Opinion
No. CA No. 3:03-CV-1514-R.
June 28, 2004
MEMORANDUM OPINION AND ORDER
Now before the Court is Defendant's Motion for Summary Judgment filed April 16, 2004. For the reasons stated below, Defendant's Motion for Summary Judgment is GRANTED IN PART and DENIED IN PART.
I. BACKGROUND
Plaintiff David Walker ("Walker" or "Plaintiff") and his partner Edward Blount ("Blount") reside together in Dallas, Texas. In 1995, Walker and Blount consulted Defendant State Farm Lloyd's ("State Farm") about obtaining residential property coverage at their home. State Farm underwrote insurance on the residence beginning in 1995, including a policy ("the Policy") with a coverage period from July 2, 1999, to July 2, 2000, that was issued to Blount. The Policy names Blount as an insured, but it does not name Walker as an insured. However, Walker and Blount both allege by affidavit that the insurance agent orally indicated that both would be covered under the Policy. Walker and Blount maintain they were led to believe that, given their committed relationship, Walker was considered covered under the Policy, much as a heterosexual spouse would be.Walker and Blount have lived together at the same residence since 1991, sharing their assets and debts. They share the responsibilities for upkeep, maintenance, improvement, and other costs relating to the home. Walker's funds have been used to pay the premiums on the Policy on many occasions.
In 1999, State Farm responded to a water damage claim at Walker and Blount's residence. Walker alleges that although mold was removed from the bath area, State Farm did not investigate or remove mold from elsewhere in the house at that time. In 2002, State Farm "reopened" the claim and performed a full investigation and remediation. While the 2002 remediation rendered the home untenantable, State Farm covered the additional cost of relocating Walker and Blount to a hotel.
Walker claims that State Farm's failure to remedy until 2002 left him exposed to mold toxins, proximately causing sinusitis and respiratory problems. Walker has brought claims against State Farm for breach of contract, negligence, breach of duty of good faith and fair dealing, and violations of Article 21.21 of the Texas Insurance Code.
II. ANALYSIS
A. Summary Judgment Standard
Rule 56(c) of the Federal Rules of Civil Procedure permits summary judgment only when there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c). An issue is material if it involves a fact that might affect the outcome of a suit under governing law. The court must decide all reasonable doubts and inferences in the light most favorable to the non-moving party. Lemelle v. Universal Mfg. Corp., 18 F.3d 1268, 1272 (5th Cir. 1994). As long as there appears to be some support for the disputed allegations such that "reasonable minds could differ as to the import of the evidence," the motion must be denied. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
The party moving for summary judgment bears the initial burden of identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with any affidavits, that it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Where the non-moving party bears the burden of proof on a claim upon which summary judgment is sought, the moving party may discharge its burden by showing that there is an absence of evidence to support the non-moving party's case. Id. at 325. Once the moving party has satisfied this burden, the non-moving party may go beyond the pleadings and by its own affidavits or by depositions, answers to interrogatories, and admissions on file set forth specific facts showing a genuine issue for trial. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Summary judgment will be granted "against any party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322.
B. Breach of Contract Claims
A federal court sitting in diversity must apply the law of the forum state. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817 (1938). The Policy contains no choice-of-law clause. See Caton v. Leach Corp., 896 F.2d 939 (5th Cir. 1990). Texas law therefore governs the instant dispute. Insurance policies are contracts, and as such are subject to the same rules of interpretation as contracts generally. Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987). A policy is unambiguous, as a matter of law, if a court can give it a definite legal meaning. State Farm Fire Cas. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex. 1998). If a policy is worded so that it can be given only one reasonable construction, it will be enforced as written. State Farm Fire Cas. Co. v. Reed, 873 S.W.2d 698, 699 (Tex. 1993); Puckett v. U.S. Fire Cas. Co., 678 S.W.2d 936, 938 (Tex. 1984). When there is no ambiguity, it is the court's duty to give the words used their plain meaning. Puckett, 678 S.W.2d at 938 (citing Transport Ins. Co. v. Standard Oil Co. of Tex., 161 Tex. 93, 337 S.W.2d 284 (1960)).
