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Westview Drive Investments, LLC v. Landmark American Insurance Co.

Court of Appeals of Texas, Fourteenth District

February 28, 2017


         On Appeal from the 269th District Court Harris County, Texas Trial Court Cause No. 2012-47829

          Panel consists of Justices Boyce, Christopher, and Jamison.


          Tracy Christopher Justice

         In this insurance-coverage dispute, apartment-complex owner and former mortgagee Westview Drive Investments, LLC appeals from the take-nothing judgment rendered after a jury trial on its claims against King-Phillips Insurance Agency, Inc. for negligent misrepresentation, promissory estoppel, fraud, violations of the Deceptive Trade Practices-Consumer Protection Act ("DTPA"), and Chapter 541 of the Texas Insurance Code, and Westview's claims against insurer Landmark American Insurance Co. for breach of contract, fraud, and deceptive trade practices. Westview's principal and attorney Jack Yetiv appeals from the three sanctions orders rendered against him for emailing Landmark's attorney Bruce Wilkin during the trial and threatening to file a grievance against him if Wilkin did not make certain statements in open court.

         We overrule Westview's challenges to the (a) partial summary judgment against it on the scope of coverage, (b) directed verdict against it on limitations grounds on its claims against King-Phillips for negligent misrepresentation and for violations of the DTPA and Chapter 541 of the Texas Insurance Code, and (c) trial court's evidentiary rulings. We also overrule Westview's complaints of charge error and its complaints that, contrary to the jury's verdict, the great weight of the evidence establishes that Landmark breached the policy; that King-Phillips had apparent authority to act for Landmark; that King-Phillips is liable to Westview under a theory of promissory estoppel; that Landmark and King-Phillips defrauded Westview; and that Landmark engaged in unfair or deceptive acts or practices. Finally, we conclude that the trial court did not abuse its discretion in sanctioning Yetiv. We accordingly affirm the trial court's judgment.

         I. Background

         In early 2008, a group of companies affiliated with Texas Tomic Sharma Family LP owned four apartment complexes: Westview Forest Apartments, Kingsgate Village Apartments, and two others. Each apartment complex appears to have been owned by a different company. TTSF LP #5 ("TTSF") owned Westview Forest Apartments, and the property was the security for a note owned by FirstVal 1, Ltd. Despite the different ownership of the four apartment complexes, all of them were covered under the same insurance policy issued by Landmark American Insurance Company, which had been obtained by retail insurance broker King-Phillips Insurance Agency, Inc. from a wholesale insurance broker.

         As the mortgagee of Westview Forest Apartments, FirstVal required proof that the property was insured, so in February 2008, King-Phillips gave FirstVal a document referred to as an "EPI" for "Evidence of Property Insurance." The EPI identified Landmark and Westchester Surplus Lines as the companies issuing the insurance; TTSF as the named insured; and Westview Forest Apartments as the insured property. Under the heading "Additional Interest, " the EPI lists FirstVal, and FirstVal's interest is identified as "Mortgagee." Although FirstVal also owned a note secured by the Kingsgate Village Apartments, the EPI at issue in this case concerns only the Westview Forest Apartments.

         A. Westview's Acquisition of the Note and the Property

         Shortly after FirstVal received the EPI, TTSF filed for bankruptcy protection. With the approval of the bankruptcy trustee, FirstVal sold the note on Westview Forest Apartments to Westview Drive Investments, LLC ("Westview") in late September of 2008. Jack Yetiv, president of Westview's corporate managing member, signed the note on Westview's behalf. As part of the sale, FirstVal assigned the EPI to Westview. On October 7, 2008, Westview foreclosed on the note and purchased the apartment complex.

