9 to November 9. Appellant claimed he mailed a check in the amount of the renewal premium on May 8; appellee attached a lockbox report to its counter-claim for declaratory judgment showing the postmark date was May 11. Joan Hartland, appellant’s wife, was in a single-car accident on May 9, 2004 at approximately 8:00 a.m., damaging a car covered under the initial policy.
Appellee presented evidence that it received appellant’s check on May 16, and on May 18, appellee sent appellant a revised renewal declarations page. Policy number 37156966-2 listed coverage dates from May 12, 2004, at 12:01 a.m. to November 12, 2004, at 12:00 a.m., excluding coverage for the date of the accident. Appellant requested review by appellee of the denial of the claim. On August 6, appellee again denied the claim, stating the policy was not in effect at the time of the loss. On December 29, appellant’s attorney sent a letter asking appellee to reconsider; appellee denied the claim once again.
Appellant filed an original petition, alleging breach of contract, unfair claim-settlement practice, breach of duty of good faith and fair dealing, damages, and attorney fees. Appellee filed a counterclaim for declaratory judgment, stating it owed no duty or obligation to Hartland because the policy had expired. Appellee also filed a motion for summary judgment with the same contention as the declaratory judgment. The trial court denied the motion for summary judgment and the case went to trial. The jury answered “No” to the following question: “Do you find that Charles Hartland deposited his renewal policy premium payment with the post office on or before 12:01 a.m. on May 9, 2004?”Appellant then filed a motion for judgment notwithstanding the verdict and to disregard jury findings, arguing that even if he mailed his payment after the policy period ended, appellee formed a contract based on the original terms of the renewal by accepting his payment. The trial court denied appellant’s motion and entered final judgment on the verdict.
In three issues on appeal appellant contends the trial court erred when it denied appellant’s motion for judgment notwithstanding the verdict because: (1) the parties formed an enforceable contract as a matter of law; and (2) appellee violated sections of the Texas Administrative Code, making any attempts to restrict appellant’s coverage void.FN1Therefore, we will construe appellant’s three issues as actually raising two issues on appeal.
FN1. Appellant raised only the Administrative Code and has not based any assertion of error by the trial court on the provisions of the Texas Insurance Code. Therefore, we do not address what, if any, impact the Insurance Code might have on the facts found in this case. See Valadez v. Avitia. 238 S.W.3d 843, 845 (Tex.App.-El Paso 2007, no pet.)(holding that, in a civil case, an appellate court has no duty, or even the right to perform an independent review of the record and applicable law to determine whether there was error).
The Standard of Review
A court may disregard a jury’s verdict and render judgment notwithstanding the verdict (JNOV) if no evidence supports the jury’s findings, or if a directed verdict would have been proper. Tiller v. McClure, 121 S.W.3d 709, 713 ( Tex.2003). To determine whether a JNOV is appropriate, we apply the standards that govern “no evidence,” i.e., legal-sufficiency review. See Keller v. Wilson, 168 S.W.3d 802, 823 ( Tex.2005); Wal-Mart Stores, Inc. v. Miller, 102 S.W.3d 706, 709 ( Tex.2003).
A legal-sufficiency point must be sustained: (1) when there is a complete absence of a vital fact; (2) when rules of law or evidence preclude according weight to the only evidence offered to prove a vital fact; (3) when the evidence offered to prove a vital fact is no more than a scintilla; or (4) when the evidence conclusively establishes the opposite of the vital fact. Keller, 168 S.W.3d at 810. Under the legal-sufficiency standard, we must credit evidence that supports the judgment if reasonable jurors could, and we must disregard contrary evidence unless reasonable jurors could not. See id. at 827.If the evidence falls within the zone of reasonable disagreement, we may not invade the fact-finding role of the jurors, who alone determine the credibility of the witnesses, the weight to give their testimony, and whether to accept or reject all or any part of that testimony. See id. at 822.Unless “there is no favorable evidence” to support the challenged finding or “if contrary evidence renders supporting evidence incompetent … or conclusively es-tablishes the opposite” of the finding, we must affirm. See id. at 810-11.
Alleged Contract Formation
In his first issue, appellant argues that the jury’s answer to question one of the charge is immaterial because an enforceable contract exists as a matter of law. Specifically, appellant contends the parties formed a contract under the original terms of the renewal policy when appellee retained payment on the forfeited policy. Appellant raised this issue for the first time in his motion for judgment notwithstanding the verdict.
Appellee characterizes this argument as an affirmative defense of waiver and asserts that appellant cannot raise this argument on appeal because it must have been pleaded or tried by consent. Assuming without deciding that appellant has properly preserved his complaint on appeal, appellant’s first issue is without merit.
It is the general rule that a renewal of an insurance policy constitutes a separate and distinct contract for the period of time covered by the renewal. Zuniga v. Allstate Ins. Co., 693 S.W.2d 735, 738 (Tex.App.-San Antonio 1985, no writ). Any offer by the insurer to renew an insurance contract must be accepted by the insured completely and unequivocally to constitute a new contract. Viking County Mutual Ins. Co. v. Jones, No. 05-91-01815-CV, 1992 WL 211068, at *3 (Tex.App.-Dallas August 31, 1992, no writ) (not designated for publication). The payment of the premium in accordance with provisions of the insurance policy is a condition precedent to establishment of liability against the insurer. Id. The policy in this case states:
If we offer to renew or continue and you or your representative do not accept, this policy will automatically terminate at the end of the current policy period. Failure to pay the required renewal or continuation premium when due shall mean that you have not accepted our offer.
The renewal notice and bill sent by appellee provided the following payment instructions to appellant: “To renew your policy, please pay at least the minimum amount due by the due date.”The jury found that appellant did not pay his premium on time. Because appellant failed to timely pay the renewal premium, the condition for acceptance of the renewal policy was not met and the policy did not begin, leaving appellant without insurance coverage when the accident occurred. See Id. at *4 (holding because insured did not timely pay renewal premium, policy was not canceled but expired under its own terms and once insured paid renewal premium insurer properly renewed policy effective on the date of the insured’s payment); Zuniga, 693 S.W.2d at 738 (holding that since the renewal payment was not made in accordance with the terms of the policy, the renewal policy never came into existence); Southern Farm Bureau Cas. Ins. Co. v. Davis, 503 S.W.2d 373, 377 (Tex.App.-Amarillo 1973, writ ref’d n.r.e.) (stating offer for renewal of auto insurance could not come to fruition until premium paid); Trinity Universal Ins. Co. v. Rogers, 215 S.W.2d 349, 352 (Tex.App.-Dallas 1948, no writ) (stating no completed contract when insured did not indicate acceptance of renewal policy).
Relying heavily on the Texas Supreme Court case Bailey v. Sovereign Camp, W.O.W., appellant con-tends the parties formed an enforceable contract when appellee accepted appellant’s late premium payment. Bailey was a member of Sovereign Camp, W.O.W., a fraternal benefit society. Bailey v. Sovereign Camp, W.O.W., 116 Tex. 160, 165, 286 S.W. 456, 456 (1926). As part of his membership, Bailey was issued a benefit certificate for $2,000, payable to his wife upon his death. Sovereign Camp, W.O.W. v. Bailey, 277 S.W. 782, 783 (Tex.App.-Texarkana 1925), rev’d, 116 Tex. 160, 286 S.W. 456 (1926). After Bailey died, his wife made a claim for the benefit certificate. Id. at 783.The organization denied the claim, stating that Bailey was never legally reinstated after his suspension for failure to pay his May dues. Id.
Under the organization’s bylaws, Bailey could have been reinstated within 10 days after default if he paid all arrearages and dues and presented a warranty of good health. Bailey, 116 Tex. at 165, 286 S.W. at 456-57. Although Bailey mailed the money order on the tenth day, it was not received until the twelfth day. Bailey, 116 Tex. at 165, 286 S.W. at 457. As a result, Bailey’s payment was untimely because payment had to be received by the agent within the 10-day period. Bailey, 116 Tex. at 165-66, 286 S.W. at 457. Despite Bailey’s late payment, the organization reinstated his membership and did not require the warranty of good health. Bailey, 116 Tex. at 167, 286 S.W. at 457. The court held the organization waived the requirement of good health when it accepted the late payment. Bailey, 116 Tex. at 168, 286 S.W. at 458. In doing so, the court set forth three conditions for waiver of a forfeiture:
First. The insurer must have knowledge of the facts constituting the forfeiture of the certificate. Second. The forfeiture must be complete and absolute. Third. There must be some unequivocal act on the part of the insurer which recognizes the continuance of the policy, or which is wholly inconsistent with the forfeiture.
Bailey, 116 Tex. at 166, 286 S.W. at 457.
The Bailey case is distinguishable from the facts before us. Here, appellant failed to pay a premium to continue his auto-insurance coverage. Appellant’s initial policy had expired as indicated on the renewal bill: “Your current policy will expire on May 9, 2004 at 12:01 a.m.” Appellant has conceded, for the sake of this argument, that his payment was not made until after the expiration of the initial policy and after his wife’s accident. Appellant’s policy provides:
If we offer to renew or continue and you or your representative do not accept, this policy will automatically terminate at the end of the current policy period. Failure to pay the required renewal or continuation premium when due shall mean that you have not accepted our offer.
When the initial policy expired, the relationship between appellant and appellee had ended according to the terms of the initial policy. In Bailey, the organization chose to reinstate Bailey as a member, giving him the right to his existing benefit certificate. In this case, there was no policy in existence. When appellant paid the renewal premium, appellee issued a new policy effective on the date of payment. Unlike Bailey, appellant did not forfeit the right to an existing policy by not paying the premium and then resurrect it when appellee accepted the premium; the policy expired and a new policy did not begin until appellant paid the premium. See Davis, 503 S.W.2d at 377 (holding no insurance coverage on day of auto accident when insured paid renewal premium one day after accident); Rogers, 215 S.W.2d at 352, (holding no insurance coverage on day of auto accident when insured paid renewal premium three days after accident).
Therefore, we overrule appellant’s first issue on appeal.
Alleged Texas Administrative Code Violations
In his second issue, appellant asserts appellee violated various sections of the Texas Administrative Code in its handling of appellant’s policy. Appellant did not raise this issue until his reply to appellee’s response to his motion for judgment notwithstanding the verdict. Assuming without deciding appellant properly preserved his complaint on appeal, appellant’s second issue is also without merit.
Appellant is correct that Texas Administrative Code section 5.7005(c) provides “[p]ersonal automobile policies which are written for a period of less than one year must be renewed, at the option of the insured, for additional periods so as to accumulate a minimum of 12 months’ continuous coverage.”28 Tex. Admin. Code § 5.7005(c) (2008). However, coverage can terminate if premium payments are not made to renew the policy before the initial policy expires. See Viking County Mutual Ins., 1992 WL 211068, at *3 (con-cluding that even though policies written for less than a year must be renewed at the option of the insured, a policy terminates under its own terms if the insured does not timely pay the renewal premium); Longoria v. Greyhound Lines, Inc., 699 S.W.2d 298, 304 (Tex.App.-San Antonio 1985, no writ) (concluding policies written for less than one year must be renewed unless premium payments are not made before expiration of initial policy). Here, appellee offered to renew appellant’s six-month policy for an additional six months; however, appellant exercised his option to not renew the policy by failing to make a timely payment to renew the policy, thus ensuring continuous coverage for a one year period of time. Therefore, because the policy expired under its own terms when appellant failed to timely remit his payment to renew his policy, appellee did not violate section 5.7005(c) of the Texas Administrative Code.
*5 Appellant also claims appellee violated section 5.7007 of the Texas Administrative Code. According to section 5.7007(a), “[a] policy must be renewed at expiration, at the option of the policyholder, unless the company has mailed written notice to the policyholder of its intention to decline renewal at least 30 days in advance of the policy expiration date.”28 Tex. Admin. Code § 5.7007(a). Appellee did not have an intention to decline renewal; in fact, appellee offered to renew the policy, at the option of appellant, by sending appellant the notice of renewal. A notice of cancellation is not required when a policy expires under its own terms. See Zuniga, 693 S.W.2d at 738. Because appellant’s policy had expired under its own terms, we hold appellee was not obligated to comply with the cancellation procedures found in section 5.7007(a) of the Texas Administrative Code.
Appellant next contends appellee violated sections 5.7011 and 5.7014 of the Texas Administrative Code. However, pursuant to section 5.7001(b), sections 5.7011 and 5.7014 apply to all automobile insurance policies except personal automobile policies. 28 Tex. Admin. Code § 5.7001(b). Since appellant’s policy was a personal automobile insurance policy, sections 5.7011 and 5.7014 do not apply and appellee was not required to comply with any procedures found therein.
Appellant also contends appellee’s conduct violated section 5.7004 of the Texas Administrative Code. Section 5.7004 provides:
Any company that declines to recognize or put into effect additional coverage to which an insured is entitled under the provisions of an existing policy, or that attempts to reduce or restrict coverage under the provisions of an existing policy by endorsements or by any other means, is in violation of these sections if such acts are performed without the consent of the insured, and shall be subject to the same penalties as a policy that is cancelled in violation of these sections.
28 Tex. Admin. Code § 5.7004.
Because appellant’s policy expired under its own terms, appellee did not (1) impose a restriction or reduction on his coverage; or (2) decline to recognize or put into effect additional coverage. See Zuniga, 693 S.W.2d at 738. Therefore, we hold appellee did not violate section 5.7004 and overrule appellant’s second issue on appeal.
Having overruled appellant’s issues on appeal, we affirm the judgment of the trial court.
SEYMORE, J., dissenting without opinion.
