Valdez v. Colonial County Mutual Insurance Co.

994 S.W.2d 910, 1999 Tex. App. LEXIS 4459, 1999 WL 394281

• Court: Court of Appeals of Texas
• Decided: June 17, 1999
• Docket: 03-97-00719-CV
• Status: Published

Opinions

MACK KIDD, Justice.

Colonial County Mutual Insurance Company (“Colonial”) sued Hector Valdez seeking a declaratory judgment that Colonial had no insurance-coverage obligations under an automobile insurance policy issued to Valdez. The trial court granted summary judgment in favor of Colonial. By three points of error, Valdez contends that the trial court erred because: (1) the automobile insurance policy in question covered the vehicle listed on the Declarations page of the policy; (2) Valdez had an insurable interest in the vehicle; and (3) the policy was ambiguous. We will reverse the order granting summary judgment and remand the cause to the trial court for further proceedings.

THE CONTROVERSY

On November 9, 1994, Valdez purchased insurance through Diego Luna, his local insurance agent. Luna placed Valdez with Colonial, who issued to Valdez a standard Texas automobile insurance policy to insure his 1992 Plymouth Acclaim. Shortly after Christmas of that same year’, Valdez sold and transferred title of the vehicle to his adult son, Rene. Rene, with cosigner Liliana De La Garza, obtained new financing for the vehicle from Mercantile Bank. On December 29,1994, Valdez notified Colonial that Mercantile Bank was the new lienholder. Valdez did not report the change in title to Colonial, but Colonial’s Change in Policy Request form did not request such information.

At the time he purchased the car, Rene worked in Mexico City. Because he could not take the car into Mexico, Rene left the vehicle with Valdez at Valdez’s residence. Valdez continued to use the vehicle and pay the policy premiums. He renewed the policy from November 9,1995 through November 9, 1996. On January 14, 1996, more than a year after Rene bought the car, the vehicle was stolen while parked outside Valdez’s residence. Valdez filed a claim with Colonial. Despite accepting Valdez’s premium payments for over a year after the reported change in lienholder, Colonial refused to honor the claim¹ and filed suit seeking a declaratory judgment that Valdez did not have an insurable interest in the stolen vehicle.

DISCUSSION AND HOLDINGS

In his first point of error, Valdez contends that the trial court erred in granting summary judgment to Colonial because the automobile insurance policy in question covered the loss of the 1992 Acclaim. The relevant portions of the insurance policy issued to Valdez by Colonial are as follows:

DEFINITIONS

A. Throughout this policy, “you” and “your” refer to:

1. The “named insured” shown in the Declarations;

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G. “Your covered auto” means:

1. Any vehicle shown in the Declarations;

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PART D —COVERAGE FOR DAMAGE TO YOUR AUTO

A. We will pay for direct and accidental loss to your covered auto, including its equipment less any applicable deductible shown in the Declarations.

(Emphasis in original.) Valdez is the only named insured on the policy, and the Acclaim stolen from Valdez’s home is the only vehicle listed in the Declarations.

Valdez argues that the policy clearly defines the Acclaim as a “covered auto” and obligates Colonial to pay for the loss of the vehicle. Conversely, Colonial contends that the phrase “your covered auto” requires that the named insured own the vehicle shown on the Declarations page. Colonial argues that once Valdez sold the vehicle to his son, the vehicle was no longer Valdez’s covered auto for purposes of property-loss coverage.

Valdez premised his oral argument primarily on the Texas Supreme Court case of Snyder v. Allstate Insurance Co, 485 S.W.2d 769 (Tex.1972). In Snyder, a father had purchased a car for his minor daughter who did not live in the father’s home. Although the car was considered the property of the minor daughter, the father held legal title and listed the vehicle on his insurance policy. Following an automobile accident, Allstate challenged the coverage on the vehicle. Allstate argued that the car was in actuality the daughter’s and, therefore, the father was not the true owner. Consequently, no coverage was due under the policy. The supreme court rejected Allstate’s argument, holding:

‘Owned automobile’ is defined in the policy as:

(a) a private passenger, a farm or utility automobile described in this policy for which a specific premium charge indicates that coverage is afforded....

It is undisputed that a specific premium charge was paid on the specific automobile in question; therefore, the automobile was an ‘owned automobile.’ Allstate argues that in addition to the definition of ‘owned automobile’ the policy requires that actual ownership of the automobile be in the named insured. The policy does not so provide, and we find no rule of law which would compel us to add such requirement.

Id. at 771. Thus, Snyder stands for the proposition that under the terms of Snyder’s insurance policy, paying a premium and listing a vehicle on that insurance policy met the definition of “owned automobile,” and thus the question of legal or equitable ownership became irrelevant.

