TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-98-00456-CV
Mark Burroughs, Kenneth Burroughs, Indemnity Casualty and Property Limited
and Insurance General Management Company, Appellants
v.
James and Cynthia Gallagher, Appellees
NO. 94-05080, HONORABLE SUZANNE COVINGTON, JUDGE PRESIDING
BACKGROUND
The Gallaghers contend ICP failed to perform its duty to defend them from a lawsuit filed against Professional Restaurant Investment Management Enterprises, Inc. ("P.R.I.M.E."), a corporation for which they worked and which they partly owned. The P.R.I.M.E.-run restaurant at which they worked was known as the Lighthouse on Lake Travis.
ICP issued a general liability policy covering various corporate entities, including Prime Restaurant Management Enterprises, Inc. dba The Lighthouse on Lake Travis, Briarcliff Marina, Inc.; Briarcove Investment Group, Inc.; and Briarcliff Boat Rental Company. The Lighthouse Restaurant was located at Briar Cliff Marina. (2) Mark Burroughs was president of ICP when it issued the policy. He was also then president of General, the management company that handled ICP's business affairs. Ken Burroughs was chairman of ICP's board of directors and vice president of General.
The Gallaghers believe ICP should have defended them from suit by Stephanie C., a waitress at the Lighthouse Restaurant, who alleged that she was sexually assaulted by Matthew Kyle, a patron of the Lighthouse Restaurant and manager of boat rentals at Briar Cliff Marina. She sued Kyle for a variety of causes of action including assault and libel stemming from his attack and subsequent statements about it. She sued the Gallaghers and their company for premises liability on negligence and gross negligence theories; in her third amended petition, she added an allegation that the Gallaghers were vicariously liable for her injuries caused by the condition of the business premises.
ICP initially provided the Gallaghers a defense, subject to further investigation. Mark Burroughs, writing on General letterhead, later fired the Gallaghers' ICP-hired attorneys; though he stated he intended to hire other counsel, he never did. In his letter, Mark Burroughs also noted that the Gallaghers were personally represented by attorneys from their homeowners' insurer. A few months later, Mark Burroughs wrote on General letterhead to inform the Gallaghers that ICP was withdrawing its defense because they were sued individually and not in any corporate capacity; he stated that in any event ICP might have no suit against which to defend because the Gallaghers' corporation had filed for bankruptcy, which might prevent it from being sued.
The Gallaghers sued ICP for breach of contract, breach of the duty of good faith and fair dealing, and deceptive trade practices. As damages, they sought the attorney's fees incurred in assuming their defense. After a nonjury trial, the trial court made several findings of fact, including the following:
1. On March 27, 1989, Defendant Indemnity Casualty and Property Limited had in full force [and] effect a commercial general liability policy number GLAU 10176.
2. Indemnity Casualty and Property Limited owed a duty to defend James and Cynthia Gallagher in cause number 494,848, Stephanie C. v. Matthew Kyle, et al. in the 331st District court of Travis County, Texas, under the terms of the above-referenced policy.
* * *
7. Indemnity Casualty and Property Limited engaged in the business of unauthorized insurance.
8. Kenneth Burroughs, Mark Burroughs, and Insurance General Management Corporation assisted and aided directly and indirectly in the procurement of unauthorized insurance.
The trial court awarded the Gallaghers $77,170 in actual damages (plus interest), $154,340 in additional damages, and attorney's fees.
DISCUSSION
The appellants assert four points of error. By the first point, they challenge the trial court's finding that ICP had a duty to defend the Gallaghers. By the second point, they challenge the court's findings related to ICP's authorization to practice insurance and the role the Burroughses played in procuring those allegedly unauthorized services. They contend by the third and fourth points of error that they are not subject to additional damages because the Texas Insurance Code does not authorize such damages and because the Gallaghers are not consumers.
An insurer's duty to defend is determined by the allegations in the pleadings and the language of the insurance policy. National Union Fire Ins. Co. v. Merchants Fast Motor Lines, Inc., 939 S.W.2d 139, 141 (Tex. 1997); Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965). This is sometimes referred to as the "eight corners" rule. See National Union, 939 S.W.2d at 141. When applying the eight corners rule, we must give the allegations in the petition a liberal interpretation. Id. As the supreme court has explained:
Where the complaint does not state facts sufficient to clearly bring the case within or without the coverage, the general rule is that the insurer is obligated to defend if there is, potentially, a case under the complaint within the coverage of the policy. Stated differently, in case of doubt as to whether or not the allegations of a complaint against the insured state a cause of action within the coverage of a liability policy sufficient to compel the insurer to defend the action, such doubt will be resolved in insured's favor.
