FG Holdings, Inc., FG Insurance Services, Inc. AKA Financial Guardian and Trans-Global Solutions, Inc. v. London American Risk Specialists, Inc. and Guaranty Insurance Services, Inc. F/K/A Timberline Insurance Services, Inc.

Opinion

In The

Court of Appeals

Ninth District of Texas at Beaumont

____________________

NO. 09-05-522 CV

____________________

FG HOLDINGS, INC., FG INSURANCE SERVICES, INC.

a/k/a FINANCIAL GUARDIAN, AND

TRANS-GLOBAL SOLUTIONS, INC., Appellants

V.

LONDON AMERICAN RISK SPECIALISTS, INC. AND

GUARANTY INSURANCE SERVICES, INC.

f/k/a TIMBERLINE INSURANCE SERVICES, INC., Appellees

On Appeal from the 172nd District Court

Jefferson County, Texas

Trial Cause No. E-167,676

MEMORANDUM OPINION

This appeal involves an insurance coverage dispute. FG Holdings, Inc., FG Insurance Services, Inc. a/k/a Financial Guardian (collectively "FG"), and Trans-Global Solutions, Inc. ("TGS") appeal the trial court's final judgment granting summary judgments in favor of appellees London American Risk Specialists, Inc. ("London American") and Guaranty Insurance Services, Inc. f/k/a Timberline Insurance Services, Inc. ("Guaranty"). We affirm.

TGS entered into a contract ("the Premcor contract") with Clark Refining and Marketing, Inc., Premcor's predecessor, to construct a new petroleum coke facility inside its refinery. The contract required TGS to obtain certain specified insurance coverage and provided, in relevant part, the following:

3.7 Contractor Furnished Insurance.

Contractor shall maintain "All Risk" insurance insuring the full contract value of the Work and all materials and equipment to be incorporated in the Work less nonrecurring expenses from the start of the construction until final acceptance. The policy, subject to its terms and conditions, shall include, but not be limited to, coverage for (a) physical loss or damage resulting from faulty workmanship, design error and defective materials, (b) performance testing, (c) expediting/extra expense, (d) transit, (e) temporary off-site storage, (f) debris removals and (g) third party liability. Additionally, the policy will include full guarantee maintenance coverage for a period of 12 months. Owner shall be included as named insured under the policy.

TGS contacted its insurance agent, Richard Gowen, and requested a quote for the insurance required by the Premcor contract. Dan Orsini, TGS's Chief Financial Officer, forwarded to Gowen the insurance specifications provided in the contract. Gowen, employed at the time by FG, transmitted a request for a quote to London American, a surplus line broker. The request included a two page summary, a copy of paragraph 3.7 of the contract, and some general information regarding the project. In his cover memorandum, Gowen wrote:

See attached insurance specifications regarding coverage extensions, i.e.;

-- faulty workmanship, design error and defective materials

. . . .

-- performance testing

-- expediting/extra expense

-- transit

-- temporary off-site storage

-- debris removal

Gowen's request to London American also included a certificate of insurance requesting:

BUILDERS RISK

ALL PERILS

EXCEPT/FLOOD

QUAKE/WINDSTORM

London American forwarded to Liberty Surplus Insurance Corporation ("Liberty") a request for a quote for the coverage TGS sought and included all the pages Gowen had forwarded to London American. London American forwarded the request with a cover letter which stated:

Ed,

Attached are the details from Richard regarding the first of two builder's risk projects for this insured. I believe Richard has already discussed this project with you.

Please review and quote per requested terms and conditions. If you have questions please let me (and/or Richard) know and we'll try to obtain whatever you need.

Thanks for your consideration.

London American did not alter Gowen's request and only added the cover letter. Liberty sent a quote back to London American stating:

COVERAGE: All Real and personal Property per schedule attached to your submission. Excluding California Earthquake. Y2K event excluded resulting damage based on questionnaire to be completed by Insured.

