Acceptance Insurance Company v. S & S Telecom, Inc. ( 2001 )

No. 04-00-00634-CV ACCEPTANCE INSURANCE COMPANY,

Appellant

v.

  S & S TELECOM, INCORPORATED,

Appellee

From the 285th Judicial District, Bexar County, Texas

Trial Court No. 1997-CI-04718

Honorable Pat Boone, Judge Presiding

Opinion by: Paul W. Green, Justice

Sitting: Phil Hardberger, Chief Justice

Catherine Stone, Justice

Paul W. Green, Justice

Delivered and Filed: July 25, 2001

AFFIRMED IN PART; REVERSED IN PART

Acceptance Insurance Company, Inc. (Acceptance) appeals the trial court's award of damages to its insured, S & S TeleCom, Inc. (S&S). In two points of error, Acceptance complains the trial court erred in awarding S&S breach-of-contract damages and in awarding S&S attorney's fees. We affirm in part and reverse in part.

Background

Acceptance issued S&S a comprehensive general liability insurance policy. During the policy period, S&S entered several service contracts with Southwestern Bell (SWB), one of which provided S&S would remove telephone equipment from SWB's Corpus Christi plant. During the removal, S&S employees cut through cable trays enclosing telephone switching equipment. Metal shavings from the cable trays fell into the switching frames, damaging them in the amount of $66,004.00. SWB demanded S&S pay the repair costs, and S&S turned the claim into Acceptance, seeking coverage for the loss.

Acceptance denied coverage, claiming the incident fell within a policy exclusion. After S&S did not pay the repair costs, SWB withheld $66,004.00 from its payment to S&S for the services rendered under its contracts with SWB. S&S filed suit against SWB, claiming SWB breached the service contracts by withholding payment. Finding the S&S employees were negligent in damaging the SWB equipment, the trial court ruled SWB did not breach the service contracts by withholding the repair costs.

S&S then filed suit against Acceptance, claiming Acceptance breached the insurance contract by denying the claim. S&S sought the $66,004.00 withheld by SWB, the attorney's fees expended pursuing its breach of contract claim against SWB, and the attorney's fees expended in the current suit. The trial court granted S&S summary judgment, awarding the amount withheld by SWB and attorney's fees for both lawsuits.

Breach of Contract

In its first point of error, Acceptance claims the trial court erred in granting summary judgment to S&S for breach of contract. In determining whether the trial court properly granted summary judgment in favor of S&S, we review the record under a de novo standard. Nixon v. Mr. Prop. Mgt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). At trial and on appeal, Acceptance did not argue S&S's claim fell within a policy exclusion, but rather that SWB's withholding of repair costs does not constitute a covered loss. S&S's policy provides:

We will pay those sums that the insured becomes legally obligated to pay as damages because of [an occurrence] to which this insurance applies. We will have the right and duty to defend any "suit" seeking those damages. We may at our discretion investigate any "occurrence" and settle any claim or "suit" that may result.

To ascertain coverage, we must determine: (1) whether S&S's claim constitutes an "occurrence"; and (2) whether S&S was "legally obligated" to pay the damages arising from the "occurrence." See Trinity Universal Ins. Co v. Cowan, 945 S.W.2d 819, 821-22 (Tex. 1997).   

In S&S's policy, "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Acceptance argues that SWB's withholding of service fees does not constitute an "occurrence," and therefore, there is no coverage for S&S's loss. We reject this argument. To determine whether S&S's incident constitutes an "occurrence," we analyze the facts underlying the insured's alleged liability. Tex. Med. Liab. Trust v. Zurich Ins. Co., 945 S.W.2d 839, 842 (Tex. App.- Austin 1997, writ denied). Therefore, we consider S&S's actions leading to SWB's injury, not SWB's reaction to the injury. ⁽¹⁾

   In determining whether S&S was "legally obligated" to pay for the damage to SWB's property, we remember that, unlike other contracts where ambiguous language creates a fact question, insurance policies are analyzed with a presumption in favor of coverage. State Farm Fire & Cas. Co. v. Reed, 873 S.W.2d 698, 701 (Tex. 1993). In other words, we construe ambiguities against the insurer and in favor of the insured. Id. However, every difference in the interpretation of an insurance policy does not constitute an ambiguity. Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 134 (Tex. 1994). In this case, no suit was brought against S&S, but the Findings of Fact & Conclusions of Law in S&S's suit against SWB provide S&S negligently damaged SWB's equipment:

Employees of S&S were negligent in the use of a saw cutting tool for the removal of the bays containing the switch frames that were to be preserved for re-use, without taking adequate precautions to protect the equipment from contamination by metal shavings. This negligence proximately caused damage to the equipment, for which SWBT had to expend the sum of $66,004.00 to repair. The cost of this repair was reasonable and was necessarily incurred by SWBT.

