Court Opinion

ID: 4055835
Source: CourtListenerOpinion
Date Created: 2016-09-29 07:22:59.146066+00
Date Added: 2024-06-11T14:32:03.598271
License: Public Domain

ACCEPTED
                                                                                       03-13-00331-CV
                                                                                               5400996
                                                                            THIRD COURT OF APPEALS
                                                                                       AUSTIN, TEXAS
                                                                                  5/22/2015 2:40:30 PM
                                                                                     JEFFREY D. KYLE
                                                                                                CLERK
                             No. 03-13-00331-CV

                            In the Court of Appeals                FILED IN
                        Third Judicial District of Texas    3rd COURT OF APPEALS
                                                                AUSTIN, TEXAS
                                 Austin, Texas
                                                            5/22/2015 2:40:30 PM

                PLASMA FAB, LLC and RUSSELL            McCANN,JEFFREY   D. KYLE
                                                                    Clerk
                             Appellants,
                                       v.
     BANKDIRECT CAPITAL FINANCE, LLC, a Subsidiary of TEXAS
    CAPITAL BANK, N.A., and SCOTTSDALE INSURANCE COMPANY,
                              Appellees.

             APPELLEE BANKDIRECT CAPITAL FINANCE,
             LLC’S MOTION FOR PANEL REHEARING AND
              MOTION FOR EN BANC RECONSIDERATION

                On Appeal from the 250th Judicial District Court
                           of Travis County, Texas

D. Ferguson McNiel                          David B. H. Williams
State Bar No. 13830300                      Admitted Pro Hac Vice
Sandra G. Rodriguez                         David J. Strubbe
State Bar No. 00790752                      Admitted Pro Hac Vice
VINSON & ELKINS L.L.P.                      WILLIAMS BAX & SALTZMAN, P.C.
1001 Fannin Street, Suite 2500              221 N. LaSalle Street, 37th Floor
Houston, Texas 77002                        Chicago, Illinois 60601
(713) 758-3882; (713) 615-5493 (F)          (312) 372-3311; (312) 372-5720 (F)
fmcniel@velaw.com                           williams@wbs-law.com
srodriguez@velaw.com                        strubbe@wbs-law.com

Amy Tankersley
State Bar No. 24068623
VINSON & ELKINS L.L.P.
2001 Ross Avenue, Suite 3700
Dallas, Texas 75201-2975
(214) 220-7817; (214) 999-7817 (F)
atankersley@velaw.com

           Attorneys for Appellee BankDirect Capital Finance, LLC
                                      TABLE OF CONTENTS
                                                                                                              Page

INDEX OF AUTHORITIES.................................................................................. ii

ISSUE ON REHEARING......................................................................................iv

SUMMARY OF ARGUMENT ..............................................................................1

FACTUAL SUMMARY.........................................................................................3

ARGUMENT..........................................................................................................7

I.      The Court Erred in Finding that BankDirect Did Not Comply with
        Section 651.161. ...........................................................................................7

        A.       The Court’s Holding as to BankDirect Is Inconsistent with Its
                 Holding as to Scottsdale......................................................................7

        B.       Existing Texas Law Holds That Technical Compliance with
                 Section 651.161 Is Not Required. .....................................................10

II.     The Court Erred in Relying on General Power of Attorney Law
        Regarding “Strict Construction” of Powers of Attorney..............................13

CONCLUSION AND PRAYER...........................................................................18

CERTIFICATE OF COMPLIANCE.....................................................................19

CERTIFICATE OF SERVICE..............................................................................20

                                                         i
                                    INDEX OF AUTHORITIES
                                                                                                       Page(s)

Cases
AVCO Corp. v. Interstate Southwest Ltd.,
   251 S.W.3d 632 (Tex. App.—Houston [14th] 2008, pet. denied)..................15

California-Western States Life Ins. Co. v. Williams,
     120 S.W.2d 844 (Tex. Civ. App.—El Paso 1938, writ dism’d) ...................8, 9

Cochran v. Paco, Inc.,
    606 F.2d 460 (5th Cir. 1979).........................................................................16

First National Bank in Dallas v. Kinabrew,
     589 S.W.2d 137 (Tex. Civ. App.—Tyler 1979, writ ref’d n.r.e.)...................15

Gill Plumbing Co. v. Imperial Premium Fin. Co.,
     445 S.E.2d 840 (Ga. Ct. App. 1994) .............................................................17

Gittings, Neiman-Marcus, Inc. v. Estes,
     440 S.W.2d 90 (Tex. Civ. App.—Eastland 1969, no writ) ...........................15

Gouldy v. Metcalf,
    12 S.W. 830 (Tex. 1889)...................................................................14, 15, 17