         B. Pre-claim Discussions of Insurance Coverage

         Beginning at around the same time as the foreclosure, King-Phillips's agent Greg McGehee began speaking with FirstVal's Dwayne Young, Yetiv, and Yetiv's attorney John Quinlan about an unpaid premium on the Landmark policy covering both the Westview Forest Apartments and the Kingsgate Village Apartments. To continue the coverage then in effect, Yetiv agreed with Young that FirstVal would pay the premium-finance company the portion of the premium allocable to the Westview Forest and Kingsgate Village Apartments, and Westview would reimburse FirstVal for Westview's share. Regarding the coverage that would be afforded to Westview under the policy, Quinlan emailed Yetiv that he thought the carrier needed to agree to change the named insured. After FirstVal made the premium payment, Yetiv forwarded Quinlan's email to Young and asked if the insurer or agent would commit to provide an EPI naming Westview as an insured. Young forwarded the email chain to McGehee and asked McGehee to address those concerns. McGehee responded to Young that he did not know the answer, and asked Young to forward his response "to all parties concerned." Five days later, McGehee emailed Young that he still did not have a final answer.

         On November 5, 2008, a fire destroyed the Westview Forest Apartments' leasing office. Yetiv did not report the fire, but continued to request evidence that Westview had property coverage under the Landmark policy. On November 13, 2008, McGehee emailed Yetiv that a transfer of coverage was left to the carrier's discretion, and on December 5, 2008, King-Phillips wrote to Yetiv that it was unable to transfer TTSF's coverage to Westview. Six weeks later, Yetiv reported the fire to King-Phillips and filed a claim on Westview's behalf.

         C. Post-claim Discussions of Insurance Coverage

         Westview sought insurance proceeds to cover the replacement of the building and its contents, and the loss of accounts receivable, valuable papers, business income, Westview's business personal property, and Yetiv's business personal property that was kept at the apartment complex's leasing office. Landmark informed Westview that the policy afforded Westview only the coverage available to a mortgagee, which was limited to coverage for covered losses to buildings or structures. The policy defined "building" to include (1) personal property used to maintain or service the building or its premises; and (2) materials, equipment, and supplies used for making additions, alterations, or repairs to the building. Landmark paid Westview more than $334, 000 for these losses and to reimburse Westview for its emergency expenses to secure the building immediately after the fire.

         Westview continued to assert that it was entitled to all of the coverage afforded to the named insured TTSF, and in addition, Westview made claims "on behalf of" TTSF. In response, Landmark pointed out that the policy limited coverage on TTSF's claims to the amount of TTSF's financial interest in the covered property. Landmark asked for evidence that TTSF's financial interest in the property survived the foreclosure, but none was ever produced.

         D. The Claims Against Landmark and King-Phillips

         In August 2012, Westview sued Landmark and King-Phillips.[1] Westview asserted a claim against Landmark for breach of contract and claims against both defendants for promissory estoppel, fraudulent inducement, negligent misrepresentation, violations of Chapter 541 of the Texas Insurance Code, and violations of the DTPA. Westview alleged that McGehee and King-Phillips had actual and apparent authority to act as Landmark's agents. With the exception of a breach-of-contract claim, all of Westview's complaints against Landmark were based on conduct by McGehee or King-Phillips as Landmark's alleged agents.

         The trial court granted Landmark partial summary judgment holding that under the policy, Westview was a mortgageholder rather than a named insured, and that the policy did not provide coverage to a mortgageholder for business personal property, business income, accounts receivable, or valuable papers and records. The trial court also granted Westview partial summary judgment holding that under Texas Insurance Code section 4001.051, King-Phillips is Landmark's agent for the purpose of claims brought under Chapter 541 of the Texas Insurance Code. The trial court denied the motion as to any claims that the statute authorized King-Phillips or McGehee to alter any policy terms.

         Before the case was submitted to the jury, the trial court granted King-Phillips's motion for directed verdict on Westview's DTPA, Insurance Code, and negligent-misrepresentation claims on limitations grounds. The jury was asked whether Landmark was liable for breach of contract, promissory estoppel, and unfair or deceptive acts or practices; whether King-Phillips acted with Landmark's apparent authority; and whether either defendant was liable for fraud. The jury answered each question in the negative.

