Javier Alvarado v. Lexington Insurance Company , 2012 Tex. App. LEXIS 8793 ( 2012 )

Opinion issued October 18, 2012
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-10-00740-CV
NO. 01-10-01150-CV
———————————
JAVIER ALVARADO, Appellant
V.
LEXINGTON INSURANCE COMPANY, Appellee
On Appeal from the 11th District Court
Harris County, Texas
Trial Court Case No. 2009-36711A
OPINION ON REHEARING
Appellee, Lexington Insurance Company (“Lexington”), moved for
rehearing of our April 19, 2012 opinion. We grant the motion for rehearing,
withdraw our April 19, 2012 opinion and judgment, and issue this opinion and
judgment in their stead. Our disposition remains the same. We dismiss
Lexington’s May 21, 2012 motion for en banc reconsideration as moot.1
Appellant, Javier Alvarado, sued Lexington for breach of contract, breach of
the duty of good faith and fair dealing, and violations of the Texas Insurance Code
and the Deceptive Trade Practices Act (“DTPA”) after Lexington rejected
Alvarado’s claim for property damage following Hurricane Ike. The trial court
rendered summary judgment in favor of Lexington. In one issue, Alvarado
contends that the trial court erred in rendering summary judgment because
Lexington did not conclusively negate Alvarado’s status as a third-party
beneficiary under the “force-placed” insurance policy issued by Lexington to
Alvarado’s mortgage lender.
We reverse and remand for further proceedings consistent with this opinion.
Background
Before May 2008, Alvarado maintained homeowner’s insurance on his
property with Columbia Lloyds. Alvarado testified by affidavit that when he
refinanced his mortgage in May 2008 with Flagstar Bank (“Flagstar”), a Flagstar
representative informed him that he had to cancel his policy with Columbia Lloyds
and that Flagstar would obtain homeowner’s insurance on his behalf. Flagstar
1
See Brookshire Bros., Inc. v. Smith, 176 S.W.3d 30, 40 & n.2 (Tex. App.—
Houston [1st Dist.] 2004, pet. denied).
2
obtained a “force-placed” insurance policy on Alvarado’s property with Lexington
(“the Policy”).2 Alvarado’s monthly payments to Flagstar included the principal
and interest on his mortgage, as well as taxes and the premiums on the Policy.
In September 2008, Alvarado’s property sustained damage as a result of
Hurricane Ike. Flagstar made a claim on the Policy, and Lexington paid Flagstar
$4,410.49 in damages. According to Alvarado’s affidavit, Flagstar did not provide
any of these funds to Alvarado for the purpose of repairs, and it did not apply these
funds to the balance of his mortgage. The application of these funds is not part of
the record.
After Lexington denied his claim for damages, Alvarado sued Lexington for
breach of contract, breach of the duty of good faith and fair dealing, and various
violations of the Texas Insurance Code and the DTPA.3 Alvarado alleged that he
was the owner of the Policy and that Lexington had “sold the policy, insuring the
property to [Alvarado] or [Alvarado’s] predecessors in interest.” Among other
allegations, Alvarado argued that Lexington “failed to perform [its] contractual
2
A “force-placed,” or “lender-placed,” mortgage protection insurance policy
“insures the lender’s collateral when the borrower fails to maintain a specific type
of insurance” and “allows the lender to protect its exposure on a property up to the
amount of the mortgage on the date of issuance.” Williams v. Certain
Underwriters at Lloyd’s of London, 398 Fed. App’x 44, 45 (5th Cir. 2010) (not
designated for publication).
3
Alvarado also sued Michael Bower, the insurance adjuster who handled
Alvarado’s claim. Bower is not a party to this appeal.
3
duty to adequately compensate [Alvarado] under the terms of the policy” and that
Lexington “misrepresented to [Alvarado] that the damage to the property was not
covered under the policy, even though the damage was caused by a covered
occurrence.”
Lexington moved for traditional summary judgment. It argued that
Alvarado could not recover on any of his claims because Lexington never entered
into a contract with Alvarado; Alvarado was neither a named insured nor an
additional insured on the Policy; Flagstar obtained the Policy “to protect its interest
in the residence for which Flagstar was the mortgagee”; the Policy provided that all
payments for damages were to be made solely to Flagstar; and the Policy
“expressed no intent to benefit [Alvarado] in any way.” Lexington contended that
Alvarado did not qualify as a third-party beneficiary of the Policy and that, as a
result, no legal relationship existed between it and Alvarado and Alvarado lacked
standing to bring his claims.4
As summary judgment evidence, Lexington attached a copy of the Policy as
Exhibit A. Lexington pointed out that the “Common Policy Declarations” in the
Policy provide that “Flagstar Bank, FSB” is the “named insured” and that the
4
After Lexington moved for summary judgment, Alvarado amended his petition to
add claims against Flagstar and Proctor Financial, Inc., the insurance agent
responsible for procuring the Policy. Alvarado subsequently non-suited his claims
against Flagstar with prejudice. Neither Flagstar nor Proctor Financial is a party to
this appeal.
4
“Mortgage Guard Property Policy” section further defines “named insured” as “the
Lending Institution named on the Declaration Page” and “you” as “the Named
Insured shown in the Declarations.” It further pointed out that the Policy states,
“In consideration of the premium to be charged we will (as shown on the
Declaration Page) insure . . . the Lending Institution (you, as shown on the
Declaration Page) against direct physical loss resulting from destruction of or
damage to your property . . . .” It also pointed to language in the Policy stating that
the Policy provides coverage for the dwelling, other structures on the property,
personal property, and loss of use “in which the insured has a mortgage and/or
owner interest.” Lexington argued that, although the Policy covers personal
property, that coverage is limited to the extent to which Flagstar, as the named
insured, has a mortgage or ownership interest in the property.
The Policy also includes the following “Mortgage Clause”:
Loss, if any, under this policy will be payable to the mortgagee (or
trustee) as its interests may appear under all present or future
mortgages upon the Covered Property described on the reporting
forms in which mortgagee may have an interest as mortgagee (or
trustee) in order of precedence of said mortgages.
Lexington pointed out that the “Loss Payable” clause provides, “Loss will be
adjusted with and made payable to you unless another payee is specifically
named.” It observed that this clause does not provide that Alvarado, the borrower,
is entitled to proceeds in excess of Flagstar’s insurable interest in the property, nor
5
does it allow Alvarado to participate in the claim adjustment process. It
emphasized that neither Alvarado nor his property is specifically mentioned in the
Policy.
In response to Lexington’s summary judgment motion, Alvarado argued that
Endorsement #12 to the Policy, entitled “Special Broad Form Homeowners
Coverage,” expressly provides homeowners’ coverage for homeowners of
properties specified on reporting forms referenced by the Policy. He argued that
this endorsement directly benefits him and supports his third-party beneficiary
status. Alvarado pointed to language in Endorsement #12 defining “insured” as
“[y]ou and residents of your household” and defining “insured location” as the
“residence premises,” which is further defined as “[t]he one family dwelling where
you reside.” He contended that this language refers to him and not to Flagstar, the
mortgage company. Alvarado also pointed out that Endorsement #12 provides
coverage for direct physical loss to property, additional living expenses, personal
property damage, personal liability for suits brought against the insured for bodily
injury or property damage, and medical payments to others. He contended that this
coverage could only apply to him and not to Flagstar. He also argued that
Endorsement #12 confers a benefit upon him because the endorsement’s
“Mortgage Clause” provides, “If a mortgagee is named in this policy, any loss
payable under Coverage A or B will be paid to the mortgagee and you, as interests
6
appear.” According to Alvarado, “This clearly shows that the word ‘you’ in the
Endorsement refers to [Alvarado] . . . but it does not necessarily refer to the
mortgagee which would be Flagstar Bank.” Therefore, Alvarado contended,
because Endorsement #12 “was intended to confer a direct benefit” on him, he
qualifies as a third-party beneficiary of the Policy.
