Court Opinion

ID: 2867626
Source: CourtListenerOpinion
Date Created: 2015-09-06 02:17:04.244116+00
Date Added: 2024-06-11T12:45:25.968150
License: Public Domain

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                       NO. 03-03-00659-CV

    Global Santa Fe Corporation, f/k/a Sante Fe International Corporation, Appellant

                                                  v.

           Texas Property and Casualty Insurance Guaranty Association, Appellee

     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT
        NO. GN-301047, HONORABLE LORA J. LIVINGSTON, JUDGE PRESIDING

                                           OPINION

               The issue in this case is whether the phrase “paid on behalf of” as it is used in article

21.28-C, section 11(b) of the insurance code requires the Texas Property and Casualty Insurance

Guaranty Association (the Association) to apportion responsibility among multiple insureds covered

under a single insurance policy prior to seeking recoupment from a net worth insured.1 The

Association demanded payment of $300,000 from Global Santa Fe Corp. (Global) based on a

       1
           We will refer to article 21.28-C, section 11(b) as the “net worth recoupment statute”
throughout this opinion. The net worth recoupment statute grants to the Association the right to
recover the amount of any covered claim paid on behalf of any insured whose net worth exceeds
$50,000,000 and whose liability obligations to other persons are satisfied in whole or in part by
payments made under the Texas Property and Casualty Insurance Guaranty Act (the Guaranty Act).
See Act of May 16, 1995, 74th Leg., R.S., ch. 275, § 1, 1995 Tex. Gen. Laws 2616, 2616. We will
refer to an insured who meets this description as a “net worth insured.”
contribution the Association made to settle a suit filed against Global after its insurance provider

became impaired.2 When Global refused to pay, the Association filed suit. The trial court granted

the Association’s motion for partial summary judgment and ordered Global to pay the Association.

On appeal, Global contends that the trial court misconstrued the statute as there was no evidence of

how much contribution was paid solely on behalf of Global because the Association failed to

properly apportion its contribution among the multiple insureds. We agree with the trial court that

the net worth recoupment statute does not require apportionment between multiple insureds.

                                         BACKGROUND

               In July 1999, Shane Hancock was injured when his motorcycle was struck by a

vehicle driven by Albert Tortolano, an employee of Sphere Supply, Inc. (Sphere). Sphere is a

wholly-owned subsidiary of Global. Tortolano’s vehicle was owned by Sphere and was covered by

a commercial auto policy issued to Global by Reliance National Indemnity Company (Reliance).

Hancock sued Tortolano, Sphere, and Global alleging that they were each liable for his damages

from the accident. The Reliance auto policy covered Hancock’s claims.

               In October 2001, Reliance was designated an impaired insurer, triggering the

Association’s statutory obligation to pay its covered claims.3 Pedro Dilan, a claims examiner for the

       2
          An insurance provider is impaired if it has been placed in temporary or permanent
receivership or liquidation by a court based on a finding of insolvency or it has been placed in
conservatorship after the insurance commissioner has determined it to be insolvent. Tex. Ins. Code
Ann. art. 21.28-C, § 5(9) (West Supp. 2004-05).
       3
         A “covered claim” is an unpaid claim of an insured or third-party liability claimant that
arises out of and is within the coverage and not in excess of the applicable limits of an insurance

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Association, determined that Hancock’s claims qualified as a covered claim under the Act and

recommended that the Association contribute the maximum of $300,000 towards settlement in

exchange for a full and final release of all claims against all of the named defendants. In a letter

explaining the Association’s position, Mr. Dilan also advised that the Association would not waive

its statutory right to seek net worth recoupment from Global.4 In October 2002, all parties agreed

to a settlement. In all, Mr. Hancock received $800,000—$300,000 from the Association and

$500,000 from Global.

policy covered by the Act. Tex. Ins. Code Ann. art. 21.28-C, § 5(8) (West Supp. 2004-05). An
individual covered claim is limited to $300,000. Id.
       4
           At the time the parties settled, the net worth recoupment statute stated:

           The Association is entitled to recover from the following persons the amount of
           any covered claim paid on behalf of that person under this Act:

           (1) any insured, other than an insured who is exempt from federal income tax
               under Section 501(a) of the Internal Revenue Code of 1986 by being
               described by Section 501(c)(3) of that code, whose net worth on December
               31 of the year next preceding the date the insurer becomes an impaired
               insurer exceeds $50,000,000 and whose liability obligations to other persons
               under a policy or contract of insurance written, issued, and placed in force
               after January 1, 1992, are satisfied in whole or in part by payments made
               under this Act; and

           (2) any person who is an affiliate of the impaired insurer and whose liability
               obligations and liability obligations to other persons are satisfied in whole
               or in part by payments made under this Act.

