John Kim, as Receiver for Dale McPherson D/B/A Jamac Services, Inc., (Judgment Debtor to Sharon Berryman) v. Farmers Insurance Exchange ( 2007 )

Opinion to: SJR TGT SN TJ EVK ERA GCH LCH JB

Opinion issued October 25, 2007

In The

Court of Appeals

For The

First District of Texas

 

NO. 01-05-01112-CV

 

JOHN KIM, AS RECEIVER FOR DALE MCPHERSON, D/B/A JAMAC SERVICES, INC. (JUDGMENT DEBTOR TO SHARON BERRYMAN), Appellant

V.

FARMERS INSURANCE EXCHANGE, INC., Appellee

On Appeal from the 164th District Court

Harris County, Texas

Trial Court Cause No. 2004-42121

MEMORANDUM OPINION

          The trial court granted summary judgment for appellee, Farmers Insurance Exchange, Inc. (“Farmers”), and ruled that appellant, John Kim, as receiver for Dale McPherson d/b/a Jamac Services, Inc. (Judgment Debtor to Sharon Berryman) (collectively “Kim”), take  nothing.  On appeal, Kim complains that Farmers was not entitled to summary judgment (1) based on a judicial estoppel affirmative defense that was not pled and was not presented as a ground for relief, (2) because Farmers had a duty to defend McPherson based on Berryman’s pleadings in the underlying suit alleging facts that would support a claim covered by the policy, (3) because a question of material fact exists as to Farmers’ duty to indemnify McPherson for the Berryman judgment, (4) because a fact issue exists as to how Farmers was prejudiced by McPherson’s failure to forward the lawsuit papers when it had actual notice of the suit, and (5) because the judgment in the underlying suit was rendered following a fully adversarial trial.  We affirm.

Background

          In late 1997, Sharon Berryman hired Dale McPherson d/b/a Jamac Services, Inc. (collectively “McPherson”) as a general contractor for improvements to her residence.  McPherson hired Wan Engineering, Inc. to design foundation improvements for Berryman’s home.  Berryman ultimately sued McPherson for negligence and violations of the Residential Construction Liability Act[1] after the project suffered “extensive problems” that “resulted in the heaving in the foundation.” McPherson was insured under a policy issued by Farmers, effective January 15, 1999.  Farmers, however, did not provide a legal defense for McPherson, and Ramel Pillai filed a general denial on his behalf.[2] Berryman moved for summary judgment based on deemed admissions against McPherson, which the trial court granted.  Berryman received $450,000 in actual damages and $175,000 in attorney’s fees.   

          The trial court ordered the turnover of some of McPherson’s assets to a receiver, Kim.  Among the assets turned over were McPherson’s claims and causes of action against Farmers “in connection with the handling or mishandling of the defense” and “in connection with the insurance policies issued.”  In addition, McPherson turned over all claims or causes of action against Farmers relating to:  (1) bad faith, (2) unfair insurance practices, and (3) fraud, misrepresentation, and breach of any statutory duty or the Texas Deceptive Trade Practices Act.

Kim sued Farmers.  The first amended petition alleges that “McPherson failed to adhere to the requirements and recommendations” provided by Wan Engineering and “was therefore negligent when he performed the structural changes to the foundation.  Because the foundation is deficient and defective, the entire house resting on this foundation also has serious defects.”  The petition also asserts causes of action against Farmers for violations of the Texas Insurance Code, breach of contract, bad faith, negligence, and DTPA violations, and seeks declaratory relief relating to Farmers’ duty to defend and duty to indemnify McPherson.  The petition further alleges that Farmers acted with malice toward McPherson. 

          Farmers moved for summary judgment on traditional and no-evidence grounds contending that:  (1) Berryman’s claim was outside the Farmers’ insurance policy period;[3] (2) McPherson did not provide proper notice of the claim; and (3) the summary judgment against McPherson was not rendered following a fully adversarial trial. Farmers also asserted that there was no evidence that (1) Berryman’s claim was a covered loss under the policy; (2) Berryman’s claim was within the policy period; (3) McPherson provided proper notice of Berryman’s claim; or (4) the summary judgment against McPherson was rendered following a fully adversarial trial.  Without stating its reasons, the trial court granted Farmers’ motion for summary judgment.