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IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT No. 08-10450 KIMBERLY-CLARK CORPORATION Plaintiff – Appellee v. FACTORY MUTUAL INSURANCE COMPANY Defendant – Appellant Appeal from the United States District Court for the Northern District of Texas Before GARWOOD, DENNIS, and PRADO, Circuit Judges. DENNIS, Circuit Judge: This case concerns defendant-appellant Factory Mutual’s decision in October 2003 to distribute to its policyholders a $325 million membership credit that was contingent on policy renewal. Factory Mutual is a mutual insurance company and plaintiff-appellee Kimberly-Clark was a policyholder for almost 1 United States Court of Appeals Fifth Circuit F I L E D April 27, 2009 Charles R. Fulbruge III Clerk (unpublished) (same). 2 30 years with Factory Mutual and its predecessor company. The district court concluded that Factory Mutual breached its contract with Kimberly-Clark when it denied Kimberly-Clark its equitable share of the $325 million distribution. The district court held that because Kimberly-Clark was a policyholder and member in good-standing on the distribution’s record date, Kimberly-Clark should be accorded its equitable share. We agree and AFFIRM the district court’s judgment. BACKGROUND Factory Mutual’s charter stipulates that the company, like all mutual insurance companies, will “establish and maintain a surplus against extraordinary losses and other contingencies, by appropriating from time to time such sums as the board of directors may determine” “in addition to any unearned premium or reinsurance.” In accordance with the charter, Factory Mutual maintains a surplus fund that includes appropriated sums and unearned premiums to cover extraordinary losses and other contingencies. In mid-2003, Factory Mutual initiated internal discussions regarding a membership credit for its policyholders. One major reason for a membership credit was the unexpected growth in the surplus funds. At about the same time, after extensive discussions with Factory Mutual, Kimberly-Clark indicated to Factory Mutual during a meeting with Factory Mutual on August 26, 2003, that it intended not to renew its policy. Kimberly- Clark’s policy expired on October 1, 2003. On October 8, 2003, Factory Mutual informed the Rhode Island Department of Business Regulation (“DBR”) that it was planning a proposed membership credit. On October 9, 2003, Factory Mutual’s Board of Directors 3 approved the proposed $325 million membership credit. Factory Mutual publicly announced the credit on October 20, 2003. In a series of documents, Factory Mutual described the membership credit to its policyholders. Factory Mutual set eligibility for the distribution as follows: “[a]ll Factory Mutual Insurance Company policyholders . . . on the date of record will be eligible to receive the membership credit when their policies renew during the membership credit period.” (emphasis added). Factory Mutual thereby conditioned the distribution of the membership credit on a policyholder’s future act — signing a policy renewal before the policy expired. Factory Mutual also established the “date of record” (or record date) as September 30, 2003. In its notices to policyholders, Factory Mutual specifically linked the membership credit to its surplus growth and framed the distribution as a reward or return from that growth. In an October 20, 2003 press release, Factory Mutual stated: Policyholders of commercial and industrial property insurer FM Global will receive a collective US$325 million in savings on their premium beginning January 1, 2004 as a result of lower than expected property losses during recent years, resulting in higher than projected surplus growth. The return will be disbursed to FM Global policyholders as a membership credit on premium for 2004 policy renewals. (emphasis added). Factory Mutual specifically apportioned shares of the membership credit distribution based on the amount of each policyholder’s premium contribution on the record date and the number of years the policyholder held a policy with the company. The distribution acted akin to a mutual insurance company’s typical distribution of surplus capital as a return to policyholders in proportion to their past contributions, except that Factory See, e.g., In re MetLife Demutualization 2 Litig. 495 F. Supp. 2d 310, 313 (E.D.N.Y. 2007) (“A mutual insurance company’s role with respect to its policyholders is to apportion the company’s surplus — created in part from the payment of premiums paid by the policyholders — equitably among policyholders in proportion to their contributions thereto.”); RUSS & SEGALLA, 3 COUCH ON INS. § 39:18 (“As a general rule, the ‘surplus’ of a mutual company belongs equitably to the policyholders who contributed to it, in the proportion in which they contributed.”). 4 Mutual’s distribution was contingent on policy renewal.2 On the distribution’s record date, Kimberly-Clark was a Factory Mutual policyholder in good standing, but it had decided not to renew its policy when the policy expired on October 1, 2003. Because it was a policyholder in good standing on the distribution’s record date, Kimberly-Clark requested a portion of the 2004 membership credit in cash, which Factory Mutual denied. Subsequent negotiations between the parties failed to resolve the dispute. Kimberly-Clark therefore filed suit on September 30, 2005, in the 116th Judicial District Court of Dallas County, Texas, against Factory Mutual, alleging breach of contract, fraud, negligent misrepresentation, unjust enrichment, and violations of the Texas Insurance Code. On October 24, 2005, Factory Mutual filed a notice of removal to the United States District Court for the Northern District of Texas. On October 5, 2006, the parties entered into a joint stipulation, dismissing with prejudice the fraud and negligent misrepresentation claims along with several Texas Insurance Code claims. On December 15, 2006, both parties filed crossmotions for summary judgment on the breach of contract, unjust enrichment, and remaining Texas Insurance Code claims. On September 21, 2007, the district court issued a Memorandum Order granting summary judgment in favor of Kimberly-Clark on the breach of contract claim awarding Kimberly-Clark $3,062,776.90 in damages. The damages reflect the share of the distribution that Kimberly-Clark would have received had it been accorded a share. The district court found that the charter 5 of the company, the by-laws, and the policy unambiguously confirmed that Kimberly Clark “bargained for coverage by and membership in a mutual insurance company (as opposed to a stock insurance company) and all of the rights and benefits that typically accompany membership in a mutual insurance company.” The district court therefore concluded that: Thus, the Court infers that under the Policy, upon purchasing a policy and obtaining membership in the Company, a policyholder gains an interest in the surplus and has a right to its equitable share in any distribution of such surplus as declared by the Board, so long as the policyholder is a member of the company on the relevant date. Consequently, refusing to provide Kimberly-Clark its equitable share of the surplus, even though the company was a member of Factory Mutual on the record date, breaches the Policy. Factory Mutual timely appeals on two grounds: (1) that the district court erroneously considered the plaintiff’s claims within a breach-of-contract framework rather than under a corporate governance framework; and (2) if the claims are considered within a breach-of-contract framework, the district court erred in concluding that Factory Mutual breached its contract. STANDARD OF REVIEW This court reviews a district court’s grant of summary judgment de novo, applying the same standards as the district court: A party is entitled to summary judgment only if “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(c). On a motion for summary judgment, the court must view the facts in the light most favorable to the non-moving party and draw all reasonable inferences in its favor. See Hockman v. Westward Commc’ns, LLC, 407 F.3d 317, 325 (5th Cir. 2004). In reviewing the evidence, the court must therefore “refrain from making credibility determinations or weighing the evidence.” Turner v. “The pr 3 ecise content of the Business Judgment Rule is provided by state law but, generally speaking, ‘[u]nder this familiar rule of American jurisprudence, the courts refrain from second guessing business decisions made by corporate directors in the absence of a showing of fraud, unfairness or overreaching.’” Hoffman v. Kramer, 362 F.3d 308, 317 n.4 (5th Cir. 2004) (quoting Capital Bancshares, Inc. v. F.D.I.C., 957 F.2d 203, 207 (5th Cir. 1992)) (alteration in original). 6 Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007). ANALYSIS I. Kimberly-Clark’s claims are properly analyzed under contract law Factory Mutual contends that Kimberly-Clark’s claims for a portion of the surplus distribution implicate corporate governance law, specifically the “business judgment rule,” and therefore should not be considered under a 3 breach-of-contract framework. This choice between viewing a mutual insurance policyholder’s claims as a matter of contract or as a matter of internal corporate governance originates with the policyholder’s dual roles vis-a-vis the mutual insurance company: the policyholder is both an insured customer and also a controlling member of the insurer-company. See, e.g., Keystone Auto. Club Cas. Co. v. Comm’r, 122 F.2d 886, 889-90 (3d Cir. 1941); Ohio Farmers Indem. Co. v. Comm’r, 108 F.2d 665, 667 (6th Cir. 1940); Hutchins Mut. Ins. Co. of D.C. v. Hazen, 105 F.2d 53, 57 (D.C. Cir. 1939). Kimberly-Clark’s claims against Factory Mutual can be framed as either a breach of Kimberly-Clark and Factory Mutual’s contractual relationship or as Kimberly-Clark’s disagreement with other co-members about corporate governance and internal affairs. Kimberly-Clark’s underlying claims allege that Factory Mutual improperly denied Kimberly-Clark’s right, or eligibility, to a share of an announced surplus disbursement. Courts clearly consider a policyholder’s right to a share of a surplus distribution as a matter governed by contract law whereas a policyholder’s grievances with a surplus distribution’s “timing, amount, and 4 In its admissions below, Factory Mutual describes the corporate board as having “discretion to determine the time, amount and method of distribution of the membership credit.” 5 In Lopez v. State Farm Mutual Automobile Insurance Co., 2008 WL 2744609, at *4 (Tex. App.-Corpus Christi June 30, 2008) (unpublished), a Texas Court of Appeals in an unpublished decision contrasted the policyholder’s contractual right to participate in announced dividends and the corporate board’s discretion over the distribution of those dividends: (1) “Mutual insurance policyholders do not purchase the right to receive dividends, only the right to participate in dividends, if any, on terms and conditions fixed by the board” and (2) “The relationship between a mutual insurance company and its policyholders is contractual, not fiduciary, and the insurer owes no duties to the policyholders other than those stated in the policy.” 7 method” are corporate governance matters and thereby insulated from most 4 policyholder lawsuits by the business judgment rule. See Equitable Life Assurance Society of the U.S. v. Brown, 213 U.S. 25, 47 (1909); Brown v. Royal Highlanders, 299 N.W. 467, 471 (Neb. 1941); see also Prudential Ins. Co. of Am. v. Miller Brewing Co., 789 F.2d 1269, 1279 (7th Cir. 1986); Andrews v. Equitable Life Assurance Soc. of U.S., 124 F.2d 788, 789 (7th Cir. 1941); Boynton v. State Farm Mut. Auto. Ins. Co., 429 S.E.2d 304, 307 (Ga. Ct. App. 1993); Greeff v. Equitable Life Assurance Soc. of U.S., 54 N.E. 712, 715 (N.Y. 1899). 5 The parties do not dispute the propriety of the timing or amount of the distribution, but Factory Mutual contends that its corporate decisions in respect to a policyholder’s eligibility for a surplus distribution should be considered as part of its discretion over the “method” of a surplus distribution. At issue in this case is whether Factory Mutual’s “method” of distribution discriminates against a particular subset of policyholders because they chose not to renew their polices but were otherwise in good standing and had contributed to the surplus. Such discrimination would be clearly outside of the board’s discretion over surplus distributions because it would contravene state policy and is thereby not protected by the business judgment rule. See N.Y. Life Ins. Co. v. Street, 265 6 In its briefs, Factory Mutual emphasizes the fact that this case must be decided under Rhode Island and not Texas law. However, Factory Mutual also concedes in its briefs and in oral argument that Texas and Rhode Island’s formulations of the business judgment rule do not conflict. Compare Cates v. Sparkman, 11 S.W. 846, 849 (Tex. 1889) with Lynch v. John W. Kennedy Co., No. PB 03-3355, 2005 WL 1530469, at *6 (R.I. Super. Ct. June 23, 2005) (unpublished) (announcing similar formulations of the business judgment rule). Factory Mutual is correct that corporate governance issues must be adjudicated using the law of the state of incorporation, in this case, Rhode Island. See Askanase v. Fatjo, 130 F.3d 657, 670 (5th Cir. 1997). However, because the business judgment rules for Rhode Island and Texas do not conflict, this court need not undertake a choice-of-law analysis. See Railroad Mgmt. Co., L.L.C. v. CFS La. Midstream Co., 428 F.3d 214, 222 (5th Cir. 2005) (“Where there are no differences between the relevant substantive laws of the respective states, there is no conflict, and a court need not undertake a choice of law analysis.”). The parties also do not dispute that the pertinent rules under Texas and Rhode Island contract law applicable to this case are not in conflict. Accordingly, we also need not engage in a choice-of-law analysis for the contract claims. 8 S.W. 397, 402-03 (Tex. Civ. App. 1924); TEX. INS. CODE § 544.052; RHODE ISLAND GEN. LAWS § 27-8-4 (describing state policy against discrimination among insureds of the same class). The question presented to us is therefore: whether Factory Mutual’s discrimination breaches Kimberly-Clark’s right to a distribution share if other policy-holders, with materially identical contracts and materially identical rights to a share, had received their shares. Accordingly, Kimberly-Clark’s claims for a distribution share must be analyzed under a breach-of-contract rubric and not under the business judgment rule. 6 II. Factory Mutual breached its contract with Kimberly-Clark when it denied Kimberly-Clark its share of the surplus distribution The policy contract is clearly labeled a “mutual insurance” contract. The policy is silent as to the board’s discretion over the distribution of excess surplus, but states that “[t]his policy is issued by a mutual company having special regulations lawfully applicable to its organization, membership, policies, or contracts of insurance.” It also states that “[t]he insured by accepting this policy hereby becomes a member of this Company and subject to the provisions of its charter and by-laws, with power to vote at its meetings.” Section 5 of Factory 9 Mutual’s Charter states: [E]ach natural person, partnership, association, corporation or legal entity insured on the mutual plan by the Corporation shall be a member of the Corporation during the term of its policy, but no longer, and at all meetings of the members shall be entitled to one vote either in person or by proxy; provided, however, that where there is more than one insured under any policy, such insureds shall nevertheless be deemed to be a single member of the Corporation for all purposes. The Corporation may issue policies which do not entitle the insured to membership in the Corporation nor to participate in its surplus. (emphasis added). Finally, section 10 of Factory Mutual’s charter states: “Upon termination of the membership of any member, all his or its right and interest in the surplus, reserves and other assets of the Corporation shall forthwith cease.” In sum, Factory Mutual and Kimberly-Clark’s contract (1) is a “mutual insurance” policy; (2) acknowledges the “special regulations” applicable to mutual insurance companies; and (3) grants policyholders an entitlement as a member for “all purposes,” which includes (4) rights and interests in the surplus until the policy’s termination (unless the policy states otherwise, which is not the case here). Courts consistently describe “mutual insurance” contracts as creating certain settled expectations between the parties. As the Wisconsin Supreme Court noted: Every policy-holder [of a mutual insurance company] knows, or ought to know, that he will remain a member so long as he remains a policy-holder and no longer. He knows, or ought to know, that as soon as his membership relation is established he becomes possessed of an equitable interest in the assets of the company consisting of all accumulations prior to his time, and such as may be added thereto during his membership, but which cannot be realized on in possession in the absence of a necessary distribution of the surplus on account of the company going out of business, or in some proper way. 10 Huber v. Martin, 105 N.W. 1031, 1039 (Wis. 1906); see also Fid. & Cas. Co. of N.Y. v. Metro. Life Ins. Co., 248 N.Y.S.2d 559, 565 (N.Y. Sup. Ct. 1963). The Supreme Court in Pennsylvania Mutual Life Insurance Co. v. Lederer described the mutual company in this way: In a mutual company, whatever the field of its operation, the premium exacted is necessarily greater than the expected cost of the insurance, as the redundancy in the premium furnishes the guaranty fund out of which extraordinary losses may be met, while in a stock company they may be met from the capital stock subscribed. It is of the essence of mutual insurance that the excess in the premium over the actual cost as later ascertained shall be returned to the policy holder. 252 U.S. 523, 525 (1920); see also Nat’l Chiropractic Ins. Co. v. United States, 494 F.2d 332, 334 (8th Cir. 1974); Thompson v. White River Burial Ass’n, 178 F.2d 954, 957 (8th Cir. 1950); Keystone Mut. Cas. Co. v. Driscoll, 137 F.2d 907, 911 (3d Cir. 1943). Basically, the settled expectations when entering a contract with a mutual insurance company are: (1) the policyholders pay premiums into a common fund to cover contingencies, and (2) if there is an accumulated excess of capital beyond what is necessary to cover contingencies (i.e., excess surplus), the insurance company returns the excess in surplus distributions to the policyholders. This essential aspect of the mutual insurance company’s relationship with its policyholders is so-called insurance at actual cost or “insurance at cost.” See White River Burial Ass’n, 178 F.2d at 957 (“To say that an essential of mutual insurance is that the excess of premiums received over the actual cost of insurance shall be returned to the policyholders is but another way of saying that the essential of mutuality is insurance at cost.”). We have stated that “[t]he furnishing of insurance to members at cost is the chief aim and function of a mutual insurance company, and any company which does not return to the policyholders or members the excess of the premium over the cost 11 cannot be said to be a mutual insurance company.” Am. Ins. Co. of Tex. v. Thomas, 146 F.2d 434, 436 (5th Cir. 1945). Texas courts also agree with describing the mutual insurance company’s purpose as providing policyholders insurance “at cost.” See Mercury Life & Health Co. v. Hughes, 271 S.W.2d 842, 845 (Tex. Civ. App. 1954) (“While the [mutual insurance] policyholders do not receive dividends, they get other equally valuable benefits. It is the duty of the directors to operate the company as economically as possible and furnish insurance to its policyholders as near actual cost as possible.”). Other authorities unanimously agree in describing the purpose of a mutual insurance company as providing insurance “at cost.” See, e.g., Mut. Fire Ins. Co. of Germantown v. United States, 142 F.2d 344, 347 (3d Cir. 1944); Fid. & Cas. Co. of N.Y., 248 N.Y.S.2d at 566 (“The distribution of divisible surplus is in reality an adjustment of the premium in retrospect of the amount found to have been actually necessary to cover the contingencies which materialized and it effects a reduction in the cost of the insurance.”); Dryden v. Sun Life Assurance Co. of Can., 737 F. Supp. 1058, 1062-63 (S.D. Ind. 1989); C.J. Simons & Co. v. Am. Mut. Liab. Ins. Co., 257 A.2d 743, 745 (N.J. Sup. Ct. 1969); McQuade v. Thacher, 198 N.Y.S.2d 715, 718 (N.Y. Sup. Ct. 1960). See generally RUSS & SEGALLA, 1 COUCH ON INS. § 1:32 (“The object [of mutual insurance] is to provide insurance protection at cost.”). Consequently, because they contracted for “at cost” insurance, policyholders who contribute to a surplus are equitably “entitled” to a share of any announced surplus distribution as a proportionate return on their prior contributions to the accumulated capital stock. See, e.g., In re MetLife Demutualization Litig. 