Opinion
No. 01-07-00310-CV
Opinion issued January 29, 2009.
On Appeal from the 152nd District Court, Harris County, Texas, Trial Court Cause No. 2001-27696.
MEMORANDUM OPINION
Appellant, Sembera Security Systems Inc. ("Sembera"), sued appellee, Texas Mutual Insurance Company ("TMI"), for breach of contract after TMI cancelled Sembera's workers' compensation insurance coverage for non-payment of premium. The parties filed cross-motions for summary judgment. The trial court granted summary judgment in favor of Sembera on the issue of liability. The issue of damages was tried to a jury. TMI appeals the trial court's summary judgment ruling. Sembera appeals the damages and attorney's fees awarded in the final judgment.
TMI presents seven issues in its appeal. In its first and second issues, TMI contends that the trial court erred by granting Sembera's motion for summary judgment and by denying TMI's motion for summary judgment on same grounds. In its third through fifth issues, TMI challenges the legal sufficiency of the evidence of causation and of the damages awarded for lost profits. In its sixth issue, TMI contends that the trial court erred by overruling its objections to the admission of certain parol evidence concerning damages. Finally, in its seventh issue, TMI contends that "the trial court erroneously instructed the jury that it should determine the meaning and effect of a written contract without reference to the terms of that contract."
Sembera presents two issues in its appeal. Sembera contends that the trial court erred by (1) improperly reducing the jury's award of damages by applying a credit that the jury had already taken into account and (2) awarding attorney's fees in an amount less than that established by the evidence.
We reverse the summary judgment granted in favor of Sembera, and against TMI, on Sembera's breach of contract claim and render judgment that Sembera take nothing by its claim.
Summary of Facts and Procedural History
Sembera is engaged in installing home-security alarms in master-planned residential communities and providing alarm-monitoring services to residential customers in the Houston area. In 1998, Sembera and En-Touch Systems, Inc. ("En-Touch"), a telecommunications provider, entered into a "Security Services Agreement" (the "Agreement") for a five-year term. Pursuant to the Agreement, Sembera was to provide alarm-monitoring services to customers generated by En-Touch, En-Touch would handle the invoicing of those customers, and the parties would split the profits. The parties agreed that Sembera would own the accounts and that En-Touch would not engage in competing services. As part of the Agreement, Sembera agreed to maintain workers' compensation insurance.
Sembera contracted through its agent, El Dorado Insurance Agency, Inc. ("El Dorado"), for worker's compensation coverage from TMI. Pursuant to the policy issued by TMI (the "Policy"), Sembera was required to pay an estimated initial premium at the beginning of the Policy term (a sum estimated by TMI based on payroll data submitted by Sembera) and then to pay a final premium at the end of the term (a sum based on an actual audit by TMI).
TMI, formerly known as the Texas Workers' Compensation Insurance Fund, is a not-for-profit mutual workers' compensation insurance company created under the TexasWorkers' Compensation Act to serve as an insurer of last resort and to guarantee theavailability of workers' compensation insurance in the State of Texas. See TEX. INS. CODE ANN. ch. 2054.002, .004, .151 (Vernon 2008).
On October 15, 1999, TMI billed Sembera for an estimated initial premium of $2,744 for the Policy Period beginning November 1, 1999 and ending November 1, 2000. Sembera timely paid this sum to TMI.
Three months later, on January 10, 2000, TMI notified El Dorado that if it failed to provide information concerning Sembera's payroll data within 10 days, the Policy would be endorsed with a higher premium. TMI did not receive a response. On February 4, 2000, TMI invoiced Sembera for an additional premium of $2,494. Sembera did not pay the invoice.
On March 6, 2000, TMI issued a Notice of Cancellation to Sembera, stating that the Policy would be cancelled on March 21, 2000 if the additional premium was not paid. Sembera did not respond. TMI cancelled the policy and issued a refund to Sembera of $490 in unearned premium. Sembera accepted the funds.
Days later, on March 29, 2000, Sembera's agent, El Dorado, submitted the additional payroll information to TMI and requested that the policy be retroactively reinstated. TMI reviewed the information, determined that the additional premium was not owed, retroactively reinstated the Policy, and invoiced Sembera for repayment of the $490 in premium that had been refunded. Sembera did not repay the $490.
On May 2, 2000, TMI issued a second Notice of Cancellation based on Sembera's failure to repay the $490. Sembera did not respond. On May 17, 2000, TMI cancelled the Policy and refunded $602 to Sembera in unearned premium. Sembera accepted and deposited the $602, and did not seek reinstatement of the Policy.
