Southern County Mutual Insurance v. Surety Bank, N.A. Individually and D/B/A Surety Premium Finance ( 2008 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-07-185-CV
SOUTHERN COUNTY MUTUAL INSURANCE APPELLANT
V.
SURETY BANK, N.A., INDIVIDUALLY APPELLEE
AND D/B/A SURETY PREMIUM FINANCE
------------
FROM COUNTY COURT AT LAW NO. 1 OF TARRANT COUNTY
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OPINION
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This is the second time we have considered this unearned premium refund
case. After this court reversed a summary judgment for appellee Surety Bank,
N.A., individually and d/b/a Surety Premium Finance (“Surety Bank”) in the first
appeal,1 the trial court, on remand, again granted summary judgment for Surety
1
… S. County Mut. Ins. Co. v. Surety Bank N.A., 187 S.W.3d 178 (Tex.
App.—Fort Worth 2006, no pet.).
Bank. Appellant Southern County Mutual Insurance (“Southern County”) again
appeals, asserting that Surety Bank received all the refund it was entitled to.
We affirm.
Background
In our earlier opinion, we provided a comprehensive statement of the
relevant facts.2 We repeat here only those facts pertinent to our review in this
appeal.
In March 2001, Scotts Temple, a church in Houston, obtained an
automobile insurance policy (the “Policy”) through its agent, United National
Insurance Agency (“United National”), from insurer Southern County. United
National did not deal directly with Southern County, but obtained the policy
through Southern County’s managing agent, U.S. Risk Underwriters, Inc. (“U.S.
Risk”). Coverage was bound on March 29, 2001, and the total gross premium
for the Policy was $45,999.
On April 6, 2001, Surety Bank entered into a premium finance agreement
(“PFA”) with Scotts Temple and United National, under which Surety Bank
would finance $34,293, a portion of the total premium, while Scotts Temple
was obligated to pay the rest of the premium, $11,706, by down payment. In
2
… Id. at 179–80.
2
the PFA, Scotts Temple and United National expressly warranted that this down
payment had already been made by Scotts Temple. Scotts Temple, however,
did not make the down payment. U.S. Risk did.3
Through the PFA, Scotts Temple assigned to Surety Bank “as security for
the total amounts payable [under the PFA] any and all unearned premiums and
dividends which may become payable under the [Policy].” Also through the
PFA, Scotts Temple appointed Surety Bank its “attorney-in-fact . . . with full
authority upon any default to cancel [the Policy] . . . and receive all sums
resulting therefrom.”
On April 13, 2001, Surety Bank issued a check for $34,293 to U.S. Risk.
That same day, Surety Bank sent Southern County a notice of financed
premium. Southern County acknowledges receiving this notice.
Scotts Temple did not pay any installments due to Surety Bank under the
PFA.4 Pursuant to the PFA, on May 4, 2001, Surety Bank provided Scotts
Temple notice of its intent to cancel the Policy, and on May 15, 2001 canceled
3
… As noted in our earlier opinion, U.S. Risk’s agency contract with
Southern County obligated U.S. Risk to forward the full amount of premium due
on each policy regardless of whether U.S. Risk received full payment from the
insured. Id. at 179.
4
… Scotts Temple attempted to make two payments to Surety Bank, but
both were returned for insufficient funds.
3
the Policy, less than two months after it had taken effect. Surety Bank sent a
notice of cancellation to Southern County, placing Southern County on notice
that unearned premiums must be returned to Surety Bank within sixty days of
the date of cancellation.
Instead of sending the total unearned premiums, which amounted to
$38,685, to Surety Bank, Southern County sent $31,721.70, which
represented the unearned premiums minus the unearned commissions of U.S.
Risk and United National, to U.S. Risk.5 U.S. Risk added $3,094.80, its
unearned commission at the time of cancellation, to the amount Southern
County had sent U.S. Risk, then took out for itself $7,133.60, claiming that
this amount was its pro rata share of the portion of unearned premium it paid
when Scotts Temple failed to make the down payment. U.S. Risk then sent the
remaining balance, $27,682.90, to Surety Bank.
