Gulf Insurance Co. v. Burns Motors Inc.

• Decision Date: 20 April 2000
• Docket Number: No. 98-1168,98-1168
• Citation: 43 Tex. Sup. Ct. J. 647,22 S.W.3d 417
• Parties: (Tex. 2000) The Gulf Insurance Company and Select Insurance Company, Petitioners v. Burns Motors, Inc. assignee of Leroy Nash, individually and d/b/a Nash & Associates, Respondents
• Court: Texas Supreme Court

Page 417

22 S.W.3d 417 (Tex. 2000)

The Gulf Insurance Company and Select Insurance Company, Petitioners v. Burns Motors, Inc. assignee of Leroy Nash, individually and d/b/a Nash & Associates, Respondents

No. 98-1168

IN THE SUPREME COURT OF TEXAS

Argued September 22, 1999

Decided April 20, 2000

On Petition for Review from the Court of Appeals for the Thirteenth District of Texas

[Copyrighted Material Omitted] Justice Gonzales delivered the opinion of the Court.

The main issue here is whether an insurance agency agreement obligates the signatory insurance companies to indemnify their agent for an agreed judgment rendered against the agent because of his misrepresentations to an insured. In a prior DTPA lawsuit, the insured obtained a judgment against the insurance agent for his misrepresentations about the commercial liability policy he sold to the insured. After judgment, the agent assigned to the insured his indemnification claim from the insurance companies that issued the policy. The insured, as the agent's assignee, sued the insurance companies for indemnification. The trial court granted the insurance companies a take-nothing judgment, but the court of appeals reversed. 975 S.W.2d 810. We conclude that no material fact issues exist and that the insurance companies are entitled to judgment as a matter of law. Accordingly, we reverse the court of appeals' judgment and render judgment that the insured take nothing.

I Background

Between 1980 and 1983, Leroy Nash sold Don Burns three insurance policies from Gulf Insurance Company and Select Insurance Company for Burns's automobile dealership, Burns Motors, Inc. Nash sold the policies as independent agent for the insurance companies under an Agency-Company Agreement. Between January 1981 and November 1984, dissatisfied customers of Burns Motors sued the auto dealership in four lawsuits. While defending these lawsuits, Burns Motors learned that the polices it had purchased from Gulf and Select did not cover the liability alleged in these suits or the cost of defending them. Burns Motors did not sue either insurance company, but instead it sued Nash individually and his agency, claiming that Nash knowingly misrepresented the insurance coverage he sold to Burns Motors. Burns Motors alleged that Nash was liable for breach of a fiduciary duty, common law negligence, common law fraud, violations under the Texas Deceptive Trade Practices-Consumer Protection Act, and violations of article 21.21 of the Texas Insurance Code. Burns Motors sought actual damages for defending and settling the customers' suits, and further alleged that Nash's misrepresentations had been made knowingly as that term was defined in section 17.45(9) of the DTPA at the time of suit.

The DTPA lawsuit against Nash had been pending for four years when he appeared pro se and agreed to a judgment against him. The agreed judgment found Nash liable for $75,208.65 in actual damages, which equated the damages awarded Burns Motors' dissatisfied customers in the four lawsuits, $150,417.30 additional damages under the DTPA, and $25,000 for attorney's fees. Thus, the total award under the agreed judgment was $250,625.95. After the trial court rendered the agreed judgment, Nash assigned to Burns Motors all present and future claims that Nash could assert against Gulf and Select for contribution or indemnity under the Agency-Company Agreement. Furthermore, according to Nash's deposition testimony in the record, Burns Motors and Nash entered into a covenant not to execute on the agreed judgment.

Burns Motors, as Nash's assignee, then sued Gulf and Select for all sums that Nash was obligated to pay under the agreed judgment. Gulf and Select moved for summary judgment, contending, among other grounds, that the Agency-Company Agreement excluded indemnification for an agent's knowing misrepresentations and that the assignment of the cause of action from Nash to Burns Motors was collusive and barred as against public policy. The trial court granted the motion without specifying the grounds and rendered a take-nothing judgment for Gulf and Select.