Lexington replied and argued that Endorsement #12 “only provides
homeowners coverage for property and damages in which Flagstar has a mortgage
and/or an ownership interest.” (Emphasis in original.) Lexington contended that
the
Supplemental Declaration Page [to the Policy] qualifies every
statement made about homeowner’s insurance in the Policy, leaving
no doubt that all homeowner’s coverage statements and inclusions are
meant solely and exclusively to pertain to the insured, Flagstar Bank’s,
interest. Any references [Alvarado] makes to the Homeowners
Coverage Form are limited by the Supplemental Declaration Page.
(Emphasis in original.) Lexington argued that, under the supplemental
declarations, any coverage provided pursuant to the Policy is limited to property or
damages in which the named insured, which is defined in the Common Policy
Declarations solely as Flagstar, has a mortgage or ownership interest. Lexington
also argued that the Policy language clearly defines “you” as the “Named Insured
shown in the Declarations” and that Alvarado is not named as an insured,
additional insured, or third-party beneficiary in any part of the Policy, including
Endorsement #12.
7
Neither Lexington nor Alvarado submitted any summary judgment evidence
demonstrating whether or not Alvarado’s property is specified on the reporting
forms submitted by Flagstar to Lexington showing properties covered by
Endorsement #12. Nor is there any evidence as to what Flagstar’s and Alvarado’s
interests in the property are. However, there is some evidence, in the form of
Alvarado’s affidavit, that Flagstar submitted a claim under the Policy to Lexington
for damage to Alvarado’s property and that Flagstar did not repair the damage, did
not distribute the funds to Alvarado to repair the damage, and did not apply the
funds to the balance of Alvarado’s mortgage.
On August 19, 2010, the trial court granted Lexington’s motion for summary
judgment. Because Alvarado’s claims against Bower, Flagstar, and Proctor
Financial remained pending, this was an interlocutory order that was not yet final
and appealable. Alvarado, however, prematurely filed a notice of appeal, and the
appeal was assigned to this Court and given appellate cause number 01-10-00740-
CV. Alvarado filed a motion to sever his claims against Lexington, which the trial
court granted, and the trial court then rendered judgment in favor of Lexington on
November 19, 2010. After the trial court rendered this final judgment, Alvarado
filed a second notice of appeal, which resulted in appellate cause number 01-10-
8
01150-CV. We decide the first-filed appeal, appellate cause number 01-10-00740-
CV, and dismiss appellate cause number 01-10-01150-CV.5
Standard of Review
We review de novo the trial court’s ruling on a summary judgment motion.
Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848
(Tex. 2009). To prevail on a traditional summary judgment motion, the movant
must establish that no genuine issues of material fact exist and that it is entitled to
judgment as a matter of law. TEX. R. CIV. P. 166a(c); Little v. Tex. Dep’t of
Criminal Justice, 148 S.W.3d 374, 381 (Tex. 2004). When a defendant moves for
summary judgment, it must either: (1) disprove at least one essential element of
5
Pursuant to Texas Rule of Appellate Procedure 27.1, Alvarado’s first prematurely
filed notice of appeal was effective and was deemed filed on the day of, but after,
the event that began the period for perfecting the appeal: November 19, 2010, the
day the trial court granted Alvarado’s motion to sever and rendered a final
judgment in favor of Lexington. See TEX. R. APP. P. 27.1(a); Ganesan v. Reeves,
236 S.W.3d 816, 817 (Tex. App.—Waco 2007, pet. denied) (“[Rule 27.1] is
designed to make it clear that a notice of appeal filed before the final appealable
judgment is rendered is nevertheless effective to invoke our appellate jurisdiction
of such a judgment.”); Espalin v. Children’s Med. Ctr. of Dallas, 27 S.W.3d 675,
681 (Tex. App.—Dallas 2000, no pet.) (“[A] document filed in an attempt to
appeal an interlocutory order that later becomes final serves to appeal the final
judgment.”). In a factually similar scenario, the El Paso Court of Appeals noted
that the second notice of appeal, filed after the trial court rendered a final
judgment, “was unnecessary to perfect appeal.” Lerma v. Forbes, 144 S.W.3d 18,
20 (Tex. App.—El Paso 2004, no pet.). The El Paso court dismissed the later
cause number on its own motion and consolidated the record with the first cause
number. Id. We follow the El Paso Court of Appeals’ decision in Lerma and hold
that Alvarado’s first notice of appeal invoked our appellate jurisdiction, and, thus,
the second notice of appeal was unnecessary to perfect his appeal and is now
moot. We therefore dismiss appellate cause number 01-10-01150-CV, which
resulted from his second notice of appeal.
9
the plaintiff’s cause of action, or (2) plead and conclusively establish each essential
element of its affirmative defense, thereby defeating the plaintiff’s cause of action.
Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995).
If the movant meets its burden, the burden then shifts to the nonmovant to
raise a genuine issue of material fact precluding summary judgment. See Centeq
Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995). The evidence raises a
fact issue if reasonable and fair-minded jurors could differ in their conclusions in
light of all of the summary judgment evidence. Goodyear Tire & Rubber Co. v.
Mayes, 236 S.W.3d 754, 755 (Tex. 2007) (per curiam). To determine if the
nonmovant has raised a fact issue, we view the evidence in the light most favorable
to the nonmovant, crediting favorable evidence if reasonable jurors could do so,
and disregarding contrary evidence unless reasonable jurors could not. See
Fielding, 289 S.W.3d at 848 (citing City of Keller v. Wilson, 168 S.W.3d 802, 827
(Tex. 2005)). We indulge every reasonable inference and resolve any doubts in the
nonmovant’s favor. See Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex.
2002) (citing Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997)).
Third-Party Beneficiary Status
In his sole issue, Alvarado contends that the trial court erred in rendering
summary judgment in favor of Lexington because Lexington failed to conclusively
negate his status as a third-party beneficiary of the Policy. Lexington responds that
10
this Court should overrule Alvarado’s sole issue and affirm the summary judgment
because Alvarado failed to plead his third-party-beneficiary status. It further
argues that we should affirm the summary judgment because Alvarado failed to
raise a genuine issue of material fact with respect to his third-party-beneficiary
status.
1. Alvarado’s Right to Argue His Third-Party-Beneficiary Status
Before we address the merits of Alvarado’s sole issue, we address
Lexington’s contention that Alvarado was required to plead third-party beneficiary
status, and that, because he did not, we should affirm the trial court’s summary
judgment on that basis alone.
Lexington’s contention is without merit. Lexington itself raised the issue of
Alvarado’s third-party-beneficiary status by arguing in its summary judgment
motion that Alvarado did not qualify as a third-party beneficiary to the Policy and
therefore lacked standing. Standing is a jurisdictional issue that cannot be waived
and may be raised at any time. See Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852
S.W.2d 440, 445 (Tex. 1993). Here, it was raised by Lexington as grounds for
granting it summary judgment against Alvarado.
