Opinion ID: 9029
Heading Depth: 2
Heading Rank: 1

Heading: standing & art. 21.21

Text: 9 The district court granted Verex's motion for summary judgment as to Palma's claims based upon alleged violations of the Texas Insurance Code after concluding that Palma did not have standing to assert those claims under art. 21.21(16) of the Texas Insurance Code. 2 We review the district court's grant of summary judgment de novo. Thomas v. Price, 975 F.2d 231, 235 (5th Cir.1992). 10 The district court's jurisdiction in this case was based on diversity of citizenship and it correctly held that it was bound to apply the substantive law of the State of Texas. Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). We begin our review of the district court's decision by examining the applicable law. 11 Art. 21.21(16) of the Texas Insurance Code provides: 12 Any person who has sustained actual damages as a result of another's engaging in an act or practice declared in § 4 of this Article ... [to be] unfair or deceptive acts ... in the business of insurance or in any practice defined by § 17.46 of the Business and Commerce Code ... as an unlawful trade practice may maintain an action against the person ... engaging in such acts. (emphasis added). 13 Although any person would appear to be sufficiently broad to permit Palma to have standing, it appears to have been narrowly construed. This court, interpreting the laws of Texas, has held that absent privity of contract or some sort of reliance by the person bringing the claim on the words or deeds of the insurer, a suit will not lie under art. 21.21. Warfield v. Fidelity and Deposit Co., 904 F.2d 322, 327 (5th Cir.1990). In reaching this holding the court analyzed two decisions from the Texas courts of appeal that had addressed standing under art. 21.21. The first case was Chaffin v. Transamerica Ins. Co., 731 S.W.2d 728, 731 (Tex.App.--Houston [14th Dist.] 1987, writ ref'd n.r.e.). The court, discussing Chaffin, stated that the Texas court held that the term 'person' in art. 21.21 means either an insured or a beneficiary of the policy. Warfield, 904 F.2d at 326. The second case was Hermann Hosp. v. National Standard Ins. Co., 776 S.W.2d 249, 252 (Tex.App.--Houston [1st Dist.] 1989, writ denied). The court noted that Hermann broadened standing under art. 21.21 to include persons who had relied on representations of the insured. Warfield, 904 F.2d at 327. Despite expressly recognizing that Chaffin extended standing to beneficiaries of insurance policies, Warfield limited standing to those with privity of contract or those who had relied on the words or deeds of the insurer. This analysis was later recognized as the new test for determining standing under art. 21.21. In Re Burzynski, 989 F.2d 733, 741 (5th Cir.1993). 14 The Texas Supreme Court recently addressed standing under art. 21.21 in the context of a claim asserted under an automobile liability policy by a third-party claimant in a direct action against an insurer arising out of an accident with the insured. In that type of action, the court held that third-party claimants are not entitled to standing under art. 21.21. Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 150 (Tex.1994). The court found that the following factors weighed against granting standing to the third-party claimant: 15 A third-party claimant has no contract with the insurer or the insured, has not paid any premiums, has no legal relationship to the insurer or special relationship of trust with the insurer, and in short, has no basis upon which to expect or demand the benefit of the extra-contractual obligations imposed on insurers under art. 21.21 with regard to their insureds. 16 Id. at 149. The court then noted that although it had previously extended standing to third-party beneficiaries of automobile insurance policies, it refused to extend standing to third-party claimants of those policies under art. 21.21. Id. at 150 (citing Dairyland County Mut. Ins. Co. v. Childress, 650 S.W.2d 770 (Tex.1983)). 3 17 Due to the unique nature of the mortgage insurance policy in the instant case, Palma, unlike the third-party claimant in Watson, satisfies most of the the factors discussed by the Texas Supreme Court that weighed against standing in that case. Palma had a contract with the insured, City Federal, in the form of a mortgage. Palma paid the premiums for the mortgage insurance. Additionally, Palma is designated by name in the certificate of insurance issued by Verex to City Federal. The considerations that weighed against standing in Watson weigh in favor of granting Palma standing in the instant case. However, because the court did not expressly state that these factors were to be used when deciding whether a party was entitled to standing under art. 21.21 we must determine what the Texas Supreme Court would do if it were presented with the issue before us. 18 When presented with an unsettled point of state law, our role under Erie is to determine how the [Texas] Supreme Court would resolve the issue if presented with it. Coatings Mfrs., Inc. v. DPI, Inc., 926 F.2d 474, 479 (5th Cir.1991). The factors discussed by the Texas Supreme Court in Watson that weighed against extending standing to the third-party claimant in that case are present in the instant case. This, combined with the unique nature of mortgage insurance, we believe impacts on our analysis of standing under art. 21.21. Consequently, we conclude that if the Texas Supreme Court were presented with the question before us it would hold that standing under art. 21.21 is satisfied by not only those who can establish privity of contract or reliance on a representation of the insurer, but also by those who can establish that they were an intended third-party beneficiary of the insurance contract. 4 Therefore, we must determine whether Palma was an intended third-party beneficiary of the contract between Verex and City Federal in order to determine if the district court was correct when it found that Palma lacked standing to sue under art. 21.21.
