Opinion
No. 01-10-00104-CV
Opinion issued April 28, 2011.
On Appeal from the 129th District Court, Harris County, Texas, Trial Court Case No. 2008-44994.
Panel consists of Justices JENNINGS, HIGLEY, and BROWN.
MEMORANDUM OPINION
This appeal concerns the applicability of an excluded driver endorsement provision in an auto insurance policy. DeAnna and Phillip Hofstetter appeal the trial court's traditional summary judgment in favor of Loya Insurance Company. They contend that the endorsement provision was procured by misrepresentations and was not enforceable. They also assert that the testimony of the policyholder was not credible and cannot support summary judgment. We affirm.
Background
While driving a car owned by his mother, Juan Revuelta hit the Hofstetters car causing damages. Revuelta's mother, Maria Benitiz, insured that car and two other vehicles with Loya Insurance Company and had renewed that policy two times before the accident and once afterwards. In her initial policy, two renewals before the accident, and one renewal after the accident, Benitiz signed an endorsement to the policy in which she agreed that "none of the insurance coverage afforded by this policy" applied while Revuelta was "operating your covered auto or any other motor vehicle." The exclusion appeared on a separate page and included the following language: "515A. EXCLUSION OF NAMED DRIVER PARTIAL REJECTION OF COVERAGES . . . WARNING! READ THIS ENDORSEMENT CAREFULLY!"
The Hofstetters sued Revuelta and Benitiz for negligence. Loya denied coverage and refused to provide a defense. The trial court found in favor of the Hofstetters, awarded damages, and rendered a turnover order granting them any rights held by Benitiz or Revuelta to sue under the Loya policy.
The Hofstetters then sued Loya for breach of contract, violations of the Insurance Code, and negligence. Loya moved for a traditional summary judgment on the ground that the policy expressly excluded Revuelta as a covered driver. As summary judgment evidence, Loya attached the endorsement to the original policy, the renewals, and excerpts from Benitiz's deposition testimony. The policy is written in English and Benitiz speaks Spanish primarily. In her deposition, Benitiz testified that Loya explained the policy's terms to her in Spanish when she purchased it and at each of the renewals. Benitiz stated that she had the opportunity to ask questions and that she understood the policy.
The Hofstetters responded by citing other portions of Benitiz's deposition testimony. Benitiz testified that she believed the car itself to be insured even if the policy did not cover Revuelta. They also contended that her credibility had been called into doubt. They also relied on Revuelta's deposition testimony that Loya told him he was covered by the policy, but removed from coverage after the accident. The trial court granted the summary judgment motion and the Hofstetters appealed.
Summary Judgment
In one issue, the Hofstetters argue the trial court erred in granting Loya's summary judgment motion. They contend they raised a fact issue on whether Loya made misrepresentations to procure the driver exclusion. They also contend that Benitiz's deposition testimony is not credible and cannot support summary judgment.
A. Standard of Review
We review a trial court's summary judgment de novo. Travelers Ins. Co. v. Joachim, 315 S.W.3d 860, 862 (Tex. 2010). Under the traditional standard for summary judgment, the movant has the burden to show that no genuine issue of material fact exists and the trial court should grant judgment as a matter of law. TEX. R. CIV. P. 166a(c); KPMG Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999). A defendant moving for traditional summary judgment must conclusively negate at least one essential element of each of the plaintiff's causes of action or conclusively establish each element of an affirmative defense. Sci. Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 911 (Tex. 1997). The motion must state the specific grounds relied upon for summary judgment. See TEX. R. CIV. P. 166a(c). When reviewing a summary judgment motion, we must (1) take as true all evidence favorable to the nonmovant, and (2) indulge every reasonable inference and resolve any doubts in the nonmovant's favor. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005); Provident Life Accid. Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003).