         E. The Sanctions Against Yetiv

         At trial, Yetiv testified that he waited for over two months before reporting the fire because Westview's attorney Edward Rothberg agreed with him that it would be better to first obtain evidence of insurance coverage. Landmark and King-Phillips responded by serving Rothberg and Rothberg's former law firm with subpoenas duces tecum to discover Rothberg's communications with Yetiv about disclosing the fire. Westview moved to quash the subpoenas on the ground that the documents were protected by attorney-client privilege. In response, Landmark and King-Phillips argued that the documents fell within the crime-fraud exception to the privilege, and the trial court agreed.

         After this ruling, Yetiv emailed Landmark's attorney Bruce Wilkin and threatened to present disciplinary charges against him and his firm unless by noon on the next business day Wilkin announced in open court that there was no factual or legal basis for the argument that the crime-fraud exception applied; apologized for raising the argument; and withdrew it entirely. Wilkin did not do so, and after both sides rested, Landmark's lead counsel brought the email to the trial court's attention. The trial court ordered Yetiv to show cause why it should not sanction him under its inherent powers or "take appropriate action" under Canon 3(D) of the Texas Code of Judicial Conduct.

         After the show-cause hearing, the trial court found that Yetiv violated Rule 4.04 of the Texas Disciplinary Rules of Professional Conduct. It ordered Yetiv to complete twelve hours of continuing education in ethics and ordered the clerk of the court to send the transcript of the show-cause hearing and certified copies of the exhibits and the court's orders to the Chief Disciplinary Counsel of the State Bar of Texas. In addition, the trial court sanctioned Yetiv under its inherent powers, ordering him to pay the defendants' attorneys' fees "incurred as a result of the proceedings arising from" the email. Yetiv did not controvert King-Phillips's evidence that it reasonably incurred $551 in attorney's fees, and the trial court ordered that amount paid directly to King-Phillips's lead counsel. Because Yetiv controverted the amount of Landmark's attorneys' fees, the trial court held another evidentiary hearing, after which it ordered Yetiv to pay Landmark's attorneys' fees of $4, 378 into the registry of the court. The trial court then rendered the final judgment incorporating the partial summary judgments, the directed verdict, the jury's verdict, and the sanctions orders, and allowed Westview's motion for new trial on factual-sufficiency grounds to be overruled by operation of law.

         II. Issues Presented

         Westview challenges the trial court's rulings granting Landmark partial summary judgment on coverage issues; granting King-Phillips a directed verdict on Westview's DTPA, Insurance Code, and negligent-misrepresentation claims on limitations grounds; and excluding evidence that Landmark issued an endorsement to the policy making FirstVal a named insured with respect to Kingsgate Village Apartments. Westview additionally raises several complaints of charge error, and challenges the factual sufficiency of the evidence to support each of the jury's answers pertaining to Westview's claims. Yetiv challenges the trial court's sanctions against him.

         III. Westview's Appeal

         Because Westview is the primary appellant, we address its issues first.

         A. Summary Judgment Regarding the Scope of Coverage

         A movant for traditional summary judgment has the burden of showing 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); Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). If the movant initially establishes a right to summary judgment on the issues expressly presented in the motion, then the burden shifts to the nonmovant to present to the trial court any issues or evidence that would preclude summary judgment. See City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678-79 (Tex. 1979). We review a summary judgment de novo. See Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). When reviewing a traditional summary judgment, we consider all the evidence in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if a reasonable factfinder could, and disregarding contrary evidence unless a reasonable factfinder could not. See Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006).

         1. The policy's terms

         An insurance policy generally is governed by the same rules of construction that apply to other contracts. RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015). As with any written contract, our primary concern is to identify the parties' intentions as expressed in the document. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003). We accordingly begin our analysis with the policy's language. See JAW The Pointe, L.L.C. v. Lexington Ins. Co., 460 S.W.3d 597, 602 (Tex. 2015) ("In determining a question of insurance coverage, we look first to 'the language of the policy because we presume parties intend what the words of their contract say.'" (quoting Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118, 126 (Tex. 2010) (sub. op.))). We strive to harmonize the entire agreement, giving effect to all of the policy's words and provisions so that none are rendered meaningless. Id. at 603.