Act of May 16, 1995, 74th Leg., R.S., ch. 275, § 1, 1995 Tex. Gen. Laws 2616, 2616 (amended
2003) (current version Tex. Ins. Code Ann. art. 21.28-C, § 11(b) (West Supp. 2004-05).

                                                   3
               In January 2003, the Association made a written demand upon Global for the

$300,000 paid on Global’s behalf.        Global refused to pay, claiming that the Association’s

contribution was not paid solely on Global’s behalf when there were multiple insureds covered under

its insurance policy that were named as defendants who also benefitted from the Association’s

contributions. Global posited that because the settlement agreement did not apportion exactly how

much of the Association’s contribution was paid on behalf of each insured, it was unclear how much,

if any, was paid on behalf of Global. Global maintained that the Association could not recover any

of its contribution unless it could produce evidence demonstrating what portion of the contribution

was paid on behalf of Global.

               The Association filed suit. The trial court granted the Association’s motion for partial

summary judgment on its declaratory and statutory entitlement claims. The Association then

dropped all other claims against Global, and the trial court entered a final judgment. This appeal

followed.

                                   STANDARD OF REVIEW

               We review the trial court’s summary judgments de novo. See FM Props. Operating

Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000). When reviewing a motion for summary

judgment, the court takes the nonmovant’s evidence as true, indulges every reasonable inference in

favor of the nonmovant, and resolves all doubts in favor of the nonmovant. M.D. Anderson Hosp.

v. Willrich, 28 S.W.3d 22, 23 (Tex. 2000) (citing Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546,

548-49 (Tex. 1985)). Under Texas Rule of Civil Procedure 166a(c), the moving party bears the

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burden to show that no genuine issue of material fact exists and that it is entitled to judgment as a

matter of law. Tex. R. Civ. P. 166a(c); Haase v. Glazner, 62 S.W.3d 795, 797 (Tex. 2001); Rhone-

Poulenc, Inc. v. Steel, 997 S.W.2d 217, 223 (Tex. 1999). We affirm the summary judgment if any

of the theories presented to the trial court and preserved for appellate review are meritorious.

Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 626 (Tex. 1996).

                                          DISCUSSION

               The Guaranty Act is designed to provide a mechanism for the timely payment of

covered claims under certain insurance policies while also providing a partial safety net to policy

holders in the event of insurer insolvency. See Tex. Ins. Code Ann. art. 21.28-C, § 2 (West Supp.

2004-05). To accomplish this, the Association calculates the amount of funds necessary to pay the

covered claims of an impaired insurer and assesses all non-impaired insurers to cover these payments

in an amount directly proportional to their percentage of net premiums written for the preceding

calendar year. See id. § 8(a-c). In many instances the maximum total assessment will prove

insufficient to pay all covered claims of an impaired insurer.

               In 1992, the Guaranty Act was significantly overhauled and the net worth recoupment

statute was added as a means of addressing funding gaps inherent in the assessment system. The net

worth recoupment statute was modeled on similar statutes used successfully in other states. See

House Ins. Comm., Bill Analysis, Tex. H.B. 62, 72d Leg., 2d C.S. (1992). The wording of the Texas

statute was essentially the same as the one found in the Post-Assessment Property and Liability

Insurance Guaranty Association Model Act, written by the National Association of Insurance

                                                 5
Commissioners (the Commissioners). The Commissioners felt that a net worth recoupment

provision provided more funds for those insureds in real need of protection and less for those

insureds capable of self-insuring or making wise choices in purchasing insurance. See 1986 NAIC

Proc. 1st Qtr., 431 (Guaranty Fund task force suggesting that large corporations are usually better

equipped than individual consumers to evaluate financial health of insurance companies).

Additionally, the Texas Legislature clearly understood that the net worth recoupment statute

deprived large corporations of the Act’s protection. See Senate Econ. Dev. Comm., Bill Analysis,

Tex. S.B. 391, 74th Leg., R.S. (1995) (stating that “corporations that paid millions in premiums were

suddenly divested of the Act’s protection” as result of net worth recoupment statute).

               While Global does not disagree that the net worth recoupment statute was designed

to provide a mechanism for the Association to recover from a net worth insured, it contends that the

phrase “paid on behalf of” implies that in a situation where there are multiple insureds covered under

a single policy, the Association must prove the exact dollar amount paid on behalf of each insured

before seeking recoupment. Thus, because the settlement agreement here did not apportion exactly

how much of the Association’s contribution was paid on behalf of each insured, it was unclear how

much, if any, was paid on behalf of Global. Therefore, Global avers that the Association was not

entitled to recoupment, and that the summary judgment should have been denied.

