Daniel J. Peters and Wife, Mercedes J. Peters v. State Farm Lloyds

97169cvc.wrv.wpd

IN THE

TENTH COURT OF APPEALS

No. 10-97-169-CV

     DANIEL J. PETERS AND WIFE,

     MERCEDES J. PETERS,                                                                                                                                           Appellants

     v.

     STATE FARM LLOYDS,

                                                                         Appellee

 

From the 74th District Court

McLennan County, Texas

Trial Court # 96-2529-3

                                                                                                                 

O P I N I O N

                                                                                                                 

      Dan and Mercedes Peters were sued for alleged DTPA violations in the sale of their house. Under the Peters’ homeowners policy, State Farm agreed to pay for their defense subject to a reservation of rights. After a jury found a “knowing” violation of the DTPA, State Farm withdrew. The Peters sued State Farm for negligence and breach of contract. State Farm moved for summary judgment, which the trial court granted. The Peters appeal, urging that State Farm’s motion for summary judgment did not properly address each of their causes of action.

FACTS

      In July 1993, Dan and Mercedes Peters sold their home at 208 Castle, Waco, Texas, to Michael Carabine for $220,000. In 1995, Carabine sued the Peters, alleging that they had made false representations concerning the condition of the house, representing it to be in good condition and not in need of any major repairs. Carabine also asserted that the Texas Deceptive Trades Practices and Consumer Protection Act (the “DTPA”) had been “knowingly” violated. He alleged that the Peters represented the house to be in good condition, but after moving in, he discovered considerable damage to the house, its roof, its foundation and subflooring which was known to the Peters at the time of the transaction and which they failed to disclose. Some specific problems alleged by Carabine include:

      1. Accumulated surface waters beneath the first floor bedrooms resulted in foundation damage, the rotting away of joists, sills and girders, rotting of the carpeting, and damage to the baseboards. Carabine alleged that this problem was clearly known to the Peters as evidenced by throw rugs which had been placed over the holes in the rotted carpet and holes which had been cut in the floor of the closets to allow access to the area beneath the floor for inspection.

      2. Serious leaks in the roof allowed rain water to enter the interior of the house and cause significant damage. Evidence that this condition was known to the Peters included the existence of a washtub in the attic to catch rain water entering the house. Since the Peters did not disclose the existence of the leaks or the tub, Carabine did not discover it until the tub overflowed, causing serious damage to the rooms below. Additionally, cloth and foam rubber had been placed beneath other leaks in the attic in an attempt to protect the rooms below from further water damage.

      3. A wall constructed by the Peters in the master bedroom concealed the original exterior wall, including the wooden framing members and the window frames which were rotted as a result of water penetration.

      4. Rotted wood on the exterior of the house was freshly painted by the Peters (who operate a paint contracting business) to disguise its condition.

      State Farm undertook the defense under a homeowners policy issued to the Peters, but by letter specifically reserved the right to deny coverage on the ground the allegations in the petition did not state an “occurrence” as defined in the policy and also reserved the right to withdraw if State Farm determined there was no duty to defend. The first reservation-of-rights letter was dated March 7, 1995, and was followed with a supplement dated April 20, 1995. The case went to trial in July of 1996. At the conclusion of the trial, the jury found the Peters had engaged in a false, misleading or deceptive act or practice and that this was done “knowingly.” Judgment against them was entered on July 30.

      After judgment, the Peters requested that State Farm indemnify them and either pay the judgment or arrive at a settlement that would release them from any liability. On August 7, 1996, seven days after entry of judgment, State Farm advised the Peters that there would be no coverage under their homeowners policy for the judgment based on the jury finding that they acted “knowingly.” After receiving this notification, the Peters requested that State Farm continue to represent them on appeal. On August 16, 1996, sixteen days after judgment was entered, State Farm refused, based on its determination that no duty to defend or pay existed under the policy.

