State Farm Fire & Casualty Co. v. S.S. , 858 S.W.2d 374 ( 1993 )

GONZALEZ, Justice,

dissenting.

A one-night sexual encounter ended tragically when the female contracted genital herpes after consensual intercourse with her male partner. She sued him and obtained an agreed judgment for $1 million, which she now seeks to enforce against her partner’s homeowners’ insurer. The insurance company filed a declaratory judgment suit against the two protagonists seeking a declaration that it was not obligated to pay the judgment. The parties filed a counterclaim against the insurance company for breach of contract, negligence in handling the claim, violations of the Texas Deceptive Trade Practices Act and the Insurance Code, and for negligent infliction of emotional distress. All parties filed motions for summary judgment, and the trial court granted the insurance company’s motion and denied that of the parties’. The court of appeals reversed and remanded the judgment of the trial court. 808 S.W.2d 668. We can end this case today by reversing the judgment of the court of appeals and affirming that of the trial court but the Court refuses to apply and severely compromises a rule designed to reduce the delay and expense of litigating clear-cut cases.¹ The Court’s decision changes summary judgment practice from one of the quickest methods of resolving disputes to one of the most protracted. It holds in effect that while there may be no questions of fact left for a jury to decide, we must remand to get the trial court’s opinion on a question of law. This holding insures a second round of appeals on a matter which we could and should resolve today. In my opinion, as a matter of law, the insured breached his duty to cooperate with the insurance company by failing to give notice of the suit and the trial court’s judgment can be affirmed on this basis. However, the Court refuses to consider this issue. I dissent.

G.W. met S.S. in a nightclub. That same evening she accompanied him to his house where they engaged in consensual sexual intercourse. S.S. claimed that she contracted herpes from this contact and demanded that G.W. pay her damages. Without notice to State Farm, G.W. entered into a $1 million collusive agreement with S.S. He then assigned any cause of action of a contractual nature under the policy to S.S. in exchange for a covenant that she would not try to collect the judgment from him. In fact, G.W. retained a 2/3 interest in any bad faith tort claim against State Farm, so not only is he absolved from paying a dime to S.S., but he has the potential of profiting from this encounter.

Since State Farm is being asked to pay the agreed judgment when it never had an opportunity to defend itself, it filed this declaratory judgment suit against S.S. and G.W. to establish that it owed nothing under the homeowner’s policy. State Farm moved for summary judgment on grounds of breach of contract, intentional injury exclusion, and public policy. In its final judgment, the trial court recited:

... having considered said documents, the responses thereto, the affidavits and Summary Judgment proof before the Court, and the arguments and authorities of counsel, being of the opinion that State Farm Fire and Casualty Company’s Motion for Summary Judgment should be granted, and S.S.’s Second Motion for Summary Judgment should be in all things denied, it is, therefore Ordered ... as a matter of law, the ... policy issued to G.W., provides no coverage for any of the claims asserted by S.S. against G.W. in Cause No. 434,566, in the District Court of Travis County, Texas.

Thus, the trial court’s judgment is based on the ground of policy coverage, and is silent with respect to the other grounds advanced by State Farm. The court of appeals reversed, holding that there was a question of fact on the issue of policy coverage. 808 S.W.2d 668, 670. The court of appeals refused to consider the other grounds State Farm presented in its motion for summary judgment. Id. at 671-72. The Court today compounds the error by doing the same.

The courts of appeals are not in full accord on whether the grounds presented by the summary judgment movant, but which were not made a basis of the judgment, may be considered by the reviewing court as a basis for affirming the judgment. Compare In re Estate of Canales, 837 S.W.2d 662, 668 (Tex.App.—San Antonio 1992, no writ), and Carlisle v. Philip Morris, Inc., 805 S.W.2d 498 (Tex.App.—Austin 1991, writ denied) with Veytia v. Seiter, 740 S.W.2d 64, 66 (Tex.App.—San Antonio 1987), aff'd on other grounds, 756 S.W.2d 303 (Tex.1988); Curry v. Clayton, 715 S.W.2d 77, 80 (Tex.App.—Dallas 1986, no writ). When the issues are properly preserved, a reviewing court should be able to consider alternative grounds for affirming a summary judgment when all issues have been resolved as a matter of law in a final judgment.²

