State Farm Mut. Auto. Ins. Co. v. Kelly, 03-96-00491-CV

• Decision Date: 22 May 1997
• Docket Number: No. 03-96-00491-CV,03-96-00491-CV
• Citation: 945 S.W.2d 905
• Parties: STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. Joel KELLY, Appellee.
• Court: Texas Court of Appeals

Page 905

945 S.W.2d 905

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Appellant, v. Joel KELLY, Appellee.

No. 03-96-00491-CV.

Court of Appeals of Texas Austin.

May 22, 1997.

Rehearing Overruled June 19, 1997.

Linette H. Harris, Wright & Greenhill, P.C., Austin, for appellant.

Donna J. Bowen, Slack & Davis, L.L.P., Austin, for appellee.

Before CARROLL, C.J., and ABOUSSIE and B.A. SMITH, JJ.

BEA ANN SMITH, Justice.

The issue presented is whether the confiscation of a stolen vehicle by state authorities is an "accidental loss" under the insurance policy issued by State Farm Mutual Automobile Insurance Company, appellant, to Joel Kelly, appellee. After a bench trial on stipulated facts, the trial court rendered judgment in favor of Mr. Kelly. State Farm appeals, contending the trial court erred because: (1) Kelly's vehicle was not a "covered auto" under the insurance policy; (2) confiscation of

the vehicle was not an "accidental loss"; and (3) coverage of this loss would violate public policy. Additionally, State Farm argues the trial court erred in construing the policy in favor of coverage when the policy was not ambiguous. We will affirm the trial court's judgment.

BACKGROUND

In October 1993, in response to a newspaper advertisement, Mr. Kelly paid $17,000 to Darrell Edmond Rogers, a/k/a Donald Davis, to purchase a vehicle that Rogers claimed to be a 1991 Nissan 300ZX. Mr. Kelly received a certificate of title to a 1991 Nissan 300ZX. On the same day, Mr. Kelly called and asked State Farm to replace the 1990 Mazda on his personal auto insurance policy with the 1991 Nissan. Less than a month later a Department of Public Safety officer visited Mr. Kelly at his place of business and confiscated the 1991 Nissan, informing him that the car was a stolen vehicle. The "VIN" plates of a reconditioned 1991 Nissan 300ZX had been placed on a 1993 model which had been stolen from a Houston car dealership. Mr. Kelly immediately called State Farm, canceled coverage on the 1991 Nissan and reinstated coverage on the 1990 Mazda.

On February 11, 1994, a Travis County justice of the peace ordered the confiscated 1993 Nissan returned to its rightful owner. Mr. Kelly filed a claim with State Farm under the policy provision, "Coverage for Damage to Your Auto," for the $17,000 he paid for the stolen vehicle. State Farm denied the claim. Mr. Kelly subsequently sued State Farm for the loss. The trial court rendered final judgment in favor of Mr. Kelly and ordered State Farm to reimburse him for the amount paid for the car, plus interest and attorneys' fees. The court made several conclusions of law, including the following: (1) Mr. Kelly's auto insurance policy with State Farm is not ambiguous; (2) Mr. Kelly was a bona fide purchaser of a stolen car; (3) seizure of the car by the police was an accidental loss to Mr. Kelly; (4) the policy did not exclude this type of accidental loss from coverage; and (5) the policy covers all accidental losses not specifically excluded. State Farm appeals the judgment.

DISCUSSION

Under Mr. Kelly's insurance policy, State Farm agrees to "pay for direct and accidental loss" to the insured's "covered auto." The policy defines covered auto to include a private passenger automobile acquired during the policy period if the insured notifies State Farm within 30 days after becoming the owner. To be covered, therefore, Mr. Kelly's Nissan must have been a "covered auto" and its repossession must have been an "accidental loss" not specifically excluded by the policy. In its first two points of error, State Farm claims the trial court erred in concluding the car was a covered auto and the confiscation was an accidental loss under the policy. Whether the car was a covered auto and the confiscation was an accidental loss under the terms of policy are questions of law. We review a trial court's conclusions of law de novo. See State Farm Lloyds v. Kessler, 932 S.W.2d 732, 735 (Tex.App.--Fort Worth 1996, no writ); Piazza v. City of Granger, 909 S.W.2d 529, 532 (Tex.App.--Austin 1995, no writ).

"Covered auto"

State Farm asserts that its policy definition of "covered auto" specifically imposes an ownership requirement for coverage. Because Mr. Kelly never received a legal certificate of title to his car, State Farm contends he was never an owner and his car was never a covered auto under the policy.