Id. (quoting Heyden, 387 S.W.2d at 26). The duty to defend is not affected by facts ascertained before suit, developed in the process of the litigation, or by the ultimate outcome of the suit. See Texas Property & Cas. Ins. Guar. Ass'n v. Southwest Aggregates, Inc., 982 S.W.2d 600, 604 (Tex. App.--Austin 1998, no pet.).
Comparison of the insurance policy and the petition reveals some discrepancies between them. Stephanie C. did not name "Prime Restaurant Management Enterprises, Inc. dba The Lighthouse on Lake Travis," the insured listed in the insurance policy, as a defendant in any of her petitions. (3) The style of the case and opening paragraph of the second amended petition list doing business as Lighthouse Restaurant and Marina and/or Prime Restaurant, Incorporated." The jurisdiction section lists "James Gallagher, Cynthia Gallagher, doing business as Briar Cove Marina and/or the Lighthouse Restaurant and Marina and/or Prime, Incorporated." The negligence section includes in its list "James Gallagher, Cynthia Gallagher, Prime Incorporated" and others, but contains no "d/b/a" designations; the gross negligence section refers to "the Gallagher defendants" and "the managers of the Lighthouse Restaurant." The third amended petition, the live pleading before the trial court, is similar to the second, but does not name the parties in the opening paragraph; it adds a vicarious liability section which names "the Gallaghers, directly and indirectly through their alter-ego P.R.I.M.E., Inc. or Prime, Inc. d/b/a or a/k/a Lighthouse Restaurant and Marina." The policy states that it covers the executive officers, directors, and stockholders of corporations, as well as employees acting in the scope of their employment who are not being sued for inflicting bodily injury.
The appellants rely in part on evidence outside the eight corners to substantiate their position. Burroughs testified that he believed ICP did not owe the Gallaghers a defense because they were served in their individual capacity and not in a corporate capacity. That assertion is not evident from the petitions, but apparently is based on the return of service cards, which are not even in evidence. The appellants introduced a certificate from the Texas Secretary of State stating that no entity under the name "Prime Restaurant Management Enterprises, Inc." had registered with that office; the appellants argue that their duty to defend did not extend to parties not named in the insurance policy. The Gallaghers counter with the appellants' initial reservation of rights letter which recognized a duty under the policy to provide a defense to "Professional Restaurant Investment Managements Enterprises, Inc. d/b/a The Lighthouse on Lake Travis." (Italics added.) These arguments by both sides rely on evidence and information outside the eight corners; we accordingly must ignore them. See National Union, 939 S.W.2d at 141; Heyden, 387 S.W.2d at 26.
We conclude that the appellants should have provided a defense to the Gallaghers. Even though the precise party name in the policy was not exactly the same as the name in the petition, the test is whether "there is, potentially, a case under the complaint within the coverage of the policy." See National Union, 939 S.W.2d at 141. We conclude that the many variations of the corporate name alleged in the petitions have enough in common with the named insured to create the possibility that Stephanie C. might state a complaint within the policy's coverage; that is particularly true because the other entities insured under the endorsement were also named in the suit. Also, several references in the petition to the Gallaghers "doing business as" Prime or the Lighthouse indicate that claims could be made against the entity named in the policy, which was listed in the endorsement as "dba the Lighthouse on Lake Travis"--thus indicating that Stephanie C. could have claims against the Gallaghers in a capacity that invoked the duty to defend. We overrule point of error one.
By point of error three, the appellants contend that "[t]he trial court erred in its finding that Mark Burroughs, Kenneth Burroughs, ICP and [General] are subject to any additional damages because article 1.14 [section] 8 does not provide for additional damages." Insurance Code article 21.21, however, authorizes additional damages for knowing commission of unfair or deceptive acts or practices in the business of insurance. Tex. Ins. Code Ann. art. 21-21, § 16(b)(1) (West Supp. 1999). The trial court expressly stated in its judgment that "Defendants breached the insurance contract and knowingly violated article 21.21 of The Texas Insurance Code." Because additional damages are authorized on the basis of Insurance Code article 21.21, the appellants' objection based on Insurance Code article 1.14-1 does not require the reversal of that award. We overrule point three.
By point of error four, the appellants contend that the court erred by awarding additional damages because no evidence showed that the Gallaghers were consumers. The statute creating the right of recovery for false, misleading, or deceptive acts or practices in the business of insurance does not require that the plaintiff be a consumer. See Tex. Ins. Code Ann. art. 21.21 (West Supp. 1999); Aetna Casualty & Sur. Co. v. Marshall, 724 S.W.2d 770, 772 (Tex. 1987). We overrule point four.