In late May 2000, En-Touch notified Sembera that it was in default of the Agreement because its workers' compensation coverage had been cancelled. El Dorado then issued a certificate of insurance to En-Touch, erroneously representing that Sembera had coverage in place. En-Touch later discovered that the certificate of insurance was not valid and, on October 18, 2000, En-Touch notified Sembera that it was immediately terminating the Agreement. En-Touch and Sembera ultimately settled their dispute. Sembera contends that it was forced to sell off certain accounts to En-Touch for $405,000 — an amount well below their fair market value.
In May 2001, Sembera filed the instant suit against its agent, El Dorado, alleging, inter alia, negligent misrepresentation, fraud, and breach of contract. Two years later, on May 9, 2003, El Dorado filed a third-party petition against TMI for contribution and indemnity. On September 15, 2003, Sembera asserted a breach of contract claim directly against TMI. Sembera alleged that TMI's cancellation constituted a breach of the Policy contract and that such cancellation caused Sembera to sustain lost profits when En-Touch terminated the Agreement for failure to maintain insurance.
Subsequently, El Dorado and Sembera settled their dispute, with El-Dorado paying Sembera $200,000. El Dorado is not a party to this appeal. The dispute between Sembera and TMI moved forward.
On August 19, 2005, Sembera and TMI filed cross-motions for summary judgment concerning whether TMI breached the Policy by cancelling coverage. In its motion, Sembera characterized the suit as "a dispute about when premium is due under a contract." Sembera contended that the express terms of the Policy provided for premium to be collected at only two points in time: at the beginning and at the end of the Policy term. Sembera contended that TMI improperly attempted to collect additional premium during the Policy term and that TMI's cancellation of Sembera's coverage for failure to pay the additional premium constituted a breach of the Agreement. To support its motion, Sembera attached an Agreed Stipulation of Facts; the March 6, 2000 Notice of Cancellation; the May 2, 2000 Notice of Cancellation; and a copy of the Policy.
In response to Sembera's motion for summary judgment, TMI contended that, pursuant to the express terms of the Policy, TMI was permitted to cancel Sembera's coverage for non-payment of premium when, after requisite notice, Sembera failed to return the refunded $490.
TMI also moved for summary judgment on Sembera's breach of contract claim. TMI asserted, inter alia, that the Policy required advance payment of the entire estimated premium and that, following the reinstatement of the Policy, Sembera was "$490 `in the hole' and failed to remedy it." TMI asserted that the Policy provided an express right to cancel the policy for nonpayment of premium and that TMI did not breach the Policy by cancelling Sembera's coverage.
To support its motion, TMI attached the Agreed Stipulation of Facts, the Policy, the Premium Endorsement to the Policy, the Texas Workers' Compensation and Employers' Liability Manual, certain underwriting documents, and excerpts from the deposition testimony of Linda Chittendon, a customer service representative at El Dorado; Elliott Flood, vice president and associate general counsel for TMI; and Gary Beck, insurance expert for Sembera.
In its response to TMI's motion for summary judgment, Sembera maintained its contention that TMI lacked a contractual basis to cancel the coverage.
On December 26, 2005, the trial court granted summary judgment in favor of Sembera on Sembera's breach of contract claim and denied TMI's motion for summary judgment on same. The issue of damages was tried to a jury. The jury found that Sembera had sustained $1,710,433 in past lost profits from its loss of the En-Touch Agreement and $1,082,926 in future lost profits. In addition, the jury awarded attorney's fees of $187,500 for trial, $75,000 for an appeal to this court, and $50,000 for an appeal to the Texas Supreme Court.
On February 13, 2007, the trial court entered judgment on the jury's findings, after deducting $200,000 as an offset or credit for monies received by Sembera by settling its claims with El Dorado. In addition, the trial court deducted $405,000 as an offset or credit for monies received by Sembera by settling its claims with En-Touch.
Both TMI and Sembera appeal. Because we conclude that TMI's appeal of the trial court's summary judgment ruling concerning liability is meritorious, we do not reach Sembera's appeal of the damages and attorney's fees entered by the trial court.
TMI's Appeal
In its first and second issues on appeal, TMI contends that the trial court erred by granting Sembera's motion for summary judgment on Sembera's breach of contract claim and by denying TMI's motion for summary judgment. Specifically, TMI contends that its cancellation of Sembera's Policy did not constitute a breach of contract because the Policy provided for cancellation for non-payment of premium.
A. Standard of Review
We review a trial court's grant of summary judgment de novo. Provident Life Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). A summary judgment under Texas Rule of Civil Procedure 166a(c) is properly granted only when a movant establishes that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c). A plaintiff moving for summary judgment must prove that it is entitled to summary judgment as a matter of law on each element of his cause of action. MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex. 1986). A defendant moving for summary judgment 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 an affirmative defense to rebut plaintiff's cause. Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995).
