Safeway Managing General Agency for State and County Mut. Fire Ins. Co. v. Cooper, 07-96-0333-CV

• Decision Date: 19 August 1997
• Docket Number: No. 07-96-0333-CV,07-96-0333-CV
• Citation: 952 S.W.2d 861
• Parties: SAFEWAY MANAGING GENERAL AGENCY FOR STATE AND COUNTY MUTUAL FIRE INSURANCE COMPANY, Appellant, v. Donna Michelle COOPER, Maria Tello and Jose Tello, Appellees.
• Court: Texas Court of Appeals

Page 861

952 S.W.2d 861

SAFEWAY MANAGING GENERAL AGENCY FOR STATE AND COUNTY MUTUAL FIRE INSURANCE COMPANY, Appellant, v. Donna Michelle COOPER, Maria Tello and Jose Tello, Appellees.

No. 07-96-0333-CV.

Court of Appeals of Texas Amarillo.

Aug. 19, 1997.

Opinion OverrulingRehearing Oct. 1, 1997.

Robert L. Grover & Associates, Robert L. Grover, Houston, for appellant.

Law Office of Woodrow W. Miller, Woodrow W. Miller, Houston, for Donna Michelle Cooper, Walter M. Fortenberry & Associates, Walter M. Fortenberry, Humble, for Tellos.

Before BOYD, C.J., and DODSON and QUINN, JJ.

BOYD, Chief Justice.

In this appeal from a declaratory judgment, we are asked to review a trial court declaration that a named driver exclusion in a contract for automobile insurance was ineffective to deny coverage under the policy. We are also asked to determine the propriety of the inclusion of a third party claimant in the declaratory judgment. For reasons we later discuss, we reverse and remand the judgment of the trial court, with the exception of that portion awarding Cooper's attorney fees. The severed portion of the judgment awarding attorney fees is affirmed.

For a proper discussion, we must recount the factual background of the case. On September 24, 1991, Jose Tello made application to Safeway Managing General Agency (Safeway) for an automobile insurance policy. Because she did not have a driver's license, Jose's wife Maria was specifically excluded. A policy was issued to Jose which provided for renewal on a monthly basis as premiums were paid. On September 8, 1992, Donna Michelle Cooper (Cooper) was driving a car involved in a collision with Jose's truck. Jose reported the collision to his local agent the same day and told the agent he had been driving the car. Safeway investigated the accident and discovered that Maria had been driving the truck but concluded that she was not at fault. As a result of its investigation, Safeway denied Cooper's claim. Because of that denial, Cooper filed suit against Jose and Maria alleging negligent entrustment and negligence respectively. By letter dated December 18, 1992, Safeway offered to provide a defense of the suit under a reservation of rights.

Before the negligence suit proceeded to trial, Safeway brought this action on July 14, 1993, seeking declaratory judgment pursuant to the Uniform Declaratory Judgments Act. Tex. Civ. Prac. & Rem.Code Ann. §§ 37.001-011 (Vernon 1997). In the action, Safeway seeks a holding that it had no duty to tender liability coverage or defend Jose or Maria, because Maria was excluded as a driver under the policy. The Tellos initially counterclaimed asserting estoppel, violation of the Insurance Code, violation of the Deceptive Trade Practices Act, ¹ and breach of the duty of good faith and fair dealing, although they abandoned their claims seeking affirmative relief before trial. Cooper answered, challenging her inclusion in the declaratory judgment action and asserted a counterclaim seeking a recovery, including attorney fees, under Rule 13 of the Rules of Civil Procedure.

After a bench trial, the court entered judgment declaring the driver exclusion inapplicable and that both Maria and Jose were entitled to coverage under the policy. The trial court also awarded attorney fees to both the Tellos and Cooper but denied Cooper any other relief. Safeway now challenges that judgment in six points of error and Cooper presents seven cross-points.

In its first two points, Safeway challenges that portion of the judgment decreeing that Maria and Jose were entitled to coverage under the policy. In support of those contentions Insurance contracts are generally construed as any other contract. National Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Industries, Inc., 907 S.W.2d 517, 520 (Tex.1995). However, this rule is subject to the proviso that if there is an ambiguity in the terms of an insurance contract, it is to be construed in favor of the insured. Southern Life and Health Ins. Co. v. Simon, 416 S.W.2d 793, 795 (Tex.1967). Insurance contracts must also be in compliance with the Texas Insurance Code.

Safeway presents 11 subpoints challenging specific findings of fact and conclusions of law made by the trial court. Because these points are so closely related, we consider them together.