      On August 14, 1996, the Peters filed suit against State Farm on various grounds. State Farm filed a Motion for Summary Judgment alleging they had no duty under the Peters’ policy, and therefore, no duty to pay for the appeal or pay the judgment. The trial court granted State Farm’s motion. On appeal, the Peters claim any right that State Farm had to abandon their defense was expressly conditioned “upon reasonable notice.” The Peters claim the summary judgment was limited to whether an obligation to pay the judgment existed by reason of a jury finding that the Peters had “knowingly” violated the DTPA, and did not consider the issue of whether the abandonment of State Farm’s representation was done without reasonable notice.

STANDARD OF REVIEW

      In a summary judgment case, the question on appeal is whether the summary judgment proof establishes, as a matter of law, that there is no genuine issue of material fact as to one or more of the essential elements of the cause of action. Gibbs v. Gen. Motors Corp., 450 S.W.2d 827, 828 (Tex. 1970). To prevail on the motion for summary judgment, State Farm must establish that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Tex. R. Civ. P. 166A(c); Randall’s Food Mkts., Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex. 1995); Nixon v. Mr. Property Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985); City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 675-79 (Tex. 1979). In reviewing a summary judgment, we must accept all evidence favorable to the non-movant as true, indulging every reasonable inference and resolving all doubts in favor of the non-movant. Nixon, 690 S.W.2d at 548-549; El Chico Corp. v. Poole, 732 S.W.2d 306, 315 (Tex. 1987). A defendant who moves for summary judgment must show that no material issue of fact exists as to plaintiff’s cause of action. Griffin v. Rowden, 654 S.W.2d 435, 436 (Tex. 1983). Only uncontroverted evidence supporting the movant’s position can be considered. See Great Am. Reserve Ins. Co. v. San Antonio Plumbing Supply, 392 S.W.2d 41, 47 (Tex. 1965).

      Additionally, a party may not be granted a summary judgment on a cause of action not addressed in a summary judgment proceeding. Chessher v. Southwestern Bell Tel. Co., 658 S.W.2d 563, 564 (Tex. 1983). The Supreme Court in McConnell explains that if a pleading alleges several causes of action upon which the relief sought might be granted, a motion for summary judgment which merely attacks one asserted cause of action is insufficient as a matter of law to support a general take-nothing summary judgment. McConnell v. Southside School I.S.D., 858 S.W.2d 337, 339 (Tex. 1993).

NO DUTY UNDER THE POLICY

      State Farm asserts that no insurance coverage exists for the judgment entered against the Peters, because there was no “occurrence,” which is defined in the policy as an “accident” which results in “bodily injury” or “property damage.” In Metropolitan Prop.& Cas. Co. v. Murphy, 896 F. Supp. 645 (E.D. Tex. 1995), the court held that a misrepresentation or failure to disclose information within the meaning of the DTPA does not constitute an “occurrence” under a Texas homeowners policy. Additionally, the Supreme Court has held that there is no “accident” and therefore no “occurrence” where the insured’s conduct is voluntary and intentional, even though the result or injury may be unexpected, unforeseen, or unintended. Trinity Universal Ins. Co. v. Cowan, 40 Tex. Sup. Ct. J. 583, 590, 1997 WL 253330 (May 16, 1997); Argonaut Southwest Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex. 1970). In a similar DTPA case, the Fort Worth Court of Appeals held that an insurer had no duty to defend because false statements made knowingly did not constitute an occurrence as defined in the insurance policy. State Farm Lloyds v. Kessler, 932 S.W.2d 732, 739 (Tex. App.—Fort Worth 1996, writ denied) (citing Maupin, 500 S.W.2d at 635; Misle v. State Farm Mut. Auto Ins. Co., 908 S.W.2d 289, 291 (Tex. App.—Austin 1995, no writ)).

      The allegations against the Peters all revolved around the intentional acts of fraudulently representing the condition of the house and hiding the physical damage. In Houston Petroleum, the court held that fraudulent representations, false promises, and untrue statements do not, as a matter of law, fall within the plain meaning of the term “occurrence.” Houston Pet. Co. v. Highlands Ins. Co., 830 S.W.2d 153, 156 (Tex. App.—Houston [1st Dist.] 1990, writ denied). We agree that for State Farm to have any liability to the Peters under their policy, it must first be established that there was an “occurrence” as defined in the policy. Because the jury determined that the Peters’ misconduct triggered their liability and not the rotting floor or the leaking roof, the facts found in the underlying case do not constitute an “occurrence” and therefore fall outside the scope of coverage under the policy.