Unfortunately for Valdez, there are some significant and important distinctions between Snyder and the instant case. First, Snyder involved a vehicle purchased by a parent for a minor child, although a resident of a different household, whereas here, Rene is an adult son involved in an arms-length transaction with his father necessitating a new lienholder on the automobile. Second, in Snyder, the named insured remained the record titleholder. Here, Valdez transferred title to his adult son and retained, at most, possession and control of the vehicle in his son’s absence.

Both parties cite and rely upon Black v. BLC Ins. Co, 725 S.W.2d 286 (Tex.App.—Houston [1st Dist.] 1986, writ ref'd n.r.e.). In Black, BLC issued an automobile insurance policy to Thomas Webster covering his 1972 Dodge. Black, 725 S.W.2d at 286. Webster sold the car to Linville, a stranger, and one week later Linville sold the car to Sanchez, a third party. Id. One month later, Sanchez was involved in a collision with a car driven by Black, who received injuries. Id. In determining whether BLC had a duty to defend or indemnify Sanchez’s estate under the insurance policy issued to Webster, the court confronted the issue of whether coverage was afforded under Webster’s policy since the vehicle was still listed on the Declaration’s page of Webster’s policy and the policy was still in full force and effect. Black argued that coverage should be afforded under the holding in Snyder. The court rejected Black’s argument and distinguished Snyder on two bases: (1) there existed no relationship between the named insured, Webster, and the final, owner, Sanchez, that would have permitted Webster to exercise any right of control over the vehicle; and (2) Webster had not only divested himself of record title to the automobile, but he also had relinquished all right to possession and control of the vehicle. See id. at 288.

Colonial relies upon the following language in Black to buttress its claim: “[W]e hold that Webster’s ownership of the car was a prerequisite to coverage under this policy.” Id. Valdez on the other hand, finds support in this language of the opinion: “[T]he use of the word ‘your’ in this policy means that Webster had to own, possess, or at least, as in Snyder, control the use of the car in order for coverage to exist.” Id. (emphasis added). Thus, Black seems to initially require ownership, but then broadens coverage to include those individuals in possession or control of the covered vehicle.

We conclude, however, that Black is also distinguishable from the present case. Black involved a transfer of legal title from Webster to Linville and then from Linville to Sanchez, neither of whom had any familial relationship with Webster, and Webster completely divested himself of all possession and control of the vehicle. In the instant case, the exchange involves an intra-family transaction between father and son, after which the father continued in his possession and control of the vehicle. Valdez’s uncontro-verted affidavit, which we must accept as true in a summary-judgment context,² states the following: “On or about December 27, 1994, I transferred title in the car to my son RENE VALDEZ who at the time was working in Mexico City, Mexico. Since my son could not take the car to Mexico City, I kept the car at my house wherein I used the vehicle and controlled its use.” Valdez goes on to state in his affidavit that, at the time of the theft, the automobile was in his “possession and control.”³ Although neither Snyder nor Black are directly on point, it would seem by applying both Snyder and Black to the present case, a material fact dispute is presented as to whether property damage coverage existed for Valdez. The summary-judgment record establishes that the vehicle is listed on the policy held by Valdez, satisfying Snyder, and that Valdez retained exclusive possession and control of the vehicle in his son’s absence, satisfying Black. To the extent that a material fact dispute is presented, we sustain Valdez’s first point of error.

Insurable Interest

Colonial argued, and the trial court agreed, that there was still an issue presented as to “insurable interest,” an issue which the trial court eventually resolved against Valdez. The critical issue to be determined is whether the insurance company has demonstrated in this summary-judgment record, as a matter of law, that Valdez had no insurable interest in the vehicle.⁴

For Valdez to recover under the automobile insurance policy, he need only have an insurable interest in the vehicle; ownership of the covered vehicle is not required. See State Farm Mut. Auto. Insurance Co. v. Kelly, 945 S.W.2d 905, 907 (Tex.App.—Austin 1997, writ denied) (citing Smith v. Eagle Star Insurance Co., 370 S.W.2d 448, 450 (Tex.1963)). An insurable interest exists when the insured “derives pecuniary benefit or advantage by the preservation and continued existence of the property or would sustain pecuniary loss from its destruction.” Smith, 370 S.W.2d at 450; see also Couch on Insurance, Insurable Interest § 41.1 (3d ed. 1997) (“Insurable interest may be defined as any lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage.”). The purpose of the insurable interest requirement is to discourage the use of insurance for illegitimate purposes. See First Preferred Ins. Co. v. Bell, 587 S.W.2d 798, 802 (Tex.Civ.App.—Amarillo 1979, writ ref'd n.r.e.).