19 Under Texas law, in order for Palma to qualify as a third-party beneficiary of the insurance contract she must prove three things: (1) that she was not privy to the written agreements between Verex and City Federal; (2) that the contract was made at least in part for her benefit; and (3) that the contracting parties intended for Palma to benefit by their written agreements. Talman Home Fed. Sav. & Loan Ass'n of Illinois v. American Bankers Ins., 924 F.2d 1347, 1350 (5th Cir.1991) (internal citations omitted). 20 It is undisputed that Palma was not privy to the contract entered into between Verex and City Federal, thereby satisfying the first element of the analysis. Whether the contract was made for her benefit is derived solely from the language of the contract. Id. 21 Condition 15 of the contract for mortgage insurance states: 22 15. NO RIGHT OF SUBROGATION AGAINST THE BORROWER. The Borrower shall not be liable to the Company for any loss paid to the Insured pursuant to this policy; provided, however, that the real estate shall consist of a single-family dwelling occupied by the Borrower; otherwise, the Company reserves the right to make a claim against the Borrower for any loss paid or deficiency suffered by the Company. 23 This language benefits the borrower only, in this case Palma. However, the very next condition in the contract states:16. TO WHOM PROVISIONS APPLICABLE. The provisions of this policy shall inure to the benefit of and be binding upon the Company and the Insured and their successors and assigns. 24 Under Texas law, contracts for insurance are generally enforced as written; however, ambiguous insurance contracts are interpreted against the insurer. National Union Fire Ins. Co. v. Hudson Energy Co., Inc., 811 S.W.2d 552, 555 (Tex.1991). The interpretation of an insurance contract, including whether it is ambiguous, is a legal determination subject to de novo review. Truehart v. Blandon, 884 F.2d 223, 226 (5th Cir.1989). Therefore, we must examine Condition 15 and Condition 16 in order to determine if an ambiguity exists. 25 Condition 15 is written for the sole benefit of the borrower. The policy specifies additional beneficiaries in Condition 16 which states that the policy provisions are written for the benefit of Verex and City Federal. Neither condition is mutually exclusive. However, if these two provisions create an ambiguity it is to be construed against Verex. National Union Fire Ins. Co., 811 S.W.2d at 555. In any event, we find no ambiguity created by Conditions 15 and 16. We also find that the insurance contract was actually made, in part, for the benefit of Palma. 26 Finally, we must determine if Verex and City Federal intended the contract to benefit Palma. The intent of the contracting parties is discerned from the four corners of the instrument. See Talman, 924 F.2d at 1350 (It is the intention and purpose of the contracting parties, as disclosed within the four corners of the instrument, which should control) (internal citation omitted). 27 One Texas court has stated that [w]here a stranger contends that it was intended that the provisions of a contract should inure to his benefit such intention must be clearly apparent. If there is any doubt concerning the intent in this regard as it appears from the contract itself, such doubt should be construed against such intent. 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.); see Talman, 924 F.2d at 1351 (quoting Republic Nat'l Bank ). Palma is not a stranger to the insurance contract between Verex and City Federal; she is specifically identified as the borrower in the contract itself. Consequently, the Talman decision does not affect our analysis. 28 The contract for insurance was clearly intended, in part, to benefit Palma. 5 Consequently, the three elements having been satisfied, we find that Palma is an intended third-party beneficiary of the contract for mortgage insurance entered into between Verex and City Federal. 29 Having determined that Palma is an intended third-party beneficiary, it would appear that a reversal of the trial court's grant of summary judgment on this issue is all that remains for us to do. However, in finding of fact seven the trial court alternatively found that even if Palma were a third-party beneficiary she could not enforce the contract for insurance. This alternative finding was based upon the district court's interpretation of language contained within Condition 15 of the contract for insurance relating to whether the contract's validity was dependent upon Palma occupying the property.
30 We review conclusions of law de novo and findings of fact for clear error. Switzer v. Wal-Mart Stores, Inc., 52 F.3d 1294, 1298 (5th Cir.1995). The district court classified its alternative determination of the applicability of Condition 15, which focused upon occupancy, as a finding of fact. However, because this finding was based upon an interpretation of the policy it is reviewed as a conclusion of law. Harbor Ins. Co. v. Urban Constr. Co., 990 F.2d 195, 199 (5th Cir.1993). Consequently, we conduct a de novo review. 31 Condition 15 states that the borrower is not liable to Verex for any loss paid to the Insured pursuant to this policy; provided, however, that the real estate shall consist of a single-family dwelling occupied by the Borrower.  (emphasis added). Consequently, we must determine whether Palma was required to occupy the property at the time of default in order to be entitled to the protection afforded to borrowers by Condition 15. 32 Condition 15 provides us with no guidance as to when occupancy is to be determined. If occupancy is determined at the time the contract was entered into, then Palma is clearly within the language of Condition 15. However, if occupancy is determined at the time of default, then the district court correctly found that Palma was afforded no protection. The ambiguity is apparent and it must be interpreted against Verex. National Union Fire Ins. Co., 811 S.W.2d at 555. Therefore, we hold that occupancy is determined at the time the contract of insurance was entered into and the policy was issued. As a result of this determination, we find that the district court erred in its alternative finding, and we hold that Palma satisfied the language of the policy by occupying the dwelling at the time the contract of insurance was entered into and the policy was issued. The impact of the court's error, concerning Palma's ability to enforce the terms of the contract, is discussed below.