Chusukdi and Sopintra Temcharoen v. United Fire Lloyds ( 2009 )

Opinion filed July 23, 2009
In The
Eleventh Court of Appeals
___________
No. 11-08-00031-CV
__________
CHUSUKDI AND SOPINTRA TEMCHAROEN, Appellants
V.
UNITED FIRE LLOYDS, Appellee
On Appeal from the 136th District Court
Jefferson County, Texas
Trial Court Cause No. D-177,757
OPINION
Chusukdi and Sopintra1 Temcharoen filed this suit against United Fire Lloyds for breach of
contract of their homeowner’s insurance policy. They alleged that United Fire Lloyds failed to
completely pay for damages they incurred as a result of Hurricane Rita. The homeowner’s policy
covered damage to the house, and in an endorsement, United Fire Lloyds also agreed to reimburse
the Temcharoens for additional living expenses they incurred as a result of damage to their house.
United Fire Lloyds filed a traditional motion for summary judgment, claiming its right to declare the
1
We note that “Sopintra” is also called “Sopin” in the body of the notice of appeal.
policy void because Sopintra Temcharoen had submitted “receipts” for living expenses that she
admitted had not been paid at the time she provided the “receipts.” Finding that the anti-technicality
statute, TEX . INS. CODE ANN . § 705.003 (Vernon 2009), did not apply and that Sopintra had made
a fraudulent statement concerning living expenses she had incurred, the trial court granted United
Fire Lloyds’s motion. The court stated that she had “fraudulently claim[ed] a loss where none
existed.” Because we hold that Section 705.003 is applicable, that United Fire Lloyds did not meet
the requirements of Section 705.003(b), and that there are fact questions, we reverse the summary
judgment in favor of United Fire Lloyds and remand for a trial on the merits.
Standard of Review
The standards for reviewing a summary judgment are well established:
(1) The movant for summary judgment has the burden of showing that there
is no genuine issue of material fact and that it is entitled to judgment as a matter of
law.
(2) In deciding whether there is a disputed material fact issue precluding
summary judgment, evidence favorable to the non-movant will be taken as true.
(3) Every reasonable inference must be indulged in favor of the non-movant
and any doubts resolved in its favor.
Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548-49 (Tex. 1985). The appellate court “must
consider whether reasonable and fair-minded jurors could differ in their conclusions in light of all
of the evidence presented” and may not ignore “undisputed evidence in the record that cannot be
disregarded.” Goodyear Tire & Rubber Co. v. Mayes, 236 S.W.3d 754, 755, 757 (Tex. 2007). When
a defendant moves for summary judgment on the basis of an affirmative defense, he must expressly
present and conclusively prove each essential element of that defense. City of Houston v. Clear
Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979). Where, as here, a trial court’s order granting
summary judgment does not specify the ground or grounds relied on for its ruling, summary
judgment will be affirmed on appeal if any of the summary judgment grounds advanced by the
movant are meritorious. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001).
2
Background Facts
Prior to declaring that the policy was void, United Fire Lloyds paid approximately $85,214
to the Temcharoens under their homeowner’s policy, including $64,681 for damages to their
dwelling, $12,808 for damages to their personal property, and $7,725 for additional living expenses.
In their suit, the Temcharoens claim that additional money is owed for damage to their dwelling and
personal property and for additional living expenses that they incurred from September 28, 2005,
until mid-September 2006.
As a result of Hurricane Rita and the damage to their residence, the Temcharoens rented a
room from friends and former neighbors, Hugh and Peggy Phillips, who also lived in Beaumont.
In her deposition and affidavit, Sopintra testified that they paid the Phillips approximately $24,625
for a room from September 28, 2005, until September 2006; United Fire Lloyds reimbursed them
$7,725 in February 2006 for the period from September 28 until that time. Sopintra described their
agreement with the Phillipses as an oral agreement to rent the room for $75 per day.
On January 13, 2006, Sopintra faxed to United Fire Lloyds five receipts that she said were
from Peggy Phillips for “room and board” and that totaled $7,725. She later testified that the
receipts were for room rental only. United Fire Lloyds issued a reimbursement check in that amount
on February 9, 2006, for the additional living expenses; the check was delivered to Sopintra on
February 10.