While an insurable interest “is not dependent upon an absolute right to ownership of, or possession of, property, and while neither legal nor equitable title is necessary, a person must have such a right or interest as the law will recognize and protect.” 44 C.J.S. Insurance § 219 (1993). If a claimant cannot suffer any pecuniary loss or derive any benefit from the property, he has no insurable interest. See Jones v. Texas Pac. Indem. Co., 853 S.W.2d 791, 794 (Tex.App.—Dallas 1993, no writ).

The Texas Supreme Court considered what constitutes an insurable interest in Smith v. Eagle Star Insurance Co. In Smith, a house located on land owned by the State was destroyed by fire. Smith, 370 S.W.2d at 449. It was undisputed that Mrs. Smith had undisturbed use of the house prior to and at the time she purchased fire insurance on the house and at the time the loss occurred. Id. at 450. Because the fire caused her a loss of this use, the court held that Mrs. Smith was entitled to the insurance proceeds because she held an insurable interest in the property. Id. at 451.

Similar circumstances dictated the finding of an.insurable interest in State Farm Mutual Automobile Insurance Co. v. Kelly. Mr. Kelly purchased and placed on his existing automobile insurance policy a vehicle that later turned out to be stolen. Kelly, 945 S.W.2d at 907. When the vehicle was confiscated and returned to its rightful owner, Kelly filed a claim with State Farm. Id. The court held that the vehicle was covered under Kelly’s policy because Kelly, a good-faith purchaser for value, would have derived a benefit from the continued use of the car and suffered a pecuniary loss when it was confiscated. Id. at 908.

In Dean v. Lowery, 952 S.W.2d 637, 639 (Tex.App. — Beaumont 1997, pet. denied), Giles Lowery bought a truck for his son’s use but put the title, insurance, and financing documents in his own name. Giles later sold the truck to his son, Rory Lowery. Id. at 639-40. Insurance coverage was then issued in the son’s name, but the indebtedness owed on the truck and the truck’s title remained in Giles’s name. Id. Rory was involved in an accident while driving the truck. Id. at 639. The court held that although the evidence of ownership was ambiguous, Rory had an insurable interest in the truck based on his “use and possession of the vehicle” and his alleged efforts to pay off the note. Id. at 640.

The dissent cites Gulf Insurance Co. v. Winn, 545 S.W.2d 526 (Tex.Civ.App.—San Antonio 1976, writ ref'd n.r.e.) for the proposition that there exists a stricter standard for finding an insurable interest in a vehicle for property loss coverage than for liability coverage. See 545 S.W.2d at 528 (“It is generally recognized that an ‘insurable interest’ in an automobile is quite different when applied to liability insurance, than when applied to a collision or comprehensive loss.”).⁵ The dicta alluded to, however, merely states that the standards are different. The holding of Gulf Insurance explains that to find an insurable interest in an automobile under a liability insurance policy, one need only establish an interest in the maintenance, possession, or use of the vehicle. Id. And, the authorities cited in Gulf Insurance stand for the further proposition that to find an insurable interest for property loss coverage one must establish a pecuniary benefit or loss in the property. See, e.g., 44 C.J.S. Insurance § 219 (1993) (“In general a person has an insurable interest in the subject matter insured where he has such a relation or connection with, or concern in, such subject matter that he will derive pecuniary benefit or advantage from its preservation, or will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against.”); 7 Am.Jur.2d Automobile Insurance § 19 (1997) (“The general rule that anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction has been applied to motor vehicle insurance.”). Furthermore, the dissent never explains why this difference between property-loss coverage and liability coverage in the context presented here establishes, as a matter of law, that Valdez had no pecuniary interest in the automobile in question.

Valdez seeks to establish at least a factual dispute within the summary-judgment record that he both suffered a potential loss and was denied a pecuniary benefit as a result of the theft of the car. As to the potential loss, the facts describing the transaction between the parties evidences a relationship akin to an implied bailment;⁶ it appears from the record that the son agreed to leave possession and control of the vehicle with his father while away in Mexico City and the father agreed to keep the insurance premiums current on the car and to maintain the car and keep it safe within his custody. Valdez’s uncontroverted affidavit in- the summary-judgment record, which we aré bound to accept as true, stated: “[Ajfter the vehicle was stolen, I made an agreement with my son, Rene Valdez, that I would reimburse him for the loss since the vehicle was in my possession and control when it was stolen. This agreement was made in order to avoid any type of litigation within the family.”

