American States Ins. Co. of Texas v. Arnold
| Decision Date | 09 August 1996 |
| Docket Number | No. 05-95-00706-CV,05-95-00706-CV |
| Citation | 930 S.W.2d 196 |
| Parties | AMERICAN STATES INSURANCE COMPANY OF TEXAS, Appellant, v. Eoline Smith ARNOLD and American Fire & Indemnity Insurance Company, Appellees. |
| Court | Texas Court of Appeals |
E. Thomas Bishop, Mark D. Johnson, Alexander N. Beard, Dallas, E. Thomas Bishop, P.C., for Appellant.
Mary Lou Flynn-Dupart, Fred A. Simpson, Jackson & Walker, L.L.P., Houston, for Appellee.
Before OVARD, JAMES and HANKINSON, JJ.
This case involves a dispute between two insurance companies concerning the duty to defend an underlying automobile accident lawsuit. American Fire & Indemnity Insurance Company ("American Fire"), as assignee and subrogee of the rights of Eoline Smith Arnold, American Fire's insured, filed a lawsuit against American States Insurance Company of Texas ("American States"), alleging that American States breached its duty to defend Arnold, an additional insured under an American States automobile policy. In response to the lawsuit, American States contended that it had no duty to defend Arnold, because its defense obligation terminated under the policy when it exhausted the policy limits by settling all claims against the named insured, Bessie M. Mayes. American Fire and American States each moved for summary judgment on the policy interpretation question. The trial court granted American Fire's summary judgment motion and denied American States's motion. American States appeals from that decision. We hold that under the unambiguous policy language at issue, the duty to defend terminates when the policy limits are exhausted; therefore, we reverse the trial court's judgment and render judgment in favor of American States.
On January 30, 1989, Eoline Smith Arnold was involved in a two-car collision while driving an automobile owned by Bessie M. Mayes and in which Mayes was a passenger. Mayes's vehicle struck another vehicle driven by Michael Rhodes and in which Michael Cassady was a passenger. Both Cassady and Rhodes were injured. Mayes was killed in the accident.
American States insured Mayes's vehicle. The policy provided a $50,000 bodily injury policy limit per person, per occurrence, and included coverage for permissive drivers of Mayes's vehicle. Arnold was an additional insured or "covered person" under the American States policy because she was a permissive driver of Mayes's vehicle. American States's policy provided: At the time of the accident, Arnold was also insured under her own automobile insurance policy issued by American Fire. That policy provided a $20,000 policy limit per person, per occurrence.
Cassady presented to American States his claims for property damage against both Arnold and Mayes's estate and a personal injury claim solely against Mayes's estate, all based on Mayes's negligent entrustment of the vehicle to Arnold. Cassady demanded American States's policy limits of $50,000 to settle the personal injury claims against Mayes's estate. Cassady did not present to American States his personal injury claim against Arnold. Instead, Cassady presented that claim to Arnold's insurer, American Fire. Cassady demanded American Fire's policy limits of $20,000 to settle the personal injury claim against Arnold.
Mayes's estate also asserted a wrongful death claim against Arnold. The estate initially presented the claim to American Fire, who referred it to American States. American States and the estate agreed to compromise the estate's claim against Arnold for $5,500, and American States agreed to pay its policy limits of $50,000 to secure the estate's release from Cassady's personal injury claim against Mayes's estate. American States also paid Cassady's property damage claim in the amount of $10,139.55, securing a release on behalf of both Mayes's estate and Arnold.
American Fire refused to settle Cassady's claim against Arnold. After American States settled his claim against Mayes's estate, Cassady sued Arnold. American Fire and Arnold demanded that American States defend Arnold in the lawsuit. Because American States had already exhausted its policy limits settling Cassady's claim against Mayes's estate, it refused to defend and indemnify Arnold. American States based its refusal to defend on specific language in its policy, which provided that American States's "duty to defend ends when [its] limit of liability for this coverage has been exhausted." American Fire defended Arnold in the Cassady lawsuit.
Despite its refusal to defend or indemnify Arnold, American States paid $20,000, an amount equal to American Fire's policy limits, to protect and release Arnold from Cassady's lawsuit. American States still refused, however, to pay any costs of defending Arnold in the Cassady lawsuit, asserting that the earlier exhaustion of its policy limits excused performance.
American Fire brought this lawsuit against American States to recover its costs of defending Arnold in the Cassady lawsuit. American Fire asserted both contractual and extracontractual claims against American States. The contract claim alleged a breach of the insurance policy, and the extracontractual claims alleged violations of Texas Insurance Code article 21.21 and the Texas Deceptive Trade Practices-Consumer Protection Act, breach of the duty of good faith and fair dealing, breach of fiduciary duty owed to Arnold, intentional infliction of emotional distress, fraud and constructive fraud, and gross negligence. American States asserted a counterclaim against American Fire for reimbursement of the $20,000 indemnity it paid to protect Arnold's interests in the Cassady lawsuit.
