Smith v. Texas Farmers Ins. Co.

• Decision Date: 22 May 2002
• Docket Number: No. 04-0140600-CV.,04-0140600-CV.
• Citation: 82 S.W.3d 580
• Parties: Donald H. SMITH and Pat Smith, Appellants, v. TEXAS FARMERS INSURANCE COMPANY, Appellee.
• Court: Texas Court of Appeals

82 S.W.3d 580

Donald H. SMITH and Pat Smith, Appellants, v. TEXAS FARMERS INSURANCE COMPANY, Appellee.

No. 04-0140600-CV.

Court of Appeals of Texas, San Antonio.

May 22, 2002.

Rehearing Overruled June 11, 2002.

COPYRIGHT MATERIAL OMITTED

Nelson Skinner, Law Offices of Nelson Skinner, San Antonio, for Appellant.

Laurene S. Kurth, Jones Kruth, Andrews & Ortiz, P.C., San Antonio, for Appellee.

Sitting: PHIL HARDBERGER, Chief Justice, CATHERINE STONE, Justice, and SANDEE BRYAN MARION, Justice.

OPINION

SANDEE BRYAN MARION, Justice.

This appeal arises from a property insurance dispute between Donald and Pat Smith and Texas Farmers Insurance Company. In February 1991, the Smiths sold a house to Ron and Serena Levine for $169,000. As part of the financing, the Smiths loaned $144,000 to the Levines, in return for which the Smiths took a deed of trust lien against the dwelling. Under the deed of trust, the Levines were obligated to obtain an insurance policy on the house, naming the Smiths as mortgagees and first party beneficiaries under the policy. The Levines obtained such a policy from Farmers, under which Farmers was required to "pay for any loss of or damage to buildings or structures to the mortgagee shown on the declarations page as interests appear."

This dispute arose when the Levines made several property damage claims on the house to Farmers. Shortly after the claims were made, the mortgage debt owed by the Levines to the Smiths was offset by a 1993 judgment in favor of the Levines against the Smiths. Farmers, thereafter, cancelled the Smiths' mortgagee interest under the insurance policy and issued the loss-payment checks directly to the Levines.

The Smiths sued Farmers arguing, in various causes of action, that because they had a mortgagee interest in the house at the time the loss claims were filed, the checks should have been issued to them. The district court rendered summary judgment in favor of Farmers on all of the Smiths' claims and awarded attorney's fees to Farmers. In twelve points of error, the Smiths challenge the court's judgment. We find that the Smiths' interest in the mortgage note and insurance policy was extinguished by the 1993 judgment and affirm the court's summary judgment on that basis. However, we find that Farmers was not entitled to attorney's fees under the law and reverse on that issue. Accordingly, we affirm in part and reverse in part.

FACTUAL & PROCEDURAL BACKGROUND

In 1993, the Levines sued the Smiths for fraud, misrepresentation, and violations of the Deceptive Trade Practices Act ("DTPA"). The Levines alleged that the Smiths knew, before the sale, that the house had foundation defects, but they did not disclose the defects to the Levines. The Smiths counterclaimed against the Levines, asserting that the Levines were in default on the mortgage note. The jury returned its verdict on December 8, 1993, finding the Smiths liable to the Levines for fraud and DTPA violations, and awarding damages in the amount of $243,644. The jury also found that the Levines owed the Smiths $136,065.95 on the mortgage note. In the final judgment, dated December 23, 1993, the trial court "offset and deducted from [the Levines'] recovery" "the full amount of the note balance, accrued interest, [and] attorneys' fees awarded to" the Smiths. The judgment stated, "by reason of the allowance of an offset for the entire balance of the real estate lien note, said note is hereby fully and finally paid and discharged, and all liens securing said note ... are hereby extinguished and released." The judgment also extinguished and released the vendor's lien contained in the warranty deed. In September 1995, a panel of this court affirmed the 1993 judgment. See Smith, v. Levine, 911 S.W.2d 427 (Tex.App. — San Antonio 1995, writ denied). This court's mandate issued in 1996.

On December 10, 1993, the Levines filed a claim with Farmers for damage caused by plumbing leaks in a downstairs bathroom on November 1, 1993. A structural engineer retained by Farmers determined the leak had no effect on the foundation. Farmers issued a property-loss check, dated February 9, 1994, payable to the Levines and the Smiths in the amount of $3,095.05. On February 8, 1994, the Levines filed another claim with Farmers for damage caused by plumbing leaks in an upstairs bathroom on December 11, 1993. Farmers issued a property-loss check, dated February 14, 1994, payable to the Levines and the Smiths in the amount of $4,686.14. The February 9th check and the February 14th check were both delivered to the Levines.