Summary Judgment Standard of Review

          We review the granting of summary judgment de novo.  See Nelson v. Cheney, 193 S.W.3d 161, 165 (Tex. App.—Houston [1st Dist.] 2006, no pet.).  In a traditional summary judgment, the issue on appeal is whether the movant met the burden of establishing that no genuine issue of material fact exists as to at least one element of the non-movant’s claim and that the movant is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); Cate v. Dover Corp., 790 S.W.2d 559, 562 (Tex. 1990).  All doubts about the existence of a genuine issue of a material fact are resolved against the movant.  Cate, 790 S.W.2d at 562.  If the movant’s summary judgment motion and proof facially establish its right to judgment as a matter of law, the burden shifts to the non-movant to raise a material fact issue sufficient to defeat summary judgment.  City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979).  Where, as in this case, the trial court does not state the specific grounds upon which the summary judgment was granted, the reviewing court must consider whether any theory set forth in the motion will support summary judgment.  State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374, 380 (Tex. 1993).  A summary judgment must be affirmed if any of the theories advanced by the movant is meritorious.  Harwell v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170, 173 (Tex. 1995). 

          When a defendant moves for summary judgment, it must either (1) disprove at least one element of 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); Yazdchi v. Bank One, Tex., N.A., 177 S.W.3d 399, 404 (Tex. App.—Houston [1st Dist.] 2005, pet. denied).  The court takes as true evidence favorable to the non-movant when deciding whether there is a disputed, material fact issue precluding summary judgment.  Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548–49 (Tex. 1985); Yazdchi, 177 S.W.3d at 403–04.  Further, the court indulges every reasonable inference in favor of the non-movant and resolve any doubts in its favor.  Nixon, 690 S.W.2d at 549; Yazdchi, 177 S.W.3d at 404. 

To prevail on a no-evidence summary judgment motion, a movant must allege that there is no evidence of an essential element of the adverse party’s cause of action. Tex. R. Civ. P. 166a(i); Fort Worth Osteopathic Hosp., Inc. v. Reese, 148 S.W.3d 94, 99 (Tex. 2004).  We review a no-evidence summary judgment under the same legal sufficiency standard used to review a directed verdict.  Gen. Mills Rests., Inc. v. Tex. Wings, Inc., 12 S.W.3d 827, 832–33 (Tex. App.—Dallas 2000, no pet.).  Although the non-movant need not marshal its proof, it must present evidence that raises a genuine issue of material fact on each of the challenged elements.  Tex. R. Civ. P. 166a(i); Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004).  A no-evidence summary judgment motion may not properly be granted if the non-movant brings forth more than a scintilla of evidence to raise a genuine issue of material fact on the challenged elements.  Ridgway, 135 S.W.3d at 600.  More than a scintilla of evidence exists when the evidence “rises to a level that would enable reasonable and fair-minded people to differ in their conclusions.”  Merrell Dow Pharms., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997).  

Harm from Failure to Forward

          In issue four, Kim contends that Farmers was not entitled to summary judgment because a fact issue exists as to how Farmers was prejudiced by McPherson’s failure to forward the lawsuit papers when it had actual notice of the suit.

          In its amended motion for summary judgment, Farmers argued that it was entitled to summary judgment because McPherson did not provide proper notice of the claim as was required under the policy.  If further contended that there was no evidence that McPherson provided proper notice of Berryman’s claim.

          The policy provides that:

2.     Duties In The Event Of Occurrence, Offense, Claim Or Suit

a. You must see to it that we are notified as soon as practicable of an “occurrence” or an offense which may result in a claim.  To the extent possible, notice should include:

(1) How, when and where the “occurrence” or offense took place;

(2) The names and addresses of any injured persons and witnesses; and

(3) The nature and location of any injury or damage arising out of the “occurrence” or offense.

b. If a claim is made or “suit” is brought against any insured, you must:

(1) Immediately record the specifics of the claim or “suit” and the date received; and

(2)     Notify us as soon as practicable.

You must see to it that we receive written notice of the claim or “suit” as soon as practicable.

c. You and any other involved insured must:

(1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or “suit”;

(2)     Authorize us to obtain records and other information;

(3) Cooperate with us in the investigation, or settlement of the claim or defense against the “suit”; and

(4) Assist us, upon our request, in the enforcement of any right against any person or organization that may be liable to the insured because of injury or damage to which this insurance may also apply.

It is undisputed that McPherson did not provide Farmers with notice by sending Farmers copies of the legal papers filed in the suit.   Kim contends, however, that Farmers was not prejudiced by the failure or, in the alternative, it had actual notice of the claim, which would negate the prejudice.

Prejudice

          Kim argues that a fact issue existed as to how Farmers was prejudiced by McPherson’s failure to forward the lawsuit papers.  The policy contains the following endorsement stating that noncompliance will not bar coverage unless Farmers is thereby prejudiced:

With regard to “bodily injury” or “property damage” liability, unless we are prejudiced by the failure to comply with the requirement, any provision of this policy requiring you or any insured to give notice of occurrence, claim or suit, or forward demands, notices, summonses or legal papers in connection with a claim or suit, will not bar liability under this policy.