         If the parties offer differing constructions of the policy but only one is reasonable, then the policy is unambiguous and we will adopt that construction. See RSUI Indem. Co., 466 S.W.3d at 118. But if the policy's provisions are unclear or inconsistent, and after applying the pertinent rules of construction, more than one interpretation is reasonable, then the contract is ambiguous. See, e.g., J.M. Davidson, Inc., 128 S.W.3d at 229 (addressing contracts generally); Gonzalez v. Mission Am. Ins. Co., 795 S.W.2d 734, 737 (Tex. 1990) (specifically addressing insurance policies). An ambiguous policy is construed against the insurer and in favor of coverage. See, e.g., Gonzalez, 795 S.W.2d at 737; RSUI Indem. Co., 466 S.W.3d at 118. Whether a contract is ambiguous is a question of law for the court to decide; the parties' mere disagreement about the contract's meaning does not create an ambiguity. See In re Deepwater Horizon, 470 S.W.3d 452, 464 (Tex. 2015).

         a. The policy's "named insured" coverage

         Westview maintains that because it is the owner of the Westview Forest Apartments, the Landmark policy affords it the same "named insured" coverage provided to the apartment complex's prior owner TTSF. But at all times from Westview's purchase of the note through the date of the fire, the policy listed as named insureds only TTSF and its affiliated companies having some interest in one or more of four apartment complexes.[2]

         When Westview foreclosed on the property, it did not automatically acquire the same coverage afforded to TTSF. The policy states, "Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured, " and it defines "'you' and 'your' [to] refer to the Named Insured shown in the Declarations." It is undisputed that Landmark never consented in writing to the transfer of TTSF's rights under the policy to Westview. Thus, under the policy's unambiguous terms, Landmark did not provide Westview "named insured" coverage.

         b. The policy's "mortgageholders" coverage

         Another policy provision-the "mortgageholders" provision-affords lesser coverage to an entity other than the named insured. The scope of that coverage is shown by the provision's placement in the policy and by its terms.

         The Landmark policy contains two "coverage parts, " namely, commercial inland marine and commercial property. Each coverage part includes a variety of "coverage forms." The commercial inland marine coverage part includes "accounts receivable" and "valuable papers and records" coverage forms. The commercial property coverage part includes "business income" and "building and personal property" coverage forms. The "mortgageholders" provision is found only in the "building and personal property" coverage form.

          The mortgageholders provision states, "We will pay for covered loss of or damage to buildings and structures to each mortgageholder shown in the Declarations in their order of precedence, as interests may appear." Under this unambiguous language, a mortgageholder has coverage for loss of or damage to Westview Forest Apartments' "buildings and structures, " as that expression is used in the policy.

         The declarations identify FirstVal as the mortgageholder on the Westview Forest and Kingsgate Village properties, and when FirstVal sold the note to Westview, Westview became the mortgageholder of the Westview Forest Apartments. Although the declarations page was not amended to add Westview, Landmark nevertheless honored FirstVal's assignment to Westview of FirstVal's interest in the policy as the mortgageholder of the Westview Forest Apartments. Landmark accordingly afforded Westview the coverage that the policy provided to a mortgageholder, that is, coverage for loss of or damage to Westview Forest Apartments' "buildings and structures."

         2. Westview's arguments for broader coverage

         Westview contends that the trial court erred in granting partial summary judgment holding that the policy provided coverage to Westview only as a mortgageholder. According to Westview, it is entitled to named-insured coverage because (a) it succeeded to FirstVal's rights under the policy's EPI and declarations; (b) TTSF assigned the policy and all other property to the mortgageholder, including insurance proceeds from its business-interruption, accounts-receivable, and valuable-papers coverage; (c) TTSF agreed to procure the insurance for the mortgageholder's benefit; and (d) Texas Insurance Code section 862.055 entitles a mortgageholder to collect fully on a fire-insurance policy if the named insured cannot do so. We discuss each argument in turn.

          a. A mortgageholder's coverage under the policy's EPI and declarations

         The policy's coverage of FirstVal's interest in Westview Forest Apartments was transferred to Westview, but what was the scope of that coverage? According to Westview, the policy's EPI and declarations give a mortgageholder the same coverage as that afforded to a named insured.

