Diane Kunde and Gary Kunde, Individually and as Next Friends of Their Minor Son, Shane Scott and Shane Scott v. Government Employees Insurance Company

cv4-147

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

ON MOTION FOR REHEARING

NO. 03-94-00147-CV

Diane Kunde and Gary Kunde, Individually and as Next Friends of Their Minor Son,

Shane Scott, and Shane Scott, Appellants

Government Employees Insurance Company, Appellee

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250TH JUDICIAL DISTRICT

NO. 93-04771, HONORABLE MARGARET A. COOPER, JUDGE PRESIDING

This Court's opinion dated May 31, 1995 is withdrawn, and substitute the following opinion in its place.

This is a declaratory judgment action arising from a dispute over insurance benefits due to passengers injured in a car accident. See Uniform Declaratory Judgments Act, Tex. Civ. Prac. & Rem. Code Ann. §§ 37.001-.011 (West 1986 & Supp. 1995). Diane and Gary Kunde, individually and as next friends of their son Shane Scott, and Shane Scott individually appeal the trial court's summary judgment in favor of appellee Government Employees Insurance Company ("GEICO"). We will affirm the trial court's judgment.

BACKGROUND

On February 11, 1992, Jason Copenhaver drove a car involved in an accident with another car driven by Lori Smith. Copenhaver and his passengers, Shane Scott and Ryan Winters, were injured in the accident, as was Smith. GEICO had issued a policy of automobile liability insurance covering the vehicle driven by Copenhaver to Copenhaver's father, Lamar Copenhaver. The parents of Scott, Smith, and Winters all made liability claims against Jason Copenhaver's parents ("the Copenhavers"). Additionally, the Kundes and James Winters, Ryan Winters's father, sought payment of uninsured or underinsured motorist benefits.

GEICO took the position that the insurance policy applicable to the accident covered bodily injury up to $25,000 per person and $50,000 per accident.⁽¹⁾ GEICO settled the Smiths' claims against the Copenhavers for $25,000. The Kundes then demanded that GEICO pay the remaining $25,000 to them. After conferring with the Copenhavers and hearing their concerns that settling with the Kundes for the entire remaining limits of the policy would not be fair or right, GEICO refused to pay the Kundes' demand amount and instead filed an action in interpleader (the "GEICO I action") to determine the rights of the two remaining claimants.⁽²⁾ GEICO ultimately settled James Winters's claims for $5000 of the remaining $25,000 liability limit. On February 2, 1993, the court granted a partial summary judgment in favor of GEICO, stating that the Kundes take nothing on their counterclaims against GEICO.⁽³⁾

On February 17, 1993, the Kundes and the Copenhavers executed a document entitled "Assignment and Covenant Not to Execute" (the "Assignment") which assigned to the Kundes all causes of action for damages that the Copenhavers might have or acquire against GEICO, including any claims pursuant to any negligent failure or refusal to settle by GEICO, in consideration of the Kundes' agreement to forego collection from the Copenhavers any amount of the judgment rendered in the Kundes' pending cross-claim against the Copenhavers in the GEICO I action. The Assignment was signed even though GEICO had advised the Copenhavers that their coverage under their insurance policy would be destroyed if they entered into such an agreement. The docket sheet reflects that the Kundes nonsuited their claims against the Copenhavers on February 18, 1993, and the claims were dismissed without a determination of the merits.

GEICO filed this declaratory judgment action (the "GEICO II action") against appellants and the Copenhavers on April 26, 1993, to insure that it would not have to pay any judgment worked out between the Copenhavers and the Kundes under the Assignment. Appellants filed a motion to dismiss the cause and a plea in abatement, asserting that the allegations in the GEICO II action were compulsory counterclaims in the pending GEICO I action. The trial court denied the motion and plea. GEICO then filed a motion for summary judgment, which the trial court granted, holding that the Copenhavers' actions in entering into the Assignment constituted a material breach of a condition precedent in their insurance policy with GEICO and thus relieved GEICO of any obligation under the policy. The trial court also decreed that because of their breach, the Copenhavers held no right, interest, or cause of action against GEICO to assign to anyone and that the Kundes therefore had gained no rights through assignment from the Copenhavers as expressed in the Assignment. The Kundes and Scott appeal the trial court's summary judgment by four points of error.⁽⁴⁾