Once a defendant moving for summary judgment establishes all of the elements of an affirmative defense as a matter of law, the burden of production shifts to the non-movant to defeat the defendant's affirmative defense. See EPGT Tex. Pipeline, L.P. v. Harris Cnty. Flood Control Dist., 176 S.W.3d 330, 335 (Tex. App.-Houston [1st Dist.] 2004, pet. dism'd). The non-movant's response will defeat a facially valid affirmative defense if it (1) demonstrates that the motion's legal position regarding the affirmative defense is unsound, (2) raises a fact issue on the elements of the affirmative defense, or (3) sets forth a counter-affirmative defense to the affirmative defense. See TEX. R. CIV. P. 94; see also Walters v. Cleveland Reg'l Med. Ctr., 307 S.W.3d 292, 295 (Tex. 2010) (holding that when movant defendant proved statute of limitations affirmative defense burden shifted to non-movant to raise fact issue on lack of reasonable opportunity to discover and bring suit within limitations period); G.C. Bldgs., Inc. v. RGS Contractors, Inc., 188 S.W.3d 739, 742 (Tex. App.-Dallas 2006, no pet.) (stating that if defendant establishes affirmative defense in a summary judgment motion, "the burden then shifts to the party opposing the motion to raise a genuine issue of material fact or show the defendant's legal position is unsound"); Head v. U.S. Inspect DFW, Inc., 159 S.W.3d 731, 740 (Tex. App.-Fort Worth 2005, no pet.); Resolution Trust Corp. v. Ammons, 836 S.W.2d 705, 710 (Tex. App.-Houston [1st Dist.] 1992, no writ) (stating that a plaintiff may defeat defendant's summary judgment "by raising a fact issue on each element of its counter-affirmative defense"). If the non-movant asserts a counter-affirmative defense to overcome the established affirmative defense, the non-movant must provide summary judgment evidence to raise a fact issue for each element of the counter-affirmative defense. See Rabe v. Dillard's Inc., 214 S.W.3d 767, 768 (Tex. App.-Dallas 2007, no pet.).
A counter-affirmative defense does not seek to overcome the affirmative defense by denying the affirmative defense, but seeks to establish an independent reason why the affirmative defense does not bar the plaintiff's claim. See Tex. Beef Cattle Co. v. Green, 921 S.W.2d 203, 212 (Tex. 1996) (stating that affirmative defenses are matters of avoidance and defining such defenses). When a defendant moves for summary judgment based on an affirmative defense, the plaintiff can counter with its own "counter-affirmative defense" to that defense.
B. Excluded Driver Affirmative Defense
An exclusion from coverage is an affirmative defense. See TEX. INS. CODE ANN. § 554.002 (West 2009); see also Lone Star Heat Treating Co. v. Liberty Mut. Fire Ins. Co., 233 S.W.3d 524, 526 (Tex. App.-Houston [14th Dist.] 2007, no pet.). Therefore, Loya bore the burden of proving that the parties agreed to the exclusion. See McFadden v. Am. United Life Ins. Co., 658 S.W.2d 147, 148 (Tex. 1983) (stating that insurance company moving for summary judgment did not satisfy its burden to demonstrate as matter of law that claim was excluded under insurance policy). As summary judgment evidence of the policy exclusion, Loya attached the original excluded driver provision, each of the renewals, and Benitiz's testimony identifying her signature.
The Hofstetters argue that we must strictly construe the policy against the insurer, but that rule only applies if the policy is ambiguous. An exclusion of coverage must be expressed in clear and unambiguous language. Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., Inc., 811 S.W.2d 552, 555 (Tex. 1991). Only when a policy "is susceptible of more than one reasonable interpretation" does a court "resolve the uncertainty by adopting the construction that most favors the insured." Id. The Hofstetters do not allege any ambiguity in the policy. The policy clearly excludes coverage for any operations of the vehicle by Revuelta and in capitalized letters informs the policyholder of the driver exclusion. Loya, therefore, satisfied its burden of proof as the movant to demonstrate its affirmative defense that Revuelta was excluded from coverage. The burden of proof then shifted to Hofstetters to raise a fact issue on that exclusion or to come forward with proof of its own claim to negate that exclusion.
