Central Mutual Insurance Company D/B/A Central Insurance Companies and CMI Lloyds v. KPE Firstplace Land, LLC

NO. 12-07-00314-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
CENTRAL MUTUAL INSURANCE § APPEAL FROM THE 114TH
COMPANY d/b/a CENTRAL INSURANCE
COMPANIES AND CMI LLOYDS,
APPELLANT
V. § JUDICIAL DISTRICT COURT OF
KPE FIRSTPLACE LAND, LLC,
APPELLEE § SMITH COUNTY, TEXAS
OPINION
Central Mutual Insurance Company d/b/a Central Insurance Companies (“Central Mutual”)
and CMI Lloyds (“Lloyds”) (collectively “Central”) appeal the trial court’s summary judgment
entered in favor of Appellee KPE Firstplace Land, LLC (“KPE”) as well as the trial court’s denial
of Central’s motion for summary judgment. In two issues, Central argues that the trial court erred
in granting partial summary judgment in KPE’s favor against Lloyds and denying its motion for
summary judgment. We affirm.
BACKGROUND 1
On December 29, 2004, KPE purchased real estate located on Loop 323 in Tyler Texas. KPE
also owned a 90,000 square foot building located on the property. At some time prior to
1
This case was submitted to the trial court on joint stipulations of fact. See T EX . R. C IV . P. 263.
December 31, 2005,2 thieves removed the copper coils from the air conditioning equipment located
on the roof of the building, which caused the air conditioning equipment to become damaged. KPE
discovered the damaged air conditioning equipment on December 31, 2005 and reported the loss to
the Tyler Police Department that same day. KPE’s insurance agent, Bosworth & Associates,
reported the loss to Central on February 13, 2006.
At the time KPE discovered the damage to its air conditioning equipment, the property was
insured through a policy issued by Lloyds and effective through September 15, 2006. The policy
contains a provision entitled “Loss Conditions,” which states, in pertinent part, as follows:
6. Vacancy
a. Description of Terms
1) As used in this Vacancy Condition, the term building and the
term vacant have the meanings set forth in 1) a) and 1) b) below:
a) W hen this policy is issued to a tenant, and with respect to
that tenant’s interest in Covered Property, building means the
unit or suite rented or leased to the tenant. Such building is
vacant when it does not contain enough business personal
property to conduct customary operations.
b) W hen this policy is issued to the owner or general lessee
of a building, building means the entire building. Such building
is vacant unless at least 31% of its total square footage is:
i) Rented to a lessee or sub-lessee and used by the lessee
or sub-lessee to conduct its customary operations; and/or
2
The stipulation does not expressly address the date on which the air conditioning unit became damaged by
theft. It does, however, state that KPE discovered the loss on December 31, 2005 and that the loss was reported to
Central on February 13, 2006. In its motion for partial summary judgment, KPE noted that neither party can
demonstrate the date upon which the air conditioning unit became damaged and argued that it was entitled to
summary judgment because Central could not meet its burden of proof as to the applicability of the vacancy
exclusion. See T EX . I N S . C O D E A N N . § 554.002 (Vernon Supp. 2008) (In any suit to recover under a contract of
insurance, the insurer has the burden of proof as to any avoidance or affirmative defense including any language of
exclusion in the policy and any exception to coverage claimed by the insurer). In its motion for summary judgment,
Central responded to KPE’s position concerning the date of the theft and contended that the argument must fail
because loss, for insurance purposes, is deemed to occur when it manifests itself or is discovered. Considering the
aforementioned statements in the parties’ stipulation in conjunction with both KPE’s argument that neither party
knows when the theft took place and Central’s contention that KPE’s position must fail because of the application of
the manifestation rule, we conclude that it is necessarily implied from the express facts in the stipulation and the
argument of the parties’ respective counsel that the date on which the theft took place is unknown to either party.
2
ii) Used by the building owner to conduct customary
operations.
2) Buildings under construction or renovation are not considered
vacant.
b. Vacancy Provisions
If the building where loss or damage occurs has been vacant for more than
60 consecutive days before that loss or damage occurs:
1) W e will not pay for any loss or damage caused by any of the
following even if they are Covered Causes of Loss:
a) Vandalism;
b) Sprinkler leakage, unless you have protected the system
against freezing;
c) Building glass breakage;
d) W ater damage;
e) Theft; or
f) Attempted theft.