It is well settled in Texas that an insured need only have an insurable interest in property for coverage to take effect; actual ownership is not required. See Smith v. Eagle Star Ins. Co., 370 S.W.2d 448 (Tex.1963); Gulf Ins. Co. v. Winn, 545 S.W.2d 526, 527 (Tex.Civ.App.--San Antonio 1976, writ ref'd n.r.e.). In Smith, the plaintiff purchased fire insurance on a dwelling that she thought she and her husband owned but which turned out to be owned by the state. Smith, 370 S.W.2d at 449. The supreme court held that the plaintiff was entitled to the insurance proceeds when the house burned down because she held an insurable interest in the property. Id. at 450. An insurable interest exists when the insured derives pecuniary benefit or advantage from The purpose of the insurable interest requirement is to discourage the use of insurance for illegitimate purposes. See Bell, 587 S.W.2d at 802 (citing 44 C.J.S. Insurance § 179 (1945)). That purpose is served here. The record before us contains no allegations that Mr. Kelly knew or should have known that the vehicle he purchased was stolen. He paid valuable consideration for the car and would have derived a benefit from its continued use; he suffered a substantial pecuniary loss when the car was confiscated. As a good faith purchaser for value, Mr. Kelly had an insurable interest in the Nissan as matter of law, even though he was never the legal owner. ¹ Because he notified State Farm within the thirty-day period required by the policy, the trial court correctly concluded the Nissan was covered under Mr. Kelly's policy. We overrule State Farm's first point of error.

the preservation and continued existence of the property or would sustain pecuniary loss from its destruction. Id. (citing Canfield v. Newman, 265 S.W. 1052 (Tex.Civ.App.--El Paso 1924, no writ)). The plaintiff in Smith had an insurable interest by virtue of her having lived on and farmed the land in question for several years. Several courts in Texas have followed Smith in not requiring ownership to establish an insurable interest. See Jones v. Texas Pac. Indem. Co., 853 S.W.2d 791, 794 (Tex.App.--Dallas 1993, no writ) (not owning property does not preclude an insurable interest in such property); Thompson v. Trinity Univ. Ins. Co., 708 S.W.2d 45, 47 (Tex.App.--Tyler 1986, writ ref'd n.r.e.) (it is not necessary to prove title to show insurable interest); First Preferred Ins. Co. v. Bell, 587 S.W.2d 798, 801 (Tex.Civ.App.--Amarillo 1979, writ ref'd n.r.e.).

"Accidental loss"

Under the policy, State Farm is required to "pay for direct and accidental loss" to a covered auto. Whether confiscation of a stolen car from a bona fide purchaser is an accidental loss is an issue of first impression in Texas. To address the issue we look to Texas cases defining other types of accidental loss and to other jurisdictions which have directly addressed this issue.

The Texas Supreme Court has recognized that a loss or injury is accidental when it is "not the natural and probable consequence of the means which produce it." State Farm Fire & Cas. Co. v. S.S. & G.W., 858 S.W.2d 374, 377 (Tex.1993) (quoting Republic Nat'l Life Ins. Co. v. Heyward, 536 S.W.2d 549, 555-56 (Tex.1976)). In other words, accidental loss is one that does not ordinarily follow and cannot be reasonably anticipated from the producing act. See id.; Southern Farm Bureau Cas. Ins. Co. v. Brock, 659 S.W.2d 165, 166 (Tex.App.--Amarillo 1983, writ ref'd n.r.e.) (emphasis added). An accidental loss is one the actor did not intend to produce. See S.S. & G.W., 858 S.W.2d at 377; Argonaut S.W. Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973).

Texas courts have applied this definition in a number of instances involving insurance coverage. In Brock, the insured was denied coverage for loss to his truck when he intentionally collided with another vehicle in order to prevent a shooting. See Brock, 659 S.W.2d at 166. The court of appeals found the damage to his truck was a natural and probable consequence of intentionally driving straight into another vehicle without applying the brakes. Id. In Argonaut Southwest Insurance Co., the supreme court ruled that the insurance company was not liable for damages under its policy insuring against loss to property "caused by accident" when the insureds deliberately removed materials belonging to a tenant rather than the actual owner. Argonaut S.W. Ins. Co., 500 S.W.2d at 636. The supreme court held the loss could not be accidental when the insureds "did what they intended to do by removing the borrow material from the property." Id. at 635. The insured's error or mistake did not make the loss accidental because the loss was the natural result of the act of removing the materials. See id. More recently in S.S. & G.W., the insured sought coverage under the accidental loss provision of his homeowner's In defining accidental loss, courts have focused on whether the act that caused the loss was intentional and whether the loss was a natural and probable consequence of that producing act. In Argonaut Southwest Insurance Co., the act of removing material from a tract of land was intentional and such removal, whether or not authorized, would reasonably result in actual loss to someone. Likewise in Brock, the intentional act of ramming one vehicle into another would naturally result in damage. But, in S.S. & G.W., the intentional act of engaging in sexual intercourse would not naturally and probably result in transmitting a disease. Courts thus have examined the link between the act and its probable consequence.

                policy

...