Prodigy Commun. v. Agricultural Excess

• Decision Date: 30 May 2006
• Docket Number: No. 05-05-00442-CV.,05-05-00442-CV.
• Citation: 195 S.W.3d 764
• Parties: PRODIGY COMMUNICATIONS CORP., Appellant, v. AGRICULTURAL EXCESS & SURPLUS INSURANCE COMPANY n/k/a Great American E & S Insurance Company, and Great American Insurance Company, Appellees.
• Court: Texas Court of Appeals

Page 764

195 S.W.3d 764

PRODIGY COMMUNICATIONS CORP., Appellant, v. AGRICULTURAL EXCESS & SURPLUS INSURANCE COMPANY n/k/a Great American E & S Insurance Company, and Great American Insurance Company, Appellees.

No. 05-05-00442-CV.

Court of Appeals of Texas, Dallas.

May 30, 2006.

Werner A. Powers, Charles C. Keeble, Jr., Haynes & Boone, L.L.P., Dallas, for Appellant.

Joseph Borders, Walker Wilcox Matousek, Chicago, IL, James Richard Harmon, Thompson, Coe, Cousins & Irons, L.L.P., Dallas, for Appellee.

Before Justices WHITTINGTON, WRIGHT, and O'NEILL.

OPINION

Opinion by Justice WHITTINGTON.

Prodigy Communications Corp. appeals a summary judgment in favor of Agricultural Excess & Surplus Insurance Company n/k/a Great American E & S Insurance Company and Great American Insurance Company. In two issues, Prodigy contends the trial judge erred in granting appellees' summary judgment on the ground that Prodigy failed to give proper notice and that the trial judge erred in limiting Prodigy's ability to take discovery. We affirm the trial court's judgment.

BACKGROUND

Prodigy is the successor in interest to Flashnet Communications, Inc. Flashnet purchased a directors' and officers' liability policy from Agricultural Excess & Surplus Insurance Company (AESIC). In November 2001, suit was filed against Flashnet in the United States District Court (Southern District of New York) alleging violations of federal securities laws. Process was served on Flashnet's registered agent on June 20, 2002. Flashnet did not give written notice of the lawsuit to AESIC until June 6, 2003, nearly one year later. AESIC denied the claim because Flashnet did not give timely notice under the policy. Prodigy then brought suit against AESIC in this action. AESIC moved for summary judgment, arguing Flashnet's late notice precluded coverage under the policy. Prodigy filed a cross-motion for summary judgment on its claim for breach of contract. The trial judge denied Prodigy's motion and granted AESIC's motion in part, ruling Prodigy failed to comply with the condition precedent of timely notice under the policy. AESIC then moved for summary judgment on the remaining issue, addressing Prodigy's contention that the policy was sold in violation of Texas law governing surplus lines insurance. The trial judge granted summary judgment for AESIC on this ground and entered a final judgment in favor of appellees. This appeal followed.

SUMMARY JUDGMENT STANDARD OF REVIEW

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. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356 (Tex.2000). When the trial judge grants one party's motion for summary judgment and denies the other party's motion, we review both sides' summary judgment evidence, determine all questions presented, and render the judgment the trial judge should have rendered. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex.2000).

AESIC moved for summary judgment on both traditional and no-evidence grounds. We review a summary judgment de novo to determine whether a party has established its right to summary judgment as a matter of law. See Dallas Cent. Appraisal Dist. v. Cunningham, 161 S.W.3d 293, 295 (Tex.App.-Dallas 2005, no pet.). In reviewing a summary judgment, we must examine the entire record in the light most favorable to the nonmovant. See City of Keller v. Wilson, 168 S.W.3d 802, 824-25 (Tex.2005).

NOTICE PROVISION

In its first issue, Prodigy contends the trial judge erred in granting summary judgment on the policy's notice provision. The policy at issue in this case required notice to be given as follows:

The Directors and Officers shall, as a condition precedent to their rights under this Policy, give the Insurer notice, in writing, as soon as practicable of any Claim first made against the Directors and Officers during the Policy Period, or Discovery Period (if applicable), but in no event later than ninety (90) days after the expiration of the Policy Period or Discovery Period, and shall give the Insurer such information and cooperation as it may reasonably require.

Under this issue, Prodigy raises numerous arguments claiming (i) Prodigy gave timely notice, (ii) even if notice was late, appellees failed to show prejudice, (iii) appellees could not enforce the policy, and (iv) fact issues exist precluding summary judgment. We address these arguments in turn.

First, Prodigy argues it gave timely notice under the policy. Prodigy argues the language "but in no event later than ninety (90) days after the expiration of the Policy Period or Discovery Period" modifies the "as soon as practicable" language, creating a "safe harbor" by allowing notice of a claim at any time before the end of the ninety-day period, regardless of when the claim was made or when Prodigy received notice of the claim. In response, AESIC argues the policy required written notice to be given "as soon as practicable," and notice more than eleven months after service of the lawsuit was not "as soon as practicable" as a matter of law.

