Royal Globe Ins. Co. v. Bar Consultants, Inc.

• Decision Date: 14 February 1979
• Docket Number: No. B-7765,B-7765
• Citation: 577 S.W.2d 688
• Parties: ROYAL GLOBE INSURANCE COMPANY, Petitioner, v. BAR CONSULTANTS, INC., Respondent.
• Court: Texas Supreme Court

Page 688

577 S.W.2d 688

ROYAL GLOBE INSURANCE COMPANY, Petitioner, v. BAR CONSULTANTS, INC., Respondent.

No. B-7765.

Supreme Court of Texas.

Feb. 14, 1979.

Rehearing Denied March 28, 1979.

Wilson & Grosenheider, David Moore, Austin, and James E. Ross, Houston, for petitioner.

Hooper, Robinson & Moeller, Malcolm Robinson, Austin, for respondent.

SPEARS, Justice.

This is a deceptive trade practice case. The principal in question presented on this appeal is whether a misrepresentation about coverage afforded by a policy of insurance, made by the insurance company's local recording agent, is a deceptive trade practice under Texas statutes for which the insurance company as principal is liable for treble damages.

Petitioner Royal Globe Insurance Company, defendant in the trial court, is appealing from a judgment obtained by Plaintiff and Respondent, Bar Consultants, Inc., for violation of the Deceptive Trade Practices Act ¹ and Article 21.21 ² of the Texas Insurance Code. The Court of Civil Appeals affirmed, 566 S.W.2d 724. We affirm, but on different grounds.

Bar Consultants, Inc. operated a bar near the campus of The University of Texas known as "The Bucket." The president of Bar Consultants, Inc., John Barber, testified that he purchased a policy of insurance from Tully Embrey, an agent of Royal Globe, sometime prior to September 1975. ³ The one-year policy was renewed on September 4, 1974 and again on September 4, 1975. Each contained identical terms which included a vandalism and malicious mischief endorsement. Barber testified that before the first policy was written, he had a lengthy discussion with Embrey about the problem of vandalism at which time Embrey assured him that he was "totally covered" from losses caused by vandalism. ⁴ His testimony was uncontradicted.

The policy in question is a Texas Standard Policy covering fire and extended coverage. An endorsement attached includes coverage for vandalism and malicious mischief. The insurance memorandum says that the property covered is "(o)n the contents in the . . . building," giving the address of "The Bucket." The term "contents" is defined in the policy.

On January 31, 1974, during the policy year 1973-74, Royal Globe paid a vandalism claim filed by Bar Consultants. The description of the damage on the proof of loss form was "Vandals inflicted damage in the bathroom area for which insured is liable under lease contract."

On the night of March 5, 1976, the men's rest room at The Bucket sustained extensive damage. The main sewer line was stopped up by one or more plastic cups; the flush valve part of the urinal had been torn away. The stoppage in the main sewer line caused the facilities in both men's and women's rest rooms to overflow. The partitions between the commodes were torn down, water was nearly an inch deep on the floor of the rest room and out into the hall. The acoustical ceiling had been torn down, as had the light fixtures. In addition, the floor tiles came loose and the carpet was ruined. The trial court found that the damage was caused by vandalism or malicious mischief and that it cost $1,735.15 to repair.

The day following the damage Barber called Embrey's office. Embrey was not in, but his secretary, after a discussion with Barber, told Barber to "go ahead; have the work done. You're covered under the policy." Later Barber talked with Embrey who told him the same thing. Subsequently, Royal Globe refused the claim, and Bar Consultants filed this suit against Embrey and Royal Globe. ⁵

Bar Consultants alleged that the damages were covered by its policy and asked for actual damages plus a penalty of 12% Interest and attorney's fees, or in the alternative for actual and exemplary damages because of the fraudulent misrepresentations of the agent, and in the further alternative for treble damages, attorney's fees and return of premiums because, if in fact the policy did not cover such damage, then such representations and policy terms were false, deceptive and misleading, in violation of Article 21.21, Section 4(1), Texas Insurance Code, and Section 17.46(a)(12) ⁶ of the DTPA.