DISCUSSION

In their second and third points of error, appellants complain that the trial court erred in refusing to abate or dismiss the GEICO II action primarily because the basis of the action was a compulsory counterclaim required to be brought in the pending GEICO I action. Our record does not contain the pleadings from the GEICO I action.⁽⁵⁾ This Court overruled appellants' motion to supplement our record with the Kundes' original answer, cross-action, and counterclaim in the GEICO I action. GEICO asserts that it is impossible for this Court to determine whether the GEICO II action was a compulsory counterclaim to the GEICO I action when we cannot compare the pleadings filed in each lawsuit. Appellants, citing Crown Life Insurance Co. v. Estate of Gonzalez, 820 S.W.2d 121 (Tex. 1991), contend that since this Court overruled their motion to supplement the record with their pleadings from the GEICO I action without also holding that the supplementation would have unreasonably delayed the appeal, we cannot now affirm the trial court's judgment due to an incomplete record. See id. at 121-22 (reversing appellate court's affirmance on basis of incomplete record when appellate court overruled motion to supplement but made no finding that supplementation would have unreasonably delayed appeal).

The appellant in Crown Life sought to supplement the appellate record with two depositions the trial court considered in granting summary judgment. Id. at 121. Unlike the appellant in Crown Life, however, appellants in the instant cause sought to supplement the record with pleadings from the GEICO I action in another district court that were not part of the GEICO II record. Appellants did not attach the pleadings to their motion to dismiss and plea in abatement or to their motion for summary judgment, but only requested the trial court to take judicial notice of them. Generally, a court may not judicially notice records of another court. Culver v. Pickens, 176 S.W.2d 167, 171 (Tex. 1944). However, even assuming the pleadings could be properly noticed under Texas Rule of Civil Evidence 201, the record does not indicate that the trial court took judicial notice of the Kundes' pleadings from the GEICO I action. See National County Mut. Fire Ins. Co. v. Hood, 693 S.W.2d 638, 639 (Tex. App.--Houston 1985, no writ); see also 6 Richard Orsinger, McDonald Texas Civil Practice § 43:8 (1992 ed.) (stating that information judicially noticed will appear in record). Rather, the court order denying appellants' motion to dismiss and plea in abatement reflects that it is based on the trial court's consideration of appellants' motion and plea as well as counsels' argument. Moreover, in a summary judgment case, courts will not judicially notice pleadings even of the same court which have not been properly attached to the motion for summary judgment. See McCurry v. Aetna Casualty & Sur. Co., 742 S.W.2d 863, 867 (Tex. App.--Corpus Christi 1987, writ denied); Gist v. Stamford Hosp. Dist., 541 S.W.2d 510, 511 (Tex. Civ. App.--Eastland 1976, writ ref'd n.r.e.); see also Gardner v. Martin, 345 S.W.2d 274, 276 (Tex. 1961) (holding certified copies of court records referred to in summary judgment motion should have been attached to motion).⁽⁶⁾ We thus distinguish Crown Life from the instant case.

Appellate courts generally review a trial court ruling based on the record before the trial court when it made its ruling. Bellair, Inc. v. Aviall of Texas, Inc., 819 S.W.2d 895, 898 (Tex. App.--Dallas 1991, writ denied); see also Gulf Oil Corp. v. Southland Royalty Co., 478 S.W.2d 583, 591 (Tex. Civ. App.--El Paso 1972), aff'd, 496 S.W.2d 547 (Tex. 1973) (holding matters not introduced at trial should not encumber record on appeal and will not be considered on appeal). Consequently, if appellants' request to supplement the record had been granted, we could not consider the supplemented pleadings as a basis of our review. As such, without the Kundes' pleadings from the GEICO I action and a record of all the issues before the trial court in the GEICO I action, we agree with GEICO that appellants cannot demonstrate the merits of their points of error asserting that the instant GEICO II action is a compulsory counterclaim to the GEICO I action. We overrule appellants' second and third points of error.

In their fourth point of error, appellants contend that the trial court committed fundamental error by proceeding with its ruling in the absence of Shane Scott, an indispensable party to the proceeding. Appellants assert that Scott is an indispensable party to this action because the assignment that forms the basis of this suit assigns the Copenhavers' rights not only to the Kundes, but also to Scott.⁽⁷⁾ Appellants call our attention to the original petition in this cause, which names as parties only "Diane Kunde and Gary Kunde, individually and as next friends of their minor son, Shane Scott"; the style of GEICO's original petition forms the basis of appellants' argument that Scott was not joined as a party to the proceeding.