Sopintra continued to fax to United Fire Lloyds “receipts” from Peggy Phillips in amounts
of $1,050 to $2,625. However, Sopintra’s cover page would state, for example, “This is an invoice
for the allowance living expenses (ALE), a total of $2,100.00 from 2/6/06 to 3/5/06” (emphasis
added). According to Sopintra’s testimony, she gave checks to Mr. Phillips, but he held the checks.
Therefore, she could not provide checks as proof of payment to United Fire Lloyds. Sopintra
admitted at her deposition in April 2007 that she had not “paid” the Phillipses the $7,725 before
submitting “receipts” to United Fire Lloyds. She also testified, and stated in an affidavit, that Patrick
Peden, an employee of United Fire Lloyds, had instructed her as follows:
[T]o break down my additional living expenses into smaller increments and submit
those to United Fire Lloyds as receipts in order to get paid. In so doing, I was not
intending to misrepresent anything, but was only doing as I had been instructed.
3
English is not Sopintra’s first language, and her deposition is often confusing. Based on her
testimony, which we must accept as true for summary judgment purposes, Sopintra gave checks to
the Phillipses, but they were not cashed until the Temcharoens had money in the bank for the checks
to be honored. A reasonable inference from her testimony is that she viewed her obligation to
furnish United Fire Lloyds with evidence of living expenses she had incurred even though cash had
not been transferred from their account to the Phillipses. In her summary judgment affidavit,
Sopintra stated that she personally paid Mr. Phillips over $20,000 in rent for the time that she stayed
in his home, that she knew that Mr. Phillips ultimately received cash when the checks were honored,
and that there was no agreement between them and Mr. Phillips concerning what Mr. Phillips would
do with the rent money. In another summary judgment affidavit, Mr. Phillips confirmed their
agreement for rent of $75 per day while the Temcharoens’ house was under construction and stated
that “Sopintra Temcharoen paid [him] over $20,000 in rent for the time she stayed in [his] home.”
There was a notation on one check: “Called Vickie at bank about holding checks 6 - 12 months.”
Sopintra testified in her deposition that probably Mr. Phillips wrote that notation, but she did not
know. In answer to a question by United Fire Lloyds as to why she had not furnished the Phillipses
social security numbers when it requested the numbers, Sopintra said that she relayed the message
to the Phillipses, but she did not have those numbers. Sopintra testified that Mr. Phillips told her that
United Fire Lloyds could call him if it needed his social security number.
The record includes a summary judgment affidavit from Theresa Edwards, a teller with Five
Point Credit Union. In her affidavit, Edwards stated the following:
2. I am employed with Five Point Credit Union. In my position as teller with
Five Point Credit Union, I personally handled the transactions with Hugh Phillips
regarding Check Nos. 2010, 2011 and 2012 and drawn on the account of Sopintra
Temcharoen, [A]ccount No. 923204.
3. On September 6, 2006, Mr. Hugh Phillips, Texas DL # 02812614,
presented Check No. 2010 in the amount of $7,725.00 to me, as teller for Five Point
Credit Union, for payment. The check was cashed in full and the amount of
$7,725.00 was given to Mr. Phillips.
4. On September 7, 2006, Mr. Hugh Phillips, returned to the bank and
presented Check Nos. 2011 and 2012, to me for payment. I cashed both checks, in
4
the amounts of $8,000.00 and $4,900.00, respectively, and presented Mr. Phillips
with cash in said amounts.
Check No. 2010 for $7,725 was dated February 16, 2006, and it apparently was to pay the
Phillipses after United Fire Lloyds had given Sopintra that amount on February 10. Check No. 2011
was dated February 24; and Check No. 2012 was dated June 5. In addition to those amounts,
Sopintra testified that on September 29 she had written Check No. 2013 and obtained $5,000 in cash
from her money market account at Five Point Credit Union in order to pay Hugh Phillips $4,000 in
cash for living expenses. United Fire Lloyds’s payments for additional living expenses were limited
to the $7,725 payment.