PERILS: All Risk of Direct Physical Loss or Damage including the perils of Flood and Earthquake.

London American forwarded the quote to FG. Gowen bound the coverage through London American. London American sent notice to Liberty requesting the coverage be bound. London American confirmed to FG that the coverage was bound. The binder lists the perils covered as "All Risk Including Flood & Earthquake."

Three months after the policy was bound, London American sent a copy of the policy to Gowen. The cover letter sent with the policy instructed Gowen to review the policy to determine its accuracy, and to advise London American if Gowen required any additions, corrections, or changes to the policy. The policy included specific exclusions for the following items:

C. Cost of making good an error, omission or deficiency in designs, plans or specifications, unless direct physical loss or damage by a peril insured ensues and then this Policy will cover fur [sic] such ensuing loss or damage only;

D. Cost of making good faulty and/or defective workmanship, materials, or supplies, unless direct physical loss or damage by a peril insured ensues and then this Policy will cover for such ensuing loss or damage only;

E. Wear and tear, deterioration, corrosion, oxidation, inherent vice, latent defect, gradual deterioration, erosion, moth, vermin, termites or other insects[.]

FG sent the policy to TGS. Orsini testified that, to his knowledge, no one at TGS reviewed the policy. Guaranty subsequently purchased FG, and Gowen became a vice president of Guaranty.

In the process of fulfilling the Premcor contract, TGS lifted a boom tower into place. After a few days, workers noticed that the steel structure members had separated at the welds. TGS immediately contacted Gowen regarding its coverage. Gowen forwarded a notice of TGS's initial claim to Liberty and London American. TGS received a denial-of-coverage letter stating the loss was not covered because it fell within the policy exceptions for faulty workmanship, defective design, inherent vice, latent defect, and consequential damages.

TGS originally filed suit against Liberty, FG, Gowen, and Guaranty. Alleging breach of contract against Liberty and "possible successor liability" against Guaranty, TGS also sought a declaratory judgment that its losses were covered by the policy. In the event the court or jury determined TGS's losses were not covered by the policy, TGS alternatively pled that Gowen and FG were negligent in failing to secure insurance coverage for the losses incurred. FG instituted a third-party suit against London American for negligence, misrepresentation, violation of article 21.21 of the Texas Insurance Code, and indemnity. TGS amended its petition to add London American as a direct defendant. TGS settled with Liberty, FG, and Gowen. TGS amended its petition naming only Guaranty and London American as defendants. In its amended petition, TGS alleged agency, vicarious liability, breach of contract, Texas Insurance Code violations, fraud, negligent misrepresentation, negligence, fraudulent concealment, estoppel, continuing tort, and direct liability for claims instituted against the defendants through third-party and cross-claims. The trial court granted London American's motions for summary judgment against TGS and FG, and Guaranty's traditional and no-evidence motion for summary judgment against TGS.

We review a no-evidence summary judgment under the same standard as a directed verdict. King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 750-51 (Tex. 2003). Accordingly, we examine the record in the light most favorable to the non-movant; we credit evidence favorable to the non-movant if reasonable jurors could, and disregard contrary evidence unless reasonable jurors could not. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006). If the non-movant produces more than a scintilla of probative evidence to raise a genuine issue of material fact, then summary judgment is improper. Tex. R. Civ. P. 166a(I); King Ranch, Inc., 118 S.W.3d at 751.

To prevail on a summary judgment motion brought under rule 166a(c), a movant must show that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); Little v. Tex. Dep't of Criminal Justice, 148 S.W.3d 374, 381 (Tex. 2004). A defendant "who conclusively negates at least one essential element of a cause of action is entitled to summary judgment on that claim." IHS Cedars Treatment Ctr. of Desoto, Tex., Inc. v. Mason, 143 S.W.3d 794, 798 (Tex. 2004) (citing Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002)). If the movant establishes a right to summary judgment, the burden shifts to the nonmovant to raise a material fact issue sufficient to defeat summary judgment. See Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995). Because neither the trial court's orders granting the motions for summary judgment nor the final judgment specifies the basis for the ruling, we must affirm the trial court's judgment if any of the theories advanced and preserved for appellate review are meritorious. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216 (Tex. 2003).

