Southern Clay Products, Inc. v. Guardian Royal Exchange Assur., Ltd.

• Decision Date: 08 December 1988
• Docket Number: No. 13-88-031-CV,13-88-031-CV
• Citation: 762 S.W.2d 927
• Parties: SOUTHERN CLAY PRODUCTS, INC., Gonzales Clay Corporation, English China Clays Overseas Investments, Ltd., and English China Clays, P.L.C., Appellants, v. GUARDIAN ROYAL EXCHANGE ASSURANCE, LTD., Appellee.
• Court: Texas Court of Appeals

Page 927

762 S.W.2d 927

SOUTHERN CLAY PRODUCTS, INC., Gonzales Clay Corporation English China Clays Overseas Investments, Ltd. and English China Clays, P.L.C., Appellants, v. GUARDIAN ROYAL EXCHANGE ASSURANCE, LTD., Appellee.

No. 13-88-031-CV.

Court of Appeals of Texas Corpus Christi.

Dec. 8, 1988.

Rehearing Denied Jan. 5, 1989.

Donald D. Gavlick, Gilbert Vara, Jr., Elizabeth Lindell, San Antonio, for appellants.

Michael G. Cosby, Michael L. Dinnin, Edward S. Hubbard, Clifford J. Gunter, II, Gale A. Boone, Houston, for appellee.

Before NYE, C.J., and KENNEDY and SEERDEN, JJ.

OPINION

KENNEDY, Justice.

This is an appeal by Southern Clay Products, Inc., Gonzales Clay Corporation, English China Clays Overseas Investments, Ltd., and English China Clays, plc (the Clays) from the trial court's sustaining of appellee Guardian Royal Exchange Assurance, Ltd.'s (Guardian's) plea to the jurisdiction, based on a lack of in personam jurisdiction over Guardian. The Clays, plaintiffs below, sued Guardian, defendant below, to enforce a policy of insurance issued by Guardian to the Clays.

The suit arises from the death of an employee of Southern Clay Products, Inc. (Southern Clay), in an on-the-job accident, occurring in Texas. Several members of the deceased's family filed wrongful death suits against the Clays in federal and state courts in Texas. Guardian wrote a policy of insurance for English China Clays, plc an English company, providing coverage for the Clays, English China Clays and its American subsidiaries, for third-party liability occurring wherever in the world the Clays did business. Southern Clay, a subsidiary of English China Clays, is a Texas corporation with its principal place of business in Texas. Guardian is an English insurance company with its office and principal place of business in England. Guardian provided insurance to the American subsidiaries of Clay on the understanding that they would obtain underlying liability insurance from American insurers. The policy acknowledged that Southern Clay was located in the "U.S.A." but did not indicate that it was in Texas.

Southern Clay obtained underlying coverage from United States Fire Insurance Company (U.S. Fire). During the course of the underlying lawsuit against them, the Clays settled with the family of the deceased for $650,000 and U.S. Fire satisfied the claims on behalf of the Clays. The Clays claim that Guardian was the primary insurer and should reimburse U.S. Fire for the amounts it paid on their behalf. (U.S. Fire, having been subrogated to the rights of the Clays, is thus the real party in interest). Guardian, however, refused to participate in, or pay any part of, the settlement, on the ground that its liability extends only to excess coverage above the local insurer, U.S. Fire's coverage.

In the present action, the Clays complain that Guardian's refusal to extend coverage is a breach of its insurance agreement, or that, in the alternative, Guardian violated the Texas Deceptive Trade Practices Act and the Texas Insurance Code by making false representations and failing to disclose information concerning the insurance agreement.

Guardian specially appeared, claiming that the insurance agreement was strictly between two English companies, that it was negotiated and implemented in England, and that it had insufficient contacts with Texas to confer in personam jurisdiction. Guardian admitted that it issued a policy of insurance to English China Clays in 1980; that a 1981 endorsement to the policy extended coverage to companies within the United States, including Southern Clay; and that, under certain circumstances, the policy provided coverage for accidents occurring wherever the insureds did business.

The trial court granted appellee's motion to make a special appearance and dismissed the cause of action on the ground that Guardian negated every possible ground for in personam jurisdiction over it.

In three points of error the Clays complain that the trial court erred in concluding that: 1. the assumption of jurisdiction over Guardian would offend traditional notions of fair play and substantial justice; 2. Guardian did not avail itself of the benefits of the laws of the State of Texas; and 3. Guardian at no time relevant to this cause was doing business in the State of Texas. Because they are inextricably interrelated, we will discuss these points together.

A nonresident defendant has the burden of proof to negate all bases of personal jurisdiction. Siskind v. Villa Foundation for Education, Inc., 642 S.W.2d 434, 438 (Tex.1982).