C. Fraudulent Inducement
The Hofstetters next argue that Loya's fraud made the exclusion provision unenforceable. The elements of a fraudulent misrepresentation claim include proof by the plaintiff that (1) the defendant made a material misrepresentation; (2) the representation was false; (3) the defendant knew the representation was false when made or made it recklessly without any knowledge of the truth and as a positive assertion; (4) the defendant made the representation with the intention that it should be acted upon; (5) the representation was in fact justifiably relied upon; and (6) damage to the plaintiff resulted. See Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 923 (Tex. 2010); see also Ernst Young, L.L.P. v. Pacific Mut. Life Ins. Co., 51 S.W.3d 573, 575 (Tex. 2001). As a general rule, a party is not bound by a contract procured by fraud. Formosa Plastics Corp. USA v. Presidio Eng'rs Contractors, Inc., 960 S.W.2d 41, 46 (Tex. 1998); see also Schlumberger Tech. Corp. v. Swanson, 959 S.W.2d 171, 179 (Tex. 1997).
1. Misrepresentations to Revuelta
Revuelta testified that he believed the policy covered his conduct while driving his mother's car and that someone at Loya told him he was covered. Revuelta stated that:
Q. Did anyone at Fred Loya Insurance, when you went to make a payment, ever tell you were on the policy?
A. Yes. They told me I was on it, but then I was taken off.
Q. Was it before the accident with the Hofstetters that you were told you were taken off?
A. No. It was when that happened, right after it happened.
Q. After it happened, you were told you were not on the policy?
A. Yea.
This testimony constitutes the only evidence of a misrepresentation of his status as an excluded driver and amounts to some evidence that Loya made a misrepresentation to Revuelta. Granted, Revuelta testified shortly after the above exchange that:
Q: Okay. When you went to make a payment, did anyone there tell you that you were — that it was your policy or that you were on the policy?
A: No. I guess they just accepted a payment, and that's it. I guess they just looked at it as a normal transaction.
This second statement contradicts his other deposition testimony, but that conflict may create a fact issue. See Wheeler v. Yettie Kersting Mem'l Hosp., 866 S.W.2d 32, 50 (Tex. App.-Houston [1st Dist.] 1993, no writ) (stating internal inconsistencies in deposition testimony may raise fact issue at summary judgment). Reading the evidence in the light most favorable to the Hofstetters as the nonmovants, they presented "more than a scintilla of evidence" establishing that a misrepresentation was made to Revuela. See Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004).
Revuelta, however, was not a party to the insurance contract signed by his mother. A false representation made indirectly to a third party and later relied on by the defrauded party may constitute fraud under certain circumstances. See BP Am. Prod. Co. v. Marshall, 288 S.W.3d 430, 444-45 (Tex. App.-San Antonio 2008, pet. granted) (holding misrepresentations made to one sibling acting as agent for all siblings constituted misrepresentations to all siblings). "[A] person who makes a misrepresentation is liable to the person or class of persons the maker intends or `has reason to expect' will act in reliance upon the misrepresentation." Ernst Young, 51 S.W.3d at 578. "Even an obvious risk that a misrepresentation might be repeated to a third party is not enough to satisfy the reason-to-expect standard; rather, the alleged fraudfeasor must `have information that would lead a reasonable man to conclude that there is an especial likelihood that it will reach those persons and will influence their conduct.'" Id. at 580 (quoting Restatement (Second) of Torts § 531 cmt. d (1977)) (emphasis added).
To show indirect misrepresentation, the Hofstetters must show Loya intended that the statement made to Revuelta reach Benitiz and induce her to sign the excluded driver provision. A statement made to a son paying his mother's car insurance bill would have an especial likelihood to reach the mother and influence her conduct regarding that insurance. The Hofstetters, however, did not argue here or at the trial court that the alleged misrepresentation to Revuelta was communicated to Benitiz or that Benitiz relied on that misrepresentation in signing the endorsement. Instead of indirect misrepresentation, the Hofstetters argued that both mother and son believed the car to be insured while driven by Revuelta. Thus, they have not raised an issue on indirect misrepresentation to Benitiz through misrepresentations made to Revuelta.