Summary Judgment in Favor of London American Against TGS

London American filed a no-evidence motion for summary judgment against TGS. London American argues it is entitled to summary judgment against TGS's tort and contract claims because (1) London American had no duty to TGS; (2) London American forwarded the policy that FG Insurance Services, Inc. requested; (3) London American had no "contact" related to the policy, and thus made no actionable representations; (4) TGS received the policy in question more than two years before filing its claim, and thus its tort claims are barred by limitations; (5) TGS has already recovered for its injury; and (6) there is no evidence of a contract between London American and TGS.

As to TGS's claims for fraud, negligent misrepresentation, and violations of article 21.21 based on alleged misrepresentations by London American, TGS must raise more than a scintilla of evidence that London American made a false statement of fact. See, e.g., In re First Merit Bank, N.A., 52 S.W.3d 749, 758 (Tex. 2001) (fraud); McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 S.W.2d 787, 791 (Tex. 1999) (negligent misrepresentation); Garrison Contractors, Inc. v. Liberty Mut. Ins. Co., 927 S.W.2d 296, 300 (Tex. App.--El Paso 1996), aff'd, 966 S.W.2d 482 (Tex. 1998). Absent a false statement of material fact, TGS must raise more than a scintilla of evidence that London American had a duty to disclose specific omitted material facts that rendered its other statements false. See Bradford v. Vento, 48 S.W.3d 749, 755 (Tex. 2001).

London American did not alter Gowen's request and only added a cover letter when it forwarded TGS's coverage request to Liberty. TGS failed to produce more than a scintilla of evidence raising a genuine issue of material fact that London American made any representations to it. As for whether TGS was misled by London American's alleged omission of any material fact, London American, as an agent of the insurer, did not have a duty to TGS to explain the policy terms and coverages included in the application. See N. Am. Shipbuilding, Inc. v. S. Marine & Aviation Underwriting, Inc., 930 S.W.2d 829, 836 (Tex. App.--Houston [1st Dist.] 1996, no writ); Riggs v. Sentry Ins., 821 S.W.2d 701, 705 (Tex. App.--Houston [14th Dist.] 1991, writ denied). Texas courts have previously declined to impose on an insurance agent a duty to explain policy terms to an insured. See, e.g., Garrison Contractors, 927 S.W.2d at 300. To the extent TGS attempts to characterize London American as an agent for the insured, the Texas Supreme Court has rejected an attempt to impose liability on insurance agents solely for failure to obtain complete insurance coverage. May v. United Servs. Ass'n of Am., 844 S.W.2d 666, 672 (Tex. 1992).

The record reveals TGS did not review the policy when TGS received it. "An insured has a duty to read the policy and, failing to do so, is charged with knowledge of the policy terms and conditions." Ruiz v. Gov't Employees Ins. Co., 4 S.W.3d 838, 841 (Tex. App.--El Paso 1999, no pet.)(citing Garrison Contractors, 927 S.W.2d at 300); see also Amarco Petroleum, Inc. v. Tex. Pac. Indem. Co., 889 S.W.2d 695, 699 (Tex. App.--Houston [14th Dist.] 1994, writ denied); Heritage Manor of Blaylock Props., Inc. v. Petersson, 677 S.W.2d 689, 691 (Tex. App.--Dallas 1984, writ ref'd n.r.e.). TGS failed to raise more than a scintilla of evidence that London American made a false statement of fact or had a duty to TGS to disclose any alleged omitted fact. Because we hold that London American is entitled to summary judgment on this ground, we need not address the remaining grounds presented in London American's motion. See FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872-73 (Tex. 2000) (where summary judgment does not specify grounds relied on, reviewing courts are to affirm if any ground is meritorious). The trial court did not err in granting London American's motion for summary judgment against TGS.