Rule 166a provides that a defendant against whom a claim is asserted “may,
at any time, move with or without supporting affidavits for summary judgment in
his favor as to all or any part thereof.” TEX. R. CIV. P. 166a(b). The Rule further
11
provides that summary judgment shall be granted if the motion and the summary
judgment evidence “show that, except as to the amount of damages, there is no
genuine issue as to any material fact and the moving party is entitled to judgment
as a matter of law on the issues expressly set out in the motion or in an answer or
other response.” Id. 166a(c). Lexington moved for summary judgment on all of
Alvarado’s claims on the ground that he lacked standing to pursue them because he
was neither a party to the insurance contract between Lexington and Flagstar nor a
third-party beneficiary of the contract. Alvarado responded to this issue in his
summary judgment response. The issue of Alvarado’s third-party-beneficiary
status was thus squarely before the trial court in Lexington’s motion and
Alvarado’s response. Lexington’s contention that Alvarado may not seek to
overturn a summary judgment on the very issue it presented to the trial court in its
own motion as the basis for granting summary judgment is directly contrary to the
express language of Rule 166a and is without merit.
We now turn to the merits of Alvarado’s sole issue.
2. Third-Party-Beneficiary Status Under Force-Placed Insurance Policies
Insurance contracts are subject to the same rules of construction as ordinary
contracts. Archon Invs., Inc. v. Great Am. Lloyds Ins. Co., 174 S.W.3d 334, 338
(Tex. App.—Houston [1st Dist.] 2005, pet. denied) (citing Trinity Universal Ins.
Co. v. Cowan, 945 S.W.2d 819, 823 (Tex. 1997)). When a policy permits only one
12
reasonable interpretation, we construe it as a matter of law and enforce it as
written. Id. (citing Upshaw v. Trinity Cos., 842 S.W.2d 631, 633 (Tex. 1992)).
When construing an insurance policy, “[w]e must strive to effectuate the policy as
the written expression of the parties’ intent.” Id. (citing State Farm Life Ins. Co. v.
Beaston, 907 S.W.2d 430, 433 (Tex. 1995)). To discern the intent of the parties to
a contract, the court examines and considers the entire writing to harmonize and
give effect to all the provisions of the contract so that none will be rendered
meaningless, no single provision taken alone will be given controlling effect, and
all the provisions will be considered with reference to the whole instrument. In re
Serv. Corp. Int’l, 355 S.W.3d 655, 661 (Tex. 2011). If the term to be construed is
unambiguous and susceptible of only one construction, we “give the words in the
policy their plain meaning.” Archon, 174 S.W.3d at 338 (citing Devoe v. Great
Am. Ins., 50 S.W.3d 567, 571 (Tex. App.—Austin 2001, no pet.)).
In determining whether a third party can enforce a contract, we look only to
the intention of the contracting parties. Basic Capital Mgmt., Inc. v. Dynex
Commercial, Inc., 348 S.W.3d 894, 900 (Tex. 2011); MCI Telecomms. Corp. v.
Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999); Union Pac. R.R. Co. v.
Novus Int’l, Inc., 113 S.W.3d 418, 421 (Tex. App.—Houston [1st Dist.] 2003, pet.
denied). The fact that a person might receive an incidental benefit from a contract
to which he is not a party does not give that person a right to enforce the contract.
13
Basic Capital Mgmt., 348 S.W.3d at 899–900; MCI Telecomms., 995 S.W.2d at
651; Union Pac., 113 S.W.3d at 421.
A third party may recover on a contract made between other parties only if
the contracting parties intended to secure a benefit to the third party and only if the
contracting parties entered into the contract directly for the third party’s benefit.
Basic Capital Mgmt., 348 S.W.3d at 900; MCI Telecomms., 995 S.W.2d at 651;
Union Pac., 113 S.W.3d at 421. The third party must show that he is either a
donee or a creditor beneficiary of the contract, and not one who is only incidentally
benefitted by its performance. MCI Telecomms., 995 S.W.2d at 651; Union Pac.,
113 S.W.3d at 421. A party is a donee beneficiary if the promised performance
will, when rendered, come to him as pure donation. MCI Telecomms., 995 S.W.2d
at 651; Union Pac., 113 S.W.3d at 421. If that performance will come to him in
satisfaction of a legal duty owed to him by the promisee, such as an “indebtedness,
contractual obligation or other legally enforceable commitment,” he is a creditor
beneficiary. MCI Telecomms., 995 S.W.2d at 651; Union Pac., 113 S.W.3d at 421.
“We glean intent from what the parties said in their contract, not what they
allegedly meant.” Union Pac., 113 S.W.3d at 421. We will not create a third-party
beneficiary contract by implication. Basic Capital Mgmt., 348 S.W.2d at 900; MCI
Telecomms., 995 S.W.2d at 651; Union Pac., 113 S.W.3d at 422; see also Tawes v.
Barnes, 340 S.W.3d 419, 425 (Tex. 2011) (“[I]n the absence of a clear and
14
unequivocal expression of the contracting parties’ intent to directly benefit a third
party, courts will not confer third-party beneficiary status by implication.”). As the
Texas Supreme Court held in MCI Telcommunications,
The intention to contract or confer a direct benefit to a third party
must be clearly and fully spelled out or enforcement by the third party
must be denied. Consequently, a presumption exists that parties
contracted for themselves unless it “clearly appears” that they
intended a third party to benefit from the contract.
995 S.W.2d at 651; see also Basic Capital Mgmt., 348 S.W.3d at 900 (quoting
same).
Due to the presumption against finding third-party beneficiaries to contracts,
courts will generally deny third-party-beneficiary claims unless: (1) the obligation
of the bargain-giver is fully spelled out, (2) it is unmistakable that a benefit to the
third party was within the contemplation of the contracting parties, and (3) the
contracting parties contemplated that the third party would be vested with the right
to sue for enforcement of the contract. Union Pac., 113 S.W.3d at 422. We
resolve all doubts against conferring third-party-beneficiary status. Tawes, 340
S.W.3d at 425; see also First Union Nat’l Bank v. Richmont Capital Partners I,
L.P., 168 S.W.3d 917, 929 (Tex. App.—Dallas 2005, no pet.) (“If there is any
reasonable doubt as to the intent of the contracting parties to confer a direct benefit
on the third party, then the third-party beneficiary claim must fail.”).
15
Texas’s third-party beneficiary policy was recently examined and explained
by the Texas Supreme Court in Basic Capital Management. 348 S.W.3d 894. In
that case, Basic managed real estate investment trusts, including American Realty
Trust, Inc. (“ART”) and Transcontinental Realty Investors, Inc. (“TCI”). Id. at
896. Basic and Dynex signed a Commitment, in which Dynex agreed to loan
funds to “single-asset, bankruptcy-remote entities” (“SABREs”) owned by ART
and TCI if Basic would “propose other acceptable SABREs to borrow $160
million over a two-year period.” Id. at 896–97. The issue on appeal was whether
ART and TCI could recover damages from Dynex for its alleged breach of the
Commitment as third-party beneficiaries to the Commitment. Id. at 898.
The supreme court reasoned that, because the intention to confer a direct
benefit to a third party must be clearly and fully spelled out in the contract for that
party to have standing as a third-party beneficiary, “a presumption exists that
parties contracted for themselves unless it clearly appears that they intended a third
party to benefit from the contract.” Id. at 900. Although only Dynex and Basic
had signed the Commitment, “Dynex knew that the purpose of the Commitment
was to secure future financing for ART and TCI, real estate investment trusts that
Basic managed and in which it held an ownership interest.” Id. Not only was
Basic not intended to be the borrower, but the Commitment expressly required that
16
the borrowers be SABREs acceptable to Dynex, and Dynex knew that Basic would
not own the SABREs. Id.