Summary judgment is proper only when there are no genuine issues of fact, only questions of law. Tex.R.Civ.P. 166-A. One unique aspect of appellate review of summary judgment procedure is that a court’s refusal to grant summary judgment is usually an interlocutory order which cannot be reviewed for want of finality. When all parties move for summary judgment on all issues, the resulting judgment is final, and the appellate court may review the trial court’s refusal to grant summary judgment. The authority to do so derives from the rules of appellate procedure which provide that an appellate court should render the judgment the trial court should have rendered when jurisdictionally it may do so, and the interests of justice do not require a remand. Tex.R.App.P. 81(b) (judgment in the courts of appeals); Tex. R.App.P. 180 (judgment in the supreme court); Tobin v. Garcia, 159 Tex. 58, 316 S.W.2d 396, 400-01 (1958); accord Jones v. Strauss, 745 S.W.2d 898 (Tex.1988).

The procedural posture is no different when summary judgment is granted on one but not all of several grounds advanced in the motion. The trial court’s failure to base its judgment on alternative grounds is not interlocutory because a final appealable judgment has been rendered. A reviewing court may resolve all legal questions presented and render such judgment as the trial court should have rendered. Tex. R.App.P. 81(c).

The interests of judicial economy recommend such a procedure, and there are no countervailing policy concerns. The non-movant not only has the opportunity to raise all issues which preclude judgment at the time the motion is considered, but must do so in order to raise certain complaints later on appeal.³ City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678 (Tex.1979). There is no compelling reason why the non-movant should get a free walk when judgment should be granted against him as a matter of law, but the trial court failed to include that reason as a basis for judgment.

Instead, this case will be remanded, and presumably there will be a trial and a second appeal, at which time the parties will finally learn what we could tell them today, whether State Farm is entitled to judgment as a matter of law.⁴ Rather than put the parties through this ordeal, with the resulting cost and loss of time for the parties, and the waste of judicial resources, I would give answers to the questions of law today.

In its motion for summary judgment, State Farm alleged that G.W. breached his contract by failing to cooperate with State Farm in its defense against S.S.’s cause of action. As a result, State Farm urges that the breach of contract should result in an affirmance of its summary judgment.

In a motion for summary judgment based on an alternative ground of recovery, the trial court must determine whether the movant carried its burden to show no genuine issue of material fact existed, accept the evidence favorable to the non-movant as true, and indulge every reasonable inference in the non-movant’s favor. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985).

In the instant case, State Farm alleges that G.W. breached the insurance contract by failing to cooperate with the insurance company. The relevant terms of the contract state that “the insured shall, if a claim is made or a suit is brought against the insured, immediately forward to the company every demand, notice, summons or other process received by him or his representative....” The policy further provides that the insured must cooperate with the company during the defense of the claim and “shall not, except at his own cost, voluntarily make any payment, assume any obligation, or incur any expense.” There is also a “no action” clause that provides that no action shall lie against State Farm for the recovery of any claim unless “the insured’s obligation to any shall have been finally determined either by judgment against the insured after the actual trial or by written agreement of the insured, the claimant, and the company.”

Generally, a person who sues for performance of a contractual obligation whether as a party to the contract or a third party beneficiary must prove that all contractual conditions prerequisite to performance were satisfied. See Ratcliff v. Nat’l County Mut. Fire Ins., 735 S.W.2d 955, 957 (Tex.App.—Dallas 1987, writ dism’d w.o.j.). The same rule applies to insurance contracts. Id.; Dairyland County Mut. Ins. Co. v. Roman, 498 S.W.2d 154, 157 (Tex.1973). The policy provision requiring that the insured immediately forward every demand, notice, summons or other process of a claim or suit being brought against it is a condition precedent to the insurer’s liability under the policy. See Filley v. Ohio Casualty Ins. Co., 805 S.W.2d 844, 847 (Tex.App.—Corpus Christi 1991, writ denied). By providing notice to the insurer, the insured’s duty to cooperate precludes the formation of any agreement which would operate to impose liability upon the insurer or would deprive the insurer of a valid defense. McGuire v. Commercial Union Ins. Co. of New York, 431 S.W.2d 347, 351-52 (Tex.1968).