The trial court found that under Article 21.02 and under the facts and circumstances of this case Tully Embrey was "at all times an agent" for Royal Globe; that Embrey, as Royal Globe's agent, represented to Bar Consultants that the policy covered all damages caused by vandalism, including the damage in question; and that the policy did not cover the damage in question. ⁷ The trial court awarded Bar Consultants a judgment for $5,205.45, as treble the cost of repairs, plus $1,991.00 attorney's fees against Royal Globe. The Court of Civil Appeals affirmed, holding that Embrey's statement on the day after the loss of March 5 that the loss was "covered" under the policy, when in fact it was not, was a violation of both Article 21.21 of the Insurance Code and Section 17.46 of the Deceptive Trade Practices Act.

In order to determine what is a deceptive trade practice or act, as that term applies to a local recording agent for an insurance company, it is necessary to look at the definition of such act or practice given by the legislature. Section 16 of Article 21.21 declares that a cause of action for treble the actual damages may be brought by:

"Any person who has been injured by another's engaging in any of the practices (1) declared in Section 4 of this Article Or (2) in rules or regulations lawfully adopted by the Board under this Article to be unfair methods of competition and unfair and deceptive acts or practices in the business of insurance Or (3) in any practice defined by Section 17.46 of the Business and Commerce Code, as amended, as an unlawful deceptive trade practice . . . ." (Emphasis and numbering added.)

We will therefore examine each of the three cumulative definitions of deceptive trade practices or acts. The first is set out in Section 4 of Article 21.21 which declares in part:

"Sec. 4. Unfair Methods of Competition and Unfair or Deceptive Acts or Practices Defined. The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance:

"(1) Misrepresentations and False Advertising of Policy Contracts. Making, issuing, circulating, or causing to be made, issued or circulated, Any estimate, illustration, circular or Statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby . . . ." (Emphasis supplied.)

The second reference to a deceptive trade practice or act made by Section 16 is "in rules or regulations lawfully adopted by the (State) Board (of Insurance) under this Article . . . ." Pursuant to Section 13 of Article 21.21 the Board in 1971 adopted rules and regulations prohibiting "any trade practice that is a misrepresentation of an insurance policy," including both material misrepresentations of fact and of law, whether done "directly or indirectly," and irrespective of "capacity or connection with such insurer." ⁸

The third definition of a deceptive trade practice or act incorporated into Article 21.21, Section 16, is found in Section 17.46 of the DTPA. Subsection (a) of Section 17.46 declares unlawful "(f)alse, misleading, or deceptive acts or practices in the conduct of any trade or commerce." Subsection (b) lists specific acts or practices which are included in the definition of "false, misleading, or deceptive acts or practices." Subsection (b)(12) prohibits:

". . . representing that an agreement confers or involves rights, remedies, or obligations which it does not have or involve . . . ."

Royal Globe by its first point of error contends that there is no evidence that its agent Embrey had authority to make statements and representations that were binding upon Royal Globe. Having determined what activity is prohibited, it is necessary to examine Embrey's legal relationship with Royal Globe and to determine the extent to which Royal Globe is responsible in law for his actions in misrepresenting policy coverage.

It is clear from the record before us that Tully Embrey was the local recording agent of Royal Globe as that term is defined in Article 21.14, Section 2:

". . . a person or firm engaged in soliciting and writing insurance, being authorized by an insurance company . . . to solicit business and write, sign, execute and deliver policies of insurance, and to bind companies on insurance risks . . . ."

Embrey issued the policy in question from the "Tully Embrey Insurance Agency"; he signed the policy for Royal Globe as its agent and Royal Globe has not denied his authority to do so.

In describing the circumstances of a local recording agent's authority, this Court said in Shaller v. Commercial Standard Insurance Co., 158 Tex. 143, 309 S.W.2d 59 (1958), at page 63:

". . . The purpose of the statute was to vest local recording agents with authority co-extensive with that of the company insofar as writing insurance is concerned and to remove all questions of the local agent's actual or apparent authority from the field of cavil or dispute. . . ."

The trial court found that Embrey was Royal Globe's agent under the provisions of Article 21.02, which says:

"Any person who solicits insurance on behalf of any insurance company, whether incorporated under the laws of this or any other state or foreign government, or who takes or transmits other than for himself any application for insurance or any policy of insurance to or from such company, or who advertises or otherwise gives notice that he will receive or transmit the same, or who shall receive or deliver a policy of insurance of any such company, or who shall examine or inspect any risk, or receive, or collect, or transmit any premium of insurance, or make or forward any diagram of any building or buildings, or do or perform any other act or thing in the making or consummating of any contract of insurance for or with any such insurance company...