         Westview, however, has made mistaken assumptions about the terms used in these documents. The EPI concerning Westview Forest Apartments identified TTSF as the only "named insured" and identified FirstVal as an "additional interest." According to Westview, an "additional interest" is the same as an "additional named insured" or an "additional insured, " and as such, an "additional interest" is entitled to the same coverage provided to the named insured. This is incorrect.

         "Additional insured" and "additional named insured" are terms with well-established technical meanings in insurance policies. See W. Indem. Ins. Co. v. Am. Physicians Ins. Exch., 950 S.W.2d 185, 188 (Tex. App.-Austin 1997, no writ). An "additional insured" is one whose status-such as that of an employee or a household member-places him within the policy's definition of "insured." See id. at 189. An "additional named insured" is one who is specifically identified as a named insured to an already-existing policy. See id. The EPI contained a box to be filled in with the identity of any "additional named insured(s), "[3] and tellingly, the box is empty.

         Rather than characterizing FirstVal as an "insured, " the EPI described FirstVal only as having an "additional interest." As used in this context, "interest" means "a stake, share, or involvement in an undertaking, esp. a financial one." New Oxford American Dictionary 905 (Angus Stevenson & Christine Lindberg, eds., 3d ed. 2010). This definition describes FirstVal's interest as a mortgageholder because when the EPI was issued, FirstVal had a security interest in the insured property. FirstVal's financial interest as a mortgageholder is the only interest that it ever had in Westview Forest Apartments, and that is the only interest it assigned to Westview.

         Westview's argument regarding the policy's declarations follows the same lines as its argument about the EPI, and fails for the same reason. When the fire occurred, the declarations identified only the TTSF companies as the named insureds, [4] and listed FirstVal only as "mortgage holder." Moreover, the declarations state, "In return for the payment of the premium, and subject to all the terms of this policy, we agree with [TTSF] to provide the insurance as stated in this policy."[5] Under the policy's terms, the coverage provided to mortgagees is specified in the mortgageholders provision, and that coverage is narrower than the coverage provided to the named insured.

         b. Coverage under TTSF's assignment of its policy to the mortgageholder

         Westview next contends that if a mortgagor has assigned its policy to the mortgagee, then the mortgagee is entitled to collect all coverages included in the policy, including proceeds payable for business interruption, loss of accounts receivable, and loss of or damage to valuable papers. The only case it cites in support of this proposition is Peacock Hospitality, Inc. v. Association Casualty Insurance Co., 419 S.W.3d 649, 652 (Tex. App.-San Antonio 2013, no pet.). We find no such holding in that case, which is factually distinguishable. Peacock did not involve demands for coverage for business interruption, accounts receivable, or valuable papers. The coverage dispute in Peacock concerned only the amount due for building repairs, and here, Landmark and Westview agreed on the amount to be paid to replace the leasing office. Further, Landmark's policy provided that the TTSF's rights could not be transferred without Landmark's written consent, which was never given.

         c. Coverage implied by TTSF's agreement to procure insurance for the mortgagee's benefit