The court concluded that this requirement was for Dynex’s benefit, since
SABREs are designed to provide more certain recourse to collateral in the event of
default. Id. The court pointed out that “SABRE-borrowers provided a mechanism
for ART and TCI to hold investment property directly but in a way that would
provide Dynex greater security.” Id. Thus, “if Dynex and Basic did not intend the
Commitment to benefit ART and TCI directly, then the Commitment had no
purpose whatsoever.” Id. Moreover, the Commitment “clearly and fully spelled
out the benefit to ART and TCI because their role was basic to Dynex’s and
Basic’s agreement.” Id. at 901. The court concluded, “The Commitment itself,
and the undisputed evidence regarding its negotiation and purpose, establish that
ART and TCI were third-party beneficiaries.” Id.
Although Texas state courts have addressed whether a party may be a third-
party beneficiary in the general insurance policy context, they have not addressed
the specific issue of whether a homeowner-borrower qualifies as a third-party
beneficiary under a force-placed insurance policy entered into between the
insurance company and the mortgage company. See, e.g., Paragon Sales Co. v.
N.H. Ins. Co., 774 S.W.2d 659, 660–61 (Tex. 1989) (holding distributor presented
some evidence that it was third-party beneficiary of indemnity contract between
17
insurance company and public motor carrier). As a result of Hurricanes Dolly,
Katrina, and Rita, however, some federal courts within the Fifth Circuit Court of
Appeals’ jurisdiction, primarily in Louisiana, have addressed this issue and have
reached differing conclusions as to the homeowner’s third-party-beneficiary status
according to the specific terms of the policy and the facts of the case.
When deciding whether a homeowner-borrower is a third-party beneficiary
under a force-placed insurance policy, the federal courts applying state law, like
the Texas courts, have looked to the language of the policy to determine whether
any of the provisions clearly confer a direct benefit upon the borrower. Thus, for
example, the Fifth Circuit has found third-party beneficiary status to exist (1) when
the policy, although only listing the mortgage company as a named insured,
contains a subrogation clause providing that the homeowner-borrower will not be
liable to the insurance company for any loss paid to the named insured and
(2) when the policy contains a provision allowing for temporary housing expenses
to be paid to the homeowner-borrower. See Palma v. Verex Assurance, Inc., 79
F.3d 1453, 1457–58 (5th Cir. 1996) (subrogation clause case decided under Texas
law).
In Palma, the Fifth Circuit held that the inclusion of the subrogation clause
within the insurance policy demonstrated a clear intention on the part of the
contracting parties to benefit the homeowner-borrower. See id. at 1458 (“[The
18
subrogation clause] is written for the sole benefit of the borrower. . . . We also find
that the insurance contract was actually made, in part, for the benefit of Palma [the
borrower].”); see also Henderson v. Certain Underwriters at Lloyds, London, Civil
Action No. 09-1320, 2009 WL 3190710, at *3 (E.D. La. Sept. 30, 2009) (slip op.)
(noting that plaintiff’s standing was limited solely to seeking temporary housing
expenses because this was only clause in policy providing direct benefit to
borrower).
Primarily, the federal district courts have focused on whether the policy
contains one of two specific clauses that may benefit the borrower: (1) an “excess
loss” or “residual payment” clause or (2) a clause providing that the insurer will
adjust all personal property losses with, and pay any such proceeds to, the
homeowner-borrower. A common excess loss clause provides as follows:
We will adjust all losses with you [the mortgagee and named insured].
We will pay you but in no event more than the amount of your interest
in the “insured location.” Amounts payable in excess of your interest
will be paid to the “borrower” unless some other person is named by
the “borrower” to receive payment . . . .
See, e.g., Turner v. Gen. Ins. Co. of Am., Civil Action No. 5:09cv00057-DCB-
JMR, 2009 WL 3247302, at *3 (S.D. Miss. Oct. 7, 2009) (slip op.). If the policy
provides coverage for personal property, the insurance policy may include a clause
providing that the insurer will adjust all losses to personal property with the
19
homeowner-borrower and will pay the borrower any proceeds for such loss, unless
the borrower has named another person to receive payment. Id.
A number of courts in the cases in which there were force-placed policies
with such clauses have found third-party-beneficiary status for homeowners under
the terms of the particular policy. For example, in Lee v. Safeco Insurance Co. of
America, the United States District Court for the Eastern District of Louisiana held
that the excess loss clause, which “clearly stipulate[d] that the portion of any loss
payment exceeding the value of [the mortgagee’s] interest in the property will be
paid directly to [the homeowner-borrower],” manifested a “clear intent to benefit
the borrower.” Civil Action No. 08-1100, 2008 WL 2622997, at *4 (E.D. La. July
2, 2008) (not designated for publication); see Turner, 2009 WL 3247302, at *4;
Beck v. State Farm Fire & Cas. Co., No. 2:07 CV 1998, 2008 WL 4155301, at *2
(W.D. La. Sept. 5, 2008) (not designated for publication) (finding third-party-
beneficiary status when policy contained excess loss clause and provision allowing
for adjustment of personal property losses with and payment of such losses to
borrower); Navarrete v. Gen. Ins. Co. of Am., Civil Action No. 07-4865, 2008 WL
659477, at *2 (E.D. La. Mar. 7, 2008) (not designated for publication) (same);
Peters v. Safeco Gen. Ins. of Am., Civil Action No. 07-5612, 2008 WL 544226, at
*1 (E.D. La. Feb. 25, 2008) (not designated for publication) (same); Martin v.
Safeco Ins. Co., Civil Action No. 06-6889, 2007 WL 2071662, at *3 (E.D. La. July
20
13, 2007) (not designated for publication) (same); see also Hickman v. Safeco Ins.
Co. of Am., 695 N.W.2d 365, 370–71 (Minn. 2005) (holding same when policy
contained excess loss clause, coverage for personal property, provision that insurer
would adjust personal property losses with borrower and would pay borrower, and
provision allowing borrower to seek arbitration of appraisal of covered loss).
The Eastern District of Louisiana has also held, however, that a homeowner-
borrower was not a third-party beneficiary to an insurance policy containing an
excess loss clause when the claimed damages did not exceed the mortgagee’s
interest in the property, as required by the terms of the policy for her to be
considered an additional insured. Graphia v. Balboa Ins. Co., 517 F. Supp. 2d 854
(E.D. La. 2007). In Graphia, the policy provided that the borrower “shall be
considered an additional insured with respect to any residual amounts of insurance
over and above [the mortgagee’s] insurable interest.” Id. at 857. The borrower
claimed damages of $56,542.91, and she presented evidence that the balance
remaining on her loan was $110,000. Id. The court noted that there was “no
amount ‘due for the loss’ that exceeds [the mortgagee’s] insurable interest.” Id.
The court concluded, “The contract does manifest a clear intention to benefit
Graphia, but only to the extent that she has an insurable interest in the property.
The contract evidences no intent to give plaintiff personal rights in the insurance
coverage for losses that do [not] exceed the mortgagee’s insurable interest.” Id. at
21
858. Because her losses did not exceed the mortgagee’s interest in the property,
Graphia received only an incidental benefit from this policy and, therefore, could
not enforce the contract. Id.; cf. Mingo v. Meritplan Ins. Co., No. 2:06 CV 1914,
2007 WL 4292026, at *3 (W.D. La. Dec. 4, 2007) (not designated for publication)
(denying insurer’s motion to dismiss for lack of standing because parties disputed
amount of loss and record did not reflect either amount of mortgage or mortgagee’s
interest in property).