By the terms of the State Farm Policy, the policyholder is the "named insured" and the spouse thereof if a resident of the same household. Those considered "insured" include the policyholder as well as any residents of the household who are relatives of the policyholder or "other persons under the age of 21 and in the care of any person named above." Only Blount, and not Walker, is listed as named insured under the Policy. Although Walker and Blount are in a committed relationship, Walker is not the legal spouse of Blount. Nor is Walker a relative of Blount or under the age of twenty-one. The contract nowhere grants Walker status as policyholder or insured, and Walker fails to point out any provisions within the policy itself suggesting that he has status as a party to the contract. Absent privity, Walker lacks standing to sue directly as a party to the contract. Apart from any direct action, Walker brings actions in contract under four theories. Each will be examined in turn.
Marriage is not legal between same-sex couples in Texas. See TEX.FAM. CODE ANN. §§ 2.001(b), 2.401(a) (Vernon 2004) (respectively restricting formal and common law marriage to a man and a woman).
1. Promissory Estoppel
Walker first seeks recovery under a theory of promissory estoppel. Walker contends that State Farm is bound under the contract because its insurance agent represented that he would be covered, and he relied on this assurance. A promise which the promissor should reasonably expect to induce action or forbearance on the part of the promissee or a third party and which does induce such action or forbearance, is binding if injustice can be avoided only by enforcement of the promise. Grigson v. Creative Artists Agency, 210 F.3d 524, 533 n. 9 (5th Cir. 2000) (quoting RESTATEMENT (SECOND) OF CONTRACTS, § 90(1) (1981)). However, the parol evidence rule bars the introduction of evidence of promissory estoppel.
Under Texas law, the parol evidence rule precludes enforcement of prior or contemporaneous agreements used to vary, add to, or contradict terms of a written instrument. Tripp Village Joint Venture v. MBank Lincoln Centre, N.A., 774 S.W.2d 746, 749 (Tex.App.-Dallas 1989, writ denied); Brannon v. GulfStates Energy Corp., 562 S.W.2d 219 (Tex. 1977); Kingsbery v. Phillips Petroleum Co., 315 S.W.2d 561, 572 (Tex.Civ.App.-Austin 1958, writ ref'd n.r.e.) (explaining that the rule applies even against evidence offered by third parties if offered in attempt to create a legal effect different from that expressed in the instrument). The rule "renders inadmissible extrinsic evidence of prior inconsistent statements or contemporaneous agreements that would vary the terms of the written agreements that are unambiguous on their face and intended to embody all agreements between the parties." Philadelphia Mfrs. Mut. Ins. Co. v. Gulf Forge Co., 555 F. Supp. 519, 522 (S.D. Tex., 1982); Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30, 32 (1958). Furthermore, "Texas law makes it abundantly clear that a written contract is presumed to embody the entire agreement between the parties." Gulf Forge, 555 F. Supp. at 522; Smith v. Smith, 794 S.W.2d 823, 827 (Tex.App.-Dallas 1990, no writ).
Because the Policy was reduced to a single unambiguous writing, the parol evidence rule operates to exclude extrinsic evidence — such as the State Farm agent's representations — from consideration. Accordingly, evidence of promissory estoppel is barred by the parol evidence rule, and Walker's promissory estoppel claim fails.
2. Third-Party Beneficiary
Next, Walker seeks enforcement of the contract as a third-party beneficiary of the Policy. Walker consistently contributed to the expenses of maintaining and improving the home, had lived at the residence eight and a half years when the 1999 Policy became effective, and considered himself an owner along with Blount. Under these circumstances, Walker claims that he is due benefits even if he is not considered a party to the agreement.
To claim third-party beneficiary status, a claimant must show that the contract was entered into directly and primarily for his benefit. In re El Paso Refinery, LP, 302 F.3d 343, 354 (5th Cir. 2002) (citing Republic Nat'l Bank v. Nat'l Bankers Life Ins. Co., 427 S.W.2d 76, 80 (Tex.Civ.App.-Dallas 1968, writ ref'd n.r.e.)); Thomson v. Espey Huston Assocs., Inc., 899 S.W.2d 415, 418 (Tex.App.-Austin 1995, no writ). In determining whether a third party can enforce a contract, the intention of the parties is controlling. MCI Telecomm. Corp. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999). A court will not create a third-party beneficiary contract by implication. Id. Unless an intention to contract or confer a direct benefit to a third party is clearly and fully spelled out, enforcement by the third party will be denied. Id. Under Texas law, a contract will not be construed as having been made for the benefit of third parties unless it clearly appears to be the intention of the contracting parties. Talman Home Fed. Sav. Loan Ass'n of Ill. v. Am. Bankers Ins., 924 F.2d 1347, 1351 (5th Cir. 1991). Any intent of the contracting parties to benefit a third party is to be derived solely from the language of the contract, "within the four corners of the instrument." Id. (affirming, where the policy named only another and not the plaintiff, the lower court's dismissal for failure to state a claim.).