         Westview also contends that under Texas law, a mortgagee can collect on the mortgagor's insurance policy if the mortgagor agreed to procure insurance for the mortgagee's benefit. In support of this position, Westview cites several cases holding that if a security agreement requires the mortgagor to procure insurance for the mortgagee's benefit and the policy contains no such provision, then equity will imply its existence. See, e.g., Beneficial Standard Life Ins. Co. v. Trinity Nat'l Bank, 763 S.W.2d 52, 55 (Tex. App.-Dallas 1988, writ denied) (op. on reh'g); Cont'l Ins. Co. v. Stewart & Stevenson Servs., Inc., 306 S.W.2d 415, 420 (Tex. Civ. App.-Houston 1957, writ ref'd n.r.e.); Fid. & Guar. Ins. Corp. v. Super-Cold Sw. Co., 225 S.W.2d 924, 927 (Tex. Civ. App.-Amarillo 1949, writ ref'd n.r.e.). According to Westview, it can collect all coverages afforded by the policy because the deed of trust between TTSF and the original mortgagee required TTSF to procure insurance for the mortgagee's benefit. Stated differently, Westview contends that it has an equitable lien on the proceeds of all of coverage available to the named insured. Cf. Trinity Nat'l Bank, 763 S.W.2d at 54-55.

         An equitable lien is imposed on insurance proceeds when (1) the named insured owns property, (2) a third party has a secured interest in the property, (3) the named insured agreed to protect the third-party's security interest by obtaining insurance with a loss-payable clause in the third party's favor, and (4) the named insured failed to procure the agreed coverage.[6] See id. In those circumstances, the third party is entitled to an equitable lien in the amount of the outstanding secured debt on the insurance proceeds under the principle that "equity treats that as done which should have been done." Super-Cold Sw. Co., 225 S.W.2d at 927. The equitable lien then fulfills the missing loss-payable clause's purpose "to protect the security interest of one who has advanced money to others for the purchase of property" by allowing the third party to recover insurance proceeds up to the amount of the outstanding debt "so that the mortgagee, who has advanced money on the property, will be protected." Helmer v. Tex. Farmers Ins. Co., 632 S.W.2d 194, 196 (Tex. App.-Fort Worth 1982, no writ). Compare Trinity Nat'l Bank, 763 S.W.2d at 55 (holding that a mortgageholder could not recover under the equitable-lien doctrine where the property owner's debt had been extinguished by the mortgageholder's foreclosure) with Wade v. Seeburg, 688 S.W.2d 638, 639 (Tex. App.-Texarkana 1985, no writ) (holding that, under the equitable-lien doctrine, the trial court correctly awarded the secured party the amount of the outstanding debt). Thus, an equitable lien will not be imposed if the named insured no longer owns the property or if the debt which the property secured has been extinguished. See Chartis Specialty Ins. Co. v. Tesoro Corp., 113 F.Supp.3d 924, 938 (W.D. Tex. 2015), aff'd sub nom. AIG Specialty Ins. Co. v. Tesoro Corp., 840 F.3d 205 (5th Cir. 2016); Helmer, 632 S.W.2d at 196.

         Although Westview produced some evidence that TTSF agreed to procure insurance covering the mortgageholder's interest, Westview did not establish that the other requirements for imposing an equitable lien were satisfied. To the contrary, the evidence conclusively establishes that TTSF fulfilled its obligation to obtain a policy containing a loss-payable clause protecting the mortgageholder's interest and that, at the time of loss, TTSF neither owned the property nor owed a particular amount on the mortgageholder's note. Westview therefore is not entitled to an equitable lien on insurance proceeds payable under the named insured's coverage.[7]

         d. Coverage mandated by Texas Insurance Code section 862.055

         Finally, Westview represents that Texas Insurance Code section 862.055 "entitles lenders to collect fully on a fire insurance policy if the named insured cannot do so, as was the case here."[8] But this statute actually says that "[t]he interest of a mortgagee" under a fire-insurance policy "may not be invalidated" by the mortgagor's or property owner's act or neglect, or by an occurrence beyond their control. See Tex. Ins. Code Ann. § 862.055 (West 2009).

         This statute does not apply here because Westview's interest as a mortgagee was not invalidated. To the contrary, Westview was treated as a mortgagee under the policy, and in that capacity, was paid more than $334, 000.

          For all of the foregoing reasons, we overrule Westview's challenge to the trial court's partial summary judgment on the scope of its coverage under the policy.

         B. Directed Verdict on ...

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