American States moved for partial summary judgment on the grounds that: (1) the extracontractual claims were barred by limitations; (2) appellees were not entitled to a 180-day extension of the limitations period under article 21.21, section 16(d) of the Texas Insurance Code; (3) the claims of fraud and constructive fraud were improperly pleaded in the petition; (4) American Fire had no extracontractual claims, except as the assignee of Arnold; and (5) no valid tort action existed against American States to support an award of punitive damages. The trial court granted American States a partial summary judgment on the extracontractual claims, leaving pending only American Fire's breach of contract claim and American States's counterclaim for reimbursement.
The parties mediated the remaining claims and entered into a partial settlement agreement. The parties then presented their agreement to the trial court in an agreed order, which the trial court signed. The agreed order provided that the breach of contract claim "shall be" decided by the trial court on cross-motions for summary judgment. The order also provided that American Fire would recover contract damages in the amount of $13,697.32 if it prevailed on its motion for summary judgment. The order further dismissed with prejudice all American Fire and Arnold's other claims against American States and dismissed with prejudice American States's counterclaim against American Fire. Finally, the order severed American Fire's claim for attorneys' fees incurred in prosecuting this breach of contract action--a claim the parties agreed would be decided by binding arbitration if American Fire ultimately prevailed on its contract claim.
Both parties then moved for summary judgment on the breach of contract claim. The trial court granted American Fire's motion and denied American States's motion. As also contemplated by the settlement agreement and required by the agreed order signed by the trial court, American States brought this appeal.
This Court reviews a summary judgment de novo to determine whether a party's right to prevail is established as a matter of law. See Capitan Enters., Inc. v. Jackson, 903 S.W.2d 772, 775 (Tex.App.--El Paso 1994, writ denied). When both parties move for summary judgment, each party bears the burden of establishing that it is entitled to judgment as a matter of law. Guynes v. Galveston County, 861 S.W.2d 861, 862 (Tex.1993). In this case, the agreed order provided that the breach of contract claim "shall be" decided by the trial court on cross-motions for summary judgment. This Court, therefore, should decide all legal questions presented and may render the judgment the trial court should have rendered. See Jones v. Strauss, 745 S.W.2d 898, 900 (Tex.1988)(orig. proceeding).
In its third and fourth points of error, American States asserts that the trial court erroneously ruled on the parties' cross-motions for summary judgment. American States argues in support of both points that the policy language terminating the duty to defend upon the payment of policy limits is unambiguous and that other courts specifically addressing this issue have held that similar language is unambiguous and precludes a duty to defend the additional insured. American Fire counters that the policy language is ambiguous, has more than one reasonable meaning, and should be interpreted to favor the claimed coverage for defense costs. The interpretation of the insurance policy in this case presents an issue of first impression in Texas.
The interpretation of insurance contracts in Texas is governed by the same rules as the interpretation of other contracts. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994). In determining the scope of an insurer's duty to defend under a particular policy, courts look to the language of the policy itself and the allegations in the complaint against the insured. Nationwide Property & Casualty Ins. v. McFarland, 887 S.W.2d 487, 492 (Tex.App.--Dallas 1994, writ denied) (citing ...
To continue reading
Request your trial
-
Millers Mut. Ins. Ass'n of Illinois v. Shell Oil Co.
...contracts to be unambiguous and enforceable when settlement is made as to the named insured. E.g., American States Ins. Co. v. Arnold, 930 S.W.2d 196, 201 n. 1 (Tex.App.1996) (cases collected therein). In Johnson v. Continental Ins. Companies, 202 Cal.App.3d 477, 248 Cal.Rptr. 412 (1988), t......
-
Bay Elec. Supply, Inc. v. Travelers Lloyds Ins., CIV. A. G-98-134.
...Court is required to adopt the objectively reasonable interpretation most favorable to the insured. American States Ins. Co. of Texas v. Arnold, 930 S.W.2d 196, 200 (Tex. App. — Dallas 1996) (citing Nationwide Property & Cas. Ins. Co. v. McFarland, 887 S.W.2d 487, 492 (Tex.App. — Dallas 199......
-
Foreness v. Hexamer
...de novo to determine whether a party's right to prevail is established as a matter of law. See American States Ins. Co. v. Arnold, 930 S.W.2d 196, 200 (Tex.App.--Dallas 1996, writ denied); Capitan Enters., Inc. v. Jackson, 903 S.W.2d 772, 775 (Tex.App.--El Paso 1994, writ denied). An appell......
-
Farmers Tex. Cnty. Mut. Ins. Co. v. Zuniga
...limit of liability language provided "a maximum limit of recovery for each specific coverage"); Am. States Ins. Co. of Tex. v. Arnold , 930 S.W.2d 196, 200 (Tex. App.—Dallas 1996, writ denied) (explaining that the limit of liability applied to the coverage defined in the insuring agreement)......
-
Ending Duty To Defend: Exhaustion Of Policy Limits By Settlement Of Less Than All Suits
...are exhausted" . . . This policy language can be characterized only as precise, plain, and clear." American States Ins. Co. v. Arnold, 930 S.W.2d 196, 201(Tex. App. — Dallas 1996). "The language of the policy is clear. The insurer's duty to defend terminates upon exhaustion of policy limits......