Here, Walker, not mentioned in the Policy, cannot claim status as third-party beneficiary. To successfully advance a third-party beneficiary claim, Walker could have had the insured procure an endorsement adding his name to the Policy as an additional insured. By thus changing the terms of the standard contract, any intention to confer a direct benefit to Walker could have been clearly spelled out. As no such language appears in the written contract, Walker's third-party beneficiary claim fails.
3. Ratification
Walker contends that his rights in contract are preserved because State Farm ratified an alleged agreement to include him in the Policy's coverage. He points to certain correspondence from State Farm addressed to both Walker and Blount rather than to just Blount, as well as other documentation referring to dealings with Walker. According to Walker, State Farm confirmed or adopted its agreement to include him within the scope of the Policy's coverage by including his name in correspondence.
Ratification occurs when one knowing all the material facts confirms or adopts a prior act that did not then legally bind him and which he had a right to repudiate. Avary v. Bank of Am., N.A., 72 S.W.3d 779, 788 (Tex.App.-Dallas 2002, pet. denied). To establish ratification, a party must perform a voluntary, intentional act that is inconsistent with an intention of avoiding the prior agreement. Old Republic Ins. Co. v. Fuller, 919 S.W.2d 726, 729 n. 1 (Tex.App.-Texarkana 1996, writ denied).
Mere correspondence with or about someone associated with a dispute is not tantamount to recognizing the validity of the alleged agreement "by acting or performing under the contract or by otherwise affirmatively acknowledging it." Lee Lee Intern, Inc. v. Lee, 261 F. Supp.2d 665, 673 (N.D. Tex. 2003) (citing Missouri Pacific R.R. Co. v. Lely Dev. Corp., 86 S.W.3d 787, 792 (Tex.App.-Austin 2002, pet. dism'd)). Assuming arguendo that State Farm did agree to extend coverage to Walker under the plan, including Walker in correspondence with the insured is consistent with intending to avoid extending coverage to Walker. Therefore, even assuming the evidence of the prior alleged agreement to extend coverage to Walker could withstand the exclusionary force of the parol evidence rule, Walker's evidence, as a matter of law, falls short of meeting the requirements of ratification.
4. Public Policy Considerations
Walker urges that if State Farm's contract precludes coverage, it is discriminatory and against public policy. Under Texas law, because homosexual couples have no ceremonial or common law marriage rights, Walker, unlike a spouse in a heterosexual relationship, cannot earn coverage under the standard terms of his partner's Policy. Walker urges that the portion of the Policy that is discriminatory should be voided as against public policy. He does not specify which portion or how to modify the Policy to eliminate the discriminatory aspect.
First, his argument that "two unrelated men living together may never extend coverage to the other non-covered person due to the fact that their relationship would not be legally recognized" (Plaintiff's Response, p. 6) seems to ignore the possibility that Blount could have procured an endorsement placing Walker within the scope of coverage (as suggested in Defendant's Reply, p. 6). Second, by the terms of the Policy, Walker could seek recovery from Blount for his injuries and State Farm would fund Blount's defense. But an adversarial lawsuit brought by Blount against Walker would pit the interests of Blount and Walker against each other even though each wants to keep them aligned. This unhappy result seems to be required by the law as it currently stands. While Walker understandably challenges the Policy on public policy grounds, it nonetheless comports with this state's public policy as it relates to same-sex unions. Walker's policy argument fails.
C. Bad Faith Claim
Walker alleges that State Farm's acts and omissions amount to bad faith. The duty of good faith and fair dealing only applies to protect parties who have a "special relationship based on trust or unequal bargaining power." Natividad v. Alexsis, Inc., 875 S.W.2d 695 (Tex. 1994). In Natividad, the Supreme Court of Texas explained that without a contract between an insurer and insured, no "special relationship" exists upon which a duty of good faith and fair dealing can be predicated. Id. at 698. "The existence of a contract, giving rise to a special relationship, 'is a necessary element of the duty of good faith and fair dealing.'" Cavallini v. State Farm Mut. Auto Ins. Co., 44 F.3d 256, 262 (5th Cir. 1995) (quoting Natividad, 875 S.W.2d at 697). Thus, absent privity, Walker lacks standing to claim bad faith.