In re Maplewood Poultry Co.,
      2 B.R. 550 (Bankr. D. Me. 1980) ............................................................16, 17

INAC Corp. v. Underwriters at Lloyd’s,
    56 S.W.3d 242 (Tex. App.—Houston [14th Dist.]
    2001, no pet.) .................................................................................. 1, 3, 11, 12

Maher v. Northland Ins. Co.,
    991 F. Supp. 878 (E.D. Mich. 1998) .............................................................. 7

Massachusetts Bay Ins. Co. v. Photographic Assistance Corp.,
    732 F. Supp. 1572 (N.D. Ga. 1990)...............................................................17

Natho v. State of Texas,
    No. 3-11-00498-CR, 2014 WL 538787 (Tex. App.—Austin
    Feb. 6, 2014, pet. ref’d).................................................................................15

                                                        ii
Service Fin. v. Adriatic Ins. Co.,
     46 S.W.3d 436 (Tex. App.—Waco 2001), judgm’t vacated,
     51 S.W.3d 450 (Tex. App.—Waco 2001) .....................................................16

Tetens v. Garcia,
     No. 03-96-00147-CV, 1996 WL 656443 (Tex. App.—Austin Nov. 13,
     1996, no writ) ...............................................................................................16

Wright v. Rumble,
    476 A.2d 1250 (N.J. Super. Ct. App. Div. 1984)............................................ 7

Constitutions, Rules, and Statutes
Acts of 2003, 78th Leg., R.S., ch. 1274, § 2, eff. April 1, 2005.............................11

Texas Insurance Code § 24.17(d)..........................................................................11

Texas Insurance Code § 651.161 ...................................................................passim

Texas Insurance Code § 651.161(b) ...............................................................passim

Texas Insurance Code § 651.161(d) ...................................................... 1, 11, 12, 13

                                                         iii
                                 ISSUE ON REHEARING
         Appellee BankDirect Capital Finance, LLC seeks rehearing on one of the

three grounds upon which this Court reversed the district court’s grant of summary

judgment in BankDirect’s favor:

         In Appellants’ Issue #2, Plasma Fab1 asserted that the trial court erred in

rendering judgment in BankDirect’s favor where (1) Section 651.161(b) of the

Texas Premium Finance Act requires an insurance premium finance company such

as BankDirect to mail the insured a notice of intent to cancel an insurance contract

10 days prior to the date of cancellation, and (2) BankDirect mailed the notice of

intent to cancel to Plasma Fab nine days prior to the date of cancellation.

         Issue: Whether this Court erred in sustaining Plasma Fab’s Issue #2,

         (a)    by refusing to apply a rule that a notice prematurely dated should be

treated as effective on the earliest date allowed by statute and holding that

BankDirect failed to satisfy Section 651.161(b), even though the Court found

elsewhere in its Opinion that at least 10 days lapsed between the date BankDirect

mailed the notice of intent to cancel and the date the insurance policy was

cancelled; and

         (b)    where other Texas case law supports the application of a “substantial

compliance” approach to a Section 651.161 notice requirement; and

1
    Appellants Plasma Fab, LLC and Russell McCann (collectively, “Plasma Fab”).

                                               iv
      (c)   where the power of attorney case law relied upon by the Court to rule

against BankDirect does not support the Court’s holding.

                                        v
TO THE HONORABLE COURT OF APPEALS:

      Appellee BankDirect Capital Finance, LLC (“BankDirect”) moves both for

panel rehearing and for en banc reconsideration of the Court’s Opinion and

Judgment dated May 8, 2015 (“Opinion,” attached hereto as Appendix A).

                          SUMMARY OF ARGUMENT

      This case presents an issue of first impression in Texas: whether a premium

finance company complied with the Texas Insurance Code § 651.161(b)

requirement of ten days’ notice when (1) this Court has found that ten days lapsed

between the date the Notice of Intent to Cancel was mailed and the date the

insurance policy was actually cancelled, and (2) the insured made no effort to cure

its default within the ten days before the policy was cancelled.

      BankDirect urged this Court to accept its argument that “substantial

compliance” with the notice requirement of Section 651.161(b) is sufficient. With

no law directly on point in Texas with regard to Section 651.161(b), BankDirect

cited authority from other states to the effect that a notice prematurely dated should

be treated as effective on the earliest date allowed by statute. But there is also

Texas law supporting a substantial compliance approach to a different notice

provision in Section 651.161. INAC Corp. v. Underwriters at Lloyd’s, 56 S.W.3d
242 (Tex. App.—Houston [14th Dist.] 2001, no pet.) (finding that less-than-

technical compliance with notice requirement of Section 651.161(d) was legally

                                          1
effective). As a result of this Court’s Opinion, there is now conflicting law in

Texas as to whether a premium finance company can demonstrate compliance with

a notice requirement in Section 651.161 through a showing of substantial

compliance.