The obligation of the insured to notify the insurer must actually prejudice or deprive the insurer of a valid defense. Id. at 353; see Ratcliff, 735 S.W.2d at 957. For instance, prejudice can result when the insurer is not notified of a suit until after a judgment is rendered. See, e.g., Kimble v. Aetna Casualty and Surety Co., 767 S.W.2d 846 (Tex.App.—Amarillo 1989, writ denied); Ratcliff, 735 S.W.2d at 956. In Kimble, the court held that prejudice resulted to the insurer when it did not receive notice until after default judgment was rendered even though the option to file for a new trial was still available to the insured. Id. 767 S.W.2d at 851. As a result, the insurance company could assert as a valid defense lack of notice in a later declaratory judgment action. Id. at 851.

However, actual knowledge of a claim should not be confused with notice of a suit. See Members Ins. v. Branscum, 803 S.W.2d 462, 466 (Tex.App.—Dallas 1991 no writ). Notice to the insurance company of a claim against the insured does not relieve the insured from his duty to give notice of the initiation of a lawsuit, unless the insurance company actually received notice of the lawsuit from another source. Cf. Allstate Ins. Co. v. Pare, 688 S.W.2d 680 (Tex.App.—Beaumont 1985, writ ref’d n.r.e.) (holding insured’s failure to forward suit papers not prejudicial when insurer had knowledge). The purpose of notifying the insurer is twofold. First, it enables the insurer to control the litigation and interpose a defense. Secondly, it advises the insurer that an insured has been served with process in order for the insurer to timely file an answer. Weaver v. Hartford Accident & Indem. Co., 570 S.W.2d 367 (Tex.1978).

In the instant case, G.W. breached his duty to cooperate by failing to give notice of the suit initiated by S.S. State Farm was deprived of asserting as a valid defense that all conditions precedent — namely notice — were not followed. The failure to give notice until after the agreed judgment was final subjected State Farm to the terms of an agreed judgment awarding S.S. $1 million dollars and the assignment of all G.W.’s claim of coverage of indemnity and other claims against State Farm. An insurer has no obligation to indemnify an insured who fails to cooperate and prejudices the insurer’s rights and obligations under the policy. As a result of the breach of contract, State Farm’s motion for summary judgment should be affirmed.

Justice ENOCH joins this opinion.

1 . Roy McDonald, Summary Judgment, 30 Tex. L.Rev. 285, 286 (1952).

2 . Contrary to the opinions of Chief Justice Phillips and Justice Hecht, I am not arguing that an appellate court "should always" address all grounds for summary judgment presented by motion in the trial court but not expressly ruled on by the trial court. 858 S.W.2d 382. Of course, if a grounds was abandoned or otherwise withdrawn, it would be improper for the appellate court to render judgment upon it. See, e.g. City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678 (Tex.1979).

3 . Under Texas procedure, the non-movant does not need to respond to the summary judgment to complain that the movant failed to establish entitlement to judgment; however, any other reasons for avoiding judgment are waived in the absence of a complaint. City of Houston v. Clear Creek Basin Authority, 589 S.W.2d 671, 678 (Tex.1979).

4 .The disposition of this case, a general remand, conflicts with the procedure recommended by the court recently in State v. Flag-Redfern, 852 S.W.2d 480, 482, n. 6 (Tex.1993), in which the court held: "Ordinarily, when a trial court has specified the ground on which it was granting summary judgment, we must remand the cause to allow the trial court to rule on the remaining grounds." I do not recommend Flag-Redfern’s statement of summary judgment procedure either, however. If the trial court grants summary judgment again, there would inevitably be a second appeal, and we would be in no better position than we are today. The trial court’s reasons on questions of law are not a prerequisite to the exercise of our jurisdiction. See Guaranty County Mutual Ins. Co. v. Reyna, 709 S.W.2d 647, 648 (Tex.1986) ("We must uphold a correct lower court judgment on any legal theory before it, even if the court gives an incorrect reason for its judgment.”) I would overrule Flag-Redfem to the extent that it holds an appellate court may not affirm a summary judgment on alternative grounds asserted in the motion.