The movant must conclusively establish its right to judgment as a matter of law. See Jones, 710 S.W.2d at 60. A matter is conclusively established if reasonable people could not differ as to the conclusion to be drawn from the evidence. City of Keller v. Wilson, 168 S.W.3d 802, 816 (Tex. 2005). In deciding whether there is a disputed issue of material fact precluding summary judgment, evidence favorable to the non-movant will be taken as true, every reasonable inference must be indulged in favor of the non-movant, and any doubts resolved in its favor. Knott, 128 S.W.3d at 215.
When, as here, both sides move for summary judgment and the trial court grants one motion and denies the other, we review the summary judgment proof presented by both sides and determine all questions presented. See Centerpoint Energy Houston Elec., L.L.P. v. Old TJC Co., 177 S.W.3d 425, 430 (Tex.App.-Houston [1st Dist] 2005, pet. denied). When reviewing a summary judgment, a court of appeals should consider summary judgment grounds that the trial court rules on and the movant preserves for appellate review that are necessary to a final disposition of the appeal. Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 626 (Tex. 1996).
B. Analysis
The essential elements of a breach of contract claim are (1) the existence of a valid contract; (2) performance or tendered performance by the plaintiff; (3) breach of the contract by the defendant; and (4) damages sustained as a result of the breach. Valero Mktg. Supply Co. v. Kalama Int'l, 51 S.W.3d 345, 351 (Tex.App.-Houston [1st Dist.] 2001, no pet.).
Part 6 of the Policy contract, "Conditions," provides for cancellation by TMI as follows, in relevant part: We [TMI] may cancel this policy. We [TMI] must mail or deliver to you [Sembera] not less than ten days advance written notice stating when the cancellation is to take effect.
In addition, the Policy includes an amendatory endorsement (the "Endorsement") that adds certain notice requirements imposed by statute. See TEX. LAB. CODE ANN. § 406.008 (Vernon 2006). The Endorsement provides, in relevant part, as follows:
We [TMI] may cancel this policy. We [TMI] may decline to renew it. We [TMI] must give you written notice of cancellation. . . . Notice of cancellation or nonrenewal must be sent to you not later than the 30th day before the date on which the cancellation or nonrenewal become effective, except that we may send the notice not later than the 10th day before the day on which the cancellation or nonrenewal becomes effective if we cancel or do not renew because of . . . [f]ailure to pay a premium when payment is due. . . .As part of the written stipulations entered in the trial court, the parties stipulated that the Policy language is unambiguous. It is a basic premise of contract interpretation that unambiguous contracts are construed as a matter of law. Coker v. Coker, 650 S.W.2d 391, 393-94 (Tex. 1983). When a contract is unambiguous, "the court must enforce the contract as written." Transcon. Gas Pipeline Corp. v. Texaco, Inc., 35 S.W.3d 658, 665 (Tex.App.-Houston [1st Dist.] 2000, pet. denied). In construing a contract, we attempt to ascertain the parties' true intent "as expressed in the instrument." Nat'l Union Fire Ins. Co. v. CBI Indus., 907 S.W.2d 517, 520 (Tex. 1995). We presume that the parties intended for every clause to have some effect. Heritage Res., Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). We give terms their plain, ordinary, and generally accepted meaning, unless the instrument shows that the parties used them in a technical or different sense. Id. Here, the record does not demonstrate that the parties used the terms of the Policy in a technical or different sense. Therefore, we will give terms their plain and ordinary meaning.
Under the express terms of the Endorsement, which became "effective on the inception of the Policy," TMI was permitted to cancel the Policy for failure to pay a premium when due by giving Sembera "notice not later than the 10th day before the day on which the cancellation . . . becomes effective."
TMI points out in its brief on appeal that the Endorsement allowed TMI to cancel thePolicy, without cause, upon 30 days' written notice to Sembera. As Semberacontends, however, the record does not reflect that TMI gave 30 days' notice ofcancellation to Sembera. TMI contends that Sembera failed to raise a notice issue inthe trial court and therefore the issue is waived. A motion for summary judgmentmust itself expressly present the grounds upon which it is made, and must stand or fallon these grounds alone. Science Spectrum, Inc. v. Martinez, 941 S.W.2d 910, 912(Tex. 1997); see TEX. R. CIV. P. 166a(c). In determining whether grounds areexpressly presented, we may not rely on briefs or summary judgment evidence. Science Spectrum, 941 S.W.2d at 912. Generally, to preserve a ground for review, aparty must raise the ground in the summary judgment proceeding and present it as anissue on appeal. Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 626 (Tex. 1996).The record shows that Sembera did not raise a complaint about inadequate noticefrom TMI in the trial court, prior to the ruling on the motions for summary judgment. We note that the Texas Labor Code requires 30 days' notice before an insurer maycancel coverage without cause. See TEX. LAB. CODE ANN. § 406.008 (Vernon 2006).We need not reach whether this statutory protection is waived in this case because therecord before us demonstrates that TMI also had an express right under the Policy andunder the statute to cancel coverage, with 10 days' notice, for non-payment ofpremium.