The federal courts have also found the force-placed homeowner not to be a
third-party beneficiary when the homeowner did not receive a direct benefit from
the policy under the policy’s own terms. Specifically, the federal courts have
denied third-party beneficiary status when the insurance policy states (1) that it
does not provide coverage for loss of use, personal liability, or personal property,
(2) that the mortgagee is the sole insured, (3) that the policy is intended to protect
the mortgagee’s interest only and not the borrower’s, or (4) that all losses will be
adjusted with and made payable to the named insured, the mortgage company. See
Williams v. Certain Underwriters at Lloyd’s of London, 398 Fed. App’x 44, 48–49
(5th Cir. 2010) (not designated for publication) (policy specified that mortgagee
was sole insured and all benefits were payable directly to mortgagee); Lumpkins v.
Balboa Ins. Co., 812 F. Supp. 2d 1280, 1283–84 (N.D. Okla. 2011) (policy
provided no coverage for contents, personal effects, personal living expenses, fair
22
rental value or liability and stated that contract was only with named insured and
only intended to protect named insured’s interest); Barrios v. Great Am. Assurance
Co., Civil Action No. H-10-3511, 2011 WL 3608510, at *4 (S.D. Tex. Aug. 16,
2011) (slip op.) (policy specified that, unless homeowners coverage was
specifically added by endorsement, homeowner-mortgagor was not insured under
policy); Williams v. Fid. Nat’l Ins. Co., Civil Action No. 07-4428, 2009 WL
2922310, at *3 (E.D. La. Sept. 8, 2009) (not designated for publication) (policy
specified that, despite insurable interests of homeowner, only mortgagee was
insured under policy); Simpson v. Balboa Ins. Co., Civil Action No. 2:08cv281KS-
MTP, 2009 WL 1291275, at *3–4 (S.D. Miss. May 7, 2009) (policy provided no
coverage for loss of use, personal liability, or personal property and no right of
borrower to participate in claim adjustment); Jones v. Proctor Fin. Ins. Corp., Civil
Action No. 06-9503, 2007 WL 4206863, at *3 (E.D. La. Nov. 21, 2007) (not
designated for publication) (policy provided no coverage for personal property, and
adjustment of and payment for loss would be made solely to mortgagee); Paulk v.
Balboa Ins. Co., No. 1:04CV97, 2006 WL 1994864, at *3 (S.D. Miss. July 14,
2006) (not designated for publication) (same); see also Scheaffer v. Balboa Ins.
Co., 1 So. 3d 756, 759 (La. Ct. App. 2008) (notice of premium informed borrower
that he was not insured under policy, that he was not entitled to receive proceeds,
and that policy protected only mortgagee’s interest).
23
Mere payment of the force-placed-policy premiums by the homeowner-
borrower, without more, does not necessarily confer third-party-beneficiary status
on the borrower. See Scheaffer, 1 So. 3d at 760; Lee, 2008 WL 2622997, at *3
(“Mere payment or reimbursement of insurance premiums by a plaintiff to an
insurance provider does not create a right to recovery under an insurance policy
when the plaintiff is not the named insured and is nowhere named in the policy.”).
3. Alvarado’s Status Under Flagstar’s Force-Placed Policy
On appeal, Alvarado argues that he has third-party-beneficiary status under
the Policy. He contends that Endorsement #12 to the Policy, which provides
“Special Broad Form Homeowners Coverage,” is analogous to an excess loss
clause or a clause allowing for adjustment and payment of losses to the borrower.
He argues that it demonstrates that Lexington and Flagstar clearly intended to
benefit him because the terms of this endorsement provide the type of coverage
that he, as the homeowner, would seek to obtain if he contracted directly with
Lexington to procure homeowner’s insurance and that these provisions are
irrelevant to Flagstar as the mortgagee of the property. He points out that Flagstar
required the Policy when it loaned him the money to purchase his house and took a
mortgage on it. Alvarado paid the premiums on this force-placed Policy as a
separate part of his monthly mortgage payments, and Endorsement #3 to the Policy
required a higher premium for the Special Broad Form Homeowners Coverage.
24
Lexington responds that Flagstar is the sole named insured in the Policy, that
Alvarado is not mentioned in the Policy, and that the plain language of the Policy
can reasonably be construed only as protecting Flagstar’s mortgage interest in the
property up to the extent of that interest, not as protecting Alvarado’s interest. It
argues, therefore, that the Policy cannot be construed as intended to benefit
Alvarado, as a matter of law; that Alvarado is not a third-party beneficiary to the
Policy under prevailing law construing force-placed insurance policies; and that
Alvarado has failed to raise a material fact issue as to his third-party-beneficiary
status.
We conclude that Lexington has failed to prove that Alvarado lacks third-
party-beneficiary status as a matter of law.
a. The “Common Policy Declarations” and the “Supplemental
Declaration Page” of the Policy
As Lexington states, the “Common Policy Declarations” in the “Commercial
Lines Policy” at issue list “Flagstar Bank, FSB” as the sole “Named Insured.”
These Declarations state that the Policy “consists of the following coverage parts
for which a premium is indicated,” namely, a “Mortgage Guard Property Coverage
Part.” The Common Policy Declarations then state:
THESE DECLARATIONS TOGETHER WITH THE COMMON
POLICY CONDITIONS, COVERAGE PART DECLARATIONS,
COVERAGE PART COVERAGE FORM(S) AND FORMS AND
ENDORSEMENTS, IF ANY, ISSUED TO FORM A PART
THEREOF, COMPLETE THE ABOVE NUMBERED POLICY.
25
For the “Form(s) and Endorsements(s) made part of this policy at time of issue,”
the Common Policy Declarations page states, “See attached Table of Contents.”
The Table of Contents lists as “[c]overage forms and endorsements forming a part
of this policy” the “Mortgage Guard Property Policy” and a number of additional
endorsements, including Endorsement #12, a “Homeowners 3 Special Form”
providing “Special Broad Form Homeowner’s Coverage.” The Common Policy
Declarations state that the complete Policy consists not only of the common
declarations and policy conditions, but also of the coverage part declarations,
coverage part forms, and “the forms and endorsements, if any, issued to form a
part” of the Policy. In this case, therefore, the Policy at issue includes not only the
Common Policy Declarations and the Mortgage Guard Property Policy with its
declarations, but also Endorsement #12, the Special Broad Form Homeowner’s
Coverage form, with its declarations.
In addition to the Common Policy Declarations, the Policy includes a
“Supplemental Declaration Page” that sets out Lexington’s “Limits of Liability”
under the Common Policy:
$1,000,000. Per property On Commercial or Residential
Properties*
$500,000. Per location Mobile Home Properties*
$1,000,000. Per property Windstorm and Hail only*
Homeowners Coverage as reported as HO on the reporting form
26
A. Dwelling-$500,000. Any one loss*
B. Other Structures-$50,000. Or 10% of the insured value,
whichever is the lesser*
C. Personal Property-$250,000. Or 50% of the insured value,
whichever is the lesser*
D. Loss of Use-$100,000. Or 20% of the insured value, whichever
is the lesser*
*in which the Insured has a mortgage and/or owner interest and which
is specifically described in the Reporting Mechanism agreed upon by
the Company.
