Round Rock Plaza Venture and Robert M. Tiemann v. Maryland Insurance Company ( 1996 )

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

ON MOTION FOR REHEARING

NO. 03-95-00108-CV



Round Rock Plaza Venture and Robert M. Tiemann, Appellants

v.

Maryland Insurance Company, Appellee



FROM THE DISTRICT COURT OF TRAVIS COUNTY, 299TH JUDICIAL DISTRICT NO. 94-00484, HONORABLE JERRY DELLANA, JUDGE PRESIDING

On motion for rehearing, we withdraw our previous opinion and judgment dated November 22, 1995, and substitute the following.

Plaintiffs Round Rock Plaza Venture and Robert M. Tiemann appeal from a summary-judgment order that they take nothing in their suit against Maryland Insurance Company. We will reverse the trial-court judgment and remand the cause for trial.

BACKGROUND

Appellants are owners of a shopping center in Round Rock, Texas. Furniture Center of Round Rock, Inc., a tenant of the shopping center, obtained a judgment against appellants in the amount of $162,275 plus interest and costs and $17,500 in attorneys fees for damages from flooding when the shopping center's sewer line backed up causing the toilets in the restroom to overflow. Although flooding occurred on August 28, 1991, during the coverage period of the Texas Commercial Package Policy ("the policy") issued by Maryland Insurance Company ("Maryland") to appellants, Maryland denied coverage based on an exclusion in the policy and refused to defend the Furniture Center suit.

Appellants Round Rock Plaza Venture ("the Venture") and Robert Tiemann, its managing venturer, filed the present action alleging Maryland breached their insurance contract by failing to defend and indemnify appellants in the Furniture Center suit. On cross-motions for summary judgment, the trial court granted summary judgment in favor of Maryland and this appeal ensued.

In our previous opinion, we reversed the trial-court judgment because we held the policy's pollution exclusion inapplicable and remanded because fact questions remain. However, we failed to address Maryland's alternate ground for summary judgment against appellant Tiemann, the managing partner of the Venture.

DISCUSSION

In their first point of error, appellants contend the trial court erred in granting Maryland's motion for summary judgment and in denying appellants' motion for new trial because the policy's pollution exclusion does not apply to damages caused by a back-up in the sewer line. ⁽¹⁾ The language in dispute can be found under "Exclusions" in the Commercial General Liability Coverage part of the policy. Part 2.f excludes coverage for:

"Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:

(a) At or from premises you own, rent or occupy;

. . . .

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

Maryland contends that because sewage is "waste" this pollution exclusion unambiguously bars coverage. We disagree.

It is well-settled that insurance policies are controlled by the rules of interpretation and construction applicable to contracts in general. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133 (Tex. 1994); Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987). These rules of construction apply even more stringently when, as here, the dispute involves the interpretation of limitations or exclusions. See Barnett, 723 S.W.2d at 666. When the language of a policy is ambiguous or otherwise susceptible to more than one reasonable interpretation, the canon of liberal construction requires that the policy language be construed strictly against the insurer and liberally in favor of coverage. See id.; National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991).

We conclude the policy language excluding coverage for damage caused by "pollutants" is ambiguous when applied to the facts of this case. ⁽²⁾ The policy defines "pollutants" as an "irritant or contaminant including . . . waste," but the terms "irritant" and "contaminant" are not defined. "Waste" is described inclusively in terms of certain functions such as recycling or reclaiming rather than in terms of certain substances such as sewage. Thus, it is not clear that sewage overflowing from a toilet falls within the purview of this pollution exclusion. Also, language in another part of the policy under the commercial property loss coverage specifically excludes coverage for direct losses "[c]aused by or resulting from . . . water which backs up through sewers or drains." Therefore, it seems that if damages caused by a back-up in the sewer line were meant to be excluded from liability coverage, then the policy would have stated so explicitly.

Finding the pollution exclusion ambiguous, we follow the rule of liberal construction and construe the policy strictly against Maryland, the insurer. Accordingly, we hold the pollution exclusion does not bar coverage for the damage in issue and sustain appellants' first point of error.

In a cross-point, appellee Maryland contends that even if we find the pollution exclusion inapplicable, summary judgment was proper because appellants failed to provide "prompt" notice of the occurrence as required by the policy. When, as here, the facts about whether notice comported with the policy requirements are disputed, the question of timeliness is one of fact. See E.B. Smith Co. v. United States Fidelity & Guar. Co., 850 S.W.2d 621, 625 (Tex. App.--Corpus Christi 1993, writ denied).