E. Negligence Claim
Walker alleges that State Farm's failure to properly remedy the house until 2002 amounted to negligence. Sitting in diversity, this Court must apply the substantive law of Texas. Erie, 304 U.S. 64. In Texas, to prevail on a negligence claim a plaintiff must show that: (1) the defendant owed him a legal duty; (2) the defendant breached that duty; (3) the breach proximately caused his injuries; and (4) damages resulted from the breach. Mission Petroleum Carriers, Inc. v. Solomon, 106 S.W.3d 705, 710 (Tex. 2003).
1. Causation
First, State Farm argues that Walker cannot establish the element of causation. To establish the element of causation, Walker relies on the expert testimony of Dr. Alfred Johnson. This testimony presents a genuine issue of material fact as to the issue of causation. Although causation is an essential element of the nonmoving party's case, the absence of which "necessarily renders all other facts immaterial," Johnson's expert testimony cannot be regarded a "complete absence of proof." Celotex, 477 U.S. at 323. Drawing all inferences in favor of Walker, genuine issues of material fact remain as to the question of causation. Consonant with this Court's order denying State Farm's motion to exclude the Johnson testimony, dated May 20, 2004, Walker has demonstrated the existence of a genuine issue of material fact as to causation.
2. Availability of a Tort Cause of Action
Second, State Farm argues that it owed Walker no duty because Texas law does not recognize a cause of action for negligent claims handling against an insurer. Indeed, under Texas law, no tort cause of action exists for negligent performance of contract. See Sergeant Oil Gas Co. v. Nat'l Maint. Repair, 861 F. Supp. 1351, 1359 (S.D. Tex. 1994) (stating that "[a]n allegedly negligent failure to perform a contract, standing alone, is not recognized as actionable in tort in Texas."). However, "the mere fact that an act is done pursuant to a contract does not shield it from the general rules of tort liability." Thomson, 899 S.W.2d at 420. "Depending on the circumstances, a party's acts may breach duties in tort or contract alone or simultaneously in both." Id.
In French v. State Farm Ins. Co., the court noted: "A tort claim has been found to arise out of the breach of an insurance contract only in two instances: (1) when the insurer breaches its duty of good faith and fair dealing or (2) when the insurer fails to exercise ordinary care and prudence in considering an offer of settlement within the policy limits. All other claims, like that asserted here for negligent claims handling, have no legally independent basis and, therefore, are regarded merely as actions for breach of contract" (internal citations omitted). 156 F.R.D. 159, 162 (S.D. Tex. 1994). Such dicta from our sister district, however, have no bearing on the facts of the instant case, which are distinguishable from those in French where the defendant's conduct could give rise to liability only because it breached the parties' agreement. Id.
If conduct gives rise to liability only because it breaches the agreement, the plaintiff's claim ordinarily sounds only in contract. Southwestern Bell Tel. Co. v. DeLanney, 809 S.W.2d 493, 494 (Tex. 1991). But if conduct would give rise to liability independent of the fact that a contract exists between the parties, the plaintiff's claim may also sound in contract. Id. While pure economic loss, or mere failure to receive the benefit of a bargain, does not give rise to tort liability, a defendant may become liable for negligence causing damage beyond the subject of the contract itself. See Thomson, 899 S.W.2d at 421; see also Montgomery Ward Co. v. Scharrenbeck, 204 S.W.2d 508 (Tex. 1947). One who performs on a contract assumes a duty to all persons to use reasonable care not to injure them or their property in performing the contract, and one who is not privy to the contract may assert a negligence claim for breach of that duty. Goose Creek Consol. Indep. Sch. Dist. of Chambers and Harris Counties, Tex., v. Jarrar's Plumbing, Inc., 74 S.W.3d 486, 494 (Tex.App.-Texarkana 2002, pets. denied).