Holding that S&S's policy provided coverage for the loss, we overrule Acceptance's first point of error. See Tex. Prop. & Cas. Ins. Guar. Assoc. v. Boy Scouts of Am., 947 S.W.2d 682, 691 (Tex. App. - Austin 1997, no writ).

Attorney's Fees

In its second point of error, Acceptance claims the trial court erred in awarding S&S attorney's fees. ⁽²⁾ Litigants have no right to recover attorney's fees except those established by contract or statute. New Amsterdam Cas. Co. v. Tex. Indus., Inc., 414 S.W.2d 914, 915 (Tex. 1967). The Texas Civil Practice and Remedies Code provides that, generally, litigants may recover reasonable attorney's fees incurred in a valid claim based on a written contract. ⁽³⁾   Narrowing the scope to insurance policies, the Texas Supreme Court held:

[I]n a policyholder's successful suit for breach of contract against an insurer that is subject to the provisions listed in section 38.006, the insurer is liable for reasonable attorney's fees incurred in pursuing the breach-of-contract action under section 38.001 unless the insurer is liable for attorney's fees under another statutory scheme.   

Grapevine Excavation, Inc. v. Md. Lloyds, 35 S.W.3d 1, 5 (Tex. 2000). Because we affirm the trial court's judgment finding Acceptance breached the contract, we affirm the trial court's award of $16,622.50 in attorney's fees for the amount S&S expended pursuing the lawsuit against Acceptance. ⁽⁴⁾   

Next we must determine whether the trial court erred in finding Acceptance liable for S&S's attorney's fees in the SWB lawsuit. If the converse of this case had occurred, that is, if SWB had sued S&S, it is clearly established S&S could collect the attorney's fees incurred in defending itself in the underlying suit. Goswick v. Employers' Cas. Co., 440 S.W.2d 287, 290 (Tex. 1969). In that instance, however, S&S's right to attorney's fees would stem from Acceptance's breach of its duty to defend S&S. Id.

In this case, Acceptance's duty to defend has not been implicated. S&S was not forced to defend itself in a suit brought by SWB, but rather, S&S took affirmative action to sue SWB for withholding payment. S&S chose to bring suit against SWB instead of pursuing Acceptance for what S&S considered a wrongfully denied claim. We find no provision in S&S's contract parallel to the "duty to defend" clause that provides S&S coverage for legal fees incurred when it chooses to sue third parties. Because the duty to defend clause has not been implicated and we do not find the facts S&S sought to prove in its SWB lawsuit so intertwined with the facts of the current suit, we hold section 38.006 does not permit S&S to recover from Acceptance the attorney's fees expended in pursuing a breach-of-contract claim against SWB. A holding to the contrary would encourage insureds in S&S's position to bring suit against the party they injured, rather than pursuing a remedy directly by suing their insurer for wrongfully denying claims. We overrule in part and sustain in part Acceptance's second point of error.

Conclusion We affirm the trial court's award of breach-of-contract damages in the amount of $66,004.00. Further, we affirm the trial court's award of $16,622.50 in attorney's fees for the amount expended in S&S's lawsuit against Acceptance. We reverse the trial court's ruling awarding $16,622.50 to S&S for the SWB lawsuit.

PAUL W. GREEN

JUSTICE

DO NOT PUBLISH

1.

See, e.g., Mass. Bonding & Ins. Co. v. Orkin Exterminating Co., 416 S.W.2d 396, 400 (Tex. 1967); Employers Cas. Co. v. Brown-McKee, Inc., 430 S.W.2d 21, 24 (Tex. App. - Tyler 1968, writ ref'd n.r.e.) ; see also Lafarge v. Hartford Cas. Ins. Co., 61 F.3d 389, 395 (5th Cir. 1995); Hartford v. Cruse, 938 F.2d 601, 605 (5th Cir. 1991). Acceptance did not argue, in response to S&S's motion for summary judgment or on appeal, that the activity leading SWB to withhold payment, i.e., S&S's cutting through the metal boxes, does not constitute an "occurrence."   

2.

Acceptance and S&S stipulated that S&S incurred $33,245.00 in attorney's fees - one-half of the amount incurred from the SWB suit and one-half incurred from the Acceptance suit.

3.

Tex. Civ. Prac. & Rem. Code Ann. §38.001(8) (Vernon 1997).

4.

Before the trial court granted S&S summary judgment, S&S dropped all claims except its breach of contract action against Acceptance. Therefore, Acceptance cannot be considered "liable for attorney's fees under another statutory scheme," such as the DTPA or Article 21.21 of the Insurance Code. Grapevine Excavation, 35 S.W.3d at 5.