Thus, the Policy provides that Lexington’s liability is limited to $1,000,000 “per
property.” Additionally, coverage for properties with “Homeowners Coverage as
reported as HO on the reporting form” is limited to $500,000 for “any one loss,”
plus the lesser of $50,000 or 10% of the insured value for any other structure on
the property, plus the lesser of $250,000 or 50% of the insured value of any
personal property, plus the lesser of $100,000 or 20% of the insured value for loss
of use. An asterisk by each of these categories of covered loss limits Lexington’s
liability to properties “in which the Insured has a mortgage and/or owner interest
and which is specifically described in the Reporting Mechanism agreed upon by
the Company.” Lexington has produced no summary judgment evidence that
Alvarado’s property was not among the properties with “Homeowners Coverage”
reported by Flagstar on Lexington’s reporting form and specifically described by
Flagstar in Lexington’s Reporting Mechanism at the time of the occurrence made
27
the basis of his claim. However, it did produce the “Homeowners Coverage” part
of the Policy, Endorsement #12, as part of the Policy applicable to Alvarado, and
Alvarado has averred that he paid premiums for this coverage. Therefore, we
assume, for purposes of the summary judgment motion, that Alvarado did have
Homeowners Coverage and therefore was included on Lexington’s reporting
forms. See Sw. Elec. Power Co., 73 S.W.3d at 215.
b. The “Mortgage Guard Property Policy”
The “Mortgage Guard Property Policy” provides that “[t]hroughout this
policy the words ‘you’ and ‘your’ refer to the Named Insured shown in the
Declarations,” namely Flagstar, and that “[t]he words ‘we’, ‘us’ and ‘our’ refer to
the Company providing this insurance,” i.e., Lexington. The Mortgage Guard
Property Policy sets out the agreement of Lexington and Flagstar with respect to
this part of the Policy:
In consideration of the premium to be charged we will (as shown on
the Declaration Page) insure (but only in the event there is no other
insurance applicable) the Lending Institution (you, as shown on the
Declaration Page [here, Flagstar]) against direct physical loss
resulting from destruction of or damage to your property, reported by
you on the reporting forms furnished by us, for the Covered Causes of
Loss described in this policy.
The Mortgage Guard Property Policy thus protects Flagstar against physical loss to
its property reported on Lexington’s reporting forms, but “only in the event there is
no other insurance applicable.”
28
The Mortgage Guard Property Policy identifies several types of interest the
“Named Insured” lending institution, Flagstar, may have in a property and may
report on Lexington’s reporting forms. These include a “Loan” consisting of “an
advance of funds or a loan secured by a note and first or second ‘mortgage
interest/loan balance’ evidenced by a contract of sale for real property.”
Correspondingly, the Policy defines a “Borrower” as an individual “obligated on a
‘loan’ . . . and [who] has . . . an interest in the property securing such ‘loan.’” The
Mortgage Guard Property Policy states, “Loss will be adjusted with and made
payable to you unless another payee is specifically named.” The “Mortgage
Clause” states, “Loss, if any, under this policy will be payable to the mortgagee
[Flagstar] (or trustee) as its interests may appear under all present or future
mortgages upon the Covered Property described on the reporting forms in which
mortgagee may have an interest as mortgagee (or trustee) in order of precedence of
said mortgages.” Thus, the Mortgage Guard Property Policy, by its own terms,
insures Flagstar against direct physical loss resulting from the destruction of or
damage to “your property,” i.e., property in which it has a mortgage or ownership
interest and that is reported by Flagstar on Lexington’s reporting forms, in the
event there is no other insurance applicable.
The “Policy Conditions” for the Mortgage Guard Property Policy confirm
the intent of the contracting parties to cover physical loss to covered property at
29
described locations, stating, “Our liability for loss with respect to any property
covered will not exceed the Limit of Liability stated in the Declarations as
applicable, nor exceed, in any event, the lesser of the amount it would cost to
repair or replace with material of like kind and quality, or the amount of insurance
specified on each Covered Property at the Described Location on the reporting
forms completed by you and furnished to us.”
Provisions in the Mortgage Guard Property Policy specify the means by
which Flagstar must report damage for property; they grant it permission, “[i]n the
event of loss . . . to make reasonable repairs . . . provided the repairs are confined
solely to the protection of the Covered Property from further damage and provided
you keep an accurate record of the repair expenditures,” to “be included in
determining the amount of loss”; they impose duties of notice, reporting of
damage, and protection of the covered property in the event of loss; they provide
for the examination of Flagstar or its representative “about any matter relating to
this insurance or a claim”; and, “[i]n the event of a dual interest,” they allow
Lexington to require the agreement of “any mortgagor claiming coverage or
monetary benefit under this insurance” to “submit to an examination under
oath . . . about any matter relating to this insurance or a claim.” (Emphasis added.)
These provisions thus recognize that the Mortgage Guard Property Policy covers
payment for repairs to damaged property within the scope of the Policy, and they
30
also recognize that a mortgagor, as well as Flagstar, may claim “coverage or
monetary benefit under this insurance.”
There is no way to determine from the summary judgment evidence whether
Alvarado is the owner of residential property described by Flagstar on Lexington’s
reporting forms, because those forms are not in the record. However, there is
summary judgment evidence, in the form of Alvarado’s affidavit, that Flagstar
reported damage to Alvarado’s property to Lexington. It is also not possible to
determine from the summary judgment record precisely what claims either Flagstar
or Alvarado submitted to Lexington with respect to damage to the property or what
amount of money for what losses was paid by Lexington to Flagstar. Nor is it
possible to ascertain the extent of Flagstar’s mortgage interest in Alvarado’s
property and the extent of Alvarado’s interest. However, Alvarado avers that his
property sustained damage as a result of Hurricane Ike in 2008, that Flagstar made
a claim on the Policy, and that Lexington paid Flagstar $4,410.49 in damages. He
further avers that Flagstar did not provide any of these funds to him for the purpose
of repairs and that it did not apply these funds to the balance of his mortgage. We
consider each of these uncontested facts as stated by Alvarado, the nonmovant, to
be true, as we must under summary judgment law. See Fielding, 289 S.W.3d at
848; City of Keller, 168 S.W.3d at 827.
31
We conclude that the Policy manifests a clear intent to directly benefit both
Flagstar and “any mortgagor claiming coverage or monetary benefit” for damage
to property under the Policy, as their interests may appear as mortgagee or
mortgagor of a covered property at the described locations listed by Flagstar on
Lexington’s reporting forms. We further conclude that Flagstar is the mortgagee
of Alvarado’s property and that Alvarado is a mortgagor with an ownership
interest in a property described on Lexington’s forms whose property was damaged
and for which Flagstar submitted a claim and was paid. However, it is not possible
to determine from the Mortgage Guard Property Policy whether Alvarado was a
mortgagor who had a right to claim coverage under the Policy for damage to his
property. Therefore, we turn to Endorsement #12 of the Policy.
c. Endorsement #12: Special Broad Form Homeowners Coverage
Endorsement #12, titled “Special Broad Form Homeowners Coverage,” is
relied upon by Alvarado to show his third-party-beneficiary status under the
Policy. It provides the type of coverage that an individual homeowner would
generally seek from an insurance company, instead of the coverage that a
mortgagee seeking solely to protect its monetary interest in the property would
typically seek. Endorsement #12 states, “It is understood and agreed [by Flagstar
and Lexington] that the following coverages are added to this policy and that these
coverages apply only to owner occupied properties reported as ‘HO’ property type
32
by the Insured [Flagstar]: Special Broad Form Homeowners Coverage,
Homeowners 3, Special Form, ED. 10-00 (HO-3, Ed. 10-00).” This statement is
immediately followed by declarations specific to Endorsement #12 that incorporate
the property coverage limits from the Common Policy Declarations and
Supplemental Declaration Page and add additional “Property Coverage,” “Liability
Coverages,” and “Exclusions.” The endorsement states, “All other terms and
conditions remain unchanged.” It is unclear, however, whether Endorsement #12
formed a part of the Policy insuring Alvarado’s property. Alvarado claims that it
did, and Lexington included Endorsement #12 as part of the Policy on Alvarado’s
property. Therefore, we take it as true for purposes of this summary judgment
motion that Alvarado’s property was listed by Lexington as a property carrying
Homeowner’s Insurance.6 See Sw. Elec. Power Co., 73 S.W.3d at 215.