495 F. Supp.2d 310, 313 (E.D.N.Y. 2007); RUSS & SEGALLA, 3 COUCH ON INS. § 39:18 (“As a general rule, the ‘surplus’ of a mutual company belongs equitably to the policyholders who contributed to it, in the 12 proportion in which they contributed.”). Consistent with these authorities, we have stated, in a diversity case involving Texas law, that: Dividends normally belong to the stockholders, which in a mutual company are the policyholders, but the insured though not a stockholder may by contract be allowed to participate. This share in profits more naturally belongs to the insured than to the beneficiary, and is a return to him of a part of his premium which the year’s results have shown was not necessary to have been paid to maintain the insurance with its legal reserve. Union Cent. Life Ins. Co. v. Williams, 65 F.2d 240, 243 (5th Cir. 1933). Similarly, Rhode Island has defined “mutual insurance company” to “mean[ ] a corporation in which shares are held exclusively by members to whom profits are distributed as dividends and members are both the insurer and the insured” in a health insurance act. R. I. GEN. LAWS § 27-66-4(9) (emphasis added). Here, Factory Mutual’s surplus distribution was apportioned based on past contributions, and therefore policyholders who contributed, like Kimberly-Clark, should be entitled to a share. Because the right to the surplus is dictated by contract and is the policyholder’s equitable right based on past contributions, the corporate board has no competing right to the surplus assets once they announce the surplus to policyholders. The Kentucky Supreme Court has stated: [W]here the company is a mutual, being conducted on the plan of giving the cheapest safe insurance to its members, all surplus ought to belong to the members, the policy holders. For in a purely mutual company there are no stockholders, and no one else therefore to whom the surplus could go than its policy holders. And it should in equity go to those who had contributed it. The officers of such a corporation being paid salaries for their services have no interest as such in the surplus. U.S. Life Ins. Co. v. Spinks, 96 S.W. 889, 894 (Ky. 1906) (emphasis added); see 13 also Carlton v. S. Mut. Ins. Co., 72 Ga. 371, 1884 WL 2172, at *21 (Ga. June 10, 1884); RUSS & SEGALLA, 3 COUCH ON INS. § 39:37. Like a trustee, the board manages and holds the funds until the funds are distributed to the insuredbeneficiary, at which point it no longer has a competing interest over the funds. Summarizing these principles, Russ & Segalla, 3 Couch on Insurance § 39:40, concludes: Although the legal title to the property of a mutual company is held by the company, the property is held for the benefit of its members, policyholders, and stockholders. The funds of the company are to be treated as a trust fund for the members. . . . Each member has the same proportionate interest that every other member possesses. Policyholders are entitled to participate in the annual surplus of the company and if there is an inequitable distribution of surplus a policyholder may sue to obtain his or her proportionate share. The right to share in a surplus may, however, be restricted to current policyholders. (footnotes omitted); see also Huber, 105 N.W. at 1032. Accordingly, a corporate board has the discretion to manage the “timing, amount, and method” of a surplus distribution but once a distribution’s timing, amount and method is declared, the distribution funds no longer constitute the company’s property; instead, the funds become the joint asset held by the members who are policyholders at the distribution’s operative date. The Wisconsin Supreme Court stated: All this results in a necessity that some definite time be adopted when the rights of individuals become fixed, after which may be applied the arithmetical process by which they become known. In deference to such necessity, the rule has become settled as to stock corporations that a dividend belongs to those who own the stock when it is declared. Complete analogy exists between rights of members in a mutual insurance company and stockholders in a stock company in and to such a surplus. Declaring a dividend is nothing but authoritatively deciding to distribute some or all of the 14 surplus. We therefore think it entirely logical to apply the foregoing well-established rule, and to hold that on March 19, 1906,[the dividend distribution] became separated from the corporate assets and became the property of the several members then existing, payable to each on demand when the amount to which he was entitled had been ascertained. Zinn v. Germantown Farmers’ Mut. Ins. Co.,111 N.W. 1107, 1108 (Wis. 1907) (emphasis added) (citations omitted). As the Wisconsin Supreme Court acknowledged, there is a “complete analogy” between the “rights of members in a mutual insurance company and stockholders in a stock company in and to such a surplus.” Id. As this court has stated in the analogous context of stockholder dividends: Under the law of Texas, a declaration of dividends creates a debt owed by the corporation in favor of each stockholder which cannot be rescinded. Although the declaration of this dividend provided that the sums thereunder were payable to the stockholders of record at such times and in such installments during the year as the directors saw fit, the liability of the company accrued as of the date of the declaration. C.I.R. v. Cohen, 121 F.2d 348, 349 (5th Cir. 1941) (footnote omitted). In short, when a distribution is declared, the company becomes liable to pay the policyholders because they collectively own any announced distribution from the surplus. Because the corporate board controls the timing of the distribution, it necessarily establishes “some definite time . . . when the rights of [policyholders] become fixed” and the distributed funds are owned by those policyholders who have rights at that time. Zinn,111 N.W. at 1108. The parties dispute the date when rights of the policyholders became fixed for the distribution, i.e., the distribution’s operative date. Factory Mutual contends the operative date that fixes the rights of the policyholders is the date the corporate board declared its approval of the distribution (i.e., the The corporate board of a mutual insurance company does not necessarily have to 7 restrict a distribution to “current policyholders” at the time of the decision or announcement; it may choose to set a retroactive operative date. See RUSS & SEGALLA, 3 COUCH ON INSURANCE § 39:40 (“The right to share in a surplus may, however, be restricted to current policyholders.” (emphasis added)). The dissent relies on a provision of the Charter that simply provides that a policy is effective only during the effective life of the policy. The corporate board decided to set the operative date, i.e., the “record date,” for its distribution on a date within the effective life of Kimberly-Clark’s policy. The board also stated that “[a]ll Factory Mutual Insurance Company policyholders . . . on the date of record will be eligible to receive the membership credit when their policies renew during the membership credit period.” (emphasis added). Unlike the cases cited by the dissent, the board here clearly set a record date that was different from the declaration date. In fact, the corporate board in Spence v. Medical Mutual Liability Insurance Society of Maryland, 500 A.2d 1066, 1067 (Md. Ct. Spec. App. 1985) emphasized the date of record and not the declaration date as the operative date of the distribution. As we noted above, the record date defines the set of policyholders entitled to the distribution and the timing of the distribution, i.e., setting the record-date, is protected by the “business judgment rule,” a point conceded by Factory Mutual. 15 “declaration date”), which was October 9. Kimberly-Clark contends the operative date was the date of record or the record-date as described in the public notices to members describing the distribution details, which is September 30. Factory 7 Mutual’s contention is without merit. Again, the “complete analogy” between stockholders in stock companies and mutual insurance policyholders, as to the distribution of a surplus, is useful. The distribution materials specifically establish the record date as September 30, 2003, and on that date Kimberly- Clark was a policyholder in good standing. The “declaration date” is important only because the company incurs liability to pay its promised distribution on the declaration date. However, we have defined the “record date” as the operative date one uses to determine the set of stockholders who can participate in a stock corporation’s dividend distribution, i.e., the stockholders “of record.” See, e.g., Caruth Corp. v. United States, 865 F.2d 644, 648 (5th Cir. 1989) (“In general, dividend income is taxed to the shareholder who, on the record date, owns the stock with respect to which dividends are paid and who is entitled to receive the 16 dividend.”); Cohen, 121 F.2d at 349 (noting that the company incurred its liability to pay dividends on the declaration date to the stockholders “of record”). See generally BLACK’S LAW DICTIONARY 423 (8th ed. 2004)(defining “record date” to mean the “[t]he date on which a stockholder must own shares to be entitled to vote or receive a dividend. — Also termed date of record”). The relevant state statutes also emphasize the importance of the “record date” as the operative date to ascertain the stockholders of record for a capital distribution in stock corporations. See TEX. BUS. CORP. ACT ANN. art. 2.26 (describing the record date as determining which shareholders have rights to a stock dividend); R. I. GEN. LAWS § 7-1.2-614(a)(2) (same). Accordingly, the record date is the effective date to determine which stockholders can partake in the distribution even though the company accrues its liability to pay the announced distribution to those stockholders of record on the declaration date. See, e.g., Cohen, 121 F.2d at 349. In accordance with these general principles and the complete analogy, as to the right to receive surplus distributions, between stockholders and mutual insurance policyholders, Kimberly-Clark, as a policyholder of good-standing on the record date, was entitled to participate in the distributed surplus. Factory Mutual’s final argument against according Kimberly-Clark its share is based on the fact that Kimberly-Clark did not renew its policy before it expired, which the board had established as a condition precedent for participating in the distribution. The Kentucky Court of Appeals and a New York court, the only courts to directly confront this issue, barred the conditioning of surplus distributions on future renewal by relying on the general principles underlying mutual insurance we described above. See Mut. Ben. Liab. Ins. Co. v Davis, 73 S.W. 1020, 1021 (Ky. Ct. App. 1903); Wells v. Metro. Life Ins. Co., 13 N.Y.S.2d 22, 25-26 (N.Y. City Ct. 1939); see also Aetna Liab. Ins. Co. v Hartley, 67 S.W. 19, 21, opinion modified on other grounds, 68 S.W. 1081 (Ky. Ct. App. Factory Mutual cites Bryant v. Mutual Benefit Life Insurance Co., 109 F. 748, 756 8 (M.D. Tenn. 1901), and Petrie v. Mutual Benefit Life Insurance Co., 100 N.W. 236, 238-39 (Minn. 1904), as espousing opposing positions, i.e., permitting mutual insurance companies to condition distributions on renewal. We disagree with Factory Mutual’s reading of those cases. The corporate board in each case conditioned a surplus dividend on a future premium payment because the policyholder was in arrears. In other words, the policyholders in those cases were not members “in good standing” and therefore not on equal footing with other members who actually contributed to the capital surplus and were therefore entitled to an equitable share. E.g., Wells, 13 N.Y.S.2d at 25. In Bryant, the court allowed a mutual company to refuse to credit an anticipated dividend before that same year’s contribution was paid. See Bryant, 109 F. at 755-57. In Petrie, the Minnesota court similarly permitted the corporate board to only apply a dividend credit to the policyholder’s delinquent account if the policyholder paid the premium due in the year of the dividend. 100 N.W. at 239. In both cases, the policyholders loaned from the mutual company against their policy and were in arrears; the policyholders were thereby borrowing against and depleting the company’s capital stock. See Bryant, 109 F. at 749-50; Petrie, 100 N.W. at 237-38. In such circumstances, a mutual company, consistent with its general principles, can condition the policyholder’s right to anticipated dividends on the payment of existing debts and policy renewal, because dividends derive from accumulated contributions and excess capital stock; in other words, the past failure to pay those contributions and the taking out of loans that deplete the capital stock can justify the adjustment of those members’ equitable right to a dividend distribution unless they promise to pay premiums that reduce their debt to the capital stock. See RUSS & SEGALLA, COUCH ON INSURANCE § 77:7 (citing Bryant, 109 F. at 748; Petrie, 100 N.W. at 236). It is undisputed that Kimberly-Clark was a policyholder in good standing on the record date and had contributed to the accumulated capital stock. Therefore, these cases are inapposite. Factory Mutual also references an unpublished memorandum order from a district court in Ohio for further support. See Andersons, Inc. v. Factory Mut. Ins. Co., No. 3:01 CV 7620 (Memorandum Opinion) (N.D. Ohio Sept. 3, 2003) (unpublished).Not only is this unpublished order’s precedential value limited, it does not provide any reasons for its conclusion that Factory Mutual’s membership credit program is a “unilateral contract.” It also does not consider the fact that Factory Mutual is a mutual insurance company. For these reasons, the order is not persuasive. 17 1902). We agree with these authorities. As we noted earlier, once a surplus 8 distribution is announced, the policyholders on the record date own the surplus and the corporate board no longer has any rights or interests in the distributed amounts. Accordingly, Kimberly-Clark, as a policyholder of record, owned a share of the surplus, and Factory Mutual cannot then disentitle Kimberly-Clark based its subsequent failure to renew its policy — presumably, Kimberly-Clark could have changed its mind and decided to renew its policy on October 1, which 18 is after the distribution’s record date. As a practical matter, Factory Mutual’s eligibility rules effectively bar any return of excess capital to members on the record date who no longer need insurance or cannot afford to renew their insurance, thereby directly contravening members’ equitable rights to a distribution from a surplus that was created, in part, by their past contributions. Conditioning a right to a distribution on renewal would add a new condition to the policy that substantially limits and encumbers a policyholder’s rights to a surplus distribution without any contractual basis and undermines the settled expectation that mutual insurance provides insurance “at cost.” In this case, Factory Mutual declared a $325 million distribution from excess surplus funds as a return to policyholders and it apportioned the distribution based on the policyholders’ contribution to the accumulated capital stock, i.e., their past premiums. Factory Mutual segregated this amount from its capital stock on October 9, 2003, for existing policyholders of the record date: September 30, 2003. Once Factory Mutual’s corporate board segregated the $325 million from the surplus and marked it for distribution to existing members on the record date, those existing members became entitled to the whole amount based on their equitable share as calculated pursuant to the board’s formulas. The corporate board also became liable to follow through with the distribution on the date of declaration. Furthermore, after declaring the surplus, the board could not then condition a policyholder’s right to a share of the distribution on a future, post-record-date act, such as policy renewal, because the board no longer had any competing interests or rights to the distribution funds. Since Kimberly-Clark was a policyholder on the record date, it equitably owns a share of the distribution calculated pursuant to the board’s formula whether or not it had renewed its policy before the policy’s expiration. Therefore, the district court properly awarded Kimberly-Clark its properly calculated share of the 19 distribution. For these reasons, we AFFIRM the district court’s judgment. 20 GARWOOD, Circuit Judge, dissenting. I respectfully dissent. It is undisputed that Kimberly-Clark’s only relevant Factory Mutual policy expired by its terms on September 30, 2003, that prior to that time Kimberly-Clark had determined not to renew the policy, so informing Factory Mutual in late August 2003, and that Kimberly- Clark never attempted to renew the policy. On October 9, 2003, after the Kimberly-Clark policy had indisputably expired, the Factory Mutual’s Board of Directors declared a some $325 million surplus all of which would be credited to policyholders as of September 30, 2003 as a reduction of the premium payable on the renewal of their policy. As Kimberly-Clark’s policy had already expired, and there was never any attempt to renew it, Kimberly- Clark received nothing by virtue of the October 9, 2003 board action, but nevertheless claims an entitlement to a share of the $325 million surplus. Kimberly-Clark’s relevant policy expressly states that it is subject to the terms of the Charter of Factory Mutual. Section 5 of the Charter provides that a policyholder of the corporation “shall be a member of the Corporation during the term of its policy, but no longer,” and section 10 of the Charter states that “upon termination of the membership of any member, all his or its right and interest in the surplus, reserves and other assets of the Corporation shall forthwith cease.” There is no evidence that these Charter provisions ever read otherwise at any relevant time, nor has their validity been challenged in this case. For example, in Zinn v. Germantown Farmers’ Mutual, 111 NW 1107 (Wis. 1907), a mutual insurance company on March 19, 1906 declared a $50,000 surplus to be distributed to members “entitled thereto.” It was held that only those who were policyholders on March 19, 1906 – the date the surplus was declared and ordered distributed – were entitled to participate, specifically excluding, inter alia, those “who had held 21 policies and contributed toward the surplus, but whose policies had lapsed and expired, and who were not policyholders on March 19, 1906.” See also, e.g., Spence v. Medical Mut. Liab. Ins. Soc’y of Maryland, 500 A2d 1066, 1067 (Md. App. 1985) (“former policyholders of a mutual company . . . are not entitled to participate in the distribution of a dividend from earned surplus stemming from a year from which they had policies in effect.” (emphasis added)); Russ & Segalla, 3 Couch on Insurance (2005) § 39.40 (“The right to share in surplus may, however, be restricted to current policyholders.”). This is not to suggest that charter provisions such as those of section 5 and 10 of the Factory Mutual Charter must be included in every mutual insurance company’s charter. A charter which does not include such provisions would likely not thereby be invalid. However, it strains logic well past the breaking point to suggest, as does the majority in its footnote 7, which simply ignores section 10 of the Charter and misreads section 5, that once the choice is made to include such provisions in the charter of a mutual insurance company, its Board of Directors is thereafter free to disregard them. At no time since September 30, 2003, has Kimberly-Clark been a member of Factory Mutual. Consequently, Kimberly-Clark was entitled to no share of the distribution of surplus provided for in the October 9 Board resolution. The Board had no power to itself amend the Factory Mutual Charter, and did not purport to do so. On October 9, the Factory Mutual Board could have declared a surplus distribution payable to, and only to, all who were members on that date, which would have included nothing for Kimberly-Clark. The fact that Factory Mutual conditioned receipt of the surplus distribution on policy renewal, providing the distribution be only a credit on 22 the renewal premium, is nothing of which Kimberly-Clark has any right to complain, because it had no right to any distribution of any of the surplus. Kimberly-Clark was not a member on October 9, 2003, and was entitled to no part of the surplus determined to then exist and then ordered to be distributed, and it has not been a member at any time since September 30, 2003, and thus its rights were not in any way infringed by the Board resolution of October 9, 2003. I accordingly respectfully dissent.