Even though there was no evidence that the condition precedent of cooperation was satisfied, Farmers cannot escape liability unless it was prejudiced by the lack of cooperation. See Harwell, 896 S.W.2d at 173-74 (explaining that, even though condition precedent was not satisfied, insurer does not escape liability unless it was prejudiced); see also Coastal Ref. & Mktg., Inc. v. U.S. Fid. and Guar. Co.,  218 S.W.3d 279, 289 (Tex. App.—Houston [14th Dist.] 2007, no pet.) (coverage remains in force after insured’s breach of a notice provision unless insurer demonstrates that breach caused insurer actual prejudice).  Prejudice may be established either as a matter of fact or as a matter of law.  Compare Harwell, 896 S.W.2d at 174 (holding that prejudice existed as matter of law) with Struna v. Concord Ins. Servs., Inc., 11 S.W.3d 355, 360 (Tex. App.—Houston [1st Dist.] 2000, no pet.) (holding that summary judgment was improperly granted because summary judgment evidence raised material fact issue as to prejudice). 

In Harwell, the supreme court held that “[t]he failure to notify an insurer of a default judgment against its insured until after the judgment has become final and nonappealable prejudices the insurer as a matter of law.”  Harwell, 896 S.W.2d at 174.  In so holding, the supreme court reasoned that, had the insurer “received notice, it could have undertaken [the insured]’s defense and minimized its insured’s liability.”  Id.  Therefore, the court concluded, the insured’s failure to notify the insurer of the suit prejudiced it as a matter of law.  Id.  

In its amended motion for summary judgment, Farmers asserted that, because McPherson did not comply with the notice requirement and subsequently “allowed a summary judgment to be entered and become final and non-appealable in the Underlying Lawsuit,” it was prejudiced.  We agree, based on the circumstances presented here, which established that (1) requests for admissions were served, went unanswered, and were deemed admitted; (2) no motion to withdraw the deemed admissions was filed; (3) a motion for summary judgment was filed, based on the deemed admissions; and (4) summary judgment was rendered against McPherson, who failed to respond to the motion.

Actual Notice[4]

          Relying on Struna and Crocker v. National Union Fire Insurance Company of Pittsburg, PA, No. 466 F.3d 347 (5th Cir. 2006), Kim contends that Farmers had actual notice of the lawsuit filed against McPherson; therefore, any prejudice was negated.  Farmers argues, however, that the cases are easily distinguished and there is no more than a scintilla of evidence of actual notice.  We agree.

          In Struna, a driver, Teodora Struna, was injured in a car accident with the insured.  Struna contacted the insured’s provider, Concord Insurance Services, Inc., which paid her for her property damage and reimbursed her rental car expenses.  Struna, 11 S.W.3d at 356.  Almost two years later, Struna sued the insured, and the trial court entered a $250,000 default judgment in Struna’s favor.  Id.  The insured did not report the accident to Concord.  Struna’s attorney, however, contacted Concord on at least five occasions to (1) enclose a copy of the petition; (2) notify it of the pending default judgment; (3) notify it of the entry of default judgment and the upcoming damages hearing; (4) forward Struna’s medical records; and (5) enclose a copy of the $250,000 default judgment.  Id. at 356-57.  There was also reference to at least one telephone conference between Struna’s attorney and Concord.  Id. at 357.  Finally, there was evidence that, on four occasions, Concord attempted to contact its insured regarding the underlying suit.  Id.  This Court held that, in light of the uncontroverted evidence of actual notice, Concord failed to meet its burden to show that it was prejudiced by its insured’s failure to notify it.  Id. at 360.

          In Crocker, a resident who was injured by a nursing home employee sued the nursing home’s owner and the employee.  The nursing home owner participated in trial, and National Union, who had written its liability policy, provided its defense.  The employee, who was also insured by National Union, never answered the suit, and the trial court entered a $1,000,000 default judgment against him.  The resident, Crocker, sued National Union as judgment creditor and third-party beneficiary of a liability policy written by National Union, which covered the nursing home’s corporate owner and the employee.  Crocker claimed that National Union was liable for the $1,000,000 judgment because it failed to defend the nursing home employee in the underlying suit.  National Union moved for summary judgment, alleging that it was unaware that the employee had been served.  The trial court found that National Union had actual notice that the employee had been served based on evidence that (1) Crocker’s attorney had informed National Union that the employee was served; (2) National Union knew that the employee had been served, knew that it was required to defend him, and even provided that the counsel designated to defend the nursing home’s corporate owner would represent the employee, as well; and (3) unspecified “other evidence” submitted by Crocker.   