Even if the trial court determines that notice was untimely, the Maryland policy contains an endorsement providing that failure to comply with the notice requirement will not bar coverage unless the insurer is "prejudiced" by such failure. Under the terms of this endorsement, the insurer must establish prejudice to avoid liability. Chiles v. Chubb Lloyds Ins. Co., 858 S.W.2d 633, (Tex. App.--Houston [1st Dist.] 1993, writ denied); Allstate Ins. Co. v. Pare, 688 S.W.2d 680, 681 (Tex. App.--Beaumont 1985, writ ref'd n.r.e.). Whether an insurer is prejudiced by its insured's failure to comply with the notice requirements is also a question of fact. See Chiles, 858 S.W.2d at 635; 8 John A. Appleman and Jean Appleman, Insurance Law and Practice § 4734 (Supp. 1994). Thus, because essential fact questions remain, summary judgment is improper. See Tex. R. Civ. P. 166a(c); Swilley v. Hughes, 488 S.W.2d 64, 67 (Tex. 1972). In light of the foregoing disposition, we need not address appellants' second and third points of error.

Alternatively, Maryland moved for summary judgment against appellant Tiemann claiming that he had no cause of action and suffered no injury. However, neither Maryland nor appellants addressed this argument in their briefs before this court. Nevertheless, on rehearing we will consider this argument in our review of the trial-court judgment. See Tex. R. Civ. P. 166a(c); State Farm Fire & Casualty Co. v. S.S, 858 S.W.2d 374, 380 (Tex. 1993). Maryland contends that Tiemann lacks standing because he was not sued in the underlying action by the furniture store, and as a result, Maryland breached no legal duty owed to Tiemann. We disagree.

The pleadings and evidence establish, and Maryland does not contest, that Tiemann is the managing partner of the Venture. Tiemann sued Maryland in his representative capacity. Although the cause of action against Maryland belonged to the Venture as a partnership entity, Tiemann was not precluded from prosecuting the suit as a partner of the Venture. See Chien v. Chen, 759 S.W.2d 484, 489-92 (Tex. App.--Austin 1988, no writ). Additionally, Tiemann, as a representative of the Venture, is a named insured in Maryland's policy. A contract of insurance on property operates in favor of the "insured", and all duties under the contract flow to the "insured." See 45 Tex. Jur. 3d Insurance Contracts and Coverage § 62 (1995). We hold summary judgment was not proper against appellant Tiemann.

CONCLUSION

For the reasons given, we reverse the summary-judgment order and remand the cause to the trial court for further proceedings not inconsistent with this opinion.

Jimmy Carroll, Chief Justice

Before Chief Justice Carroll, Justices Aboussie and Kidd

Reversed and Remanded

Filed: January 17, 1996

Publish

1.   The parties disagree whether the flooding consisted of clear water or raw sewage. We will assume for purposes of this appeal that raw sewage flooded the furniture store.

2.   Appellee Maryland cites the Texas Supreme Court's recent opinion in National Union Fire Insurance Co. v. CBI Industries, Inc., 39 Tex. Sup. Ct. J. 7 (Oct. 5, 1995), in support of its claim that the absolute pollution exclusion is clear and unambiguous. Although the disputed policy language is similar, the underlying facts in CBI Industries are quite different. Additionally, the Supreme Court limited its holding to those facts. See CBI Industries, 39 Tex. Sup. Ct. J. at 10.

ent was proper because appellants failed to provide "prompt" notice of the occurrence as required by the policy. When, as here, the facts about whether notice comported with the policy requirements are disputed, the question of timeliness is one of fact. See E.B. Smith Co. v. United States Fidelity & Guar. Co., 850 S.W.2d 621, 625 (Tex. App.--Corpus Christi 1993, writ denied).

Even if the trial court determines that notice was untimely, the Maryland policy contains an endorsement providing that failure to comply with the notice requirement will not bar coverage unless the insurer is "prejudiced" by such failure. Under the terms of this endorsement, the insurer must establish prejudice to avoid liability. Chiles v. Chubb Lloyds Ins. Co., 858 S.W.2d 633, (Tex. App.--Houston [1st Dist.] 1993, writ denied); Allstate Ins. Co. v. Pare, 688 S.W.2d 680, 681 (Tex. App.--Beaumont 1985, writ ref'd n.r.e.). Whether an insurer is prejudiced by its insured's failure to comply with the notice requirements is also a question of fact. See Chiles, 858 S.W.2d at 635; 8 John A. Appleman and Jean Appleman, Insurance Law and Practice § 4734 (Supp. 1994). Thus, because essential fact questions remain, summary judgment is improper. See Tex. R. Civ. P. 166a(c); Swilley v. Hughes, 488 S.W.2d 64, 67 (Tex. 1972). In light of the foregoing disposition, we need not address appellants' second and third points of error.

Alternatively, Maryland moved for summary judgment against appellant Tiemann claiming that he had no cause of action and suffered no injury. However, neither Maryland nor appellants address