In Goose Creek, a school district, Goose Creek, contracted with a general contractor to construct elementary schools. Id. at 491. The general contractor thereafter contracted with a subcontractor to perform plumbing work. When the subcontractor spilled sewage into school buildings, Goose Creek, not party to the contract between the general contractor and the subcontractor, asserted a negligence claim directly against the subcontractor. Id. at 492. According to the court, "The acts Goose Creek alleged may also have breached [the subcontractor's] contract with [the general contractor]. However, the injury Goose Creek alleged, the invasion of sewage and sewer gas into the school buildings, constitutes an injury to property that was not the subject matter of the contract, . . . namely the plumbing." Id. at 495. Because the invasion of sewage constituted an injury to property that was not the subject matter of the defendant's contract for only the installation of plumbing, the school district's negligence action survived the subcontractor's motion for summary judgment. Id.
Accepting Walker's factual allegations as true, his injury resembles that of the school district in Goose Creek. An insurance company owes an independent tort duty to all persons to not injure persons or property in the performance of a contract. The acts Walker alleges — the failure to fully investigate and remove all mold — may also have breached State Farm's Policy with Blount. But Walker's alleged injury — the development of sinusitis and respiratory difficulties — is an injury to his person constituting damage beyond the subject matter of Blount's residential insurance Policy. Indeed, Walker is nowhere mentioned in the Policy. Thus, although the instant factual scenario does not perfectly replicate that of Goose Creek, both outcomes are underpinned by the rule that a third-party plaintiff may recover in negligence for noneconomic loss caused by a defendant. Accordingly, an independent cause of action is available to Walker in tort.
"'Economic loss' has been defined as 'damages for inadequate value, costs of repair and replacement of the defective product, or consequent loss of profits — without any claim of personal injury or damage to other property.'" Bass v. City of Dallas, 34 S.W.3d 1, 9 (Tex.App.-Amarillo 2000, no pet.) (emphasis in original).
F. Article 21.21 Claim
Walker also alleges that State Farm's conduct constitutes unfair claims settlement practices under article 21.21 of the Texas Insurance Code. Generally, although section 16 of article 21.21 provides a private cause of action for "any person," see TEX. INS. CODE ANN. art. 21.21, § 16 (Vernon 2004), Texas does not allow recovery under the statute "unless there is a direct and close relationship between the wrongdoer and the claimant." Warfield v. Fidelity and Deposit Co., 904 F.2d 322, 326 (5th Cir. 1990). Article 21.21 accords standing to "an insured or beneficiary." See TEX. INS. CODE ANN. art. 21.21, § 4(10)(b). Additionally, a suit may lie under article 21.21 when there is "some sort of reliance by the person bringing a claim on the words or deeds of the insurer." Warfield, 904 F.2d at 327.
Walker, as a third-party claimant, has no contract with the insurer. Nor does Walker have standing as a third-party beneficiary. See Bates v. Jackson Nat'l Life Ins. Co., 927 F. Supp. 1015 (S.D. Tex. 1996). Although Walker shared the responsibility of paying premiums on the Policy with Blount, such contributions do not earn him status as a policyholder or beneficiary. Therefore, Walker has a "basis upon which to expect or demand the benefit of the extra-contractual obligations imposed on insurers under art. 21.21," Allstate v. Watson, 876 S.W.2d 145, 149 (Tex. 1994), only if Walker can demonstrate detrimental reliance on the words or deeds of State Farm.
In Hermann Hospital v. Nat'l Standard. Ins. Co., 776 S.W.2d 249 (Tex.App.-Houston [1st Dist.] 1989, writ denied), a hospital accepted the transfer of a patient for care and treatment after obtaining verification from the insurer that the patient was covered. When the insurer thereafter denied that the patient's injury was covered, the hospital sued, alleging, inter alia, violations of article 21.21. Reversing the lower court's grant of summary judgment, the court held that the hospital had standing under the statute. The hospital, relying upon assurances of the insurance company, forewent seeking alternative means to ensure it received payment for services before rendering them. This reliance was sufficient to entitle the hospital to bring an action under article 21.21.
In the instant scenario, Walker alleges that he relied upon State Farm's representations that he was covered. Had State Farm not made such representations, Walker could have taken measures to ensure that he was a covered individual under an insurance policy. Under the Hermann standard, this reliance is sufficient to grant him standing under the statute. Walker's allegations raise genuine issues of material fact, precluding summary judgment for State Farm on the article 21.21 claim.
III. CONCLUSION
For the foregoing reasons, Defendant's Motion for Summary Judgment is GRANTED as to Walker's claims for breach of contract and breach of the duty of good faith and fair dealing. With respect to Plaintiff's claims for negligence and violations of article 21.21, Defendant's Motion for Summary Judgment is DENIED.