KPE’s property had been “vacant” as that term is defined in the aforementioned policy
section for more than sixty consecutive days at the time the loss was discovered on December 31,
2005. On or about March 6, 2006, KPE’s claim was denied. On or about June 5, 2006, KPE,
through its attorneys, made another formal demand for payment of the loss. After receiving KPE’s
demand, Lloyds took the examination under oath of KPE’s representative, Kevin Eltife, and
attempted to reach a settlement of the matter with KPE. When the parties were not able to settle the
matter, on or about October 5, 2006, Appellants sent a letter to KPE’s attorney rejecting the June 5,
2006 demand for payment of the loss.
KPE filed the instant lawsuit on October 25, 2006 seeking recovery for breach of contract,
unfair settlement practices,3 and failure to comply with the prompt payment statute.4 Both parties
subsequently moved for summary judgment on agreed facts.5 In its motion for summary judgment,
KPE argued that Central could not prove that its claim was excluded under the “Vacancy” clause
3
See T EX . I N S . C O D E A N N . § 541.060(a) (Vernon Supp. 2008).
4
See T EX . I N S . C O D E A N N . § 542.058 (Vernon Supp. 2008).
5
See n.1. KPE moved for partial summary judgment on its breach of contract claim against Central.
3
because it could not demonstrate that the property had been vacant for sixty days at the time the loss
“occurred,” i.e., the date on which the air conditioning equipment was damaged. To the contrary,
in its motion for summary judgment, Central argued that the “Vacancy” clause excluded KPE’s
claim because the property had been vacant for sixty days at the time the loss “occurred,” that is, the
date on which the loss “manifest[ed] itself or [was] discovered.” As part of their joint stipulation
of facts, the parties agreed as follows:
If the vacancy provision . . . does not apply, then Defendant [Lloyds] is obligated to pay
KPE the amount of the Loss ($107,618.90), less the $1,000 deductible under the policy, plus interest
on the amount due at the rate of 6% per annum from and after June 5, 2006 through the date of
judgment. If the vacancy provision . . . does apply, then Defendant [Lloyds] is not obligated to KPE
for the loss.
Ultimately, the trial court granted KPE’s motion for partial summary judgment against Lloyds and
denied Central’s motion for summary judgment. Thereafter, upon KPE’s motion, the trial court
dismissed KPE’s remaining extracontractual causes and entered a final judgment against Lloyds.
This appeal followed.
LIABILITY OF CENTRAL MUTUAL
As part of its first issue, Central argues that the trial court erred in granting summary
judgment against Central Mutual because Central Mutual is not a party to the insurance contract
involved in this matter. Based on our review of the record, neither the trial court’s order granting
partial summary judgment nor the trial court’s final judgment grants relief in favor of KPE against
any party other than Lloyds. As such, the error of which Central complains with regard to Central
Mutual is not supported by the record.
WHEN LOSS OR DAMAGE “OCCURS”
In the remainder of its first issue, Central argues that the trial court erred in granting summary
judgment in KPE’s favor. When competing motions for summary judgment are filed, and one is
granted while the other is denied, we first review the order granting summary judgment. See
Hartford Cas. Ins. Co. v. Morton, 141 S.W.3d 220, 225 (Tex. App.–Tyler 2004, pet. denied). If we
4
determine the order was erroneous, we review the trial court’s action in overruling the denied
motion. Id. We determine all questions presented and may reverse the trial court’s judgment and
render such judgment as the trial court should have rendered, including rendering judgment for the
other movant. See Jones v. Strauss, 745 S.W.2d 898, 900 (Tex. 1988).
When parties to a lawsuit submit matters in controversy upon an agreed statement of facts,
no evidence is admitted or considered by the trial court. See Trevino & Gonzalez Co. v. R.F. Muller
Co., 949 S.W.2d 39, 41 (Tex. App.–San Antonio 1997, no writ). Rather, the trial court’s decision
is based upon the papers on file and the arguments of counsel. Id. We indulge no presumptions in
favor of the judgment in such a case because the trial court had no factual issues to resolve. Id.
