Grain Dealers Mut. Ins. Co. v. McKee

Decision Date18 April 1997
Docket NumberNo. 96-0022,96-0022
Citation943 S.W.2d 455,40 Tex. Sup. Ct. J. 483
Parties40 Tex. Sup. Ct. J. 483 GRAIN DEALERS MUTUAL INSURANCE COMPANY, Petitioner, v. Gerald Wayne McKEE and wife, Diana Michelle McKee, individually and a/n/f of Kelly McKee, a minor, Respondents.
CourtTexas Supreme Court

Edward C. Mainz, Jr., San Antonio, for Petitioner.

Malcolm C. Halbardier, Corpus Christi, for Respondents.

ABBOTT, Justice, delivered the opinion of the Court, in which PHILLIPS, Chief Justice, GONZALEZ, HECHT, CORNYN, JUSTICE ENOCH, OWEN and BAKER, Justices, join.

In this case we must determine whether the Business Auto Policy that Grain Dealers Mutual Insurance Company ("Grain Dealers") issued to Future Investments, Inc. ("Future Investments"), a corporation of which Gerald McKee is the president and sole shareholder, 1 provides coverage for McKee's daughter. We conclude that it does not. Accordingly, we reverse the judgment of the court of appeals and render judgment for Grain Dealers.

McKee's eleven-year-old daughter, Kelly, was injured in a one-car accident while riding as a passenger in a car driven by her adult step-sister, Delane Aranda. Delane's husband owned the car. The accident occurred during the effective period of the insurance policy issued to McKee by Grain Dealers. The parties stipulated that neither Delane nor the car involved in the accident was covered under the Grain Dealers policy and that the accident occurred during an outing unrelated to any business purpose of Future Investments. Kelly resided with McKee when the accident occurred; Delane did not.

McKee sued (1) his Texas Personal Auto Policy insurance carrier, Companion Insurance Company, for Uninsured/Underinsured Motorist Protection ("UM/UIM") coverage; (2) Delane; and (3) Grain Dealers. McKee settled with Companion and Delane for a total of $320,000.00.

By counter-motions for summary judgment, McKee and Grain Dealers sought a declaratory judgment on the coverage issue. The trial court granted summary judgment in favor of McKee, finding that Kelly was entitled to coverage under the policy's UM/UIM and Personal Injury Protection ("PIP") provisions. The court of appeals affirmed, concluding that the policy was ambiguous and that the ambiguity should be resolved in favor of the insured. 911 S.W.2d 775, 779-81. We must determine the scope of coverage the UM/UIM and PIP endorsements provide and whether the endorsements are ambiguous such that a reasonable interpretation of the policy provides Kelly coverage.

The UM/UIM endorsement provides three categories of "who is an insured" under the policy:

1. You and any designated person and any family member of either.

2. Any other person occupying a covered auto.

3. Any person or organization for damages that person or organization is entitled to recover because of bodily injury sustained by a person described in 1. or 2. above.

The PIP endorsement provides two categories of "who is an insured":

1. You or any family member while occupying or when struck by any auto.

2. Anyone else occupying a covered auto with your permission.

The insurance policies and the summary judgment evidence demonstrate that the Grain Dealers policy excludes coverage for Kelly. In order for the policy to cover Kelly, she must fall within one of the categories of "who is an insured." The Business Auto Coverage Form of the Grain Dealers policy provides: "Throughout this policy the words 'you' and 'your' refer to the Named Insured in the Declarations page." The declarations page of the Grain Dealers policy provides that Future Investments is the "named insured." Future Investments is also the "named insured" in the UM/UIM and PIP endorsements. The UM/UIM endorsement defines "designated person" as "an individual named in the schedule. By such designation, that person has the same coverage as you." Future Investments did not name a "designated person" in the space provided in the UM/UIM endorsement and did not list additional autos to be covered under either endorsement. The names of Gerald McKee and Kelly McKee do not appear anywhere in the policy or the endorsements. As a result, Kelly does not qualify as "you" or "designated person" under the endorsements.

Additionally, Kelly does not qualify as a "family member" under the endorsements. "Family member" is defined in both endorsements as "a person related to you [Future Investments] by blood, marriage, or adoption who is a resident of your [Future Investments] household, including a ward or foster child." Kelly is obviously not related to Future Investments by blood, marriage, or adoption. Of course, she also does not reside in Future Investments' household. A corporation simply cannot have a "family" as that term is defined in the policy. See Webster v. U.S. Fire Ins. Co., 882 S.W.2d 569, 572 (Tex.App.--Houston [1st Dist.] 1994, writ denied) (citing Sproles v. Greene, 329 N.C. 603, 407 S.E.2d 497, 500 (1991)).