Even assuming that appellants' contention is correct, appellants have waived their point of error by failing to object to the alleged defect of parties at the trial court level. See Pirtle v. Gregory, 629 S.W.2d 919, 920 (Tex. 1982) (holding that defendants could not complain on appeal about nonjoinder of indispensable party because they did not complain of error at trial level by exception, plea in abatement, or motion to join other parties); see also Cox v. Johnson, 638 S.W.2d 867, 868 (Tex. 1982) (holding complaint about nonjoinder of indispensable party ineffectual when error raised for the first time on appeal because nonjoinder was not a matter of fundamental error).

In any event, appellants' complaint of nonjoinder does not constitute fundamental error. In Pirtle, the supreme court expressly refused to apply the doctrine of fundamental error, that being reserved for those "rare instances in which the record shows the court lacked jurisdiction or that the public interest is directly and adversely affected." 629 S.W.2d at 920. The failure to join an indispensable party is not a matter of fundamental error. Cox, 638 S.W.2d at 868; see Pirtle, 629 S.W.2d at 920; see also Cooper v. Texas Gulf Indus., Inc., 513 S.W.2d 200, 204 (Tex. 1974) ("[I]t would be rare indeed if there were a person whose presence was so indispensable in the sense that his absence deprives the court of jurisdiction to adjudicate between the parties already joined."). Appellants' fourth point of error is overruled.

In their first point of error, appellants complain that the trial court erred in granting GEICO's motion for summary judgment. A movant for summary judgment must establish that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548 (Tex. 1985). All evidence favorable to the nonmovants will be taken as true; every reasonable inference must be indulged in favor of the nonmovants and any doubts resolved in their favor. Id. at 548-49.

The trial court granted summary judgment based on its finding that the Copenhavers' actions in executing the Assignment constituted a material breach of a condition precedent to their insurance policy, thereby relieving GEICO of any duties under the policy. The grounds presented in GEICO's motion for summary judgment, specifically relying on the applicable provisions of the insurance policy,⁽⁸⁾ the Assignment executed by the Copenhavers and the Kundes, and correspondence from GEICO to the Copenhavers' attorney retained by GEICO informing him of GEICO's position that the Copenhavers would breach their obligations under their insurance policy with GEICO if they executed the Assignment, entitled GEICO to summary judgment. Appellants presented no summary judgment evidence to controvert that of GEICO; instead, they asserted an affirmative defense and now contend that the trial court failed to consider that material fact issues existed in regard to their affirmative defense.

One who relies on an affirmative defense to defeat a motion for summary judgment has the burden to come forward with competent summary judgment evidence sufficient to raise a genuine issue of material fact on each element of the affirmative defense. Brownlee v. Brownlee, 665 S.W.2d 111, 112 (Tex. 1984). Appellants' response to GEICO's motion for summary judgment asserted the affirmative defense that GEICO, by acts of misrepresentation and negligence in handling the settlement of the claims in the GEICO I action, breached the Copenhavers' policy. Appellants contend that because GEICO breached the Copenhavers' policy, it is thus estopped from relying on other portions of the policy to support a summary judgment in its favor.⁽⁹⁾ Appellants cite Texas Farmers Insurance Co. v. Soriano, 844 S.W.2d 808, 817-18 (Tex. App.--San Antonio, 1992), rev'd, 881 S.W.2d 312 (Tex. 1994), for the proposition that GEICO breached the Copenhavers' policy when it settled James Winters's claim and thus left insufficient funds within policy limits to settle the Kundes' more substantial claim against the Copenhavers. The supreme court has subsequently concluded that an insurer may reasonably settle a claim of one of several claimants even though the settlement exhausts or reduces the funds available to satisfy other claims. Texas Farmers Ins. Co. v. Soriano, 881 S.W.2d 312, 315 (Tex. 1994). Consequently, appellants' citation to Soriano does not support any element of appellants' affirmative defense.

Thus, appellants' affirmative defense rests on a negligence claim against GEICO based on G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544, 547 (Tex. Comm'n App. 1929, holding approved) (holding insurers may be liable for negligent failure to settle claims made against their insureds within policy limits). Soriano indicates that when faced with a settlement demand arising out of multiple claims and inadequate proceeds, an insurer cannot be liable for negligently failing to settle one of the multiple claims unless (1) the insurer negligently rejected a demand from the claimant within policy limits; or (2) a settlement made with one of the other claimants was itself unreasonable. 881 S.W.2d at 315. However, the two-step analysis employed in Soriano does not arise until a Stowers cause of action accrues. The mere refusal of the insurer to accept a settlement offer does not, without more, give rise to a Stowers case of action; the insured must also be harmed by the rendition of a judgment against it in excess of the proposed settlement offer. Foremost County Mut. Ins. Co. v. Home Indem. Co., 897 F.2d 754, 757 (5th Cir. 1990) (applying Texas law). In the instant cause, no judgment has been rendered against the Copenhavers. As such, it cannot be determined whether GEICO negligently failed to settle appellants' claims within policy limits. Appellants cannot raise any fact issues regarding GEICO's negligent failure to settle when that cause of action has not accrued.