Colonial argues that this agreement, made after the loss, cannot be considered in determining insurable interest. We disagree. Insurable interest regarding loss or damage to property is always based on potential liability, not on absolute liability. If A borrows B’s car and negligently damages it, A’s offer to pay for damages, made after the loss occurred, merely acknowledges the possibility of some potential liability or responsibility on A’s part. Potential liability or responsibility is generally what insurance is designed to protect; Valdez was potentially liable for the damage or loss of Rene’s vehicle. The fact that Valdez continued to pay the insurance premiums on the car evidenced his understanding with Rene that Valdez would be responsible for any damage or loss while the vehicle was in his possession and control. Moreover, a denial of coverage after Colonial accepted over a year’s insurance premiums to cover, among other things, this risk of loss would grant to Colonial a significant windfall.

Finally, Valdez makes a cogent argument that he was denied a benefit in the property. According to the summary-judgment evidence, while Rene was living in Mexico City, Valdez had the exclusive right to possession, use, or control of the vehicle. Valdez exercised this right, and continued his use of the vehicle in Rene’s absence. Thus, the deprivation of this right through the loss of the vehicle denied Valdez his accustomed use of the car.

Because the summary-judgment record fails to establish, as a matter of law, that Valdez experienced no pecuniary detriment or loss of benefit as a result of the theft of the vehicle, we conclude that there remains a material fact dispute concerning whether Hector Valdez had such an interest in the 1992 Plymouth Acclaim, and thus an insurable interest in the vehicle at the time of the loss. Therefore, Colonial has not shown itself entitled to judgment as a matter of law. We sustain Valdez’s second point of error.

Because we sustain Valdez’s second point of error, we need not address his remaining point regarding the alleged ambiguity of the insurance policy.

CONCLUSION

Because the trial court erred in rendering summary judgment that the vehicle in question was not a covered automobile and also that Hector Valdez had no insurable interest in the vehicle listed on the Declaration page of his Colonial policy for which an insurance premium had been paid and collected, we reverse the judgment of the district court and remand this cause for further proceedings consistent with this opinion.

1 . It was only after the trial court granted summary judgment that Colonial offered to refund to Valdez the unused portion of the premium on the policy during the loss year. Colonial did not, however, ever offer to refund the previous year's premium collected from Valdez. Valdez rejected Colonial’s offer, and this appeal followed.

2 . The standards for reviewing a motion for summary judgment are well established: (1) the movant must show that no genuine issue of material fact exists; (2) evidence favorable to the nonmovant will be taken as true; and (3) every reasonable inference must be indulged in favor of the nonmovant and any doubts resolved in its favor. See Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex.1985).

3 . The dissent characterizes as conclusory Valdez’s statements that the vehicle was in his "possession and control” when it was stolen. We disagree. The phrase "possession and control” is merely used as a shorthand rendition to assert Valdez’s factual dominion over the automobile. We believe that the failure of the affidavit to allege factual minutiae regarding each detail and circumstance of Valdez's possessory dominion does not render the affidavit defective as the dissent contends. •

4 . An interesting issue that we need not address is who has the burden on this issue. Generally, where coverage appears to be present from the face of the policy, the burden is on the insurance company to show otherwise. See generally American Home Assurance Co. v. Safway Steel Prods. Co., Inc., 743 S.W.2d 693, 702 (Tex.App. — Austin 1987, writ denied) ("because the insurer drafted the policy and could have made clear its intention to exclude coverage ... the rules of construction require it to bear the burden of ambiguity.”)

5 . We find it ironic that the dissent relies upon Gulf Insurance at all. The court in Gulf Insurance followed the decision in Snyder and found coverage despite a lack of either legal or equitable title; the court noted that, like Colonial, Gulf Insurance accepted the premium paid by the insured and never returned it; and the court found that operation, maintenance, or use of an automobile was a sufficient interest to validate the automobile insurance policy issued by Gulf Insurance. Id. at 527-28.

6 . Although the parties in the trial court did not use the term "bailment'' to describe the relationship between Valdez and his son, we use it here as a descriptive term that appears to fit the fact pattern, which was fully pleaded during the summary-judgment proceedings.

A contract of bailment may arise by implication of law if through the proof of sufficient circumstances the implied relationship of bailor and bailee is shown to rest upon a substantive foundation. Acceptance of the property and of the responsibilities accompanying the relationship may be proved directly or by circumstances. Sanroc Co. Infl v. Roadrunner Transp. hie., 596 S.W.2d 320, 322 (Tex.Civ.App. — Houston [1st Dist.] 1980, no writ).