On March 1, 1994, the Levines notified Farmers that the Smiths had been removed as lienholders and there was no outstanding mortgage on the house. The Levines asked Farmers to reissue the February 14th check payable to them. On March 3rd, after Farmers received the Levines' March 1st letter and a copy of the 1993 judgment, Farmers mailed to the Smiths a Notice of Cancellation of Mortgagee or Other Interest. On March 9th, Farmers reissued the February 14th check, payable to the Levines. Farmers issued supplemental property-loss checks to the Levines for the December 10th claim ($3,837.42) and the February 8th claim ($374.85).

In October 1999, the Smiths sued the Levines and Farmers, alleging a variety of causes of actions, all of which centered on Farmers's payment of the December 10th and February 8th claims to the Levines and cancellation of the Smiths' mortgagee's interest under the insurance policy. The Smiths contended that the loss-payment checks should have been made payable to them as mortgagees under the policy, and Farmers's fraudulent concealment of the checks resulted in an increased damage award to the Levines under the 1993 judgment.

Farmers moved for summary judgment on all of the Smiths' causes of action on the grounds that the Smiths had no mortgagee rights under the insurance policy because their status as mortgagees was extinguished by the 1993 judgment; the Levines' insurance claims did not involve foundation damage, therefore, the alleged "concealment" of the claims did not affect the 1993 judgment; and the Smiths' claims were barred by collateral estoppel, res judicata, and the applicable statute of limitations. The trial court granted Farmers's motion for summary judgment without stating its grounds.

SUMMARY JUDGMENT ON THE SMITHS' CAUSES OF ACTION

Standard of Review

Under traditional summary judgment standards, a party moving for summary judgment has the burden of establishing as a matter of law that no genuine issue of material fact exists as to one or more essential elements of the plaintiffs cause of action. Casso v. Brand, 776 S.W.2d 551, 556 (Tex.1989); Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985). If the defendant meets this burden, the plaintiff must then raise a genuine issue of material fact on that element. Gonzalez v. City of Harlingen, 814 S.W.2d 109, 112 (Tex.App. — Corpus Christi 1991, writ denied). In reviewing a summary judgment, an appellate court accepts as true all evidence supporting the non-movant. Nixon, 690 S.W.2d at 549. All inferences are indulged in favor of the non-movant, and all doubts are resolved in his favor. Id.

The 1993 Judgment

The focus of this dispute is the effect of the 1993 judgment on the Smiths' interest as mortgagees under the insurance policy. Farmers asserts that the judgment's satisfaction of the mortgage debt extinguished the Smiths' mortgagees' interest; therefore, they were barred from recovering any loss-payments issued after rendition of the judgment. The Smiths contend they were entitled to the December 10th and February 8th loss-payments because the policy provides for their right to receive loss-payments even if foreclosure proceedings have begun on the property. Because the house was not foreclosed upon and rendition of the 1993 judgment had no affect on the mortgage debt, the Smiths conclude their rights under the policy continued.

The purpose of a loss-payable clause in an insurance policy is to protect the security interest of the mortgagee who has advanced money to others for the purchase of property, and who has taken a note and deed of trust, or mortgage on the subject property. Helmer v. Texas Farmers Ins. Co., 632 S.W.2d 194, 196 (Tex. App. — Fort Worth 1982, no writ). A mortgagee's interest under an insurance policy containing a mortgagee loss-payable clause is limited to the indebtedness that the mortgagor owes under the note and mortgage. Id.; Beneficial Standard Life Ins. Co. v. Trinity Nat'l Bank, 763 S.W.2d 52, 55 (Tex.App. — Dallas 1988, writ denied); Campagna v. Underwriters at Lloyd's London, 549 S.W.2d 17, 19 (Tex.Civ.App. — Dallas 1977, writ ref'd n.r.e.). Therefore, while the mortgage debt remained outstanding, the Smiths maintained their status as mortgagees under the insurance policy, and they were entitled to loss-payments pursuant to the policy.

The Smiths argue that the mortgage debt offset in the judgment was not effective to extinguish their mortgagees' interest because the appeal of the 1993 judgment continued until 1996. The Smiths rely on the general proposition that a lawsuit does not end with rendition of a judgment and a trial court may protect the litigants' rights and preserve the property involved in the litigation pending final disposition of the case on appeal. See Gainesville Oil & Gas Co., Inc. v. Farm Credit Bank of Texas, 847 S.W.2d 655, 659 (Tex.App. — Texarkana 1993, no pet.). The Smiths argue that their rights as mortgagees continued until this court's mandate issued on June 3, 1996 and the Levines signed a release of judgment on June 11, 1996. The Smiths' argument confuses the finality of a judgment with execution on the judgment.

An action remains pending in the trial court until all issues have been determined by the court, a final judgment has been rendered, and all post-trial motions have been disposed of. See Thomas v. Oldham, 895 S.W.2d 352, 356...