United Fire Lloyds’s Motion for Summary Judgment
United Fire Lloyds filed its motion for summary judgment based upon two grounds: (1) the
affirmative defense of common-law fraud and (2) a specific policy provision in the homeowner’s
policy that voids the policy if there is an event of concealment, misrepresentation, or fraud. The
Temcharoens’s homeowner policy in “SECTION I AND II – CONDITIONS” provided that the
policy would be void if there was concealment or fraud:
2. Concealment or Fraud. This policy is void as to you and any other
insured, if you or any other insured under this policy has intentionally concealed or
misrepresented any material fact or circumstance, made false statements or
committed fraud relating to this insurance, whether before or after a loss.
In its motion, United Fire Lloyds asserted that Sopintra had admitted that she had made a
Paragraph 2 misrepresentation and also committed common-law fraud because she had provided
“receipts” for additional living expenses when she had not made an actual payment. It appears that
she had not given a check to Mr. Phillips when she sought reimbursement of $7,725. United Fire
Lloyds gave her a check for $7,725 on February 10, 2006, and she gave Mr. Phillips a check dated
February 15, 2006, for that amount.
United Fire Lloyds claims that Sopintra’s fraudulent act gave it the right to void the entire
policy under the quoted Paragraph 2. Citing In re FirstMerit Bank, N.A., 52 S.W.3d 749, 758 (Tex.
2001), United Fire Lloyds argued the additional ground to the trial court, and argues here, that
Sopintra’s actions established the elements of common-law fraud aside from the quoted paragraph
in the policy:
(1) the plaintiff made a representation to the defendant;
(2) the representation was material;
(3) the representation was false;
5
(4) when the plaintiff made the representation, the plaintiff
(A) knew the representation was false, or
(B) made the representation recklessly, as a positive assertion, and
without knowledge of its truth;
(5) plaintiff made the representation with the intent that the defendant act on it;
(6) the defendant relied on the representation; and
(7) the representation caused the defendant injury.
In her response to United Fire Lloyds’s motion for summary judgment, Sopintra claimed (and
testified) that she was following the instructions of Patrick Peden, an adjuster with United Fire
Lloyds, who told her “to submit her additional living expenses as receipts and to break down those
expenses to smaller time periods and then [United Fire Lloyds] would pay [her] for those expenses.”
Therefore, the Temcharoens claimed that giving documents labeled as “receipts” was not a
fraudulent misrepresentation. It appears that Sopintra believed that Peden knew that she had only
incurred a liability for the additional living expenses and told her to submit them as receipts as she
incurred the expenses. Sopintra also claimed that United Fire Lloyds could not and cannot show any
injury.
In response to United Fire Lloyds’s reliance on Paragraph 2 of Sections I and II of the policy,
the Temcharoens asserted that the anti-technicality statute, Section 705.003, applied that United Fire
Lloyds failed to meet the requirements of Section 705.003(b), and, therefore, that Paragraph 2 had
no effect because of the statute.
Section 705.003, the “Anti-technicality Statute”
In their first issue, the Temcharoens argue that Section 705.003 applies and that Paragraph 2
should be given no effect. Section 705.003 reads as follows:
(a) An insurance policy provision that states that a misrepresentation,
including a false statement, made in a proof of loss or death makes the policy void
or voidable:
(1) has no effect; and
(2) is not a defense in a suit brought on the policy.
6
(b) Subsection (a) does not apply if it is shown at trial that the
misrepresentation:
(1) was fraudulently made;
(2) misrepresented a fact material to the question of the
insurer’s liability under the policy; and
(3) misled the insurer and caused the insurer to waive or lose
a valid defense to the policy.
United Fire Lloyds argues that Sopintra’s misrepresentation did not invoke Section 705.003
because her submission of the receipts for the $7,725 payment was not “made in a proof of loss” as
required by Section 705.003(a). United Fire Lloyds states that “[a] proof of loss is typically a formal
document sworn to by the insured that verifies the insured’s claim.” Although accepted by the trial
court below, this argument elevates form over substance.2
There are no cases addressing this issue under Section 705.003, which became effective
April 1, 2005. There are, however, several cases under former TEX . INS. CODE art. 21.19 and the
earlier TEX . REV . CIV . STAT . art. 5046, the predecessor statutes to Section 705.003, that contained
substantially similar language. Those cases are instructive and support a conclusion that an alleged
misrepresentation does not have to be under oath or in a formal sworn proof of loss for
Section 705.003 to apply.