Moreover, the parties’ pleadings are immaterial. See State Farm Lloyds v. Kessler, 932 S.W.2d 732,
735 (Tex. App.–Fort Worth 1996, writ denied). The only issue on appeal is whether the trial court
properly applied the law to the agreed facts. Id. We review de novo whether the trial court correctly
applied the law to the admitted facts. See City of Corpus Christi v. Gomez, 141 S.W.3d 767, 770
(Tex. App.–Corpus Christi 2004, no pet.). We are limited to those facts unless other facts are
necessarily implied from the express facts in the statement. Id.
Insurance contracts are subject to the same rules of construction as ordinary contracts.
Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex. 1997); Phillips Petroleum Co. v.
St. Paul Fire & Marine Ins. Co., 113 S.W.3d 37, 40 (Tex. App–Houston [1st Dist.] 2003, pet.
denied). Accordingly, when a contract permits only one interpretation, we construe it as a matter of
law and enforce it as written. Upshaw v. Trinity Cos., 842 S.W.2d 631, 633 (Tex. 1992); Phillips
Petroleum Co., 113 S.W.3d at 40. We must strive to effectuate the contract as the written
expression of the parties’ intent and must attempt to give effect to all contract provisions, so that
none will be rendered meaningless. Kelley-Coppedge, Inc. v. Highlands Ins. Co., 980 S.W.2d 462,
464 (Tex. 1998); State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995). To this
end, we construe the terms of the contract as a whole and consider all of its terms, not in isolation,
but within the context of the contract. Beaston, 907 S.W.2d at 433; Forbau v. Aetna Life Ins. Co.,
876 S.W.2d 132, 133–34 (Tex. 1994); Hartrick v. Great Am. Lloyds Ins. Co., 62 S.W.3d 270, 274
(Tex. App.–Houston [1st Dist.] 2001, no pet.).
Whether a contract is ambiguous is a question of law for the court to decide by looking at the
5
contract as a whole in light of the circumstances present when the contract was entered.
Kelley-Coppedge, Inc., 980 S.W.2d at 464 (citing Nat’l Union Fire Ins. Co. v. CBI Indus., Inc.,
907 S.W.2d 517, 520 (Tex. 1995)). An ambiguity does not arise merely because the parties advance
conflicting contract interpretations. Kelley-Coppedge, Inc., 980 S.W.2d at 465. Only when, after
applying the applicable rules of construction, a contract term is susceptible of two or more
reasonable interpretations will the term be considered ambiguous. Id.; Phillips Petroleum Co., 113
S.W.3d at 40. Policy terms are given their ordinary and commonly understood meaning unless the
policy itself shows that parties intended a different meaning. Gonzales v. Mission Am. Ins. Co., 795
S.W.2d 734, 736 (Tex. 1990).
In the case at hand, the parties disagree about the meaning of the term “occurs” as it is used
in the policy’s vacancy provision. KPE argues that Central could not prove that its claim was
excluded under the vacancy provision because it could not demonstrate that the property had been
vacant for sixty days at the time the loss “occurred,” that is the date on which the air conditioner
became damaged. To the contrary, Central argues that the vacancy provision excluded KPE’s claim
because the property had been vacant for sixty days at the time the loss “occurred,” that is, when the
loss manifested itself or was discovered.
The Texas Supreme Court has recently considered the issue of when property damage occurs,
when the same is not specified by the relevant policy, for purposes of an occurrence based
commercial general liability insurance policy. See Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co.,
51 Tex. Sup. Ct. J. 1367, 2008 WL 3991187, at *1 (Tex. Aug. 29, 2008). In that case, the policy
provided that property damage was covered only if such damage “occur[red] during the policy
period.”6 Id., at *2. The court noted that several Texas courts of appeals have followed the so called
“manifestation rule,” which triggers the insurer’s responsibility only if the property damage becomes
evident or discoverable during the policy term. See id., at *3. However, the court declined to
fashion or adopt a universally applicable manifestation rule noting that, in the case before it, the
policy made no provision for it. Id., at *4. The court elaborated as follows:
6
The policy defined “occurrence” as “an accident, including continuous or repeated exposure to
substantially the same general harmful conditions.” Id.