1 “Mutual insurance, as its name implies, exists where several persons have joined together for their united protection, each member contributing to a fund for the payment of the losses and expenses. Under such an organization, each member is in a sense both an insured and an insurer . . . The policyholders in a mutual are equivalent to stockholders in a stock corporation in so far as rights and remedies are concerned. Like stockholders, policyholders participate in the operation of the mutual through voting rights, and share in the company’s financial success or failure.” LEE RUSS & THOMAS SEGALLA, 3 COUCH ON INS. § 39:15 (3d ed. 2008) (footnotes omitted); see also Heritage Healthcare Servs., Inc. v. Beacon Mut. Ins. Co., No. C.A. 02-7016, 2004 WL 253547, at *4 (R.I. Super. Ct. Jan. 21, 2004)
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EDM Office Services, Inc. v. Hartford Lloyds Ins. Co. United States District Court, S.D. Texas, Houston Division. EDM OFFICE SERVICES, INC., Plaintiff, v. HARTFORD LLOYDS INSURANCE COMPANY, et al., Defendants. Civil Action No. H–10–3754. July 1, 2011.
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Law in Nevada Requiring Disclosure Of Insurance Policy Limits Repealed
Insurance companies writing policies in Nevada have for years been required to disclose their insured’s policy limit to Plaintiff’s attorneys if certain conditions were met. However, Nevada’s 2015 legislature repealed the law, known as NRS 690B.042. At this point, in Nevada, insurance companies no longer are required to disclose the liability limits of their insured before a lawsuit is filed.
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In The Court of Appeals Fifth District of Texas at Dallas ………………………. No. 05-06-00100-CV ………………………. LINDA RICHARDSON, Appellant V. ALLSTATE TEXAS LLOYD’S, Appellee ……………………………………………………. On Appeal from the 160th Judicial District Court Dallas County, Texas Trial Court Cause No. 02-01779-H ……………………………………………………. MEMORANDUM OPINION Before Justices Moseley, O’Neill, and Lagarde Opinion By Justice Lagarde See Footnote1
Appellant Linda Richardson sued Allstate Texas Lloyd’s (Allstate), seeking to overturn an appraisal award entered on her insurance claim for sewer damage to her home. After originally denying Allstate’s successive motions for summary judgment, upon reconsideration, the trial court granted Allstate’s second motion and dismissed Richardson’s claims with prejudice. Richardson appeals the summary judgment order and the trial court’s denial of her motion to designate experts. For reasons that follow, we conclude the summary judgment was improperly granted and we remand this case to the trial court for further proceedings. Because all dispositive issues are settled in law, we issue this memorandum opinion. Tex. R. App. P. 47.2(a), 47.4.
Factual and Procedural Background In December 2001, “a catastrophic pressurized infusion of raw sewage spewed through every plumbing opening” in Richardson’s home in Lancaster, Texas. Richardson’s home was insured by Allstate. Immediately after her home was flooded with sewage, Richardson contacted Allstate to make a claim under her insurance policy. Shortly thereafter, a dispute arose between Richardson and Allstate concerning the amount of Richardson’s insured loss. Accordingly, Allstate sent Richardson a written notice informing her that Allstate was invoking the appraisal provision of her insurance policy. The terms of that provision read, in pertinent part, as follows:
Appraisal. If you and we fail to agree on the actual cash value, amount of loss, or cost of repair or replacement, either can make a written demand for appraisal. Each will then select a competent, independent appraiser and notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a district court of a judicial district where the loss occurred. The two appraisers will than [sic] set the amount of loss, stating separately the actual cash value and loss to each item. . . .
If the appraisers fail to agree, they will submit their differences to the umpire. An itemized decision agreed to by any two of these three and filed with us will set the amount of such loss. Such award shall be binding on you and us.
Allstate selected Jim Greenhaw as its independent appraiser. Richardson selected C.R. Johnson as her independent appraiser. The parties then agreed to use Sally Montgomery as the umpire, and she was appointed by the trial court in March 2002. On March 25, 2002, Johnson and Greenhaw signed their names on a blank form “Appraisal Award.” The top of that one-page form contains general information about the claim, including the names of the parties, the appraisers, and the umpire. The appraiser’s signatures are in the middle of the page beneath that general information. Directly underneath the appraisers’ signatures on the form award is a chart with three columns. The first column is titled “ITEM,” and the phrase “to be determined by hygienist” is hand- written beneath that title on the first numbered line. The next two columns, titled “LOSS REPLACEMENT COST” and “LOSS ACTUAL CASH VALUE,” are blank. According to the record, after they signed the blank form, Greenhaw and Johnson each conferred separately with the umpire during the next few months. It appears, however, that neither appraiser prepared an itemized list of the cash value and loss to each item in Richardson’s house. According to Richardson, sometime prior to June 21, 2002, Johnson sent Montgomery a written estimate totaling approximately $141,000. The written estimate itself is not in the record. On June 21, 2002, Montgomery met with Greenhaw at Greenhaw’s office. During that meeting, Montgomery or Greenhaw wrote “$39,650.75” on the form appraisal award under the column “LOSS REPLACEMENT COST,” next to the phrase “to be determined by hygienist” previously written on the form award. Montgomery and Greenhaw then dated the award June 21, 2002 and both signed it. There is no evidence in the record that Montgomery or Greenhaw discussed this award with Johnson either before or after it was entered. On July 16, 2002, Allstate sent Richardson a check for $27,813.95, the net amount of the award after deducting the amounts already paid to Richardson and half of the umpire’s fee. The next day, Johnson and Richardson wrote to the trial court complaining about the impropriety of the appraisal award and requested a meeting with the trial judge. There is no evidence in the record about whether such meeting occurred. On October 2, 2002, Richardson cashed Allstate’s check. Thereafter, Richardson filed a petition seeking to set aside the appraisal award. In her suit against Allstate, Richardson asserted claims against Allstate for breach of contract, breach of the duty of good faith and fair dealing, negligence, negligence per se, and violation of articles 21.21 and 21.55 of the Texas Insurance Code. Allstate moved for summary judgment twice. In its second motion for summary judgment, Allstate asserted it was entitled to summary judgment because (i) Richardson could not establish any grounds for setting aside the appraisal award, (ii) Richardson’s claims were barred by the affirmative defense of accord and satisfaction, (iii) Richardson was estopped to assert a breach-of-contract claim, and (iv) Richardson’s extra-contractual claims were “unsupportable, as a matter of law.” The trial court denied Allstate’s first and second motions; but upon Allstate’s one-page motion to reconsider, the trial court granted Allstate’s second motion and dismissed Richardson’s claims with prejudice. In this appeal, Richardson asserts five main points of error, each with multiple subpoints. In her first point, Richardson argues the summary judgment order is improper because the appraisal award is “void as a matter of law,” based, inter alia, on her contention that the appraisal procedure was not followed. In her second point, Richardson argues she is entitled to summary judgment on Allstate’s affirmative defense of accord and satisfaction. In her third issue, Richardson argues she is not estopped to assert her breach of contract claim. In her fourth issue, Richardson argues genuine issues of material fact preclude summary judgment dismissing her extra-contractual claims. Finally, in her fifth point, Richardson argues the trial erred in denying her motion to designate experts.
The Appraisal Procedure
Because courts “seek to implement the intention of the parties as expressed in the language of a contract,” it has long been the rule in Texas that “[a]ppraisal awards made pursuant to the provisions of an insurance contract are binding and enforceable.” Providence Lloyds Ins. Co. v. Crystal City Ind. Sch. Dist., 877 S.W.2d 872, 875 (Tex. App.-San Antonio 1994, no writ) (citing Scottish Union and Nat’l Ins. Co. v. Clancy, 8 S.W. 630 (Tex. 1888)). “Although every reasonable presumption will typically be made in favor of an appraisal award, when reviewing a summary judgment proceeding, that rule must yield to the degree its application conflicts with the presumptions required to be made in favor of the nonmovant.” Wells v. Am. States Preferred Ins. Co., 919 S.W.2d 679, 683 (Tex. App.-Dallas 1996, writ denied) (citing Hennessey v. Vanguard Ins. Co., 895 S.W.2d 794, 797-98 (Tex. App.-Amarillo 1995, writ denied)). There are three circumstances in which an appraisal award may be set aside on appeal: (1) the award was made without authority, (2) the award was made as a result of fraud or accident, or (3) the award was not make in substantial compliance with the terms of the insurance policy. Crystal City, 877 S.W.2d at 875-76.
In her first issue, Richardson argues the award in this case should be set aside because it was not made in substantial compliance with the policy. We agree. The policy expressly requires that the appraisers each make an itemized list, “stating separately the actual cash value and loss to each item.” It also requires the appraisers to submit to the umpire only the items on which the two appraisers fail to agree. The policy then requires at least two of these individuals must agree on the final appraisal award, and the final award must be “itemized.” The record in this case does not reflect substantial compliance with this required procedure. There is no evidence in the record the appraisers made the requisite itemized lists or that they submitted only disputed items to the umpire for a decision. Instead, the record contains testimony that, prior to Montgomery and Greenhaw signing the award, Johnson never saw any written estimate from Greenhaw and did not meet with Greenhaw or Montgomery to discuss the appraisers’ disputed items. The record contains no itemized list prepared by either appraiser. There is testimony in the record that Johnson prepared a written estimate and forwarded it to the umpire, but that estimate is not in the record. There is no evidence that Johnson ever met with Greenhaw to discuss their itemized estimates so the appraisers could determine their differences. Moreover, the appraisal award signed by Montgomery and Greenhaw is not an “itemized decision” as required by the terms of the insurance policy. Instead, it merely reflects a lump-sum award written next to the phrase “to be determined by hygienist.” Allstate argues that a document prepared by Greenhaw several days after Greenhaw and Montgomery signed the award “comprises the itemized decision upon which the appraisal award was based.” We reject this argument. A document prepared after the appraisal award was issued cannot, as a matter of common sense and law, constitute the itemized list Greenhaw was supposed to prepare before any award was issued. Allstate also argues the award is proper because “nothing in the policy requires that the two individuals agreeing on the award delineate every item to be replaced.” We agree that in a situation like this, in which raw sewage may have contaminated the entire contents of a home, it would not be necessary to list and separately appraise, for example, every item of clothing and kitchen utensil in the home. Nevertheless, we reject Allstate’s contention that the appraisers were entirely relieved of their obligation to make an itemized list that at least categorized the contents of the home in a manner customary in the insurance industry. Under these facts, we conclude the appraisal award should be set aside because the award was not made in substantial compliance with the terms of the insurance policy. E.g., Fisch v. Transcon. Ins. Co., 356 S.W.2d 186, 189-90 (Tex. Civ. App.-Houston 1962, writ ref’d n.r.e.) (setting aside appraisal award because record contained no evidence appraisers failed to agree and only submitted disagreements to umpire, as required by policy) .