The early case of Fireman’s Fund Ins. Co. v. Reynolds, 85 S.W.2d 826 (Tex. Civ.
App.—Waco 1935, writ ref’d), involved former Article 5046. The insured lived in San Antonio, and
she rented a house in Waco. A tenant had moved into the house on June 2, 1933, and moved out on
June 28 or 29. A few hours later, the house was totally destroyed by fire. The insurance company
argued that the policy by its terms became void because the house had been vacant and unoccupied
on March 4, 1933, and remained so for more than ten days. At the request of the insurance
company, the insured was examined under oath concerning her loss. She testified that her house
became vacant on March 4, 1933, and remained in that condition until June 2, 1933. It turned out
2
The trial court’s statement that “no loss had occurred” when Sopintra presented the receipts is probably correct as a
technical matter; however, taking Sopintra’s testimony as true, the Temcharoens had incurred a liability for the additional living
expenses they had incurred to that date, and that liability would become a loss when the Phillipses received payment.
7
at trial that her brother had actually occupied the house during that period. The insurance company
argued that her false statement rendered the policy void because her statement was made “in
connection with her proof of loss.” Id. at 828. The trial court found that the insured had not made
a material misrepresentation calculated to mislead the insurance company or cause it to waive or lose
any valid defense to the insured’s claim. The Waco court discussed former Article 5046:
Article 5046 of our Revised Statutes provides specifically that no misrepresentation
or false statement in proofs of loss shall constitute any defense to a suit upon an
insurance policy unless it be shown on the trial that such false statement was
fraudulently made and misrepresented a fact material to liability and that the insurer
was thereby misled and caused to waive or lose some valid defense. The
examination of appellee in this case was within such provision of the statute. The
false statement relied on to work a forfeiture of the rights of the insured under
a policy must have been willfully made and must not have resulted from
inadvertence or mistake. Lion Fire Ins. Co. v. Starr, 71 Tex. 733, par. 4, 12 S.W.
45 [Tex. 1888]. Our courts have uniformly required an insurer seeking to defeat
liability on the ground of fraud and false swearing to fully meet the requirements of
the article above quoted (emphasis added) (one citation omitted).
United Fire Lloyds attempts to distinguish the Reynolds case by pointing out that the insured
in that case made the statement under oath whereas Sopintra did not submit the receipts under oath.
That does not appear to be the defining characteristic as viewed by the Reynolds court. The defining
characteristic was that the statement was made in connection with the insured’s proof of loss, and
the court gave the term “proof of loss” a common sense meaning rather than a technical one. In this
case, Sopintra presented the receipts in connection with her proof of loss. United Fire Lloyds admits
as much because it repeatedly asserts that she fraudulently gave it the receipts to show a loss when
there was no loss.
In United States Fire Insurance Co. v. Skatell, 596 S.W.2d 166 (Tex. Civ. App.—Texarkana
1980, writ ref’d n.r.e.), the insurance company argued that the “anti-technicality statute,” former
Article 21.19, did not apply because the insured’s misrepresentations occurred outside a formal proof
of loss document. Skatell had sued the insurance companies to collect insurance benefits for jewelry
that allegedly had been stolen from his home. The insurance company orally examined him under
oath, and during the examination, he denied having any previous criminal record. Later, at another
oral examination, he admitted a record of several offenses of fraud, hot checks, and theft by false
8
pretenses. The policies contained a provision that the entire policies would be void if, before or after
a loss, the insured concealed or misrepresented any material fact or circumstance concerning the
insurance. The court found that former Article 21.19 applied and that there was no proof that the
false statements were fraudulently made, were material to the issue of liability, or caused the insurers
to waive or lose any valid defense to the policies. Id. at 169.
In response to the insurance companies’ argument that former Article 21.19 did not apply,
the Skatell court reasoned that “[t]he examination under oath, although not a formal proof of loss,
nevertheless is an elaboration upon and partakes of the nature of a proof of loss, and therefore comes
within the statute even though not specifically mentioned” (citing the Reynolds case). The court then
agreed with the Fifth Circuit’s decision in Vernon v. Aetna Insurance Co., 301 F.2d 86 (5th Cir.