Surety Bank sued Southern County 6 to recover the difference between the
total unearned premiums and the amount it received from U.S. Risk, claiming
5
… The gross total premiums of $45,999 included amounts to be paid to
U.S. Risk and United National as commissions. Southern County deducted the
unearned portions of the agents’ commissions at the time of cancellation from
the amount of total unearned premiums it sent to U.S. Risk upon cancellation.
6
… Surety Bank also sued Scotts Temple, United National, and U.S. Risk.
United National was severed from the case, and Surety Bank nonsuited all
remaining defendants but Southern County. [Op. 180 n.2]
4
that under Texas law and the terms of the Policy and the PFA, it was entitled
to receive the total amount of unearned premiums. Surety Bank moved for
summary judgment, which the trial court granted. Southern County appealed.
In February 2006, we reversed the summary judgment and remanded the
case to the trial court, holding that, because the summary judgment record did
not contain the Policy or any other evidence establishing the terms of the Policy
regarding the return of unearned premiums, a fact issue existed concerning
whether Southern County had breached the Policy.7 We reasoned that, without
the Policy, neither this court nor the trial court could determine what part of the
unearned premiums became payable to Scotts Temple upon the Policy’s
cancellation.8
On remand, both parties filed motions for summary judgment. This time,
a copy of the Policy was part of the summary judgment evidence. Paragraph
A(5) of the “Common Policy Conditions” form states what Southern County’s
obligations are regarding unearned premiums if the Policy is cancelled:
A. CANCELLATION AND RENEWAL
5. If this policy is cancelled, [Southern County] will send
the first Named Insured any premium refund due. The
7
… See id. at 182.
8
… See id.
5
refund will be pro rata subject to the policy minimum
premium. The cancellation will be effective even if
[Southern County] ha[s] not made or offered a refund.
...
E. PREMIUMS
The first Named Insured shown in the Declarations:
...
2. Will be the payee for any return premiums [Southern
County] pay[s].
It is undisputed that the “first Named Insured” is Scotts Temple.
On May 25, 2007, the trial court denied Southern County’s motion for
summary judgment and granted summary judgment for Surety Bank. The
judgment awarded Surety Bank $11,002, the difference between the total
unearned premiums ($38,685) and the amount Surety Bank received from U.S.
Risk ($27,682.90). The judgment also awarded Surety Bank pre- and post-
judgment interest and $62,000 in attorney’s fees. This second appeal
followed.
Standard of Review
A plaintiff is entitled to summary judgment on a cause of action if it
conclusively proves all essential elements of the claim.9 When reviewing a
9
… See Tex. R. Civ. P. 166a(a), (c); MMP, Ltd. v. Jones, 710 S.W.2d 59,
60 (Tex. 1986).
6
summary judgment, we take as true all evidence favorable to the nonmovant,
and we indulge every reasonable inference and resolve any doubts in the
nonmovant’s favor. 10
When both parties move for summary judgment and the trial court grants
one motion and denies the other, the reviewing court should review both
parties’ summary judgment evidence and determine all questions presented.11
The reviewing court should render the judgment that the trial court should have
rendered.12
Analysis
As in the first appeal, the parties’ dispute centers on whether Southern
County made a proper refund of unearned premiums. In one issue, Southern
County argues that it was not required to refund to Surety Bank the down
payment portion of the unearned premiums because Scotts Temple never paid
the down payment. Surety Bank, on the other hand, asserts that Southern
County was obligated under the Policy, the PFA, and applicable statutes and
regulations to send all unearned premiums to Surety Bank and that Southern
10
… IHS Cedars Treatment Ctr. of DeSoto, Tex., Inc. v. Mason, 143
S.W.3d 794, 798 (Tex. 2004).