Benitiz renewed the policy and the excluded driver provision twice before the accident. Therefore, a statement made after she bought the policy could still induce reliance in the renewals.
2. Misrepresentations to Benitiz
The Hofstetters next assert that they raised a fact issue that Loya mislead Benitiz into believing that the policy provided coverage to her son because the car itself was covered by the policy. They assert Benitiz does not read, write or understand English and was dependent on Loya to explain the English policy to her. Benitiz testified that Loya explained the policy in Spanish when she purchased the policy and at each renewal. When Loya asked who she believed to be insured on the policy, she replied, "Well, I was — it was only me." She stated that her son "was not named on the policy," but at the same time stated that the policy covered the car if she gave him permission to drive it. In follow-up questions, she testified:
Q. And did you understand that the insurance did not apply to your son?
A. Yes.
In response to questions from the Hofstetters, she testified:
Q. It was your understanding, based on what Fred Loya Insurance told you, that if your children drove those cars they were covered for collisions they got in. Correct?
A. No.
Q. Were you given an opportunity to ask questions about what you were signing?
A. Yes.
Q. And did you understand what you were signing?
A: Yes
Q. And you understood that your son Revuelta was not covered by these insurance policies?
A. Yes.
Benitiz also testified, however, that she reported Revuelta's accident to Loya "not because I knew my son was insured but because my car was insured by the insurance." Her testimony when read in its most favorable light, and giving all reasonable inferences to the nonmovant, is that she believed her car was covered regardless of who was driving it.
Benitiz's testimony does not raise a fact issue on fraud. Fraud requires proof of an affirmative misrepresentation, not simply a misunderstanding by a party. See Orion Ref. Corp. v. UOP, 259 S.W.3d 749, 771-72 (Tex. App.-Houston [1st Dist.] 2007, pet. denied) (stating misunderstanding and other evidence do not amount to actionable misrepresentations). The Hofstetters did not offer any summary judgment evidence that Loya made an affirmative misrepresentation to Benitiz. She never testified regarding the substance of the explanations given by Loya about the terms of her policy. The source of her misunderstanding was not addressed in her deposition. Benitiz may have believed that the exclusion only applied if Revuelta did not have her consent to drive or believed that the policy covered the car and not the driver. Her belief is immaterial unless it was based on a misrepresentation by Loya.
3. Witness Credibility
The Hofstetters contend that Benitiz's deposition testimony is not credible because of internal inconsistencies and conflicts with Revuelta's testimony and Loya's documents. They rely on Casso v. Brand, 776 S.W.2d 551, 558 (Tex. 1989), which stated, "If the credibility of the affiant or deponent is likely to be a dispositive factor in the resolution of the case, then summary judgment is inappropriate." Casso dealt with the testimony of an interested witness and the requirement that their testimony be "clear, positive, and direct, otherwise credible and free from contradictions and inconsistencies, and could have been readily controverted." See TEX. R. CIV. P. 166a(c); Casso, 776 S.W.2d at 558; CEBI Metal Sanavi Ve Ticaret A.S. v. Garcia, 108 S.W.3d 464, 465 (Tex. App.-Houston [14th Dist.] 2003, no pet.) (holding testimony of workplace supervisor not sufficient to support summary judgment when his negligence was at issue, and movant presented no other evidence of facts surrounding accident).
Benitiz is not an interested witness to the suit between the Hofstetters and Loya. Even if we consider her to be an interested witness indirectly, that interest favors the Hofstetters who are suing on her claims under the policy and seeking to collect damages from Loya instead of from her and her son.