The summary judgment evidence shows that the parties executed an "Agreed Stipulation of Facts" in the trial court. As stipulated, at the beginning of the Policy term, TMI billed Sembera for an estimated initial premium of $2,744 and that Sembera timely paid this sum to TMI. Three months later, after finding a discrepancy in Sembera's payroll records, TMI notified El Dorado that it must provide additional information concerning Sembera's payroll data within 10 days or a higher initial premium would be assessed. Sembera did not respond.
Consequently, as the parties stipulated, TMI invoiced Sembera for an additional $2,494 in premium. Sembera did not pay this amount. Subsequently, after providing notice to Sembera, TMI cancelled the Policy and issued a refund to Sembera of $490 in unearned premium. Sembera accepted the funds.
The parties further stipulated that El Dorado, days later, submitted the requested additional payroll information to TMI and requested that the policy be retroactively reinstated. TMI reviewed the information, determined that Sembera did not owe the additional estimated premium of $2,494, and retroactively reinstated the Policy.
At this point, the propriety of TMI's cancellation of the Policy for the failure to pay the additional $2,494 is of no moment because TMI admitted error, retroactively reinstated the Policy, and restored Sembera to its original estimated initial premium of $2,744. Through the course of events, however, because El Dorado or Sembera had not timely responded to TMI's request for more information or additional premium, TMI had already cancelled the Policy and refunded to Sembera the sum of $490 — which was the unearned portion of the $2,744.
When the Policy was retroactively reinstated, as Sembera had requested, the total estimated initial premium of $2,744 was also reinstated — as if no cancellation had taken place — but $490 then remained outstanding. TMI invoiced Sembera for the $490, but Sembera did not return it.
Consequently, as the parties stipulated, on May 2, 2000, TMI issued a second Notice of Cancellation based on Sembera's failure to repay the $490. Sembera did not respond. On May 17, 2000, TMI cancelled the Policy and refunded $602 to Sembera in unearned premium. Sembera accepted the $602 and did not seek reinstatement of the Policy.
Sembera contends that TMI breached the Policy contract by cancelling the Policy based on Sembera's failure to pay "additional premium" that TMI improperly attempted to collect during the interim of the Policy term. Sembera contends that, pursuant to terms of the Policy, TMI could only assess an estimated premium at Policy inception and a final premium at the end of the Policy term based on an actual audit. Sembera argues that no provision of the Policy allowed TMI to bill Sembera mid-term for "additional premiums."
The record shows, however, that the $490 at issue was not an "additional premium"; rather, it was a portion of the estimated initial premium that had been refunded as "unearned premium" — a fact to which the parties stipulated. By failing to return the $490 when it requested reinstatement, Sembera left the estimated initial premium for the Policy term unpaid in part. Consequently, by the express terms of the Endorsement, TMI was permitted, with 10 days' notice, to cancel the Policy for non-payment of premium.
The parties stipulated that TMI issued 15 days' notice of cancellation to Sembera and, when Sembera did not respond, TMI cancelled the Policy and refunded $602 in unearned premium. Sembera accepted the refund and did not seek reinstatement.
We conclude that, because the express terms of the Policy afforded TMI a right to cancel coverage for non-payment of premium, TMI's cancellation of the Policy did not, as a matter of law, constitute a breach of the Policy contract. See Coker, 650 S.W.2d at 393-94 (construing contract as matter of law); Texaco, Inc., 35 S.W.3d at 665 (enforcing contract as written). We hold that the trial court erred by granting summary judgment in favor of Sembera on its breach of contract claim and by denying TMI's motion for summary judgment on same.
Accordingly, TMI's first and second issues are sustained.
Having sustained TMI's first and second issues concerning TMI's liability for breach of contract, which obviates the damages issue, we do not reach TMI's contentions that the trial court erred by entering damages based on Sembera's evidence of lost profits and by overruling TMI's objections to the admission of parol evidence. See Cates, 927 S.W.2d at 626 (holding that appellate court should consider summary judgment grounds that are necessary to final disposition of appeal). In addition, we do not reach Sembera's contentions that the trial court erred by improperly computing damages and awarding attorney's fees. See id.
Conclusion
We reverse the judgment of the trial court and render judgment that the summary judgment motion of TMI is granted, that the summary judgment motion of Sembera is denied, and that Sembera take nothing by its claim.