Chrysler Ins. v. Greenspoint Dodge

• Decision Date: 30 October 2009
• Docket Number: No. 08-0780.,08-0780.
• Citation: 297 S.W.3d 248
• Parties: CHRYSLER INSURANCE CO., Petitioner, v. GREENSPOINT DODGE OF HOUSTON, INC., Respondent.
• Court: Texas Supreme Court

297 S.W.3d 248

CHRYSLER INSURANCE CO., Petitioner, v. GREENSPOINT DODGE OF HOUSTON, INC., Respondent.

No. 08-0780.

Supreme Court of Texas.

October 30, 2009.

Rehearing Denied December 11, 2009.

J. Stephen Gibson, Lisa Ann Songy, Michael W. Huddleston, Shannon Gracey Ratliff & Miller, L.L.P., Dallas, Kevin F. Risley, Thompson, Coe, Cousins & Irons, L.L.P., Houston, for Chrysler Insurance Co.

William "Andy" Taylor, Amanda Eileen Staine Peterson, Andy Taylor and Associates, P.C., Houston, for Greenspoint Dodge of Houston, Inc.

PER CURIAM.

This case arises out of an insurance coverage dispute, involving liability policies insuring a corporation and its officers, among others. The issue here concerns the corporation's coverage for defamation. The policies excluded coverage for defamatory statements an insured knew to be false, and the insurance company refused coverage on the basis of this exclusion. The court of appeals concluded, however, that this known-falsity exclusion did not apply to the corporation because no corporate officer knew that the defamatory statements, made by other corporate employees, were false when made. The court accordingly affirmed, in part, a judgment awarding damages for the insurer's failure to defend and indemnify its insured. 265 S.W.3d 52.

A corporation's knowledge, however, is not limited to what its officers know, but may include other employees' knowledge, if those employees are corporate vice-principals. The employees who made the defamatory statements here, although not officers, were found to be corporate vice-principals. They were also found to have knowledge that their statements were false when made. The corporation thus knew, through its vice-principals, that the defamatory remarks were false when made and its knowledge, as a named insured, was sufficient to invoke the known-falsity exclusion. We accordingly disagree with the court of appeals' application of the known-falsity exclusion and conclude that the policy did not provide liability coverage for the underlying defamation claim in this case.

The defamation claim arose from remarks and accusations directed at Noe Martinez, the inventory control manager at Greenspoint Dodge of Houston, Inc. Greenspoint's general manager, comptroller, and used car sales manager defamed and disparaged Martinez, referring to him as a "thieving spic beaner" and a "thieving Mexican," and accusing him of stealing cars and other criminal activity. Martinez was eventually fired and replaced by the general manager's nephew.

Martinez thereafter sued Greenspoint, the three managers, and Greenspoint's chief executive officer, Jack Apple, Jr., alleging defamation and intentional infliction of emotional distress. The dispute was submitted to binding arbitration, which resulted in an award of approximately $1.5 million in compensatory and punitive damages to Martinez. The arbitrators found that the individuals who engaged in the campaign to defame and injure Martinez were Greenspoint vice-principals.¹

At the time of this occurrence, Greenspoint was a named insured under two liability policies, a Texas Commercial Multi-Peril Policy (Primary Policy) and a Commercial Umbrella Liability Policy (Umbrella Policy), both issued by Chrysler Insurance Co.² The Primary Policy contained several different coverages, including the Commercial General Liability Part (CGL Policy) and the Broadened Coverage-Garages Part (Broadened Garage Endorsement). Both the Primary Policy and the Umbrella Policy provided coverage for "personal injury" defined to include "[o]ral or written publication of material that slanders or libels a person or organization or disparages a person's or organizations's goods, products or services." The Primary Policy's liability limit for personal injury was $1 million and the Umbrella Policy's limit was $5 million. Both policies contained an exclusion for personal injury "arising out of oral or written publication if done by or at the direction of the insured with knowledge of its falsity."

After being notified of Martinez's claims, Chrysler defended its insureds under a reservation of rights. Shortly after the arbitration award, however, Chrysler withdrew its defense and refused Greenspoint's demands for indemnity.

The district court subsequently confirmed the arbitration award against Greenspoint and the other defendants, except for Apple. The court vacated the award against Apple, finding no evidence that he knew about the campaign to defame Martinez. Greenspoint appealed, but abandoned the appeal after settling Martinez's claims for $1.75 million.

Greenspoint and Apple then sued Chrysler for breach of contract and bad faith. The trial court concluded in a summary judgment proceeding that Chrysler breached its duties under the policy by withdrawing its defense and not indemnifying Greenspoint for the settlement. The trial court submitted the remaining fact issues to a jury, which found Greenspoint's settlement with Martinez was reasonable and it was entitled to attorneys' fees and extra-contractual damages. The trial court rendered judgment for Greenspoint on the jury's verdict, and Chrysler appealed. Apple recovered no damages in the judgment and sought no relief on appeal.

The court of appeals affirmed the trial court's judgment, in part, and reversed it, in part. 265 S.W.3d 52. The court affirmed Greenspoint's recovery under the Primary Policy, concluding that it obligated Chrysler to continue its defense and to indemnify Greenspoint, notwithstanding the known-falsity exclusions and the knowledge of Greenspoint's vice-principals. Id. at 56, 68, 70. The court of appeals, however, reversed that part of the trial court's judgment awarding damages in excess of the Primary Policy's limits, rendering judgment that Greenspoint take nothing under the Umbrella Policy and its claims for extra-contractual liability under the Insurance Code. Id. at 68-70. Both Chrysler and Greenspoint filed petitions for review with this Court.

Chrysler argues that the court of appeals erred in affirming Greenspoint's recovery under the Primary Policy because the known-falsity exclusion expressly eliminated coverage for the defamation committed by Greenspoint's vice-principals. While recognizing that Greenspoint was liable under tort law for the defamatory statements of its vice-principals, the court of appeals nevertheless reasoned that the issue here was not Greenspoint's liability in tort but rather the meaning of the insurance contract, specifically whether "the acts committed by the vice-principals are the very acts of the `organization,' as that term was used by the parties to the insurance policy." Id. at 65. The court then concluded that because the policies did not mention vice-principals but rather defined the organization (Greenspoint) to include only its officers, directors, or shareholders, that only their knowledge, not the vice-principals', could be imputed to the corporation. Id. at 66.

The court of appeals gleaned its definition of Greenspoint from the policy's definition of who qualified as an insured. Id. at 65-66. The Primary Policy's declarations page named "Greenspoint Dodge, Inc." as an insured.³ The CGL Policy further identified additional entities who might claim the status of an insured because of their relationship to a named insured. The policy provided in pertinent part:

SECTION II—WHO IS AN INSURED

1. If you are designated in the Declarations as:

a. An individual. . . .

b. A partnership or joint venture . . . .

c. An organization other than a partnership or joint venture, you are an insured. Your "executive officers" and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders.

The Broadened Garage Endorsement also named "Greenspoint Dodge, Inc." as an insured, similarly providing under its own "WHO IS AN INSURED" provision that Greenspoint's executive officers, directors, and stockholders are also insureds while acting within the scope of their duties.

Relying on these provisions to define Greenspoint for purposes of the known-falsity exclusion, the court of appeals reasoned:

Under the terms of the policy, Greenspoint is Apple, the officers, the directors and the shareholders, and it does not include [vice-principals]. . . . Put simply, under tort law Greenspoint is responsible for the actions of certain people in supervisory positions because their actions are determined to be the actions of the corporation, and liability is imposed even though the supervisors are...