Conclusion We reverse the trial court’s summary judgment and remand this case for further proceedings consistent with this opinion. Tex. R. App. P. 43.2(d). The ultimate disposition of this case, including Richardson’s extra-contractual claims and Allstate’s affirmative defenses, will depend on the facts developed and decisions made during the further proceedings in the trial court. Accordingly , we need not address Richardson’s remaining issues at this time. Tex. R. App. P. 47.1.
SUE LAGARDE JUSTICE, ASSIGNED
Footnote 1 The Honorable Sue Lagarde, Justice, Court of Appeals, Fifth District of Texas at Dallas, Retired, sitting by assignment.
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IN THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF TEXAS SHERMAN DIVISION MARIA del CARMEN ESPARZA, § Individually and as Next Friend of, § MIGUEL ANGEL ESPARZA, a Minor, § JUAN ESPARZA MANCILLA, a Minor, § MANUEL ESPARZA-MANCILLA, a Minor, § MELISSA ESPARZA MANSILLAS, a Minor, § ROLANDO ESPARZA, a Minor, § MICHELLE ESPARZA, a Minor, and as the § Representative of the Estate of Manuel Esparza,§ Deceased, CANDELARIO ESPARZA, § JAVIER ESPARZA, BRIGIDA CADENA, § Individually and as Personal Representative § of the Estate of J. MARCOS ESPARZA, § CELIA MERCADO ESPARZA, § Individually and as Representative of the § Estate of MANUEL ESPARZA, Deceased § and A/N/F of MANUEL ESPARZA § MERCADO, a Minor, MANEOR ESPARZA § ESPARZA and MA SANTOS ESPARZA § Case No. 4:05-CV-315 ZAPATA, Individually and as § Representatives of the Estates of § JUAN MARCOS ESPARZA and § GERMAN ESPARZA, Deceased, and § A/N/F of GRISELDA ESPARZA, a Minor, § § Plaintiffs, § § v. § § EAGLE EXPRESS LINES, INC., § KV EXPRESS, INC., MIROSLAW JANUSZ § JOZWIAK, ILLINOIS NATIONAL § INSURANCE COMPANY, CONTINENTAL § CASUALTY COMPANY, and § LEXINGTON INSURANCE COMPANY, § § Defendants. § MEMORANDUM OPINION AND ORDER GRANTING IN PART PLAINTIFFS’ Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 1 of 20
-2- JOINT MOTION FOR SUMMARY JUDGMENT AND DENYING IN PART DEFENDANTS CONTINENTAL CASUALTY COMPANY, LEXINGTON INSURANCE COMPANY AND ILLINOIS NATIONAL INSURANCE COMPANY’S JOINT MOTION FOR SUMMARY JUDGMENT The following are pending before the court: 1. Defendants Continental Casualty Company, Lexington Insurance Company and Illinois National Insurance Company’s joint motion for summary judgment and brief in support (docket entry #74); 2. Contractor Plaintiffs’ joint response to carrier Defendants’ joint motion for summary judgment (docket entry #108); 3. Martin Plaintiffs’ joinder in Contractor Plaintiffs’ joint response to Carrier Defendants’ joint motion for summary judgment (docket entry #109); 4. Defendants Lexington Insurance Company, Continental Casualty Company and Illinois National Insurance Company’s joint reply to Plaintiffs’ response to Carrier Defendants’ joint motion for summary judgment (docket entry #123); and 5. Contractor Plaintiffs’ sur-reply to the Carrier Defendants’ joint motion for summary judgment (docket entry #127). 1. Plaintiffs’ joint motion for summary judgment and brief in support thereof (docket entry #’s 91 & 94); 2. Defendants Continental Casualty Company, Lexington Insurance Company and Illinois National Insurance Company’s response to Plaintiffs’ joint motion for summary judgment and supplement to Defendants Continental Casualty Company, Lexington Insurance Company and Illinois National Insurance Company’s joint motion for summary judgment (docket entry #110); 3. Contractor Plaintiffs’ amended joint reply brief to Carriers’ response to Plaintiffs’ joint motion for summary judgment (docket entry #130); and 4. Carrier Defendants’ joint sur-reply to Plaintiffs’ reply to Carrier Defendants’ response to Plaintiffs’ motion for summary judgment (docket entry #128). Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 2 of 20
-3- 1. Contractor Plaintiffs’ joint motion to strike exhibits from Carriers’ joint response and supplemental motion for summary judgment (docket entry #125); 2. Defendants Continental Casualty Company, Lexington Insurance Company and Illinois National Insurance Company’s response to Plaintiffs’ joint motion to strike exhibits from Carriers’ joint response and supplemental motion for summary judgment and, alternatively, motion for leave to supplement the record (docket entry #’s 134 & 135); and 3. Plaintiffs’ response to Carriers’ response to Plaintiffs’ joint motion to strike exhibits from Carriers’ joint response and supplemental motion for summary judgment and, alternatively, motion for leave to supplement the record (docket entry #’s 156 & 157). 1. Contractor Plaintiffs’ motion to strike affidavits of Cline Young and Patricia Strickland and objections thereto (docket entry #147); 2. Contractor Plaintiffs’ first amended motion to strike affidavits of Cline Young and Patricia Strickland and objections thereto (docket entry #160); 3. Defendants Continental Casualty Company, Lexington Insurance Company and Illinois National Insurance Company’s response to Contractor Plaintiffs’ amended motion to strike affidavits of Cline Young and Patricia Strickland and objections thereto (docket entry #167); 4. Contractor Plaintiffs’ reply to Carriers’ response to Contractor Plaintiffs’ motion to strike affidavits of Cline Young and Patricia Strickland and objections thereto (docket entry #172); and 5. Illinois National’s sur-reply to Contractor Plaintiffs’ reply to Carriers’ response to motion to strike the affidavits of Cline Young and Patricia Strickland and objections thereto (docket entry #179). 1. Contractor Plaintiffs’ motion to strike affidavit of Tina Jahn and objections thereto (docket entry #149); 2. Continental Casualty Company’s response to Contractor Plaintiffs’ motion to strike affidavit of Tina Jahn and objections thereto (docket entry #166); and Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 3 of 20
-4- 3. Contractor Plaintiffs’ reply to Continental Casualty Company’s response to Contractor Plaintiffs’ motion to strike affidavit of Tina Jahn and objections thereto (docket entry #174). 1. Contractor Plaintiffs’ motion to strike the response of Illinois National to the joinder of Eagle Express Lines, Inc. in part of Plaintiffs’ summary judgment motion and to strike the affidavit of Harrison Yoss and objections thereto (docket entry #162); 2. Illinois National’s response to Contractor Plaintiffs’ motion to strike the response of Illinois National to the joinder of Eagle Express Lines, Inc. in part of Plaintiffs’ summary judgment motion and to strike the affidavit of Harrison Yoss and objections thereto (docket entry #171); and 3. Contractor Plaintiffs’ reply to Illinois National’s response to Contractor Plaintiffs’ motion to strike the response of Illinois National to the joinder of Eagle Express Lines, Inc. in part of Plaintiffs’ summary judgment motion and to strike the affidavit of Harrison Yoss and objections thereto (docket entry #181). 1. Illinois National’s motion to substitute the affidavit of Harrison H. Yoss in connection with its response to the joinder of Eagle Express Lines, Inc. in part of Plaintiffs’ summary judgment motion (docket entry #175); and 2. Contractor Plaintiffs’ response to Illinois National’s motion to substitute the affidavit of Harrison H. Yoss (docket entry #182). 1. Continental Casualty Company’s motion for leave to file affidavit of Tina Jahn (docket entry #189); 2. Contractor Plaintiffs’ response to Continental Casualty Company’s motion for leave to file affidavit of Tina Jahn (docket entry #192); and 3. Continental Casualty Company’s reply to Contractor Plaintiffs’ response to Continental Casualty Company’s motion for leave to file affidavit of Tina Jahn (docket entry #193). Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 4 of 20
-5- 1. Plaintiffs’ motion for leave to file supplemental summary judgment evidence in support of motion for summary judgment and response to motion for summary judgment (docket entry #196); 2. Martin Plaintiffs’ joinder in Contractor Plaintiffs’ motion to supplement Plaintiffs’ joint motion for summary judgment (docket entry #200); and 3. Defendants Continental Casualty Company, Lexington Insurance Company and Illinois National Insurance Company’s response to Plaintiffs’ motion for leave to file supplemental summary judgment evidence in support of motion for summary judgment and response to motion for summary judgment (docket entry #203). 1. Contractor Plaintiffs’ motion to supplement Plaintiffs’ joint motion for summary judgment (docket entry #199); and 2. Defendants Continental Casualty Company, Lexington Insurance Company and Illinois National Insurance Company’s response to Plaintiffs’ motion to supplement Plaintiffs’ joint motion for summary judgment (docket entry #201). The court will address the above-referenced motions in turn. OBJECTIONS, MOTIONS TO STRIKE AND MOTIONS TO SUPPLEMENT A. DR. CLINE YOUNG In response to the Plaintiffs’ joint motion for summary judgment, the Carrier Defendants, for the first time, introduced the expert opinion of Dr. Cline Young. See Def. Resp. to Pl. Mtn. for Summ. Judg., Exhs. Y(1), Y(2) & Y(3). The Carrier Defendants also sought to supplement their motion for summary judgment with the same. In his report, Dr. Young opines about the September 20, 2004 events which form the basis of this lawsuit. Although the facts of this case are more specifically set forth below, Dr. Young, in his March 15, 2006 report, provides the following opinions about the facts of this case: 2. The time between the collision of the truck with the Expedition and the collision of the truck with the Pickup was approximately Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 5 of 20
-6- 0.1 ± 0.1 seconds with the collision between the truck and the pickup occurring first. This time was calculated based on the points of impact between the vehicles, the separation distances associated with those points of impact, the angle at which the truck was crossing the roadway at the impacts and the speed of the truck. A computer simulation reflecting this analysis is attached. Note: Some of these measurements were taken from a scaled drawing. More precise measurements are possible from the actual measured data itself. The author would like to have that data. 3. For all practical purposes, the two collisions can be considered to be simultaneous. As can be seen from the data items wherein a combined perception / reaction time of 1.5 seconds is generally used in accident reconstruction, there is no possibility of Mr. Jozwiak responding to the collision of his truck with Mr. Esparza’s pickup, regain control and then have a second collision with Ms. Martin’s vehicle. 1/10th of a second is essentially the time span of a blink of the eye. Furthermore, besides the time needed for perception and reaction, there is additional time needed for driver controls to take effect on the motion of the vehicle. Def. Resp. to Pl. Mtn. for Summ. Judg., Exh. Y(1). The Carrier Defendants seek to introduce Dr. Young’s report to show that the collisions occurred within approximately 1/10th of a second apart and that, as such, the collisions occurred virtually simultaneously. Additionally, the Carrier Defendants seek to introduce Dr. Young’s report to demonstrate that Jozwiak could not have regained control of his truck between the two collisions. The Plaintiffs object to the introduction of Dr. Young’s report on several bases, most important of which is that Dr. Young’s report is not based on an adequate factual foundation. The court agrees. In addition to the above-referenced remarks, Dr. Young further states in his report that he understands . . . that discovery is still ongoing and thereby reserve[s] the right to alter or augment this report and the opinions contained within should additional information become available that warrants such action. More specifically, I would like to have the government documents containing the measurements of the vehicles and the accident Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 6 of 20
1The court notes, however, that even if it did consider Dr. Young’s report, the result would not change. Although Dr. Young’s report indicates that the collisions were, for all practical purposes, simultaneous, Dr. Young’s opinions reveal that the collisions were separated in time, albeit a short period of time. As such, the fact remains that the collisions did not result from a simultaneous impact. -7- site in both printed and electronic formats. Def. Resp. to Pl. Mtn. for Summ. Judg., Exh. Y(1). Although Dr. Young, in a later filed affidavit, states that his conclusions and opinions are based on “all available measurements,” Dr. Young did not mention any review of the actual measured data from the vehicles and the accident site. Since Dr. Young specifically noted that more precise measurements were possible from the actual measured data and since there is no indication that Dr. Young reviewed such data, the court concludes that Dr. Young’s report is not based on an adequate factual foundation. Accordingly, the court declines to consider Dr. Young’s report and hereby strikes it from the record.1 B. THE NTSB REPORT The Carrier Defendants have further offered as summary judgment evidence the National Transportation Safety Board’s (“NTSB”) report. The Plaintiffs object to the admission of the same because “[n]o part of a report of the [NTSB], related to an accident or an investigation of an accident, may be admitted into evidence or used in a civil action for damages resulting from a matter mentioned in the report.” 49 U.S.C. § 1154(b). The Carrier Defendants argue, however, that the report was not offered for the truth of the matter asserted but, rather, to show that the NTSB referred to the events which transpired on September 20, 2004 as a single accident. Since consideration of the NTSB report appears to be prohibited by statute, the court hereby declines to consider the same and strikes the report from the record. Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 7 of 20
2The court notes that resolution of the Plaintiffs’ affirmative defenses of waiver and estoppel cannot be accomplished via a motion for summary judgment because genuine issues of material fact have been raised regarding the same. -8- C. RESERVATION OF RIGHTS LETTERS AND EVIDENCE RELATED THERETO In their joint motion for summary judgment and in their response to the Carrier Defendants’ motion for summary judgment, the Plaintiffs raised the affirmative defenses of waiver and estoppel. The Plaintiffs argue that the Carrier Defendants waived (or are estopped from raising) their right to assert that the events which transpired on September 20, 2004 resulted in a single accident. As discussed more fully below, the court concludes that the events which transpired on September 20, 2004 resulted in two accidents. As such, it is not necessary for the court to reach the Plaintiffs’ affirmative defenses of waiver and estoppel.2 Accordingly, the court overrules the Plaintiffs’ objections to Exhibits Z and CC of the Carrier Defendants’ response to the Plaintiff’s joint motion for summary judgment as moot. Additionally, the court denies as moot all other motions related to the affirmative defenses of waiver and estoppel. D. SUPPLEMENTAL EVIDENCE The Plaintiffs seek to supplement their summary judgment evidence with certain deposition testimony which refutes the expert opinions of Dr. Young. Since the court is not considering Dr. Young’s expert opinions, it is not necessary for the Plaintiffs to supplement their summary judgment evidence with this additional testimony. Likewise, it is not necessary for the Carrier Defendants to supplement said deposition testimony with additional portions of the same. BACKGROUND On September 20, 2004, Miroslaw Janusz Jozwiak (“Jozwiak”) was driving a tractor-trailer rig (“tractor-trailer”) northbound on U.S. Highway 75 near Sherman, Texas. KV Express, Inc. Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 8 of 20
-9- (“KV”) owned the tractor while Eagle Express Lines, Inc. (“Eagle Express”) owned the trailer. Jozwiak crossed the median on U.S. Highway 75 and collided with two vehicles traveling southbound on U.S. Highway 75. Those two vehicles were a Ford F-150 pick-up truck (“the truck”) and a Ford Expedition (“the Expedition”). Although it is unclear which vehicle was first impacted by the tractor-trailer, the resolution of that issue is not relevant to the determination of the issues currently before the court. It is clear, however, that the tractor-trailer (apparently, the trailer portion of the rig) collided with the truck while the truck was traveling southbound in the left lane. Of the seven individuals traveling in the truck, five were fatally injured. The two survivors were seriously injured. It is also clear that the tractor-trailer (apparently, the tractor portion of the rig) collided with the Expedition while the Expedition was traveling southbound in the right lane. At some time after impact, the Expedition and tractor, as well as a portion of the trailer, burst into flames. Five individuals were traveling in the Expedition; none survived. Jozwiak survived with minimal injuries. At the time of the September 20, 2004 events, Illinois National Insurance Company provided truckers’ liability insurance coverage to KV (the “Illinois National Policy”) under policy number SFT165302601. The Illinois National Policy provides $1,000,000 in primary coverage for each “accident.” Additionally, Continental Casualty Company provided truckers’ liability insurance coverage to Eagle Express (the “Continental Casualty Policy”) under policy number 0 1080827873. The Continental Casualty Policy provides for $1,000,000 in coverage for each “accident.” Finally, Lexington Insurance Company provided excess insurance coverage to Eagle Express Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 9 of 20