More importantly, Loya established the existence of the exclusion even without Benitiz's testimony. An affidavit from Loya's record's custodian attested to the excluded driver endorsement in the original policy and the three renewals, one signed after the accident. The Hofstetters did not object to that evidence. It then became their burden to raise a fact issue that Loya procured the policy by fraud. See Black v. Victoria Lloyds Ins. Co., 797 S.W.2d 20, 25 (Tex. 1990) (stating that policyholder successfully raised fact issue on insurance company's summary judgment motion arguing policy exclusion). Even if we only give weight to the portion of Benitiz's testimony that supports the Hofstetters, i.e. the testimony that she believed the policy covered the car while Revuelta drove it, they still failed to present evidence of any misrepresentation by Loya.
The Hofstetters contend that other evidence in the record undermines the credibility of Benitiz's testimony and raises a fact issue on fraud. The remaining evidence they rely on, however, fails to demonstrate any affirmative misrepresentation by Loya to Benitiz on the excluded driver provision. They assert that Loya documents raise a fact issue. First, they allege that the policy shows evidence of other fraud in that Loya charged a premium on a fourth car. Taking this evidence as true, the inclusion of an extra car does not equate to a misrepresentation by Loya regarding the excluded driver provision. Second, they assert that Loya failed to adjust or discount Benitiz's premium to reflect the excluded driver provision. The cases relied on by the Hostetters do not state a rule requiring a discount in exchange for an excluded driver endorsement, nor can we find any cases creating such a rule. See Wright v. Rodney D. Young Ins. Agency, 905 S.W.2d 293, 296 (Tex. App.-Fort Worth 1995, no writ); see also Emmert v. Progressive Cnty. Mut. Ins. Co., 882 S.W.2d 32, 34 (Tex. App.-Tyler 1994, writ denied). Neither of these arguments undermines Benitiz's testimony or raises a fact issue as to fraudulent inducement on the excluded driver provision.
The Hofstetters also assert that inconsistencies between Benitiz and Revuelta's testimony raise a fact issue on fraud and Benitiz's credibility. Even if we assume the testimony to be inconsistent, neither deposition demonstrates an actionable misrepresentation. Both Benitiz and Revuelta believed that the Loya policy covered the accident with the Hofstetters. But the source of Benitiz's misunderstanding was never identified in the summary judgment record and the only evidence of Loya's misrepresentations is the indirect statement to Revuelta.
The Hofstetters finally argue that the excluded driver endorsement is contrary to the Texas Motor Vehicle Safety Responsibility Act because it sends drivers onto the road who do not know that they are uninsured. See generally TEX. TRANSP. CODE ANN. § 601.001 et seq. (West 1999). The purpose of the Texas Motor Vehicle Safety Responsibility Act "was to protect potential claimants from losses resulting from automobile accidents by requiring that all drivers obtain automobile liability insurance." Wright, 905 S.W.2d at 295. The act does not require an insured to notify family members that they have been excluded from coverage on a policy nor does it prohibit insurers from excluding drivers with their insured's approval. Numerous courts have held that the named driver exclusion is not against Texas public policy. Id. at 296; Zamora v. Dairyland County Mut. Ins. Co., 930 S.W.2d 739, 741 (Tex. App.-Corpus Christi 1996, writ denied); Valdez v. Safeway Managing Gen. Agency for State and Cnty. Mut. Fire Ins. Co., No. 01-94-00196-CV, 1995 WL 71414, at *2 (Tex. App.-Houston [1st Dist.] Feb. 23, 1995, no writ) (not designated for publication); W. Alliance Ins. Co. v. Albarez, 380 S.W.2d 710, 715 (Tex. Civ. App.-Austin 1964, writ ref'd n.r.e.).
Conclusion
Loya established conclusive proof of its affirmative defense of exclusion under the auto insurance policy and the Hofstetters failed to raise a fact issue on their claim of fraud. We overrule the Hofstetter's sole issue on appeal and affirm the judgment of the trial court.