Summary Judgment in Favor of Guaranty Against TGS

Guaranty filed a traditional and no-evidence summary judgment against TGS. Guaranty argued it was entitled to summary judgment because (1) TGS's claims against Guaranty are barred under the doctrine of election; (2) TGS's breach of contract claims are precluded as a matter of law because they lie in tort and not in contract (3) TGS's breach of contract claim is barred because TGS was not a party to a contract with Guaranty; TGS was not a third-party beneficiary to a Guaranty contract, and Guaranty did not breach a contractual duty to TGS; (4) TGS's negligence claim is barred because Guaranty owed no duty to TGS nor did it breach a duty to TGS; and (5) TGS does not have standing to seek recovery for certain elements of damages.

In October of 2000, Guaranty purchased certain FG assets, including the "Trans Global Account." The purchase agreement expressly provided, with certain exceptions not applicable here, that Guaranty would not assume FG's liabilities. The policy made the basis of this suit was placed by Gowen while employed at FG. Gowen testified by deposition that TGS never asked Guaranty to secure coverage for defective workmanship.

There is evidence in the record that during October 2000 Dan Orsini consistently asked questions such as "Are we covered if something goes wrong?"; whether TGS was covered "if there was something that went wrong along the way"[;] and did TGS have "all the coverages that were requested and anything else [Gowen] saw [TGS] needed?" Orsini testified that Gowen consistently assured TGS that TGS had received the coverages requested. TGS contends this was a misrepresentation. TGS argues that Orsini's questions to Gowen would cause a reasonable insurance agent to go back and check the terms of the policy against the requested coverage to make sure there were no gaps in coverage. Regarding these inquiries, Orsini testified he asked Gowen "to get those coverages that were requested." Orsini stated he also depended on Gowen "to tell us if there was something out there that we need to have, be able to tell us to get it." "No legal duty arises on the part of an insurance agent to extend the insurance protection of his customer merely because the agent has knowledge of the need for additional insurance of that customer." Pickens v. Tex. Farm Bureau Ins. Cos., 836 S.W.2d 803, 805 (Tex. App.--Amarillo 1992, no writ ) (citing McCall v. Marshall, 398 S.W.2d 106, 109 (Tex. 1965)). Gowen testified that the insurance coverage provided by Liberty for the project matched what he requested in his request for a quote.

TGS also argues that Guaranty should have disclosed that TGS did not have coverage for faulty workmanship and defective design in response to TGS's inquiries. TGS is charged with knowledge of the insurance policy's exclusions. See Ruiz, 4 S.W.3d at 841; Amarco Petroleum, 889 S.W.2d at 699; Petersson, 677 S.W.2d at 691. The insurance policy TGS purchased excludes costs of repair for faulty workmanship and defective design, "unless direct physical loss or damage by a peril insured ensues[.]"

TGS argues there is a genuine issue of material fact regarding the existence of a contractual duty from Guaranty to TGS. TGS contends Guaranty assumed the contract between FG and TGS, ratified the contract, and is liable for the breach of the contract in failing to provide coverage requested. TGS's only evidence of ratification or adoption by Guaranty of any alleged contract between TGS and FG is a letter to TGS from Timberline Insurance Services, Guaranty's predecessor, referencing its Purchase Agreement with FG. Under the Purchase Agreement, Guaranty did not assume FG's liabilities related to existing policies. On this record, TGS has not established that a genuine issue of material fact exists as to whether Guaranty ratified or adopted any alleged contract between FG and TGS. The trial court did not err in granting Guaranty's motion for summary judgment against TGS.

Summary Judgment in Favor of London American Against FG

FG sued London American for negligence, misrepresentation, violation of article 21.21 of the Texas Insurance Code, and indemnity. London American argues it is entitled to summary judgment because FG's causes of actions are actually claims for contribution precluded under Texas law, and there is no evidence of vicarious liability necessary to support its common-law indemnity claim.