6
W hatever practical advantages a manifestation rule would offer to the insured or the insurer,
the controlling policy language does not provide that the insurer’s duty is triggered only when the
injury manifests itself during the policy term, or that coverage is limited to claims where the damage
was discovered or discoverable during the policy period.
. . . . Again, the policy provides coverage if the “‘property damage’ occurs during the policy
period.” The policy does not state that coverage is available if property is, during the policy period,
exposed to a process, event, or substance that later results in . . . injury to tangible property.
....
Pinpointing the moment of injury retrospectively is sometimes difficult, but we cannot exalt
ease of proof or administrative convenience over faithfulness to the policy language; our confined task
is to review the contract , not revise it. Our prevailing concern is not one of policy but of law, and we
must honor the parties’ chosen language. . . . The policy asks when the damage happened, not whether
it was manifest, patent, visible, apparent, obvious, perceptible, discovered, discoverable, capable of
detection, or anything similar. Occurred means when damage occurred, not when discovery occurred.
Id. (emphasis in original). The court ultimately held that under the facts of that case, the property
damage occurred when the home suffered damage. Id.
The instant case concerns an exclusionary provision in a property insurance policy.
Nonetheless, the court’s analysis in Don’s Bldg. Supply, Inc. is instructive. Here, the policy sets
forth that Central will not pay for any loss or damage caused by vandalism or theft if the building
where loss or damage occurs has been vacant for more than sixty consecutive days before that loss
or damage occurs. The policy does not define the term “occur.” As such, since there is no indication
from the policy that the parties intended otherwise, we will give the term its ordinary and commonly
understood meaning. See Gonzales, 795 S.W.2d at 736.
The primary definition of “occur” is “[t]o take place” or “come about.” THE AMERICAN
HERITAGE DICTIONARY 860 (2nd College ed. 1982). However, a secondary meaning of “occur” is
“[t]o be found to exist or appear.” Id. We believe, however, that the ordinary and more commonly
understood meaning of “occur” is “to take place.” Such a meaning of occur is consistent with the
entirety of the contract in the instant case.7 Therefore, we conclude that, when the language of the
7
Much like in Don’s Bldg. Supply, Inc., 2008 W L 3991187, at *4, the policy in the instant case does not
make any other suggestion that the damage be manifest, patent, visible, apparent, obvious, perceptible, discovered,
discoverable, capable of detection, or anything similar.
7
instant contract is properly construed, damage “occurs” when the property becomes damaged.8 As
such, considering the terms of the contract in light of the stipulated facts and those facts necessarily
implied therefrom, we conclude that Central could not meet its burden of proof with regard to the
exclusionary vacancy provision at issue. Thus, we hold that the trial court properly applied the law
to the agreed facts in granting summary judgment for KPE.
Central’s first issue is overruled.
DISPOSITION
Having overruled Central’s first issue, we affirm the trial court’s judgment.9
SAM GRIFFITH
Justice
Opinion delivered November 26, 2008.
Panel consisted of Worthen, C.J., Griffith, J., and Hoyle, J.
(PUBLISH)
8
W e do not discount that the primary and secondary definitions of “occur” support the opposing positions
of the parties. T H E A M ERICAN H ERITAGE D ICTION ARY 860 (2nd College ed. 1982). But even assuming arguendo,
that the term “occur,” in its common usage, is equally susceptible to these conflicting meanings and is, thus,
ambiguous, the result would not change. See Urethane Intern. Products v. Mid-Continent Cas. Co., 187 S.W .3d
172, 176 (Tex. App.–W aco 2006, no pet.) (citing State Farm Fire & Cas. Co. v. Reed, 873 S.W .2d 698, 699 (Tex.
1994) (“[I]f a contract of insurance is susceptible to more than one reasonable interpretation, [courts] must resolve
the uncertainty by adopting the construction most favorable to the insured.”); see also Nat’l Union Fire Ins. Co. v.
Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991) ( “The Court must adopt the construction of an exclusionary
clause urged by the insured as long as that construction is not unreasonable, even if the construction urged by the
insurer appears to be more reasonable or a more accurate reflection of the parties' intent.”).
9
Having determined that the trial court properly granted summary judgment for KPE against Lloyds, we do
not reach Central’s second issue pertaining to the trial court’s denial of its motion for summary judgment.
8