               Statutory construction is a question of law, which we review de novo. Bragg v.

Edwards Aquifer Auth., 71 S.W.3d 729, 734 (Tex. 2002). Our goal is to ascertain and give effect

to the legislature’s intent for the provision in question. Cont’l Cas. Co. v. Downs, 81 S.W.3d 803,

                                                  6
805 (Tex. 2002). In order to ascertain legislative intent, we first look to the plain and common

meaning of the words used by the legislature. Tex. Gov’t Code Ann. §§ 311.011, 312.002 (West

1998) (mandating that “words and phrases that have acquired a technical or particular meaning . . .

shall be construed accordingly” and “if a word is connected with and used with reference to a

particular trade or subject matter or is used as a word of art, the word shall have the meaning given

by experts in the particular trade, subject matter, or art”); Fitzgerald v. Advanced Spine Fixation Sys.,

996 S.W.2d 864, 866 (Tex. 1999).

                The phrase “paid on behalf of” in the net worth recoupment statute is a term of art

employed by the legislature to refer to a third-party claim. A third-party claim is one in which the

insurer, as a representative of an insured, pays a third-party rather than paying the insured directly

as it would do in a first-party claim. See Glossary—Common Insurance Terms, available at

http://www.tdi.state.tx.us/consumer/glossary.html (defining third-party loss as “a situation involving

a person other than the insurer and the insured; i.e., a person making a liability claim against the

insured”) (last modified Nov. 1, 2004). Acting on behalf of a person is acting as “a representative

of or proxy for” that person. The Random House College Dictionary 122 (Revised ed. 1984). Thus,

when an insurer pays a third-party claim, it does so on behalf of the insured.

                The phrase “paid on behalf of” does not refer to the amount of economic benefit an

insured receives from the Association’s contribution; it refers to the fact that the Association has paid

a covered claim to satisfy the liability of an insured to a third party claimant. Such a claim would

have been paid by the insurer if it had remained solvent. Therefore, if the Association pays a covered

claim that was filed against multiple insureds covered under a single policy then it does so on behalf

                                                   7
of all the insureds. If the legislature intended the phrase to refer to the exact amount of economic

benefit an individual insured received as a result of the Association’s contribution, it could have used

the language “paid on behalf of that person exclusively.” It did not. We hold that the plain meaning

of the phrase “paid on behalf of,” when used in the context of the insurance industry, does not

indicate that the Association must apportion a contribution made to settle a single claim among

multiple insureds before seeking recoupment from a net worth insured.

               In this case, there is one covered claim that involves multiple insureds covered under

a single policy. The Association paid $300,000 to Shane Hancock on behalf of all of the insureds

to assist in settling the underlying litigation. However, only Global qualifies as a net worth insured

from whom the Association could seek recoupment.5 See Act of May 16, 1995, 74th Leg., R.S., ch.

275, § 1, 1995 Tex. Gen. Laws 2616, 2616. Furthermore, Global was statutorily required to

reimburse any amount paid by the Association on Global’s behalf, despite the fact that other, less

wealthy insureds also benefitted from the Association’s contribution. See id. The Association

properly demonstrated to the trial court that no issue of material fact existed with regard to the

meaning of the phrase “paid on behalf of” and that it was therefore entitled to judgment as a matter

of law on its declaratory and statutory entitlement claims. We overrule Global’s contention and

affirm the trial court’s partial summary judgment.6

       5
           Global does not dispute that the Association’s summary judgment evidence demonstrated
that its net worth exceeded $50,000,000 on December 31, 2000, or that the settlement agreement
satisfied its potential liability obligations to Shane Hancock in whole or in part.
       6
         Because we hold that Global was statutorily required to reimburse the $300,000 paid by
the Association to Shane Hancock on Global’s behalf, we need not reach Global’s remaining issues.
See Tex. R. App. P. 47.1 (court must address issues necessary to final disposition of appeal).

                                                   8
                                        CONCLUSION

               Because we hold that the Association is not required to apportion a payment made

on behalf of multiple insureds covered under a single insurance policy in order to seek recoupment

from a net worth insured, we affirm the trial court’s judgment.

                                             Bea Ann Smith, Justice

Before Chief Justice Law, Justices B. A. Smith and Pemberton

Affirmed

Filed: December 2, 2004

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