London American contends FG's claims amount to nothing more than pleadings for contribution. In enacting Chapter 33 of the Texas Civil Practice and Remedies Code, (Texas's proportionate responsibility statute), the legislature did not create a contribution right in favor of a settling party against a joint-tortfeasor. See Tex. Civ. Prac. & Rem. Code Ann. §§ 33.001-.017 (Vernon 1997 & Supp. 2007); Beech Aircraft Corp. v. Jinkins, 739 S.W.2d 19, 21 (Tex. 1987); see also Global Drywall Sys., Inc. v. Coronado Paint Co., 104 S.W.3d 538 (Tex. 2003). The Texas Supreme Court held in Jinkins that a settling party is prohibited from preserving a contribution claim against a joint tortfeasor who does not participate in the settlement. Jinkins, 739 S.W.2d. at 22. London American argues FG is barred from obtaining contribution from London American, a non-settling co-defendant, for monies FG already paid for its share of alleged common liability.

FG describes its claim as one for common-law indemnity. Section 33.017 preserves the right of indemnity granted by contract or common law. See Tex. Civ. Prac. & Rem. Code Ann. § 33.017 (Vernon Supp. 2007). Although largely replaced by a statutory scheme for contribution, common-law indemnity is available in negligence cases (1) in which one party's liability is purely vicarious or (2) to protect innocent sellers in certain product liability cases. See generally B&B Auto Supply, Sand Pit, & Trucking Co. v. Central Freight Lines, Inc., 603 S.W.2d 814, 817 (Tex. 1980); see also Bonniwell v. Beech Aircraft Corp., 663 S.W.2d 816, 819-820 (Tex. 1984). In general, common-law indemnity permits a party to recover its expenses paid in discharging liability when, through no action of its own, it is subjected to tort liability for wrongful conduct of another solely based on the parties' relationship. See generally Humana Hosp. Corp. v. Am. Med. Sys., Inc., 785 S.W.2d 144, 145 (Tex. 1990). FG alleges a special relationship existed between FG and London American that gave rise to a common-law right of indemnity through vicarious liability. FG complains London American's acts or omissions in obtaining coverage for TGS subjected FG to liability and damages. There is, however, no right of common-law indemnity against a defendant who is not liable to the plaintiff. Vecellio Ins. Agency, Inc. v. Vanguard Underwriters Ins. Co., 127 S.W.3d 134, 138 (Tex. App.--Houston [1st Dist.] 2003, no pet.) Because we have found no genuine issues or material fact regarding TGS's claims against London American, FG has no right of common-law indemnity against London American. See id.

FG argues its vicarious liability, misrepresentation, and article 21.21 claims are not subject to Chapter 33. We disagree. In determining whether a particular claim sounds in contract or tort, "[w]e must look to the substance of the cause of action and not necessarily the manner in which it was pleaded." Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 617-18 (Tex. 1986). FG provided no evidence of any contract between FG and London American. FG conceded on appeal that FG was "forced to spend $5 million in settlement with TGS because of London American's actions, including both misrepresentations and omission[.]" We read FG's claims against London American as tort claims derivative of damages paid in settling with TGS. FG cannot recast its contribution claim by artful pleading to avoid claim preclusion under Chapter 33 of the Texas Civil Practice and Remedies Code and Jinkins. See generally Viviano v. Moore, 899 S.W.2d 326, 327-28 (Tex. App.--Houston [14th Dist.] 1995, writ denied). FG's negligence, misrepresentation, and article 21.21 claims are contribution claims barred by FG's settlement with TGS.

The trial court's final judgment granting summary judgments in favor of London American against TGS and FG, and summary judgment in favor of Guaranty against TGS, is affirmed.

AFFIRMED.

__________________________________

CHARLES KREGER

Justice

Submitted on November 9, 2006

Opinion Delivered December 13, 2007

Before McKeithen, C.J., Kreger and Horton, JJ.