1962), where the Skatell court stated:
[I]f false statements in the more formal proof of loss will not void the policy unless
they are fraudulent, material and harmful to the insurer, certainly the intent of the
statute is that false statements of lesser consequence should not be allowed to void
a policy unless they, too, meet such requirements.
Skatell, 596 S.W.2d at 169. Under the reasoning in Vernon, Sopintra’s “lesser consequence” actions
(being not under oath) in submitting the receipts as proof of her loss did not have to be under oath
for her to have the benefit of Section 705.003. United Fire Lloyds should not be allowed to void the
entire policy unless United Fire Lloyds proved the three elements in Section 705.003(b).
To the same effect is Aetna Casualty & Surety Co. v. Guynes, 713 F.2d 1187 (5th Cir. 1983).
The insurance company argued that policy-holders giving false statements during an insurance
company’s investigation of the loss fall outside the protections of former Article 21.19 and that to
avoid liability the insurer had only to satisfy the general requirements that the false statements were
“willfully made with respect to a material matter and with the intention of thereby deceiving the
insurer.” 713 F.2d at 1190. Disagreeing, the court pointed out that the Texas Legislature had written
former TEX . INS. CODE arts. 21.16 and 21.19 to cover false statements in applications for insurance
or proofs of loss. The policy behind these two provisions was:
[O]ne flatly opposed to the use of forfeiture clauses to avoid the obligations of
insurance contracts solely upon a showing that the insured has made, at any time, a
false statement with respect to the insurance or the subject thereof. Under the
statutory scheme, only those falsehoods which are . . . material, fraudulently made,
9
and which mislead the insurer and cause it to lose some valid defense, if made after
the loss occurs, may be made the basis for voiding a policy pursuant to a forfeiture
clause.
Id. at 1191 (citing Vernon, 301 F.2d at 89). We hold that Section 705.003 applies even though
Sopintra’s alleged misrepresentation of submitting “receipts” was not done in a formal proof of loss
form. We next examine whether United Fire Lloyds met the requirements of Section 705.003(b).
The first requirement under Section 705.003(b) was that Sopintra’s action had to be
fraudulent. As we noted earlier, the Reynolds court in 1935 recognized that Texas law required that
a false statement relied on to work a forfeiture of the rights of the insured under a policy “must have
been willfully made and must not have resulted from inadvertence or mistake.” Reynolds, 85 S.W.2d
at 829. Because this is an appeal from a summary judgment, we have to view Sopintra’s testimony
as true. Her testimony was that Peden, the adjuster for United Fire Lloyds, told her to submit her
additional living expenses as receipts to be paid. Her testimony presented a fact question. Whether
her submission of the receipts was an innocent misunderstanding of Peden’s instructions or an
intentionally false statement depends on the credibility of the witnesses. She continued to fax the
Phillipses’ receipts to United Fire Lloyds and stated in her cover page that she was sending an
invoice. Those actions could indicate an innocent misunderstanding. Reasonable and fair-minded
jurors could differ in their conclusions in light of the evidence and all of the other evidence
presented.
The endorsement to the Temcharoens’ policy provided that United Fire Lloyds would cover
the following:
a. additional living expense, meaning reimbursement of any necessary and
reasonable increase in living expense you incur so that your household can maintain
its normal standard of living.
If Sopintra read the policy, which we do not know, she may have focused on “expense you incur”
rather than the term “reimbursement.” She may not have read the policy. Cancellation of their entire
policy, a policy that primarily was for damages to their house, should not be summarily done. There
is a genuine issue of material fact that precluded summary judgment.
Section 705.003(b)(3) required United Fire Lloyds to prove that Sopintra’s
“misrepresentation” caused it to waive or lose a valid defense to the policy. Both the Fifth Circuit
10
and the Fourteenth Court of Appeals have interpreted the phrase “loss of an otherwise valid defense”
to mean that a defense is lost, in the context of former Article 21.19, when it has been abandoned
or compromised in such a way that it can no longer be presented or litigated. Guynes, 713 F.2d at
1192; Stokes v. State Farm Lloyds, Inc., No. 14-95-01094-CV, 1997 WL 96608, at *3 (Tex.
App.—Houston [14th Dist.] 1997) (not designated for publication). United Fire Lloyds has not
demonstrated how Sopintra caused it to waive or lose a valid defense to the policy. In paying
$7,725, United Fire Lloyds did not lose a defense to the policy. If Sopintra did not actually incur
those additional living expenses, that matter can be litigated.