Appellants' response to GEICO's motion for summary judgment does not allege any other grounds by which GEICO is not entitled to summary judgment. The supreme court has declared: "[I]ssues a non-movant contends avoid the movant's entitlement to summary judgment must be expressly presented by written answer to the motion . . . and are not expressly presented by mere reference to summary judgment evidence." McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341 (Tex. 1993); see also City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979) ("[T]he non-movant must expressly present to the trial court any reasons seeking to avoid movant's entitlement . . . and [it] must present summary judgment proof when necessary to establish a fact issue."). Appellants' response to GEICO's motion for summary judgment fails to meet appellants' burden to negate GEICO's entitlement to summary judgment. See Brownlee, 665 S.W.2d at 112. We overrule appellants' first point of error.

Having overruled all of appellants' points of error, we affirm the judgment of the trial court.

Marilyn Aboussie, Justice

Before Justices Powers, Aboussie and B. A. Smith

Affirmed

Filed: September 13, 1995

Do Not Publish

1. The Kundes claim GEICO issued two insurance policies to the Copenhavers, both of which provide coverage for the injuries involved in this case.

2. The Copenhavers, the Kundes, and James Winters were named as defendants in the GEICO I action. Brackenridge Hospital and the City of Austin were also named as defendants because they had filed a lien as to Winters's claim. As defendants, the Kundes and James Winters evidently filed cross-claims against the Copenhavers and counterclaims against GEICO, but these pleadings were not included in the record. This Court overruled appellants' presubmission motion to supplement the record with their original answer, cross-action, and counterclaim in the GEICO I action.

3. The parties dispute whether GEICO remained a party to the GEICO I action on other pending claims following the partial summary judgment. The record does not indicate that GEICO ever nonsuited its interpleader action, and appellants claim that the partial summary judgment only partially granted GEICO's motion for partial summary judgment, specifically reserving some of appellants' claims.

4. The Copenhavers have not appealed.

5. We note that the record does contain GEICO's original petition from the GEICO I action.

6. Appellants argue that the judicial notice requested in their plea of abatement was mandatory, not discretionary, because they supplied the court with the necessary information. See Tex. R. Civ. Evid. 201(d). Because appellants have not assigned the trial court's apparent failure to take judicial notice as a point of error, we do not address their contention that judicial notice was mandatory or the applicability of Rule 201 to judicial notice of court documents.

7. Under § 37.006 of the Civil Practice and Remedies Code, when declaratory relief is sought, all parties with a claim or interest that would be affected by the declaration must be joined as parties. Tex. Civ. Prac. & Rem. Code Ann. § 37.006 (West 1986); cf. Tex. R. Civ. P. 39 (providing that person claiming interest relating to subject of cause of action shall be joined if absence would impair ability to protect that interest or leave present parties subject to risk of inconsistent obligations by reason of person's claimed interest).

8. Parts E and F of the insurance policy provide, among other things, that persons seeking coverage must cooperate with GEICO in the investigation, settlement, or defense of any claim or suit against the insured; that the insureds' rights and duties under the policy may not be assigned without GEICO's written consent; that no legal action may be brought against GEICO until the insured has fully complied with all terms of the policy; and that no legal action may be brought against GEICO for the liability of its insureds until GEICO agrees in writing that the insured has an obligation to pay or the amount of the obligation to pay has been finally determined by judgment after trial.

9. Appellants argue in their reply brief to this Court that the affirmative defense raised "was that [GEICO's] actions in failing to act like a reasonable insurer would in a like situation in its handling of the claims at issue and its failure to settle claims within policy limits when it could have done so constituted a prior breach of the [Copenhavers' insurance] policy." Appellants did in fact raise this affirmative defense in their first amended answer. However, we note that only grounds expressly presented to the trial court by response to a motion for summary judgment may defeat the movant's entitlement to summary judgment. McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341 (Tex. 1993). Grounds raised in trial and appellate briefs are not sufficient. Id. at 340 (citing Watkins v. Hammerman & Gainer, 814 S.W.2d 867, 869 n.1 (Tex. App.--Austin 1991, no writ)). We therefore look only to appellants' response to GEICO's motion for summary judgment to discern the affirmative defense grounds asserted by appellants.

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