11
… Valence Operating Co. v. Dorsett, 164 S.W .3d 656, 661 (Tex.
2005).
12
… Id.
7
County breached its contract (the Policy) by instead sending the unearned
premiums to U.S. Risk.
Interpretation of insurance contracts in Texas is governed by the same
rules of construction as other contracts.13 When construing a contract, the
court’s primary concern is to give effect to the written expression of the
parties’ intent.14 This court is bound to read all parts of a contract together to
ascertain the agreement of the parties.15 Terms used in the policy will be given
their plain, ordinary, and generally accepted meanings, unless it appears from
the policy itself or by usage that the parties intended to use the words in a
special or technical sense.16
Under the PFA, Scotts Temple assigned to Surety Bank and gave Surety
Bank a security interest in Scotts Temple’s right to receive “any and all
13
… Upshaw v. Trinity Cos., 842 S.W.2d 631, 633 (Tex. 1992); W.
Reserve Life Ins. Co. v. Meadows, 152 Tex. 559, 261 S.W.2d 554, 557
(1953) cert. denied, 347 U.S. 928, 74 S. Ct. 531 (1954).
14
… Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953
(Tex. 1983); R & P Enters. v. LaGuarta, Gavrel & Kirk, Inc., 596 S.W.2d 517,
518 (Tex. 1980).
15
… See Royal Indem. Co. v. Marshall, 388 S.W .2d 176, 180 (Tex.
1965); Pan Am. Life Ins. Co. v. Andrews, 161 Tex. 391, 340 S.W.2d 787,
790 (1960).
16
… Ramsay v. Md. Am. Gen. Ins. Co., 533 S.W.2d 344, 346 (Tex.
1976).
8
unearned premiums . . . which may become payable under [the Policy].” We
concluded in the first appeal that this meant Surety Bank “stood in the shoes”
of Scotts Temple for purposes of Surety Bank’s entitlement to receive unearned
premiums.17 In other words, whatever Scotts Temple, in the absence of the
PFA, would have been entitled to, Surety Bank was now entitled to.
The unresolved question on remand was “what part of the unearned
premium became payable to Scotts Temple upon the Policy’s cancellation.” 18
Because the Policy was not part of the summary judgment record in the first
appeal, we could not determine the answer to this question. Now, we can.
The Policy provides that upon cancellation, Southern County “will send
the first Named Insured any premium refund due.” The Policy further provides
that the “first Named Insured . . . [w]ill be the payee for any return premiums
we pay.” The “first Named Insured” is Scotts Temple. This language is clear
and unambiguous: if the Policy is cancelled, Southern County is obligated to
return unearned premiums to Scotts Temple.
But this does not end the inquiry. Southern County asserts that Scotts
Temple cannot receive a “refund” for premiums that it did not pay. This means,
17
… S. County Mut. Ins., 187 S.W.3d at 181 (citing Gulf Ins. Co. v. Burns
Motors, Inc., 22 S.W.3d 417, 420 (Tex. 2000)).
18
… Id. at 182.
9
according to Southern County, that Surety Bank cannot complain about not
receiving all unearned premiums, since it can only recover to the extent Scotts
Temple could recover, and Scotts Temple cannot receive a “refund” for the
down payment it never made. We reject this argument.
First, Southern County’s position would prove too much. It is true that,
ordinarily, to “refund” is to “pay back,” which implies that the refund should go
to the one who paid. 19 But “refund” does not have such a cribbed meaning in
this context.20 If Southern County’s proposed construction of “refund” were
correct, that is, if Scotts Temple was not entitled to a “refund” of the down
payment because it did not make that down payment, then Scotts Temple
19
… See Daniel v. Richcreek, 118 S.W.2d 935, 937 (Tex. Civ.
App.—Austin 1938, no writ) (“Ordinarily, ‘refund’ means to pay back, thus
implying that the payment is to be made to the party from whom received.”);
see also State v. U.S. Fid. & Guar. Co., 193 F.2d 47, 50 (7th Cir. 1951) (“The
word ‘refund’ is defined, ‘To pay back by the party who has received it, to the
party who has paid it, money which ought not to have been paid.’”); Foss v.