BREACH OF CONTRACT

      The Peters claim that the breach of contract cause of action based on their homeowners insurance policy was not addressed by State Farm. We disagree.

      As asserted by State Farm in their motion for summary judgment, an insurer’s duty to defend is usually determined by looking solely at the allegations in the pleadings of the underlying suit in light of the insurance policy provisions, regardless of the truth of those allegations. This is the “eight corners rule.” Argonaut, 500 S.W.2d at 635; Two Pesos, Inc. v. Gulf Ins. Co., 901 S.W.2d 495, 499 (Tex. App.— Houston [14th Dist.] 1995, no writ). As a general rule, there may be no recovery where the insured is not entitled to benefits under the insurance policy which establishes the duties of the insurer. See Republic Ins. Co. v. Stoker, 903 S.W.2d 338 (Tex. 1995) (citing 15A RHODES, COUCH ON INSURANCE LAW 2d § 58:1 at 249 (Rev. ed. 1983)). If pleadings allege facts within coverage or would allow evidence to be introduced on a claim within coverage, the insurer must defend. Heyden Newport Chem. Corp. v. Southern Gen. Ins. Co., 387 S.W.2d 22, 26 (Tex. 1965). However, an insurer may properly withdraw if the petition is amended so as to terminate the duty to defend. Rhodes v. Chicago Ins. Co., 719 F.2d 116, 119 (5th Cir. 1983) (applying Texas law). In Consolidated Underwriters v. Lloyd W. Richardson Constr. Corporation, 444 S.W.2d 781 (Tex. Civ. App.— Beaumont 1969, writ ref’d n.r.e.), the carrier had been defending the insured under a non-waiver agreement, but after the petition against the insured was amended to allege facts that fell within a policy exclusion, the insurer withdrew its defense. The court held this was justified. Id. at 784.

      Similarly, once a verdict is rendered which determines that coverage does not exist, the insurer no longer has a duty to defend and can properly withdraw. In City of Bozeman v. AIU Ins. Co., 865 P.2d 268 (Mont. 1993), the insurer refused to represent the City of Bozeman on appeal after a judgment was entered against the City for damages that were not covered under the policy. The court held that because there were no issues on appeal relating to claims that would be covered under the policy, the insurer did not have a contractual obligation to continue representation of the insured on appeal. Id. at 273. Following this authority, we believe that State Farm had no further duty to the Peters under the policy itself after the coverage question was resolved by the jury’s findings.

REASONABLE NOTICE

      However, State Farm also obligated itself by a reservation-of-rights letter to give reasonable notice prior to withdrawing from the Peters’ defense. The Peters claim a fact issue exists about whether State Farm gave “reasonable notice.” We believe, however, such notice is conclusively established as reasonable by the record.

      The Peters were informed by letter approximately one year before trial that a “knowing” finding by the jury would eliminate any duty State Farm owed both as to coverage and as to their defense. The Peters hired separate counsel prior to the entry of judgment after being told that State Farm would withdraw if a “knowing” finding were returned. The Peters commenced this lawsuit against State Farm on August 14, 1996, two days prior to State Farm’s official notice that it was withdrawing payment for the Peters’ defense. The summary judgment evidence establishes that State Farm officially notified the Peters of withdrawal on August 16, 1996, sixteen days after the judgment was entered, not 73 days after rendition of the judgment as the Peters allege. The record shows that the Peters were fully aware of State Farm’s potential withdrawal.

      A matter is conclusively established and therefore properly disposed of by summary judgment if ordinary minds cannot differ as to the conclusion to be drawn from the evidence. Triton Oil & Gas Corp. v. Marine Contractors & Supply, Inc., 644 S.W.2d 443, 446 (Tex. 1982) (citing Joske v. Irvine, 91 Tex. 574, 44 S.W. 1059, 1063 (1898)). Since ordinary minds could not differ on the question of “reasonable notice,” the trial court properly disposed of this issue as it relates to the Peters’ claim of breach of contract. We overrule point three.