The Texas long-arm statute, Tex.Civ.Prac. & Rem.Code Ann. § 17.042 (Vernon 1986) (formerly Tex.Rev.Civ.Stat.Ann. art. 2031b), reaches as far as the federal constitutional requirements of due process will permit. Hall v. Helicopteros Nacionales de Colombia, S.A., 638 S.W.2d 870, 872 (Tex.1982), reversed on other grounds, 466 U.S. 408, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984); U-Anchor Advertising v. Burt, 553 S.W.2d 760, 762 (Tex.1977).

The United States Supreme Court in Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102, 107 S.Ct. 1026, 94 L.Ed.2d 92 (1987), reaffirmed the due process limits of in personam jurisdiction, as follows:

The Due Process Clause of the Fourteenth Amendment limits the power of a state court to exert personal jurisdiction over a nonresident defendant. "[T]he constitutional touchstone" of the determination whether an exercise of personal jurisdiction comports with due process "remains whether the defendant purposefully established 'minimum contacts' in the forum state." Burger King Corp. v. Rudzewicz, 471 U.S. 462, 474, 105 S.Ct. 2174, 2183, 85 L.Ed.2d 528 (1985), quoting International Shoe Co. v. Washington, 326 U.S. 310, 316, 66 S.Ct. 154, 158, 90 L.Ed. 95 (1945). Most recently we have reaffirmed the oft-quoted reasoning of Hanson v. Denckla, 357 U.S. 235, 253, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958), that minimum contacts must have a basis in "some act by which the defendant purposefully avails itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protections of its laws." Burger King, 471 U.S., at 475, 105 S.Ct., at 2183. "Jurisdiction is proper ... where the contacts proximately result from actions by the defendant himself that create a "substantial connection' with the forum state." Ibid., quoting McGee v. International Life Insurance Co., 355 U.S. 220, 223, 78 S.Ct. 199, 201, 2 L.Ed.2d 223 (1957) (emphasis in original).

Where defendant's contacts with the forum are continuous and systematic, courts within that State may exercise general jurisdiction over the defendant without regard to whether the particular controversy sued upon arose in the forum or elsewhere. Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-16, 104 S.Ct. 1868, 1872-73, 80 L.Ed.2d 404 (1984). The courts may also exercise specific jurisdiction over a defendant with a single or few contacts with the forum, under the following circumstances:

When a controversy is related to or "arises out of" a defendant's contacts with the forum, the Court has said that a "relationship among the defendant, the forum, and the litigation" is the essential foundation of in personam jurisdiction. Shaffer v. Heitner, 433 U.S. 186, 204, 97 S.Ct. 2569, 2579, 53 L.Ed.2d 683 (1977).

Id., 466 U.S. at 414, 104 S.Ct. at 1872.

We rely on a three-pronged test to determine the constitutional reach of the State's jurisdiction over defendants with only a single or few contacts with Texas, as follows:

(1) the nonresident defendant or foreign corporation must purposefully do some act or consummate some transaction in the forum state;

(2) the cause of action must arise from or be connected with such act or transaction; and

(3) the assumption of jurisdiction by the forum state must not offend traditional notions of fair play and substantial justice.

Zac Smith & Co. v. Otis Elevator Co., 734 S.W.2d 662, 664 (Tex.1987); O'Brien v. Lanpar Co., 399 S.W.2d 340, 342 (Tex.1966); Perez Bustillo v. Louisiana, 718 S.W.2d 844, 846 (Tex.App.--Corpus Christi 1986, no writ).

On a number of occasions the federal courts have spoken on the application of the above due process analysis to a nonresident insurance company. In McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957), a California resident purchased a life insurance policy from an Arizona insurer. A Texas insurer later agreed to reinsure the Arizona insurer's clients and issued a reinsurance certificate to the California resident. After the insured died, his beneficiary sued the Texas insurer in California for amounts due under the policy. Holding that California had in personam jurisdiction over the Texas insurer, the United States Supreme Court set forth generally the considerations in determining the insurer's obligation and the fairness of requiring it to answer claims in a distant forum:

It cannot be denied that California has a manifest interest in providing effective means of redress for its residents when their insurers refuse to pay claims. These residents would be at a severe disadvantage if they were forced to follow the insurance company to a distant state in order to hold it legally accountable. When claims were small or moderate individual claimants frequently could not afford the cost of bringing an action in a foreign forum--thus in effect making the company judgment proof. Often the crucial witnesses--as here on the company's defense of suicide--will be found in the insured's locality.

Id., 355 U.S. at 223, 78 S.Ct. at 201.

In Commonwealth of Puerto Rico v. SS Zoe Colocotroni, 628 F.2d 652 (1st Cir.1980), a ship ran aground on a reef just off Puerto Rico and released a large amount of oil into the surrounding water, causing damage to the Puerto Rican coast. The ship's insurance underwriter was a British corporation with no contacts in Puerto Rico aside...