Halloran & Narr, Inc., 203 N.Y.S.2d 607, 615 (N.Y. Sup. Ct. 1960) (“In Black's
Law Dictionary the word ‘refund’ is defined as ‘to repay or restore; to return
money had by one party of another.’”).
20
… See Daniel, 118 S.W .2d at 937 (noting that “contextually, the
prescribed ‘refund’ meant to the party legally entitled to demand and receive it
from the [party holding the funds],” not to the entity that literally “paid” the
money to that party); see also Wash. Urban League v. FERC, 886 F.2d 1381,
1386 (3rd Cir. 1989) (explaining that in some instances, “[t]he fact that the
party receiving the ‘refund’ never actually overpaid the amounts in the refunds
to the refunding party should not preclude the use of the word ‘refund’ to
describe [a] transaction”).
10
likewise would not be entitled to a refund of the amount financed by Surety
Bank, since Scotts Temple did not pay that amount either.
Such a result would render meaningless premium finance agreements in
which the premium finance provider secures its interest through an assignment
of and security interest in refunded unearned premiums, a result clearly contrary
to Texas public policy as expressed through the statutes and regulations
discussed below. 21 We will not construe contracts to produce an absurd result
when a reasonable alternative construction exists.22
A previous decision of this court, in which we considered the effect on
a claim for a refund of unearned premiums where an insurance agent had paid
some of the premiums on behalf of the insured, informs our construction of the
term “refund” in this context. In Fuller v. Security Union Ins. Co.,23 we
recognized that, no matter who makes the payment, any payment of premiums
21
… See Serv. Fin. v. Adriatic Ins. Co., 46 S.W.3d 436, 447 (Tex.
App.—Waco 2001) (“[C]hapter 24 of the Insurance Code clearly evinces an
intent on the part of the Legislature to regulate and protect the premium finance
industry.”), judgm’t vacated w.r.m., 51 S.W.3d 450 (Tex. App.—Waco 2001,
no pet.). We note in this regard that U.S. Risk would have been in the same
position as Surety Bank if U.S. Risk, when it “fronted” the down payment for
Scotts Temple, had required Scotts Temple to sign a premium finance
agreement like Surety Bank did. But U.S. Risk did not do so.
22
… See, e.g., Ill. Tool Works, Inc. v. Harris, 194 S.W.3d 529, 533 (Tex.
App.—Houston [14th Dist.] 2006, no pet.).
23
… 37 S.W.2d 235 (Tex. Civ. App.—Fort Worth 1931, no writ).
11
to the insurer “constitutes a payment of the premium as between the insured
and the insurance company.” 24
The insurance policies at issue in Fuller, like the Policy in this case,
“expressly stipulated for payment by the [insurer] to the policyholders of the
unearned premiums in the event of cancellation of the policies.” 25 Accordingly,
we held that the assignee of an insured’s right to recover unearned premiums
was entitled to recover from the insurer unearned premiums that had been paid
by an insurance agent for the insured.26 We see no reason to construe the
refund-of-unearned-premium provisions in the Policy in this case any differently
than we construed similar policy provisions in Fuller.
Second, Southern County’s position is contrary to the statutory and
regulatory scheme established by the State of Texas for premium finance
agreements. As we noted in the first appeal of this case, premium finance
companies and arrangements are governed by the provisions of former Chapter
24 of the Texas Insurance Code. 27 Former article 24.22 of the insurance code
24
… Id. at 237–38.
25
… Id. at 238.
26
… Id.