The Homeowners Coverage provided by Endorsement #12 is spelled out on
the Special Form. Section I, “Property Coverage,” provides coverage up to the
6
Lexington attached to its motion for rehearing a document purporting to show that
Alvarado’s property was listed as a “Residential Owner” or “RO” on its reporting
forms and claimed that this is a different type of coverage that does not extend the
protections of “HO” coverage to Alvarado. This improper attempt to supplement
the summary judgment record to change the facts of Alvarado’s status on appeal is
sufficient by itself to show that summary judgment was improperly granted. See
TEX. R. CIV. P. 166a(c) (“The judgment sought shall be rendered forthwith
if . . . the pleadings, admissions, affidavits, stipulations of the parties, and
authenticated or certified public records, if any, on file at the time of the hearing,
or filed thereafter and before judgment with permission of the court, show that,
except as to the amount of damages, there is no genuine issue as to any material
fact and the moving party is entitled to judgment as a matter of law on the issues
expressly set out in the motion or in an answer or any other response.”).
33
“[l]imit stated on the Declaration Page.” This part of the Homeowners Coverage
clearly references the limits for property damage for residences referred to on the
Supplemental Declaration Page of the Policy. In addition, Section II, “Liability
Coverages,” provides coverage to the owners of the specified properties for
“Personal Liability” of “$100,000 per person/$300,000 per occurrence” and
coverage for “Medical Pay to others” of “$1,000 per person/$25,000 per accident.”
This Homeowners Coverage part of the Policy further provides that “[t]he
combined limit of liability under the policy for Special Broad Form Homeowners
Coverage shall not exceed $1,000,000 for the policy period.”
Endorsement #12 also states that “[t]he earned premium for each daily
period shall be calculated by multiplying the total amount of insurance specified on
the reporting form furnished by the Company by the rate stated on the Rates and
Deductibles Page.” The Rates and Deductibles page—Endorsement #3 to the
Policy—specifies that, for “Special Broad Form Homeowners Coverage,” “each
claim for loss or damage (separately occurring) shall be adjusted separately,” and it
defines the deductible for different types of covered properties, including Occupied
Residences. Endorsement #3 charges a higher premium for Special Broad Form
Homeowners Coverage. Finally, Endorsement #12 specifies that the homeowner’s
coverage ceases to apply when a property becomes vacant or goes into foreclosure,
and it further specifies that “[o]n the date the property status changes the regular
34
residential coverage as indicated in the Residential Property Coverages policy
section will apply to that property,” i.e., the coverage indicated on the
Supplemental Declaration Page of the Common Policy applies, and not the
coverage indicated in Endorsement #12.
The “Definitions” part of Endorsement #12 defines the term “Insured” for
the purpose of properties covered under the “Homeowners Coverage” addition to
the Policy in terms that can reasonably refer only to the homeowner, not to
Flagstar. Section A of the “Definitions” states, “In this policy, ‘you’ and ‘your’
refer to the ‘named insured’ shown in the Declarations and the spouse if a resident
of the same household. ‘We’, ‘us’ and ‘our’ refer to the Company providing this
insurance.” Section B of the “Definitions” states, “In addition, certain words and
phrases are defined as follows.” Definition 5 defines “Insured” to mean, in
pertinent part, “[y]ou and residents of your household who are . . . [y]our relatives;
or . . . [o]ther persons under the age of 21 and in the care of any person named
above.” Thus, the “insured” for purposes of Endorsement #12 can reasonably be
interpreted only as the homeowner of a covered property, and not as the “Named
Insured” under the Common Policy, Flagstar, or as the “insured” Lending
Institution under the Mortgage Guard Property Policy, also Flagstar.
“Insured location” is defined to mean, in pertinent part, “the ‘residence
premises.’” “Residence premises” is further defined as “[t]he one family dwelling
35
where you reside . . . and which is shown as the ‘residence premises’ in the
Declarations” and “other structures and grounds at that location.”
“Occurrence” is defined to mean, in pertinent part, “an accident, including
continuous or repeated exposure to substantially the same general harmful
condition, which results, during the policy period, in . . . [p]roperty damage,” i.e.,
“physical injury to, destruction of, or loss of use of tangible property.” The
“Deductible” part of the endorsement states, “Unless otherwise noted in this
policy, the following deductible provision applies: Subject to the policy limits that
apply, we will pay only that part of the total of all loss payable under Section 1
[“Property Coverages”] that exceeds the deductible amount shown in the
Declarations.”
Subsection A of “Section 1—Property Coverages” of Endorsement #12
expressly states, “We cover . . . [t]he dwelling on the ‘residence premises’ shown
in the Declarations, including structures attached to the dwelling;
and . . . [m]aterials and supplies located on or next to the ‘residence premises’ used
to construct, alter or repair the dwelling or other structures on the ‘residence
premises.’” Subsections B, C, and D of Section 1 provide insurance coverage for,
among other things, personal property, loss of use, which includes additional living
expenses and fair rental value, debris removal, reasonable repairs, and credit card
fraud.
36
Finally, “Section 1—Conditions” of Endorsement #12 provides that, “[e]ven
if more than one person has an insurable interest in the property covered,
[Lexington] will not be liable in any one loss [t]o an ‘insured’ for more than the
amount of such ‘insured’s’ interest at the time of loss.” The “Loss Payment”
provision states: “We will adjust all losses with you. We will pay you unless
some other person is named in the policy or is legally entitled to receive payment.”
Endorsement #12 also includes a “Mortgage Clause” that provides, “If a mortgagee
is named in this policy, any loss payable . . . will be paid to the mortgagee and you,
as interests appear.” (Emphasis added.) “Section II—Liability Coverages”
provides personal liability coverage for bodily injury or property damage, as well
as coverage for medical payments to others.
All of these provisions of this endorsement are meaningful only if the
“Insured” and “you” referenced in the Definitions and Property Coverages of
Endorsement #12 mean the homeowner of an owner-occupied property reported by
Flagstar to Lexington on Lexington’s reporting forms as having force-placed
Homeowners Coverage and if the Homeowners Coverage part of the Policy is
interpreted as directly insuring the homeowner against loss to property, both real
and personal, as well as insuring him against personal liability and certain other
personal losses, such as loss of use of the property and additional living expenses.
37
We conclude that the language in Endorsement #12 makes apparent the
contracting parties’ intent to confer a direct benefit on the homeowner of “owner
occupied properties reported as ‘HO’ property type by the Insured” under the
conditions specified in the Policy and that that benefit is made applicable to
property owners when their property is “added to this policy” by Flagstar on
Lexington’s reporting forms. See Basic Capital Mgmt., 348 S.W.3d at 900; MCI
Telecomms., 995 S.W.2d at 651; see also Palma, 79 F.3d at 1457–58 (holding that
homeowner-borrower was third-party beneficiary of force-placed insurance policy
when policy contained provision that was for “sole benefit” of borrower);
Henderson, 2009 WL 3190710, at *3 (limiting standing to seeking temporary
housing benefits because this was only clause in policy providing benefit to
homeowner); Beck, 2008 WL 4155301, at *2 (finding third-party-beneficiary status
when policy contained excess loss clause and allowed adjustment of personal
property damages with borrower); Navarrete, 2008 WL 659477, at *2 (same);
Hickman, 695 N.W.2d at 370–71 (same).