          In contrast to the plentiful evidence of actual notice in Struna and Crocker, the evidence here consists of vague, self-serving testimony that can neither be corroborated nor controverted.  Kim contends that “McPherson repeatedly notified Farmers that Berryman was suing him and gave Farmers the case number of the underlying suit.”  To support this statement, Kim refers us to three areas of the record. 

First, Kim directs us to the pleading responding to Farmers’ motion for summary judgment.  Pleadings do not constitute summary judgment proof.  Clear Creek Basin Authority, 589 S.W.2d at 678. 

Second, Kim directs us to McPherson’s deposition testimony, responding to a question about the validity of the statements that Pillai made in McPherson’s Original Answer in the Berryman suit.  According to Kim, McPherson’s response consisted of statements that “Defendant has contact [sic] Farmers Insurance Group on several occasions to answer this suit.”; and that “Farmers Insurance Group has failed to reply to Defendant, nor file an answer to Plaintiff’s Second Amended Petition.” 

Third, Kim refers to another portion of McPherson’s deposition testimony where McPherson admitted that he was not sure if he contacted John Cornett, his insurance agent, about the suit and never met with Larry Weiser, the owner of the insurance agency, about the suit.  He testified that he contacted the insurance agency by phone, but had no records of the call, did not remember with whom he spoke, and he did not recall what that person told him.  He also contacted Farmers at the 800 number, but did not recall either what he told them or what they told him.  He testified that he was not able to give Farmers any of the particulars about the suit.  McPherson further testified that he did not remember if Farmers told him to call back with the information and was not sure that he gave Farmers enough information for them to figure out what was going on.  Finally, Kim points to deposition testimony from McPherson’s attorney, Pillai, who, Kim claims, “notified Farmers of the suit against McPherson, provided Farmers with the cause number and case name of the lawsuit, and warned Farmers that the deadline for filing an answer was approaching.”  Pillai’s testimony reveals that he and McPherson contacted someone and informed them that “there was a lawsuit being filed against Dale McPherson and that he had insurance at the time.”  Pillai further testified that, at the time that telephone call was made, he was not representing McPherson, so he did not document the call or note with whom he and McPherson spoke.  He explained that they had two telephone numbers, and he thought they may have left a message with one of the numbers, and he was not sure if he or McPherson spoke with the other person, but he remembers that one of them gave the person the cause number and the style of the case.  He acknowledged that the person on the other end of the phone did not say whether McPherson had coverage or whether Farmers would defend him.  It is unclear whether they contacted the insurance agency from whom McPherson purchased the insurance or Farmers directly. 

          The record, however, also contains unequivocal testimony from Cornett, McPherson’s insurance agent, that, until he was sued in this case,[5] he had no knowledge of any claims made against McPherson or any request by McPherson that Farmers be notified.  Cornett procured the CGL policy through Weiser Insurance Agency, and the front of the policy bore the agency’s name, address, and telephone number.  Larry Weiser testified that he was unaware of any claims being made by McPherson or someone on his behalf.  McPherson never notified Weiser that he had been sued in a lawsuit.  Weiser also testified that, had he been notified, it would have been his responsibility to notify Farmers of the claim. 

It is undisputed that McPherson did not comply with the notice provisions of his policy.  We hold that Farmers has shown that it was prejudiced by McPherson’s failure to notify it.  We further hold that there is no more than a scintilla of evidence that Farmers had actual notice of Berryman’s claim.  Accordingly, we overrule issue four.

Because the grounds analyzed under this issue were sufficient to sustain the trial court’s rendition of summary judgment, we need not consider the other bases for reversal asserted in this appeal.  

Conclusion

           We affirm the trial court’s judgment.

                                                          George C. Hanks, Jr.

                                                          Justice

Panel consists of Justices Taft, Hanks, and Higley. 

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[1]Tex. Civ. Prac. & Rem. Code § 27.001 (Vernon 1997).

[2] Pillai testified that McPherson never hired him, and that he inadvertently left his name on the bottom of the form general denial.  He had intended for McPherson to file the answer pro se.

[3] McPherson was insured under a policy issued by Farmers, effective January 15, 1999.

[4] Kim asserts that, in its motion for summary judgment, Farmers conceded that it had actual notice of Berryman’s lawsuit. The statement was made to describe potential arguments that Kim may assert and was not a concession by Farmers.

[5] Cornett and the Weiser Insurance Agency were defendants in the present case.  They are not, however, parties to the appeal.