If the language of a policy provision is worded so that it can be given a definite or certain legal meaning, then the provision is not ambiguous, and we construe it as a matter of law. See PAJ, Inc. v. Hanover Ins. Co., 170 S.W.3d 258, 261 (Tex.App.-Dallas 2005, pet. granted) (citing Am. Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154, 157 (Tex.2003)).

The plain language of the provision provides that Prodigy must "give the Insurer notice, in writing, as soon as practicable . . . but in no event later than ninety (90) days after" the policy period or discovery period ends. (Emphasis ours.) Thus, the policy gives Prodigy ninety additional days to give notice of a claim after the end of the policy period or discovery period if the notice is given "as soon as practicable." Under Prodigy's interpretation of the notice provision, "as soon as practicable" means any time before ninety days after the expiration of the policy period or discovery period. This interpretation is contrary to the plain meaning of the words used in the provision. Also contrary to Prodigy's reading, the provision does not require every claim to be "made and reported" during the policy period or discovery period for coverage to attach. As a matter of law, Prodigy did not give timely written notice as required by the policy. See, e.g., Nat'l Union Fire Ins. Co. v. Bourn, 441 S.W.2d 592, 595 (Tex.App.-Fort Worth 1969, writ ref'd n.r.e.) (notice given forty-four days after occurrence giving rise to claim is, as matter of law, failure to give written notice "as soon as practicable").

Prodigy also argues AESIC had actual notice of the lawsuit and that, even assuming notice was not timely, AESIC was not prejudiced by the timing of the notice. Actual notice is not sufficient. See Sparks v. Aetna Life & Cas. Co., 554 S.W.2d 228, 230 (Tex.Civ.App.-Dallas 1977, no writ). In Sparks, we held oral notice did not satisfy a contractual provision requiring written notice, even if the oral notice provided the insurer with all the information which would be contained in written notice, and even though the insurer had conducted an investigation of the accident on behalf of another insured. Sparks, 554 S.W.2d at 230. Nevertheless, Prodigy cites Liberty Mutual Insurance Company v. Cruz, 883 S.W.2d 164 (Tex. 1993), and Struna v. Concord Insurance Services, Inc., 11 S.W.3d 355 (Tex.App.-Houston [1st Dist.] 2000, no pet.), for the proposition that written notice is not necessary when the insurer has actual notice of the claim. These cases, however, turn on whether the insurer was prejudiced by the late notice, an issue not present here, as we discuss below. See Liberty Mut. Ins. Co., 883 S.W.2d at 165-66; Struna, 11 S.W.3d at 359-60.

This Court has recently held that an insurance company was not required to show it had been prejudiced by the insured's untimely notice of a copyright infringement claim. PAJ, Inc., 170 S.W.3d at 261. In that case, the parties stipulated PAJ received notice of the suit on December 8, 1998, but did not notify the carrier until some time between April and June, 1999. PAJ, Inc., 170 S.W.3d at 260. The policy at issue in that case also required notice "as soon as practicable." PAJ, Inc., 170 S.W.3d at 261. Hanover moved for summary judgment on the ground that PAJ's violation of the notice provision was sufficient on its own to bar its claim under the policy. In response, PAJ filed a cross-motion for summary judgment on the ground that untimely notice could only bar a claim if the delay caused prejudice to the insurer. PAJ, Inc., 170 S.W.3d at 260. The trial judge granted Hanover's motion for summary judgment and denied PAJ's motion. PAJ, Inc., 170 S.W.3d at 260. On appeal, PAJ argued the notice provision was a covenant, not a condition precedent to coverage, and claimed that only a material breach by PAJ would excuse Hanover's performance. PAJ also argued Hanover was required to show prejudice from the late notice. PAJ, Inc., 170 S.W.3d at 260. We concluded the policy's notice provision was a condition precedent, not a covenant. PAJ, Inc., 170 S.W.3d at 260-61. In reaching that conclusion, we declined to follow federal district court opinions creating the extra-contractual obligation of an insurer to show prejudice following the insured's failure to perform a condition. PAJ, Inc., 170 S.W.3d at 263. Applying our holding in PAJ, Inc. to this case, we conclude AESIC was not required to prove it was prejudiced by Prodigy's delay.

Prodigy also contends AESIC cannot enforce the notice provision because the policy was sold in violation of the surplus lines statute. In the trial court, Prodigy bore the burden of raising a fact issue on whether the policy was sold in violation of statute. See Deer Creek Ltd. v. N. Am. Mortgage Co., 792 S.W.2d 198, 200-01 (Tex.App.-Dallas 1990, no writ) (when defen...