By point of error two, the appellants contend there was no evidence showing that ICP lacked authority to engage in the business of insurance when it sold the policy. The appellants complain that there was accordingly no evidence that either Burroughs aided the procurement of unauthorized insurance by selling ICP policies. We need not address these complaints because we have found the award of damages, additional damages, and attorney's fees stands on the complaint under Insurance Code article 21.21. See Tex. R. App. P. 47.1.
CONCLUSION
We conclude that the evidence supported the trial court's conclusion that ICP had in full force a policy that obligated it to defend the Gallaghers from Stephanie C.'s lawsuit. Because none of the assigned errors requires reversal, we affirm the judgment.
Marilyn Aboussie, Chief Justice
Before Chief Justice Aboussie, Justices Kidd and Patterson
Affirmed
Filed: September 10, 1999
Do Not Publish
1. The Gallaghers' first amended complaint has a note to the court that the homeowners' insurer, Northern Insurance Company of New York, is subrogated to the Gallaghers' rights, that Northern obtained a partial assignment of the Gallaghers' rights to pursue the Gallaghers' claims, and that Northern is prosecuting this suit in the name of the Gallaghers pursuant to the terms of both the homeowners' insurance policy and the assignment. (Apparently, the Gallaghers' policy has passed through several companies. The original policy indicates it was sold by American General Companies. Maryland Casualty Company provided the defense, and Northern pursued this suit.) We will adhere to the style of the case and refer to appellees as the Gallaghers.
2. The discrepancies in the spellings and wordings of "Professional Restaurant Investment Management Enterprises" and "Prime Restaurant Management Enterprises," and "Briar Cliff" and "Briarcliff," are discrepancies between the insurance policy and the pleadings.
3. There was some dispute over which version of the petition was relevant. Burroughs claimed he saw only the second amended petition. Burroughs fired Davis & Wilkerson, the firm hired to represent the Gallaghers, on October 10, 1992. He represented that he would obtain other counsel and have that new counsel obtain the file from Davis & Wilkerson. He still had not hired new counsel when Davis & Wilkerson withdrew from the case on December 18, 1992. The third amended petition nevertheless was served on Davis & Wilkerson on December 30, 1992. Not until January 29, 1993 did Burroughs inform the Gallaghers that ICP/General was withdrawing their defense.
named in the suit. Also, several references in the petition to the Gallaghers "doing business as" Prime or the Lighthouse indicate that claims could be made against the entity named in the policy, which was listed in the endorsement as "dba the Lighthouse on Lake Travis"--thus indicating that Stephanie C. could have claims against the Gallaghers in a capacity that invoked the duty to defend. We overrule point of error one.
By point of error three, the appellants contend that "[t]he trial court erred in its finding that Mark Burroughs, Kenneth Burroughs, ICP and [General] are subject to any additional damages because article 1.14 [section] 8 does not provide for additional damages." Insurance Code article 21.21, however, authorizes additional damages for knowing commission of unfair or deceptive acts or practices in the business of insurance. Tex. Ins. Code Ann. art. 21-21, § 16(b)(1) (West Supp. 1999). The trial court expressly stated in its judgment that "Defendants breached the insurance contract and knowingly violated article 21.21 of The Texas Insurance Code." Because additional damages are authorized on the basis of Insurance Code article 21.21, the appellants' objection based on Insurance Code article 1.14-1 does not require the reversal of that award. We overrule point three.
By point of error four, the appellants contend that the court erred by awarding additional damages because no evidence showed that the Gallaghers were consumers. The statute creating the right of recovery for false, misleading, or deceptive acts or practices in the business of insurance does not require that the plaintiff be a consumer. See Tex. Ins. Code Ann. art. 21.21 (West Supp. 1999); Aetna Casualty & Sur. Co. v. Marshall, 724 S.W.2d 770, 772 (Tex. 1987). We overrule point four.
By point of error two, the appellants contend there was no evidence showing that ICP lacked authority to engage in the business of insurance when it sold the policy. The appellants complain that there was accordingly no evidence that either Burroughs aided the procurement of unauthorized insurance by selling ICP policies. We need not address these complaints because we have found the award of damages, additional damages, and attorney's fees stands on the complaint under Insurance Code article 21.21. See Tex. R. App. P. 47.1.
CONCLUSION
We conclude that the evidence supported the trial court's conclusion that ICP had in full force a policy that obligated it to defend the Gallaghers from Stephanie C.'s lawsuit. Because none of the assigned errors requires reversal, we affirm the judgment.
Marilyn Aboussie, Chief Justice
Before Chief Justice Aboussie, Justices Kidd and Patterson
Affirmed
Filed: September 10, 1999
Do Not Publis