3Additionally, in the event the court concludes that the September 20, 2004 events involved a single accident / occurrence under the terms of the insurance policies, the Plaintiffs seek a declaration that the MCS-90 endorsements contained within the primary insurance policies provide for either $1,000,000 per judgment or, in the alternative, that the endorsements require a finding of two distinct collisions. Since the court concludes that the plain language of the policies mandates a finding of two accidents / occurrences, the court need not reach the issues concerning the MCS-90 endorsements. -10- (the “Lexington Policy”) under policy number 3167729. The Lexington Policy provides for $1,000,000 in coverage for each “occurrence.” In this declaratory judgment action, the parties seek a declaration under the terms of the insurance policies as to whether the events which transpired on September 20, 2004 involved one or two accidents / occurrences.3 LEGAL STANDARD The purpose of summary judgment is to isolate and dispose of factually unsupported claims or defenses. See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). Summary judgment is proper if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” FED. R. CIV. P. 56(c). A dispute about a material fact is genuine “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The trial court must resolve all reasonable doubts in favor of the party opposing the motion for summary judgment. Casey Enterprises, Inc. v. American Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981)(citations omitted). The substantive law identifies which facts are material. See id. at 248. The party moving for summary judgment has the burden to show that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. See id. at 247. If the movant bears the burden of proof on a claim or defense on which it is moving for summary Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 10 of 20
-11- judgment, it must come forward with evidence that establishes “beyond peradventure all of the essential elements of the claim or defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). But if the nonmovant bears the burden of proof, the movant may discharge its burden by showing that there is an absence of evidence to support the nonmovant’s case. Celotex, 477 U.S. at 323, 325; Byers v. Dallas Morning News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the movant has carried its burden, the nonmovant “must set forth specific facts showing that there is a genuine issue for trial.” FED. R. CIV. P. 56(e). The nonmovant must adduce affirmative evidence. See Anderson, 477 U.S. at 257. CHOICE OF LAW In the Carrier Defendants’ motion for summary judgment, the Carrier Defendants refer the court to both Texas law and Illinois law. The Carrier Defendants argue that this court should apply Illinois law because, under the most significant relationship test, the insurance policies at issue were purchased by, and issued to, the insureds in Illinois. Accordingly, the Carrier Defendants reason that “Illinois law applies to the interpretation of the insurance policies at issue, as Illinois bears the most significant relationship to such policies.” Def. Reply, p. 2, ¶ 2. The Carrier Defendants note, however, that since both Illinois and Texas apply the same analysis to determine whether the events herein involve one accident or two, the results would be the same under both states’ laws. “‘If the laws of the states do not conflict, then no choice-of-law analysis is necessary.’” Schneider National Transport v. Ford Motor Co., 280 F.3d 532, 536 (5th Cir. 2002), quoting W.R. Grace and Co. v. Continental Cas. Co., 896 F.2d 865, 874 (5th Cir. 1990); National Union Fire Ins. v. CNA Ins. Companies, 28 F.3d 29, 32, n. 3 (5th Cir. 1994). Accordingly, in this diversity suit, the law of the forum state, Texas, should apply here because there is no conflict between the substantive Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 11 of 20
-12- state law of Texas and Illinois. See Schneider National Transport, 280 F.3d at 536. DISCUSSION AND ANALYSIS “A contract of insurance is generally subject to the same rules of construction as other contracts.” H.E. Butt Grocery Co. v. National Union Fire Ins. Co. of Pittsburgh, PA, 150 F.3d 526, 529 (5th Cir. 1998) (citation omitted). “The court’s primary concern is to give effect to the written expression of the parties’ intent.” Id. (citation omitted). “If the written contract is worded so that it can be given a definite or certain legal meaning, it is not ambiguous and will be enforced as written.” Id. (citation omitted). “If the court is uncertain as to which of two or more meanings was intended, a provision is ambiguous.” Id. (citation omitted). “An ambiguity in a contract is either ‘patent’ or ‘latent.’” Id. (citation omitted). “‘A patent ambiguity is evident on the face of the contract. A latent ambiguity arises when a contract which is unambiguous on its face is applied to the subject matter with which it deals and an ambiguity appears by reason of some collateral matter.’” Id., quoting National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). “Only after a court has determined a contract is ambiguous can it consider the parties’ interpretations.” Id. (citation omitted). “When a contract is not ambiguous, the court will construe the contract as a matter of law.” Id. (citation omitted). The outcome of this case depends on the meaning of “accident” and “occurrence” as defined by the policies herein. See H.E. Butt Grocery Co., 150 F.3d at 529. The Carrier Defendants argue that the plain language of the polices results in a finding of one accident or occurrence. Conversely, the Plaintiffs contend that the plain language of the policies results in a finding of two accidents or occurrences. Alternatively, the Plaintiffs argue that the policies’ provisions are ambiguous; Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 12 of 20
-13- accordingly, the court should interpret the ambiguity in favor of coverage and find two accidents or occurrences as a matter of law. The Lexington Policy provides coverage as follows: I. COVERAGE A. We will pay on behalf of the Insured that portion of the loss which the Insured will become legally obligated to pay as compensatory damages (excluding all fines, penalties, punitive or exemplary damages) by reason of exhaustion of all applicable underlying limits, whether collectible or not, as specified in Section II of the Declarations, subject to: 1. the terms and conditions of the underlying policy listed in Section IIA of the Declarations, AND 2. our Limit of Liability as stated in Section 1C of the Declarations. III. LIMITS OF LIABILITY A. Aggregate This policy is subject to an aggregate limit of liability as stated in the Declarations. This aggregate limit of liability is the maximum amount which will be paid under this policy for all losses in excess of the underlying policy limits occurring during the policy period, except automobile liability for which there is no applicable aggregate limit of liability. B. Occurrence Limit Subject to the above provision respecting aggregate, the Limit of Liability stated in the Declarations as per occurrence is the total limit of our liability for ultimate net loss including damages for care, loss of services or loss of consortium because of personal injury and property damage combined, sustained by one or more persons or organizations as a result of any one (1) occurrence. Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 13 of 20
-14- C. Limit Exhaustion This policy shall cease to apply after the applicable limits of liability have been exhausted by payments of defense costs and / or judgments and / or settlements. In the event of exhaustion of the aggregate limits of liability of the underlying insurance as stated in Section II of the Declarations, this policy will continue in force as underlying insurance. The aggregate limits of the underlying insurance will only be reduced or exhausted by payment of claims that would be insured by this policy. Def. Jt. Mtn. for Summ. Judg., Exh. A, pp. 1-2. The Lexington Policy defines “occurrence” as follows: The word occurrence means an event, including continuous or repeated exposures to conditions, neither expected or intended from the standpoint of the Insured. All such exposure to substantially the same general conditions shall be deemed one occurrence. Id. at 4. The Continental Casualty Policy and the Illinois National Policy provide coverage as follows: SECTION II – LIABILITY COVERAGE A. Coverage We will pay all sums an “insured” legally must pay as damages because of “bodily injury” or “property damage” to which this insurance applies, caused by an “accident” and resulting from the ownership, maintenance or use of a covered “auto”. C. Limit Of Insurance Regardless of the number of covered “autos”, “insureds”, premiums paid, claims made or vehicles involved in the “accident”, the most we will pay for the total of all damages and “covered pollution cost or expense” combined, Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 14 of 20
4Again, the court notes that the Plaintiffs seek a finding of ambiguity only in the alternative. -15- resulting from any one “accident” is the Limit of Insurance for Liability Coverage shown in the Declarations. All “bodily injury”, “property damage” and “covered pollution cost or expense” resulting from continuous or repeated exposure to substantially the same conditions will be considered as resulting from one “accident”. Id. at Exh. B, pp. 2, 5; Exh. C, pp. 2, 5-6. The Continental Casualty Policy and the Illinois National Policy define “accident” as follows: “Accident” includes continuous or repeated exposure to the same conditions resulting in “bodily injury” or “property damage”. Id. at Exh. B, p. 10, § VI(A), Exh. C, p. 11, § VI(A). Here, none of the parties primarily contend that the terms “accident” and “occurrence” as defined by the policies are ambiguous.4 See U.E. Texas One-Barrington, Ltd., v. General Star Indemnity Co., 332 F.3d 274, 277 (5th Cir. 2003). Further, the parties do not argue that the court’s determination of the number of accidents or occurrences hinges on the resolution of a factual dispute. See id. Accordingly, “Texas courts agree that the proper focus in interpreting ‘occurrence’ is on the events that cause the injuries and give rise to the insured’s liability, rather than on the number of injurious effects.” H.E. Butt Grocery Co., 150 F.3d at 530, quoting Maurice Pincoffs Co. v. St. Paul Fire & Marine Ins. Co., 447 F.2d 204, 206 (5th Cir. 1971). In H.E. Butt Grocery Co., an insurance coverage dispute arose from an H.E. Butt Grocery Company’s (“HEB”) employee’s sexual abuse of two children in an HEB store. H.E. Butt Grocery Co., 150 F.3d at 528. An HEB employee sexually assaulted two different children approximately one week apart in the restroom of an HEB store. Id. Litigation ensued which subsequently led to HEB seeking a declaratory judgment against National Union Fire Insurance Company. HEB argued Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 15 of 20
-16- that each instance of sexual abuse arose from the same “occurrence”, i.e., HEB’s negligence in overseeing its pedophilic employee. Id. Conversely, National Union Fire Insurance Company argued that the two separate instances of sexual abuse constituted two occurrences under the policy. Id. The policy defined “occurrence” as follows: “Occurrence” means an event, including continuous or repeated exposure to conditions, which result[s] in Personal Injury or Property Damage during the policy period, neither expected nor intended from the standpoint of the Insured. All Personal Injury or Property Damage arising out of the continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence. H.E. Butt Grocery Co., 150 F.3d at 529. The court concluded that “the two independent acts of sexual abuse ‘caused’ the two children’s injuries and gave rise to HEB’s separate and distinct liability in each case.” Id. at 531. Likewise, in Maurice Pincoffs Co., supra., an insurance coverage dispute arose from the sale of contaminated birdseed. Maurice Pincoffs Co., 447 F.2d at 205. Maurice Pincoffs Company imported 110,000 pounds of canary seed from Argentina. Id. The birdseed was sold in the original 110 pound bags to eight different feed and grain dealers in Texas and Oklahoma. Id. The dealers, in turn, sold the birdseed to bird owners. Id. The birdseed, apparently contaminated with a chemical insecticide toxic to birds, killed many birds. Id. Litigation ensued which eventually led to a declaratory judgment action. The central issue was whether there was one “occurrence” of liability or more than one “occurrence” of liability under the insurance policy at issue. Id. at 206. The policy defined “occurrence” as follows: “Occurrence” means an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured. Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 16 of 20
-17- Id. In finding that there was more than one occurrence of liability, the court reasoned as follows: We think that the ‘occurrence’ to which the policy must refer is the occurrence of the events or incidents for which Pincoffs is liable. It was the sale of the contaminated seed for which Pincoffs was liable. Although the cause of the contamination is not clear, it seems apparent that Pincoffs received the seed in a contaminated condition and did not itself contaminate the seed. However, it was not the act of contamination which subjected Pincoffs to liability. If Pincoffs had destroyed the seed before sale, for instance, there would be no occurrence at all for which the insured would be liable. But once a sale was made there would be liability for any resulting damages. It was the sale that created the exposure to ‘a condition which resulted in property damage neither expected nor intended from the standpoint of the insured,’ under the definition of the policy. And for each of the eight sales made by Pincoffs, there was a new exposure and another occurrence. Id. Moreover, in Liberty Mutual Ins. Co. v. Rawls, 404 F.2d 880 (5th Cir. 1968), the single question presented to the court was whether the insured had been involved in one accident or two accidents. As the insured was proceeding north upon a public highway at a high rate of speed, he collided with the left rear of a northbound automobile and knocked it off the highway to the right. Id. The insured continued northerly, veering across the centerline and collided head-on with a southbound automobile. Id. The impacts were separated by both time (two to five seconds) and distance (30 to 300 feet apart). Id. In finding as a matter of law that there were two accidents, the court reasoned as follows: There were two distinct collisions, or more than a single sudden collision. There is no evidence that the [insured’s] automobile went out of control after striking the rear end of appellees’ automobile. On the contrary, the only reasonable inference is that [the insured] had control of his vehicle after the initial collision. Id. at 880. Here, the Carrier Defendants argue that both the truck and the Expedition were exposed to continuous or repeated exposure to the same condition, that is, Jozwiak crossing the median into the Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 17 of 20
5The Carrier Defendants have provided the court with numerous newspaper articles which refer to the events which transpired on September 20, 2004 as a single accident. The court notes, however, that the authors of those articles were not construing the terms of the insurance policies herein. -18- southbound lanes of U.S. Highway 75. The Carrier Defendants contend that the tractor-trailer crossed into southbound traffic in one continuous event. The Carrier Defendants further argue that the evidence does not indicate that the tractor-trailer stopped and then started again, nor does the evidence indicate that Jozwiak lost control of the tractor-trailer and then subsequently regained control. The Carrier Defendants apply the following reasoning: There is no evidence showing that Jozwiak regained control between the two collisions. In fact, as the entire accident occurred within seconds, . . ., it would have been impossible for Jozwiak to regain control after hitting the Expedition and before hitting the pickup truck. Based on the distance between the cars in the southbound lanes prior to the first collision, the rapid succession of the collisions and the absence of any evidence showing that Jozwiak ever regained control of the tractor-trailer after the first collision, . . ., this Court must find that there was only one accident / occurrence. . . The collisions in this case resulted from the same cause – namely, a tractor-trailer that struck two cars before coming to rest. Thus, under the terms of the insurance policies at issue, there was a single accident / occurrence. Def. Jt. Mtn. for Summ. Judg., p. 13.5 The court concludes that the Carrier Defendants’ arguments are over-reaching. First, as likened to the facts of Maurice Pincoffs, if the tractor-trailer had crossed the median into the southbound lanes of traffic but there were no oncoming vehicles, then the insureds would not be subject to liability. Under the theory propounded by the court in Maurice Pincoffs, it was each collision in the instant case that created the continuous or repeated exposure to the same, or substantially the same, conditions, not the fact that the tractor-trailer crossed the median. Second, it is clear that each collision occurred independently. Regardless of which collision occurred first, Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 18 of 20