Three provisions of the Insurance Code, articles 5.06, ² 21.35, and 21.58 have particular significance to our discussion. During the relevant time period, article 5.06 provided in pertinent part:

(2) Except as provided by Subsections (3) and (4) of this article, an insured may only use a form adopted by the Board under this section in writing motor vehicle insurance [ ] in this State. A contract or agreement not written into the application and policy is void and of no effect and in violation of the provisions of this subchapter, and is sufficient cause for revocation of license of such insurer to write automobile insurance within this State.

(3) The Board may approve the use of a policy form adopted by a national organization of insurance companies, or similar organization, if the form, with any endorsement to the form required and approved by the Board, provides coverage equivalent to the coverage provided by the form adopted by the Board under Subsection (1) of this section.

(4) An insurer may use an endorsement to the policy form adopted or approved by the Board under this article if the endorsement is approved by the Board.

Texas Insurance Code article 5.06 (Vernon Supp.1997).

Article 21.35 provided:

Except as otherwise provided in this code, every contract or policy of insurance issued or contracted for in this State shall be accompanied by a written, photographic or printed copy of the application for such insurance policy or contract, as well as a copy of all questions asked and answers given thereto. [ ]

Texas Insurance Code article 21.35 (Vernon 1981).

Article 21.58(b) provided:

In any suit to recover under a contract of insurance, the insurer has the burden of proof as to any avoidance or affirmative defense that must be affirmatively pleaded under the Texas Rules or Civil Procedure. Any language of exclusion in the policy and any exception to coverage claimed by the insurer constitutes an avoidance or an affirmative defense.

Texas Insurance Code article 21.58(b) (Vernon Supp.1997).

There are three relevant documents in determining the terms of the original insurance contract: 1) Jose's September 21, 1991 application for insurance, 2) the pre-printed policy form, referred to as the "policy jacket" by the parties, and 3) the declarations page showing the vehicle covered, the amounts of coverage, and the endorsements and exclusions.

Appellees argue that the named driver exclusion on the application upon which Safeway relies was ineffective because it was not on the form promulgated by the State Board of Insurance. However, contrary to their contention, article 5.06 does not actually require the use of the form promulgated by the Board but only requires that the form used be approved by the Board. In that regard, by producing the uncontroverted testimony of Don Brill, a claims manager, that the application form had been approved by the Board, Safeway met the burden imposed Even so, citing article 21.35, appellees argue that the trial court was correct in finding that the application form had not "accompanied" the policy and, because it did not do so, the named driver exclusion on the form was ineffective. The only evidence on the question was that Safeway would ordinarily send the "policy jacket and everything" to the agent who would then forward it to the insured. Safeway did not call the agent who sold the policy. We do not agree with the argument that the text in the margin of page 3 of the policy jacket instructing the user to "attach declarations page and endorsements to top edge of this page, to complete policy," is an incorporation by reference. That is merely precatory language not a part of the agreement. Welch v. McDougal, 876 S.W.2d 218, 225 (Tex.App.--Amarillo 1994, writ denied).

upon them by article 21.58(b) to establish that fact.

Our courts have long held that the failure to attach an application to a policy in violation of the dictates of article 21.35 prevents the introduction of the application for the purpose of showing misrepresentations by the applicant. Fredonia State Bank v. General American Life Ins. Co., 881 S.W.2d 279, 283 (Tex.1994). In such instances the application, per se, is excluded from the contract. National Life & Accident Ins. Co. v. Collier, 31 S.W.2d 465, 467 (Tex.Civ.App.--Beaumont 1930, no writ). That being true, we cannot consider the provisions of the application in deciding this appeal. Parenthetically, it is worth noting that the application is effective as an offer to contract. However, without compliance with the statute, it is simply not a part of the resulting contract. Id. at 467.

The declarations page, which was incorporated into the policy by reference, listed the name of the insurance company, Jose's name and address, his automobile, the policy period, ³ the amount of coverage and its cost, and "Endorsements and/or Exclusions." The last listed section included the text "EXCLUDE MARIA." Thus, that exclusionary language was incorporated in the policy by reference, thereby satisfying the requirements of article 5.06. ⁴ Additionally, the contract taken as a whole is not ambiguous. ⁵

It is well established that external evidence may not be used in interpreting an unambiguous contract. National Union, 907 S.W.2d at 520; Sun Oil Co. v. Madeley, 626 S.W.2d 726, 731 (Tex.1981). Consequently, although appellees place considerable emphasis in their argument on Safeway's Texas Automobile Underwriting Guide and the Insurance Board's Form 515, we may not resort to those extraneous sources in our interpretation. We hold that at the time of its issuance, the policy effectively excluded Maria as a driver.

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