We further conclude that, because Alvarado pays the premiums on his policy
directly to Flagstar, which forwards them to Lexington, and, in return, Alvarado
receives the property and liability coverage provided by the Policy under the
“Special Broad Form Homeowners Coverage” added by Endorsement #12,
Alvarado is a creditor beneficiary of the contract between Flagstar and Lexington.
38
See MCI Telecomms., 995 S.W.2d at 651 (stating that if performance will come to
third party in satisfaction of legal duty owed to him by promisee, including
“contractual obligation or other legally enforceable commitment,” he is creditor
beneficiary of contract).
Lexington argues, however, that the type of policy at issue in this case does
not confer third-party-beneficiary status on homeowners. It refers us to a recent
opinion from the United States District Court for the Southern District of Texas in
a diversity case brought under Texas law, which addressed the effect of a “Special
Broad Form Homeowners Coverage” endorsement on the homeowner-borrower’s
status as a third-party beneficiary in a case similar to the present one. See Trevino
v. Evanston Ins. Co., Civil Action No. M-11-18, 2011 WL 2709063, at *3 (S.D.
Tex. July 12, 2011). In that case, the homeowner made the same argument
Alvarado makes here: because the endorsement provides coverage that is
irrelevant to the mortgagee and that “could only inure to the benefit of [the
homeowner],” the endorsement demonstrates the contracting parties’ intent to
confer a direct benefit on the homeowner. Id.
The federal district court noted that the insurance company, Evanston,
“counters that these coverages [for personal liability, medical pay to others,
personal property loss, and loss of use coverage] only become available when a
mortgagee complies with the reporting provisions of the Mortgage Guard Policy,
39
which require the mortgagee to notify Evanston of ‘any change of ownership or
occupancy or increase of hazard,’ i.e., foreclosure, and to pay additional risk
premiums.” Id. The court concluded, without analysis of the language in the
endorsement or the factual circumstances of the case, other than the plaintiff had
“made a claim under the policy seeking coverage for roof and water damage
sustained by the property as a result of Hurricane Dolly on July 23, 2008,” that
“the Policy language unambiguously manifests the intent to provide hazard
coverage to [the mortgagee] to the extent of its interest in the property, and any
benefit conferred to [the homeowner] as a result is incidental,” and that the
homeowner “has pointed to no provision that makes clearly apparent the
contracting parties’ intent to confer a direct benefit on Plaintiff.” Id. The court
ultimately held that the homeowner-borrower was not a third-party beneficiary
under the insurance policy at issue and had no standing to pursue his claims. Id. at
*1, *3.
In the instant case, by contrast, the Policy language does unambiguously
manifest the contracting parties’ intent to provide coverage directly to the owners
of the properties described by Flagstar on Lexington’s reporting forms for property
damage, including coverage for personal property damage and personal liability,
when Special Broad Form Homeowners Coverage is added to the Policy by an
endorsement, as spelled out in the Policy. See Basic Capital Mgmt., 348 S.W.3d at
40
900; MCI Telecomms., 995 S.W.2d at 651. Alvarado, unlike Trevino, did point to
a provision in the Policy, Endorsement #12, that makes apparent the contracting
parties’ intent to confer a direct benefit on owners of property reported by Flagstar
on Lexington’s reporting forms that meet certain conditions specified in the Policy,
including owning a Homeowner’s Policy. Thus, we find Trevino to be
distinguishable and its legal conclusions to be inapplicable to this case.
The dissent, however, finds Trevino persuasive. It reasons that this case is
more closely analogous to the Texas Supreme Court’s decision in MCI
Telecommunications, in which the court found no third-party-beneficiary status,
than to its decision in Basic Capital Management. We disagree. In MCI
Telecommunications, Texas Utilities contracted with the Missouri Pacific Railroad
(“MoPac”) to obtain a license to install an electric transmission line on MoPac’s
right-of-way. 995 S.W.2d at 648–49. Twelve years later, MCI contracted with
MoPac to use the right-of-way to install a fiber optic cable. Id. at 649. MCI’s
contract with MoPac contained a provision requiring MCI to exercise its contract
rights “in such a manner as not to interfere in any way with any existing prior
rights,” such as the rights of existing licensees. Id. The contract also included a
provision explicitly stating that no provision of the contract “shall be construed as
being for the benefit of any party not in signatory hereto.” Id. at 649–50. The
Texas Supreme Court reversed both the trial court and the Fort Worth Court of
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Appeals and held that Texas Utilities was not a third-party beneficiary of MCI’s
contract with MoPac. Id. at 651. The court reasoned that, although the contract
included a provision protecting Texas Utilities’ rights as an earlier licensee, the
contract did not provide a direct benefit to Texas Utilities and no contractual
language indicated that MCI and MoPac contracted for Texas Utilities’ benefit. Id.
at 651–52. At best, Texas Utilities was an “incidental beneficiary” of the contract.
Id. at 652. The court also noted that the contract explicitly stated that it “is not to
be interpreted as conferring any benefits on nonsignatory parties” and that it
“reflects the intention of the parties that there be no third-party beneficiary to the
contract.” Id.
Unlike the contract at issue in MCI Telecommunications, the Policy at issue
in this case includes provisions directly benefitting the owners of properties
reported on Lexington’s forms—specifically including those set out in
Endorsement #12—and it does not include a comparable explicit provision
restricting construction of the Policy to benefit only the signatories to the Policy.
In fact, the Mortgage Guard Property Policy contains language contemplating that
the homeowner-mortgagor may have a dual interest and may potentially claim
coverage or a monetary benefit under the Policy. And Endorsement #12 expressly
states that it provides additional coverage to that provided by the rest of the Policy,
spells out the protections that the additional coverage provides, and states where
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this coverage differs from the coverage in the Common Policy in terms that can
apply only to the homeowner of a residential property, here Alvarado, reported to
Lexington by a mortagee, here Flagstar, as having Special Broad Form
Homeowners Coverage. It also defines such a residential homeowner as the
“insured” for purposes of homeowners’ coverage. Finally, Endorsement #12
expressly distinguishes the insured residential mortgagor from the mortgagee as a
person having covered interests under the Policy and recognizes that they may
have dual interests.
As the Texas Supreme Court noted in MCI Telecommunications, when
interpreting a contract, “we examine the entire agreement in an effort to harmonize
and give effect to all provisions of the contract so that none will be meaningless.”
Id. at 652. We conclude, as in Basic Capital Management, that the additional
coverage in Endorsement #12 for which the homeowner is forced to pay additional
premiums “ha[s] no purpose whatever” and is meaningless unless the “Special
Broad Form Homeowners Coverage” was intended by Lexington, the insurer of the
property, and Flagstar, the mortgagee, to directly benefit the mortgagors and
homeowners of the properties specifically described by Flagstar on Lexington’s
reporting forms. See Basic Capital Mgmt., 348 S.W.3d at 900.
It was Lexington’s burden, as movant for summary judgment, to prove its
entitlement to summary judgment against Alvarado as a matter of law. We hold
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that Lexington failed to carry its burden of conclusively negating Alvarado’s status
as a third-party beneficiary to the Policy. Thus, we hold that the trial court erred in
rendering summary judgment in favor of Lexington.
We sustain Alvarado’s sole issue.
Conclusion
We reverse the judgment of the trial court in appellate cause number 01-10-
00740-CV and remand that case for further proceedings consistent with this
opinion. We dismiss appellate cause number 01-10-01150-CV.
Evelyn V. Keyes
Justice
Panel consists of Justices Keyes, Bland, and Sharp.
Justice Bland, dissenting.
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