6In the Plaintiffs’ joint motion for summary judgment, the Plaintiffs raise the issue that the Carrier Defendants appear to contend that the policy limits have been exhausted as a result of a settlement reached with certain Plaintiffs. The court, however, denied the motion to approve that settlement. Furthermore, the policies state that exhaustion occurs upon payment of any judgments or settlements. Since the court has neither approved any settlements nor entered any judgments, the policy limits have not yet been exhausted. -19- the collision between the tractor-trailer and the truck did not cause or affect the collision between the tractor-trailer and the Expedition. The truck’s collision with the tractor-trailer did not cause the truck to spin out of control into the Expedition. Likewise, the Expedition’s collision with the tractortrailer did not cause the Expedition to spin out of control into the truck. Similarly, neither the truck’s nor the Expedition’s collision with the tractor-trailer caused the tractor-trailer to lose control and collide with any other vehicle. In following the teachings of H.E. Butt Grocery Co., the court must conclude that each individual collision with the tractor-trailer created the continuous or repeated exposure to the same, or substantially the same, conditions. See H.E. Butt Grocery Co., 150 F.3d at 533. Finally, as in Rawls, the collisions were separated by both time and distance. All of the foregoing leads the court to the conclusion that, as a matter of law, the events which transpired on September 20, 2004 resulted in two separate accidents or occurrences. The court reaches this conclusion by looking to the events that caused the injuries and gave rise to the insureds’ liability, not to the number of injuries or the number of victims. H.E. Butt Grocery Co., 150 F.3d at 535.6 CONCLUSION Based on the foregoing, the court concludes as follows: 1. Defendants Continental Casualty Company, Lexington Insurance Company and Illinois National Insurance Company’s joint motion for summary judgment and brief in support (docket entry #74) is DENIED IN PART; 2. Plaintiffs’ joint motion for summary judgment and brief in support thereof (docket entry #’s 91 & 94) is GRANTED IN PART; Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 19 of 20
-20- 3. Contractor Plaintiffs’ joint motion to strike exhibits from Carriers’ joint response and supplemental motion for summary judgment (docket entry #125) is GRANTED IN PART; 4. Defendants Continental Casualty Company, Lexington Insurance Company and Illinois National Insurance Company’s motion for leave to supplement the record (docket entry #135) is DENIED; 5. Contractor Plaintiffs’ motion to strike affidavits of Cline Young and Patricia Strickland and objections thereto (docket entry #147) and Contractor Plaintiffs’ first amended motion to strike affidavits of Cline Young and Patricia Strickland and objections thereto (docket entry #160) are GRANTED IN PART; 6. Contractor Plaintiffs’ motion to strike affidavit of Tina Jahn and objections thereto (docket entry #149) is DENIED AS MOOT; 7. Plaintiffs’ motion for leave to supplement the record (docket entry #156) is DENIED; 8. Contractor Plaintiffs’ motion to strike the response of Illinois National to the joinder of Eagle Express Lines, Inc. in part of Plaintiffs’ summary judgment motion and to strike the affidavit of Harrison Yoss and objections thereto (docket entry #162) is DENIED AS MOOT; 9. Illinois National’s motion to substitute the affidavit of Harrison H. Yoss in connection with its response to the joinder of Eagle Express Lines, Inc. in part of Plaintiffs’ summary judgment motion (docket entry #175) is DENIED AS MOOT; 10. Continental Casualty Company’s motion for leave to file affidavit of Tina Jahn (docket entry #189) is DENIED AS MOOT; 11. Plaintiffs’ motion for leave to file supplemental summary judgment evidence in support of motion for summary judgment and response to motion for summary judgment (docket entry #196) is DENIED; and 12. Contractor Plaintiffs’ motion to supplement Plaintiffs’ joint motion for summary judgment (docket entry #199) is DENIED. Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 20 of 20
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Appellants, MEMC Electronic Materials and MEMC Pasadena (collectively MEMC), appeal the trial court’s order that granted a motion for partial summary judgment urged by appellees, Albemarle Corporation and its insurers, Lexington Insurance and Travelers Property Casualty Group, and that denied MEMC’s cross-motion for partial summary judgment.FN1 After Albemarle indemnified Ethyl Corporation for claims paid by Ethyl to three people who were injured in a fire at a manufacturing plant, Albemarle sought indemnification from MEMC for Albemarle’s payment to Ethyl. MEMC refused to indemnify Albemarle, contending that the Asset Purchase Agreement between MEMC and Albemarle does not require the indemnification. In a single issue on appeal that challenges the trial court’s rendition of summary judgment in favor of Albemarle, MEMC asserts three reasons that the trial court should have rendered judgment in its favor. First, MEMC contends that Albemarle’s right to obtain indemnification from MEMC under the Asset Purchase Agreement was not triggered by the claims against Ethyl because every claim for which Ethyl was held liable arose out of Ethyl’s design and operation of the plant prior to the closing date of the Asset Purchase Agreement. Second, MEMC asserts that the Ethyl Indemnity Agreement was not an obligation that it assumed under the terms of the Asset Purchase Agreement. Third, MEMC states that Albemarle’s claim for indemnity is unenforceable under Texas and Virginia law. Albemarle replies by asserting that its indemnification of Ethyl was required under Virginia law, that the indemnification provision of the Asset Purchase Agreement is not modified by any other part of the agreement, and that the indemnification’s before-and-after nature provides for the indemnification that it seeks here.FN2
FN1. The trial court granted the parties’ Joint Motion to Sever and Abate the damages portion of the case, rendering the grant of partial summary judgment a final, appealable judgment.
FN2. Both parties filed post-submission supplemental briefs with this Court. We allow this supplementation in accordance with Rule 38 .7 of the Texas Rules of Appellate Procedure. See Tex.R.App. P. 38.7 (“A brief may be amended or supplemented whenever justice requires, on whatever reasonable terms the court may prescribe.”)
Considering the entire agreement and all individual provisions in the context of the whole instrument, we conclude that the Asset Purchase Agreement does not obligate MEMC to indemnify Albemarle for its payment to Ethyl for Ethyl’s liability for injuries caused by a fire at the plant. We do not reach the issue of whether the laws of Texas and Virginia make the indemnity agreement unenforceable as matter of law. We reverse and render judgment in favor of MEMC.
Ethyl designed and built a polysilicon manufacturing plant located in Pasadena, Texas. In 1994, Ethyl created Albemarle as a separate company and transferred various of its businesses, including the plant, to Albemarle’s ownership and control. The transfer was under a “Reorganization and Distribution Agreement.” Ethyl and Albemarle also entered into an “Indemnification Agreement,” under which Albemarle agreed to “indemnify, defend and hold harmless Ethyl … from and against any and all Indemnifiable Losses of the Ethyl Indemnitees arising out of or due to the failure or alleged failure of Albemarle or any of its Affiliates to pay, perform, or otherwise discharge in due course any of the Albemarle Liabilities.” The agreements between Ethyl and Albemarle are governed by the laws of the state of Virginia.
In 1995, Albemarle sold the plant to MEMC pursuant to an “Asset Purchase Agreement” that is governed by Texas law. The closing date for the agreement was July 31, 1995. Under a separate agreement, MEMC and Albemarle agreed that Albemarle would continue to operate the plant.
The Asset Purchase Agreement describes the transfer of the plant and other assets and liabilities in Sections 3.3 and 3.4. Some assets and liabilities were specifically excluded from the transfer, and only certain liabilities were assumed by MEMC. Section 3.4(b) specifies that MEMC “shall not assume any other Liabilities of Seller whatsoever” except “those Liabilities specifically assumed” in Section 3.4(a). Section 3.4(a) does not mention the agreement between Ethyl and Albemarle, nor was that agreement a contract that was assumed by MEMC in the accompanying Schedule 3.4(a)(i). The agreement further specified that MEMC did not assume any liability that results or arises from the operation of the plant prior to the closing date.
Albemarle made certain representations and warranties to MEMC. Under Section 4.16, labeled “Contracts and Commitments,” Albemarle represented that, except as set forth in Schedule 4.16, it was “not a party to” and the transferred assets “are not bound by” and the Assumed Obligations “shall not include, any written or oral, formal or informal … agreements between or among Seller and any Affiliate of Seller ….“ Schedule 4.16 did not mention the indemnity agreement between Ethyl and Albemarle.
The Asset Purchase Agreement between Albemarle and MEMC included an indemnity provision. Generally speaking, depending on whether the damages arose out of the operation of the plant “prior to the closing date” or “on or after the closing date,” MEMC would indemnify Albemarle for the damages, or Albemarle would indemnify MEMC for the damages. In Section 7.3, Albemarle agreed to indemnify MEMC from and against all damages incurred by MEMC directly or indirectly by reason of or resulting from liabilities, obligations or claims, with respect to the plant arising out of operations of the plant prior to the Closing Date. Similarly, Section 7.4 provided that MEMC would indemnify Albemarle from and against all damages asserted against, resulting to, imposed upon or incurred by Albemarle, directly or indirectly by reason of or resulting from liabilities, obligations or claims with respect to the plant arising out of the operations of the plant on or after the Closing Date.
In 1996, three Albemarle employees were injured when a fire broke out at the plant. The employees, collectively referred to as the the Damewood plaintiffs, filed a lawsuit against a number of parties, including Ethyl and MEMC.FN3 Albemarle, which carried worker’s compensation coverage, was not subject to suit. MEMC settled with the Damewood plaintiffs. Of the parties relevant to the present case, only Ethyl went to trial in the underlying litigation. Pursuant to the agreement between Ethyl and Albemarle, Albemarle defended Ethyl in the Damewood litigation. At the close of the trial, Ethyl was the only remaining defendant, and a jury rendered a verdict in excess of six-and-a-half million dollars against Ethyl. Ethyl appealed, and while the appeal was pending, it settled with the Damewood plaintiffs for approximately five million dollars. Ethyl sought indemnification from Albemarle under the terms of their agreement. Albemarle indemnified Ethyl for its losses, which is the amount that Albemarle now seeks from MEMC in this lawsuit.
FN3. Larry Damewood, Gary Woodard, and Roy Moss v. Ethyl Corporation, Cause No. 96-38521, in the 189th District Court of Harris County, Texas.
MEMC filed for summary judgment, which was denied. Albemarle then filed a motion for partial summary judgment on the issue of whether MEMC was obligated to indemnify Albemarle, and MEMC re-urged its motion as a cross-motion for partial summary judgment. The trial court ruled in Albemarle’s favor. The trial court severed the summary judgment order and abated the question of damages so the parties could bring the present appeal.
Standard of Review
When reviewing cross-motions for summary judgment, we consider both motions and render the judgment that the trial court should have entered. Coastal Liquids Transp., L.P. v. Harris County Appraisal Dist., 46 S.W.3d 880, 884 (Tex.2001). Further, in a contract action where, as here, neither party contends that a contract is ambiguous, a court should construe the contract as a matter of law, and, on appeal, the court’s ruling is subject to de novo review. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.2003) (citing Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983)) (applying rule to arbitration agreement); C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d 768, 780 (Tex.App.-Houston [1st Dist.] 2004, no pet.) (interpreting asset purchase agreement); Tesoro Petroleum Corp. v. Nabors Drilling USA, Inc., 106 S.W.3d 118, 125 (Tex.App.-Houston [1st Dist.] 2002, pet. denied) (interpreting indemnity agreement); Webb v. Lawson-Avila Constr., Inc., 911 S.W.2d 457, 459-60 (Tex.App.-San Antonio 1995, writ dism’d w.o.j.).
“An indemnity agreement is a promise to safeguard or hold the indemnitee harmless against either existing and/or future loss liability.” Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex.1993). Indemnity provisions are to be strictly construed, pursuant to the usual principles of contract interpretation, in order to give effect to the parties’ intent as expressed in the agreement. See Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex.1984). In construing a written contract, the court’s primary concern is to ascertain the true intent of the parties as expressed in the instrument. J.M. Davidson, Inc., 128 S.W.3d at 229; see C.M. Asfahl Agency, 135 S.W.3d at 780. Accordingly, the court must examine and consider the entire writing in an effort to harmonize and give effect to all provisions so that none is rendered meaningless. J.M. Davidson, Inc., 128 S.W.3d at 229. The court may not consider any single provision, taken in isolation, as controlling, but must consider all provisions in the context of the entire instrument. Id.
Obligations Assumed by MEMC Under the Agreement
MEMC contends that, in its Asset Purchase Agreement with Albemarle, it did not assume an obligation for the indemnity agreement between Ethyl and Albermarle. MEMC contends that Sections 3.4, 4.16 and 3.3(b) exclude the agreement between Albemarle and Ethyl from the agreement between Albemarle and MEMC. Albemarle does not dispute that the agreement between Ethyl and Albemarle is never mentioned specifically in the agreement between Albemarle and MEMC. Albemarle, however, asserts that it is entitled to indemnification from MEMC under Section 7.4, the section of the agreement that pertains to indemnification.
MEMC Does Not Assume Obligation for Ethyl-Albemarle Agreement
MEMC points to Section 3.4 of the Asset Purchase Agreement to show that it did not assume any obligation for the indemnity agreement between Ethyl and Albermarle. As noted above, Albemarle does not dispute that Section 3.4 does not mention the agreement between Ethyl and Albemarle.
The Asset Purchase Agreement describes the transferred business and transferred assets. Section 3.4(a) specifically describes “Assumed Obligations.” These are obligations, assumed by MEMC, of liabilities that belong to Albemarle. The only obligations that are assumed by MEMC are those that are listed in Schedule 3.4(a)(i), the “Assumed Contracts[.]” FN4 The agreement between Ethyl and Albemarle was not listed in Schedule 3.4(a)(i) as a contract that was assumed by MEMC. Moreover, the agreement between Albemarle and MEMC specifically provided that MEMC would “assume no liabilities relating to the Assumed Contracts which result or arise from operation of the Transferred Business or the Transferred Assets prior to the Closing Date.” MEMC thus correctly points out that Section 3.4(a) provides that MEMC is assuming an obligation for only the liabilities of Albemarle that “are listed in Schedule 3.4(a)(i) [,]” and that the agreement between Ethyl and Albermarle is not listed in that Schedule. We agree with MEMC’s representation that under Section 3.4(a), it has not assumed liability for the agreement between Ethyl and Albemarle.