Because Kelly does not qualify as a "designated person," a "family member," or "you," she does not fall within the first classification of who is an insured under the UM/UIM and PIP endorsements. The parties agree that Kelly was not occupying a covered auto when the accident occurred. As a result, Kelly does not fall within category 2 of either the UM/UIM or PIP endorsements. In order to recover under category 3 of the UM/UIM endorsement, Kelly would have to be a person described in categories 1 or 2. Because she is not, it is clear that Kelly does not fall within any of the endorsement classifications of "who is an insured."

Nevertheless, McKee argues that the policy is ambiguous because the "family member" language contained in the PIP and UM/UIM endorsements, when viewed from his perspective as the president and sole shareholder of Future Investments, is susceptible to the reasonable interpretation that the endorsements provided coverage for his family members. McKee maintains that "he is the corporation " and, consequently, his daughter is a family member covered by the endorsement language. In finding ambiguity, the court of appeals agreed that the family-owned nature of Future Investments was a significant factor. The court of appeals explained:

When the contract is considered in the surrounding circumstances, namely, providing insurance coverage to a sole shareholder corporation, it is entirely reasonable that "[a]n endorsement that specifically added coverage for 'family members,' as did this one, would reasonably be understood as providing [underinsured] motorist insurance for members of the [McKee] family independent of whether they were occupying a covered automobile at the time of the injury."

911 S.W.2d at 781 (quoting Ceci v. National Indem. Co., 225 Conn. 165, 622 A.2d 545, 549 (1993)).

The general rules of contract construction govern insurance policy interpretation. State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex.1995); Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex.1994). "Whether a contract is ambiguous is a question of law that must be decided by examining the contract as a whole in light of the circumstances present when the contract was entered." Columbia Gas Transmission Corp. v. New Ulm Gas, Ltd., 940 S.W.2d. 587 (Tex.1996); National Union Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.1995). A contract is unambiguous as a matter of law if it can be given a definite or certain legal meaning. Columbia Gas, 940 S.W.2d at 589; CBI, 907 S.W.2d at 520. Conversely, if an insurance contract is subject to more than one reasonable interpretation, the contract is ambiguous and the interpretation that most favors coverage for the insured will be adopted. Kelly Assocs., Ltd. v. Aetna Cas. & Sur. Co., 681 S.W.2d 593, 596 (Tex.1984). Therefore, we must discern whether there is more than one reasonable interpretation of the UM/UIM and PIP endorsements. In making this determination, we note that an ambiguity does not arise simply because the parties advance conflicting interpretations of the contract. Columbia Gas, 940 S.W.2d at 589.

McKee's status as president and sole shareholder of the named insured Future Investments, combined with the "family member" language in the PIP and UM/UIM, does not create an ambiguity. There is no reasonable interpretation of the policy that can construe McKee as the "you" to whom the covered family members are linked in the endorsements. McKee, unambiguously, is not the named insured under the policy, and his status as president and sole shareholder does not equate him with the insured company. Under Texas law, a corporation is an entity separate from its shareholders. See Massachusetts v. Davis, 140 Tex. 398, 168 S.W.2d 216, 222 (1942), cert. denied, 320 U.S. 210, 63 S.Ct. 1447, 87 L.Ed. 1848 (1943). While under certain extraordinary circumstances the corporate fiction may be disregarded, mere control and ownership of all the stock of a corporation is not a sufficient basis for ignoring the distinction between the shareholder and the corporate entity. See id. at 224; Commercial Escrow Co. v. Rockport Rebel, Inc., 778 S.W.2d 532, 540 (Tex.App.--Corpus Christi 1989, writ denied). Thus, McKee's sole shareholder status is immaterial because Future Investments is a distinct legal entity, separate and apart from McKee. Because Future Investments, not McKee, is the insured, Kelly, unambiguously, does not fall within the ambit of the "family member" language.

McKee tries to support his ambiguity claim by arguing that the "family member" language would be rendered a nullity if we do not interpret the policy to cover McKee's family members. Although interpreting an insurance policy to give a reasonable meaning to all provisions is preferable to interpreting the policy in a way that creates surplusage or leaves a portion of the policy useless or inexplicable, Liberty Mut. Ins. Co. v. American Employers Ins. Co., 556 S.W.2d 242, 245 (Tex.1977), surplusage alone does not make...

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