27
… S. County Mut. Ins., 187 S.W.3d at 181 & n.3. As we noted in the
first appeal, chapter 24 of the Insurance Code was in effect at the time the PFA
in this case was signed, but it has since been recodified. See Act of May 25,
12
requires each premium finance company, upon entering into a premium finance
agreement that contains a power of attorney or an assignment, to notify the
insurer of the existence of the agreement and to whom the premium payment
was made. 28 Under former article 24.17, if a premium finance company has
timely provided such notice, the insurer “shall return whatever unearned
premiums are due under the insurance contract directly to the premium finance
company within 60 days after the policy cancellation date.” 29
Regulations promulgated by the Texas Department of Insurance reinforce
this statutory requirement and provide further indication that the insurer’s
obligation is to send all unearned premiums directly to the premium finance
company. These regulations specify that
[i]f the insurance premium finance company notified the insurer of
the existence of the premium finance agreement pursuant to the
Insurance Code, Article 24.22, then the entire unearned premium
owed the insurance premium finance company (in trust for the
1979, 66th Leg., R.S., ch. 825, § 1, 1979 Tex. Gen. Laws 2149, 2149–58
(repealed 2003) (current version at Tex. Ins. Code Ann. §§ 651.001–.209
(Vernon 2005 & Supp. 2008)). For clarity, all citations are to the former
section numbers.
28
… Tex. Ins. Code art. 24.22 (Vernon Supp. 2004).
29
… Id. art 24.17(f) (emphasis added); see also Serv. Fin., 46 S.W.3d at
448 (“[A]rticle 24.17 defines the rights and obligations of the parties to an
insurance transaction in which the premiums have been financed and the
insured subsequently defaults on the finance agreement.”).
13
insured) shall be paid within 60 days from the date notice of
cancellation was received.30
In the first appeal of this case, we identified the elements Surety Bank
was required to prove in order to recover on its claim against Southern County
for failure to properly refund unearned premiums under the Policy:
To prevail on a breach of contract claim seeking a refund of
unearned premiums, a premium finance company must establish
that (1) the insurance policy provides for a refund of unearned
premiums upon cancellation, (2) the premium finance company has
authority to collect the refund, (3) the premium finance company
gave timely notice of the financing agreement, (4) the insured
defaulted on the premium finance agreement, (5) the premium
finance company gave notice of the insured’s default and requested
cancellation of the policy, and (6) the insurer failed to make the
proper refund.31
Surety Bank conclusively established every element of its claim. Surety
Bank established that the Policy provides for a refund of unearned premiums to
Scotts Temple upon cancellation. Surety Bank timely notified Southern County
of the existence of the PFA, which authorized Surety Bank to collect any and
all premium refunds due to Scotts Temple under the Policy. Surety Bank
notified Southern County that Scotts Temple defaulted and that the Policy was
30
… 28 Tex. Admin. Code § 25.10(a) (2007) (emphasis added).
31
… S. County Mut. Ins., 187 S.W.3d at 181 (citing Serv. Fin., 46
S.W.3d at 449); see also INAC Corp. v. Underwriters at Lloyd’s, 56 S.W.3d
242, 253 (Tex. App.—Houston [14th Dist.] 2001, no pet.).
14
cancelled effective May 15, 2001. Therefore, within sixty days from May 15,
2001, Southern County was obligated to send all unearned premiums under the
Policy to Surety Bank. Southern County did not do so. Therefore, Southern
County failed to make a proper refund. Accordingly, the trial court did not err
in granting summary judgment for Surety Bank. 32
Conclusion
Having overruled Southern County’s only issue on appeal, we affirm the
trial court’s judgment.
JOHN CAYCE
CHIEF JUSTICE
PANEL: CAYCE, C.J.; HOLMAN and MCCOY, JJ.
DELIVERED: October 23, 2008
32
… We note that, under the trial court’s judgment, Surety Bank will
recover more than its secured interest in the refund due Scotts Temple. The
regulations account for what is to happen in such circumstances: “The
insurance premium finance company shall return any monies due to the insured
within 20 days from the date returned unearned premiums are received from
the insurer or agent.” 28 Tex. Admin. Code § 25.10(c) (2007).
15