FN4. The Asset Purchase Agreement states,
Section 3.4 Assumptions by MEMC Pasadena
(a) Liabilities Being Assumed. Except as otherwise expressly provided herein and subject to the terms and conditions of the Agreement, simultaneously with the sale, transfer, conveyance and assignment to MEMC Pasadena of the Transferred Assets, MEMC Pasadena shall assume and agree and undertake in writing to pay, perform, and discharge as and when due … the following Liabilities of Seller (collectively, “Assumed Obligations” ):
(i) those Liabilities of Seller under all contracts, leases, subleases, commitments, supply contracts, agreements and orders relating primarily to the operation of the Transferred Business or the Transferred Assets, but in all such cases only to the extent the same are listed in Schedule 3.4(a)(i) attached hereto (the “Assumed Contracts” ) provided, however, that MEMC Pasadena shall assume no liabilities relating to the Assumed Contracts which result or arise from operation of the Transferred Business or the Transferred Assets prior to the Closing Date ….
The Asset Purchase Agreement specifies under Section 3.4(b) that liabilities of Albermarle are not being assumed by MEMC. The only exception is that MEMC is assuming liability for items listed in Schedule 3.4(a)(i), which is the schedule included within 3.4(a). Section 3.4(b) states that MEMC “shall not assume any other Liabilities” of Albemarle, unless the liability is “specifically assumed in writing” under Section 3.4(a). The agreement between Albemarle and Ethyl is not listed in Schedule 3.4(a)(i) and is therefore excluded from the obligations assumed by MEMC. MEMC thus accurately represents that under Section 3.4(b), it has not assumed liability for the agreement between Ethyl and Albemarle.FN5
FN5. Section 3.4(b) of the Asset Purchase Agreement states,
(b) Liabilities Not Being Assumed. Except for those Liabilities specifically assumed in writing by MEMC Pasadena pursuant to Section 3.4(a) hereof, MEMC Pasadena shall not assume any other Liabilities of Seller whatsoever such as (by way of example and without limitation of the scope of the preceding portion of this sentence), the following (collectively, “Excluded Obligations” ).
(i) any Liabilities of Seller (other than Assumed Obligations) of any nature whatsoever (regardless of whether the existence of such Liability (A) is or was at any time known or unknown to MEMC Pasadena, MEMC or Seller or (B) constitutes or does not constitute a breach of any representation or warranty of Seller to MEMC or MEMC Pasadena) to the extent arising or incurred or which arose or were incurred on or before the Closing, or which are based on (1) events occurring on or before the Closing, or (2) the operation of the Transferred Business on or before the Closing, notwithstanding that the date on which the claim, demand or Liability arose is after the Closing …
In summary, Sections 3.4(a) and (b) provide that MEMC is not assuming obligation for liabilities of Albemarle that are not specifically set forth in Schedule 3.4(a). The agreement between Ethyl and Albemarle is not mentioned in Schedule 3.4(a). We conclude that Section 3.4 of the agreement does not provide for MEMC to assume obligation for the indemnity agreement between Ethyl and Albermarle. Our task, however, is not merely to examine a single provision of the agreement, but to look at all the provisions in the context of the entire instrument in an effort to harmonize and give effect to all provisions so that none is rendered meaningless. See J.M. Davidson, Inc., 128 S.W.3d at 229.
Albemarle Did Not Disclose Ethyl-Albermarle Agreement
MEMC contends that the failure of Albemarle to disclose the existence of the indemnity agreement between Ethyl and Albemarle shows that there was never any obligation by MEMC for that agreement. Albemarle makes representations and warranties to MEMC in the Asset Purchase Agreement. Under Section 4.16(a)(x) of the Asset Purchase Agreement, Albemarle represents that it is not “a party to” and is “not bound by” any “agreements between or among” Albemarle and any “Affiliate.” The indemnification agreement between Ethyl and Albemarle showed that Albemarle was Ethyl’s “wholly-owned subsidiary[,]” which meets the definition of affiliate in the agreement between Albemarle and MEMC.FN6 Further, Section 4.16(xiii) includes Albemarle’s representation that it is not “a party to” and is “not bound by … any other agreement, contract, commitment, arrangement or instrument that relate[s] to or may affect the plant.” FN7 The only exception to these provisions concerns agreements listed in schedules accompanying the Asset Purchase Agreement. As noted above, the indemnity agreement between Ethyl and Albemarle was never disclosed in any schedule, nor was it ever mentioned in the Asset Purchase Agreement. We conclude that Section 4.16 called for Albemarle to disclose contract and commitments that “relate to or may affect” the plant, but Albemarle did not disclose its indemnity agreement with Ethyl. We also conclude that Albemarle failed to disclose in Section 4.16 the indemnity agreement it had with its affiliate, Ethyl. Albemarle’s failure to disclose its indemnity agreement with Ethyl suggests that MEMC was not aware of that agreement and did not obligate itself to cover any liability imposed under that agreement. We conclude that terms of Section 4.16 support MEMC’s position that it is not obligated for the indemnity agreement between Albemarle and Ethyl.
FN6. “Affiliate” is defined in the agreement as “in the case of an entity, any person who or which, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, any specified Person (the term “control” for these purposes means the ability, whether by ownership of shares or other equity interest, by contract or otherwise, to elect a majority of the directors of a corporation … or have the power to remove and then select, a majority of those Persons exercising governing authority over an entity).”
FN7. The Asset Purchase Agreement states,
Section 4.16 Contracts and Commitments
(a) Except as set forth in Schedule 4.16 or in other Schedules to this Agreement hereof, to Seller’s knowledge, Seller is not, with respect to the Transferred Business or the Transferred Assets, a party to, and the Transferred Assets and the Transferred Business are not bound by, and the Assumed Obligations shall not include, any written or oral, formal or informal …
[the section lists a number of possible contractual obligations]
(x) agreements between or among Seller and any Affiliate of Seller;
(xiii)any other agreement, contract, commitment, arrangement or instrument that relate to or may affect the Transferred Business, except for the Assumed Contracts.
In view of Sections 3.4 and 4.16 of the Asset Purchase Agreement, we conclude that those sections suggest that MEMC was not obligated to indemnify Albemarle for the payment that it made to Ethyl.FN8
FN8. We disagree with MEMC that Section 3.3(b) supports its position that it is not obligated to Albemarle here, because we conclude that the section is inapplicable. Section 3.3(b) states that Albemarle continues to have responsibility for certain assets, including “(v) all indemnification rights against and indemnification agreements with other parties arising out of the Transferred Business or the Transferred Assets prior to the Closing Date.” The indemnity agreement between Ethyl and Albemarle is not an asset of Albemarle’s, but is rather a liability, and that Section, therefore, does not aid in our analysis of the issues here.
The Indemnification Portion of the Agreement
Albemarle contends that the indemnification terms specified by Section 7.4 of the agreement require MEMC to indemnify Albemarle, and that under the rules of contract construction, we must favor an interpretation that affords some consequence to each part of the instrument so that none of its provisions will be rendered meaningless. Albemarle contends Section 7.4(a) requires MEMC to indemnify it for its obligation to Ethyl so long as that obligation FN9 (1) is with respect to the transferred business,FN10 and (2) arose out of the operation of the transferred business, (3) on or after the closing date.
FN9. MEMC does not challenge Albemarle’s assertion that it met the term “Liabilities, Obligations or Claims” because the lawsuit arising out of the January 1996 fire would qualify as an obligation, claim, or liability. The Asset Purchase Agreement defines Liabilities as: “any and all debts, claims, liabilities and obligations of any kind, regardless of whether disclosure thereof would be required to be made in accordance with [Generally Accepted Accounting Principles], whether accrued or fixed, absolute or contingent or determined or determinable.”
FN10. Albemarle contends that it is undisputed that the Damewood plaintiffs were injured while performing polysilicon manufacturing operations for the Pasadena business, and thus the injuries were “with respect to the Transferred Business.” The agreement between Albemarle and MEMC defines “Transferred Business” as “all of the business of Seller related to the manufacture of granular polysilicon, silane, sodium aluminum fluoride, and sodium ethyl silicate at the manufacturing facilities of Seller located in Pasadena, Texas, but specifically excluding Seller’s sodium aluminum hydride business[.]”
MEMC’s challenge on appeal focuses on the term “arising out of the operations of the Transferred Business … on or after the Closing Date.” MEMC contends that the undisputed evidence shows that Albemarle’s payment to Ethyl was due to the agreement between them, which occurred prior to the Closing Date of the Asset Purchase Agreement between Albemarle and Ethyl, and that the payment did not arise out of the operations of the plant on or after the Closing Date. In short, the tort claims by the Damewood plaintiffs are not the legal basis for Albemarle’s indemnity claim here. MEMC also asserts that the undisputed summary judgment record indicates that every claim for which Ethyl was held liable arose out of Ethyl’s design and operation of the plant prior to the closing date of the Asset Purchase Agreement.
Albemarle responds that we should rely on the specific indemnity provision in Section 7.4(a) of the Asset Purchase Agreement, despite the fact that the Asset Purchase Agreement fails to mention the indemnity agreement between Ethyl and Albemarle. Albemarle contends that “Resolution of the meaning of the term ‘arising out of’ is, perhaps, the central and controlling issue presented to this Court.” Albemarle asserts that it is asking this Court to give “arising out of” the “normal inclusive” reading that “reasonable mutual indemnitors would have accorded the phrase.”
Under Section 7.4(a) of the Asset Purchase Agreement, MEMC must indemnify Albemarle for all damages asserted against, resulting to, imposed upon or incurred by Albemarle directly or indirectly by reason of or resulting from liabilities, obligations or claims with respect to the plant arising out of the operations of the plant on or after the Closing Date.FN11 The Damewood plaintiffs were injured after the Closing Date of the Asset Purchase Agreement and there is no dispute that those injuries arose out of the operations of the plant. The damages at issue here, however, consist of the payment made by Albemarle to Ethyl pursuant to their indemnity agreement, which was an agreement in existence before the Closing Date of the Asset Purchase Agreement. We conclude that the payment made to indemnify Ethyl was not a liability, obligation or claim arising out of the operations of the plant, but rather a payment that arose out of the prior contractual relationship between Albemarle and Ethyl.
FN11. Section 7.4 of the Asset Purchase Agreement provides that MEMC will indemnify Albemarle under certain circumstances. The agreement states,
Section 7.4 MEMC’s and MEMC Pasadena’s Agreement to Indemnify. Subject to the terms and conditions of this Article 7, MEMC and MEMC Pasadena jointly and severally agree to indemnify, defend and hold harmless Seller from and against all Damages asserted against, resulting to, imposed upon or incurred by Seller, directly or indirectly (collectively, “Seller Claims” ), by reason of or resulting from:
(a) without prejudice to any obligations of Seller under the Operating Agreement or the Utilities and Services Agreement, liabilities, obligations or claims with respect to the Transferred Business or the Transferred Assets (whether absolute, accrued, contingent or otherwise) arising out of the operations of the Transferred Business or the Transferred Assets (including the Facility and the Facility Site) on or after the Closing Date;
(b) liabilities with respect to the Assumed Obligations and the Assumed Contracts;
(c) a breach of any representation, warranty or agreement of MEMC or MEMC Pasadena contained in or made pursuant to this Agreement ….
We disagree with the assertion by Albemarle that we will render Section 7.4(a) meaningless if we interpret the Asset Purchase Agreement to deny recovery here. The Asset Purchase Agreement plainly provides for MEMC to indemnify for damages arising out of the operations of the plant on or after the Closing Date. That indemnity agreement remains in place for any liabilities, obligations or claims that arise out of the operations of the plant on or after the closing date. Our holding merely denies recovery for any Albemarle liabilities, obligations or claims that arise out of unidentified, contractual obligations in existence prior to the Closing Date that were not specifically mentioned by the Asset Purchase Agreement with MEMC.FN12
FN12. In its most recent supplemental brief, Albemarle contends that the language in Section 7.4. which states that the section is “[s]ubject to the terms and conditions of this Article 7 ” requires us to read Section 7.4 independently of Articles 3 and 4. To the contrary, we note that the term “subject to the terms and conditions” appears throughout the agreement, and nowhere requires any section to be read in isolation. We also note that Section 7.1 expressly incorporates all other agreements between the parties into Article 7:
All representations, warranties and agreements made by any party to this Agreement or pursuant hereto shall be true, complete, and correct as of the date hereof and at and as of the Closing Date as though such representations, warranties, covenants and agreements were made at and as of the closing date.
Viewing the indemnity provision in context with the agreement as a whole, our conclusion is consistent with the other sections of the agreement. As we noted above, Section 3.4 of the agreement does not provide for MEMC to assume an obligation for the indemnity agreement between Albemarle and Ethyl. Additionally, Albemarle’s failure to disclose the agreement under Section 4.16, suggests that MEMC was not aware of the agreement. We further noted that Section 4.16(a)(x) suggests that MEMC is not obligated to Albemarle for its payment to Ethyl because it is a “wholly-owned subsidiary” of Ethyl, which would qualify as an “Affiliate of Seller” under the Asset Purchase Agreement.
Albemarle refers us to decisions that interpret “arising out of” language to require only a causal nexus between the action and the result. For its broad interpretation, Albemarle calls this court’s attention to a number of cases construing insurance contracts. See Mid-Century Ins. Co. of Tex. v. Lindsey, 997 S.W .2d 153, 156 (Tex.1999); Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex.2004); McCarthy Bros. Co. v. Cont’l Lloyds Ins. Co., 7 S.W.3d 725, 730 (Tex.App.-Austin 1999, no pet.); Gen. Agents Ins. Co. v. Arredondo, 52. S.W.3d 762, 767 (Tex.App.-San Antonio 2001, pet. denied); Sport Supply Group, Inc. v. Columbia Cas. Co., 335 F.3d 453, 458 (5th Cir.2003). In interpreting an insurance policy, when that policy “is subject to more than one reasonable interpretation, we must adopt the construction most favorable to the insured when we resolve the uncertainty.” State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex.1998). Albemarle presents no authority that requires us to interpret the terms of contractual indemnity in a commercial setting-terms which neither party contends are subject to multiple reasonable interpretations-to favor the indemnitee.
MEMC relies on an unpublished decision from this Court in Union Tex. Petroleum Energy Corp. v. Kelly Operating Co., No. 01-96-00346-CV, 1997 WL 476322 (Tex.App.-Houston [1st Dist.] Aug. 21, 1997, no pet.) (not designated for publication). In August 1990, four men were injured by a well and sued Union Texas for negligent dredging of an oil well extension canal that occurred in 1975. Id. at *1. Kelly refused to indemnify Union Texas under their May 1990 agreement that provided that Kelly would discharge all obligations arising out of the purchased property with respect to all occurrences on or after the Effective Date of the agreement. Id. This Court held that the agreement that provided for indemnity after May 1990 did not apply because the negligent conduct-the 1975 dredging of the oil well-occurred prior to the effective date of the agreement. Id. at *3. Here, similarly, the liability, obligation or claim arises from the contractual relationship between Albemarle and Ethyl, which occurred before the Closing Date of the Asset Purchase Agreement. See id.
Examining the entire writing in order to give effect to the intent of the parties as expressed in the agreement, and in order to render no clause meaningless, we conclude that the Asset Purchase Agreement does not obligate MEMC to indemnify Albemarle for the payment to Ethyl under the agreement between Albemarle and Ethyl. The trial court therefore erred by granting partial summary judgment for Albmarle, and also erred by failing to grant partial summary judgment in favor of MEMC.
We reverse and render judgment for MEMC.
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