Burns Motors appealed the trial court's decision. The court of appeals reversed and remanded, holding that the Agency-Company Agreement was ambiguous about whether the insurance companies would indemnify the agent if, as Burns Motors alleged in this case, the agent merely passed on the companies' own misrepresentations. 975 S.W.2d at 814. The court determined that the ambiguity created a question of fact about the contractual indemnity provision that precluded summary judgment. 975 S.W.2d at 814-15. The court of appeals also concluded that Nash's assignment to Burns Motors was not void as against public policy. 975 S.W.2d at 815-16. Because of its disposition, the court of appeals did not reach Burns Motors' other complaints about the judgment. 975 S.W.2d at 816. In this Court, Gulf and Select contend that there is no genuine question of fact and that they are entitled to judgment as a matter of law. See Tex. R. Civ. P. 166a(c); Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995); Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex. 1985). Specifically, Gulf and Select contend that they established their right to summary judgment because the terms of the Agency-Company Agreement exclude indemnification when an agent has incurred liability for his own knowing misrepresentations.

II Discussion

Burns Motors seeks recovery only under the Agency-Company Agreement in its capacity as Nash's assignee. It has not sued to enforce any rights as an insured against the insurance companies that issued the policies. As assignee, Burns Motors stands in Nash's shoes and may assert only those rights that Nash himself could assert. See Jackson v. Thweatt, 883 S.W.2d 171, 174 (Tex. 1994). Thus, our review begins with an analysis of Nash's Agency-Company Agreement with Gulf and Select.

The Agency-Company Agreement, under the subheading "Indemnification by Company," provides that Gulf and Select, as the "Company," will indemnify Nash, as "Agent," as follows:

A.Company shall indemnify and hold harmless Agent against any claims or liabilities Agent may become obligated to pay to or in behalf of any insured based on actual or alleged error of Company in its processing or handling Direct Billed or any other business placed by Agent with Company, except to the extent Agent has caused, contributed to or compounded such error.

B.Company will indemnify and hold Agent harmless from any civil liabilities Agent becomes legally liable to pay based on failure of Company to comply with the requirements of the Fair Credit Reporting Act, Title 15 U.S.C.A. Secs. 1681, et. seq. (the "Act"), in the procurement or use of consumer reports, as defined by the Act, ordered by Company or upon their express authorization, except to the extent Agent has caused, contributed to, participate in, or permitted such failure by act or inaction.

C.The Company shall also reimburse the Agent for any legal or other expenses reasonably incurred by the Agent in connection with investigating or defending any such liabilities.

D.The Agent shall promptly notify the Company when it receives notice of the commencement of any action relating to such liabilities, and the Company shall be entitled to participate in such action, or to assume the defense of such action with counsel satisfactory to the Agent. If the Company assumes the defense of any such action, it shall not be liable to the Agent for any legal or other expenses subsequently incurred by the Agent in connection with such action.

The court of appeals concluded, in essence, that Paragraph A of the indemnity provision of the Agency-Company Agreement is ambiguous about the parties' intent to indemnify under these facts. The court of appeals agreed with Burns Motors' position that "Gulf and Select's alleged error in misrepresenting coverage questions to Nash that were then passed on to Burns as a potential purchaser could well amount to an error in handling business by Gulf and Select." 975 S.W.2d at 814. The court of appeals concluded that the fact that Nash passed on the misrepresentation to Burns Motors could but did not necessarily mean that he "caused, contributed to or compounded the error." 975 S.W.2d at 814. Thus, the court of appeals determined that the Agency-Company Agreement was ambiguous about whether the parties intended to indemnify Nash under these circumstances, and that this ambiguity created a fact question precluding summary judgment. 975 S.W.2d at 814-15.

Gulf and Select disagree. They do not dispute the court of appeals' premise that a misrepresentation of coverage could be a "processing or handling" error under the agreement. Nor do they deny that Nash should be indemnified if he innocently passed on their misrepresentations to Burns Motors. But they contend that the agreed judgment's express terms preclude Burns Motors' theory that Nash innocently passed on misrepresentations. Gulf and Select assert that Burns Motors, as Nash's assignee, is not entitled to contractual indemnity because the agreed judgment imposes liability on Nash for knowingly misrepresenting coverage to the insured. The insurance companies contend that because Nash knowingly misrepresented coverage, as a matter of law he fully "caused, contributed to or compounded" the error that resulted in liability in the previous DTPA lawsuit.

Burns Motors responds that we should interpret the agreed judgment to mean that Nash only knew he made representations of coverage to the insured, not that he knew his representations were false. Alternatively, Burns Motors contends that even if Nash made the misrepresentations knowingly, Burns Motors still should be indemnified for that part of the error that Nash did not cause, contribute to, or compound. We examine first Nash's liability under the agreed judgment before we determine if the Agency-Company Agreement indemnifies...