NEGLIGENCE

      The Peters allege that whether State Farm acted negligently in withdrawing from their defense was not attacked by the motion for summary judgment. They assert that State Farm’s motion for summary judgment was limited solely to the question of whether it was obligated to pay the judgment in light of the jury finding that the Peters “knowingly” violated the DTPA. The Peters alleged: (1) abandonment of their defense without reasonable notice; (2) negligence in (a) failing to settle prior to trial, (b) allowing the jury to find knowing conduct, and (c) expressly and impliedly representing that their interests would be protected; (3) breach of contract; and (4) breach of the duty of good faith and fair dealing.

      State Farm’s position on appeal is that the negligence cause of action has no basis in law in Texas. The Supreme Court in Maryland Ins. Co. v. Head Indus., 938 S.W.2d 27 (Tex. 1996), held that in the context of third party insurance cases, Texas law recognizes only the tort duty established in Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App.1929, holding approved). No Texas case has recognized a cause of action for negligently handling a claim by wrongfully refusing to defend the insured. See United Serv. Auto. Ass’n v. Pennington, 810 S.W.2d 777, 783 (Tex. App.—San Antonio 1991, writ denied). Stowers is not triggered unless three prerequisites are met: (1) the claim against the insured is within the scope of coverage, (2) the demand is within the policy limits, and (3) the terms of the demand are such that an ordinarily prudent insurer would accept it. American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994) (citing Stowers). Since the Peters’ claim is not within the scope of coverage, State Farm says any tort claim fails under the first prong of the Stowers test and therefore there is no genuine issue of fact as to the negligence claim.

      However, State Farm’s position is undermined by its failure to address the negligence claim in its motion for summary judgment; thus, the summary judgment is improper. See McConnell, 858 S.W.2d at 341. The Supreme Court stated in Chessher and confirmed in McConnell that a party may not be granted a summary judgment on a cause of action not addressed in a summary judgment proceeding. Id.; Chessher, 658 S.W.2d at 564. A motion must stand or fall on the grounds expressly presented in the motion. McConnell, 858 S.W.2d at 341. In Roberts v. Southwest Texas Methodist Hosp., 811 S.W.2d 141, 146 (Tex. App.—San Antonio 1991, writ denied), the court of appeals stated:

There is nothing onerous or unreasonable about requiring the movant to state the grounds upon which he seeks to win a lawsuit without a trial. If the grounds are so obvious from the summary judgment proof, what is burdensome about requiring the movant to state them in the motion? Grounds may be stated concisely, without detail and argument. But they must at least be listed in the motion.

 

Because State Farm failed to address the claim in its motion for summary judgment, we reverse the summary judgment as to the Peters’ negligence claim.

      Having considered all of the Peters’ points, we affirm the summary judgment as to the breach of contract issues which stand as a partial summary judgment, and reverse as to the negligence cause of action. Bandera Electric Coop., Inc. v. Gilchrist, 946 S.W.2d 336 (Tex. 1997). The cause is remanded to the trial court for further proceedings consistent with this opinion.

 

 

BILL VANCE

                                                                               Justice

 

 

Before Chief Justice Davis,

      Justice Cummings, and

      Justice Vance

Affirmed in part, reversed in part, and remanded

Opinion delivered and filed October 1, 1997

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  * “(I would sustain issues two and three but find the errors harmless in light of the overwhelming evidence of Meredith’s guilt.  The overwhelming evidence of guilt renders the State’s need for the extraneous-offense evidence nil.  See Manning v. State, 114 S.W.3d 922, 926 (Tex. Crim. App. 2003) (fourth factor).)”

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[1]           In fact, Meredith was rendered unconscious during the struggle.  Deputy Peterson testified that Meredith received prompt medical attention after he was placed in handcuffs.

[2]           However, there is no indication in the record that Peterson told Meredith what the warrant was for.