United Fire Lloyds motion for summary judgment did not satisfy the requirements of
Section 705.003(b). The Temcharoens’ first issue is sustained.
Misrepresentation or Common-Law Fraud
In their second issue, the Temcharoens argue that the trial court erred in granting United Fire
Lloyds summary judgment on the ground of common -law fraud. Although United Fire Lloyds refers
to its second affirmative defense as common-law fraud, the defense is more commonly described
as the defense of misrepresentation to a breach of contract action when it is an insurance contract.
Because there are fact questions, we hold that the trial court could not grant summary judgment on
this ground. United Fire Lloyds did not establish as a matter of law that Sopintra intended to deceive
it.
In Union Bankers Insurance Co. v. Shelton, 889 S.W.2d 278 (Tex. 1994), the supreme court
held that an intent to deceive must be proved to cancel a health insurance policy within two years
of the date of its issuance when the cancellation is based on the insured’s misrepresentation in the
application for insurance. The supreme court cited and relied on numerous Texas cases that it said
stand for the following proposition:
[I]n Texas, an insured’s intent to deceive must be shown in order for an insurance
company to successfully raise a defense of misrepresentation on the basis of a false
statement made by the insured in the application for any type of insurance [policy].3
Shelton, 889 S.W.2d at 282.
3
Two years earlier, the Fifth Circuit explained that a common-law misrepresentation defense under Texas law requires a
showing that the misrepresentation was made willfully with the intent to deceive or to induce the insurance company to issue the
policy. The court noted that even a material misrepresentation does not defeat recovery if it is made innocently and in good faith.
Enserch Corp. v. Shand Morahan & Co., 952 F.2d 1485, 1496-97 (5th Cir. 1992) (involving professional services policies relating
to the Washington Public Power Supply System nuclear power project).
11
Although United Fire Lloyds referred to the elements of common-law fraud as stated in
FirstMerit Bank, that case involved fraud in the defense of inducement to an arbitration agreement.
To void an insurance policy for misrepresentation, the supreme court has held that the insurer must
plead and prove the following: (1) the making of a representation; (2) the falsity of the
representation; (3) reliance on the misrepresentation by the insurer; (4) the intent to deceive on the
part of the insured in making the misrepresentation; and (5) the materiality of the misrepresentation.
Mayes v. Mass. Mut. Life Ins. Co., 608 S.W.2d 612, 616-17 (Tex. 1980) (holding that fraudulent
intent was not established as a matter of law); see Garcia v. John Hancock Variable Life Ins. Co.,
859 S.W.2d 427 (Tex. App.—San Antonio 1993, writ denied). In Garcia, the court held that the trial
court had erred in granting summary judgment because the insurer failed to establish as a matter of
law that the insured intended to deceive the insurer when he made misrepresentations in his
applications for life insurance. Garcia, 859 S.W.2d at 431. We see no reason to treat
misrepresentations in connection with health or life insurance policies differently from
misrepresentations in connection with property insurance policies.
We also see no reason to differentiate between a misrepresentation in an application for
insurance and a misrepresentation in connection with a proof of loss in a policy of the type before
us. In both cases, the insurance company is attempting to declare the entire policy void. United Fire
Lloyds did not prove as a matter law for summary judgment that Sopintra had an intent to deceive.
There are fact questions concerning whether the “receipts” were fraudulent as required under
Section 705.003(b) or as the “intent to deceive” element of a misrepresentation or common-law fraud
defense.
The false statement relied on to work a forfeiture of the rights of the insured under a policy
must have been willfully made and must not have resulted from inadvertence or mistake. The record
does not establish as a matter of law that Sopintra intended to deceive United Fire Lloyds. Sopintra
continued to fax “receipts” with a cover page stating that she was sending an “invoice.” We sustain
the Temcharoens’ second issue. We need not reach their other issues.
12
This Court’s Ruling
The summary judgment of the trial court is reversed, and the cause is remanded for a trial on
the merits.
TERRY McCALL
JUSTICE
July 23, 2009
Panel consists of: Wright, C.J.,
McCall, J., and Strange, J.
13