      The Court’s rationale for refusing to apply a substantial compliance

approach to Section 651.161 is that BankDirect’s authority to cancel the policy was

derived from the a section of the premium finance agreement entitled “Power of

Attorney,” and that in Texas, powers of attorney should be strictly construed.

Ordinarily, it may be correct to construe a power of attorney strictly because in a

general power of attorney situation the person granting the power of attorney is

granting another person broad powers in the management of personal decisions

and/or business decisions. However, the Court’s reliance on general power of

attorney law misconstrues the nature of the “Power of Attorney” provision in the

premium finance agreement, which exists for the protection of the premium

finance company, not the insured. Furthermore, interpreting the statutory notice

requirement of Section 651.161(b) through the prism of a power of attorney opens

the door for conflicting interpretations of the language of Section 651.161

depending on whether a court focuses on the existence of the “power of attorney”

provision.    A proper analysis should simply turn on whether substantial

compliance with Section 651.161 is sufficient; the Houston court held that

                                        2
substantial compliance was sufficient in INAC Corp., and this Court should

likewise hold that substantial compliance was sufficient in this case.

      BankDirect urges the Court to reconsider the “Power of Attorney” section of

its Opinion (pp. 5-9) and hold instead that BankDirect did establish as a matter of

law that it was within its authority to cancel Plasma Fab’s insurance policy.

                             FACTUAL SUMMARY

      The facts of this case are undisputed. Plasma Fab, a commercial entity

engaged in fabricating and erecting structural steel for apartment complexes,

entered into a premium finance agreement with BankDirect, a premium finance

company. Under the terms of the premium finance agreement, BankDirect loaned

Plasma Fab $12,601.18, which Plasma Fab used to fully pay the premiums on three

insurance policies. CR 837. In exchange, Plasma Fab agreed to repay the amount

borrowed, with interest, in eleven monthly payments to BankDirect. Id. As security

for the loan, the premium finance agreement granted BankDirect the right, in the

event of a default, to collect the unearned premiums from the insurance company

and apply the unearned premiums to the loan balance. CR 839 ¶ 4. As a means to

enforce BankDirect’s collateral rights, the premium finance agreement contained a

section entitled “Power of Attorney,” in which Plasma Fab irrevocably appointed

BankDirect as its attorney-in-fact to effect cancellation of the insurance policies

and receive any unearned premiums, in the event that (1) Plasma Fab defaulted on

                                          3
its obligation to BankDirect, and (2) “after proper notice has been mailed as

required by law.” Id. The applicable “law” is Section 651.161(b) of the Texas

Premium Finance Act, which states in relevant part:

      Sec. 651.161.      CANCELLATION OF INSURANCE
                         CONTRACT.

      (a) An insurance premium finance company may not cancel an
      insurance contract listed in a premium finance agreement
      except as provided by this section for an insured’s failure to
      make a payment at the time and in the amount provided in the
      agreement.

      (b) The insurance premium finance company must mail to the
      insured a written notice that the company will cancel the
      insurance contract because of the insured’s default in payment
      unless the default is cured at or before the time stated in the
      notice. The stated time may not be earlier than the 10th day
      after the date the notice is mailed.

            *     *      *
TEX. INS. CODE § 651.161.

      Only the “after proper notice has been mailed as required by law”

requirement is at issue, because it is undisputed that Plasma Fab defaulted on its

obligation. Plasma Fab itself admitted that “[a]s a result of cash flow problems

with the new business, Plasma was often late in making its payments to

BankDirect.”    CR 766, ¶ 9.    Plasma Fab defaulted on every one of the five

payments before the November 2008 payment at issue, and as to the two months

prior to November Plasma Fab not only defaulted but failed to cure its default

                                        4
within the ten days, which resulted in a cancellation of the policies. CR 841-47,

865, 866, 869.2 At the insurance company’s discretion, those cancelled policies

were twice reinstated. CR 766, ¶ 9, 767, ¶ 12. But as had been its prior practice,

Plasma Fab again defaulted on its sixth payment, the November 2008 payment.

CR 860, 869-70, 844. As a result, on November 24, BankDirect generated a

Notice of Intent to Cancel, which would inform Plasma Fab that its policies would

be cancelled if the default was not cured by December 4, the tenth day after the

date of the notice. CR 867. However, BankDirect did not mail the Notice of Intent

to Cancel until the next day, November 25 (CR 841, 844), which meant that

Plasma Fab received nine days’, not ten days’, notice of intent to cancel. Plasma

Fab did not attempt to cure the default during those nine days, or on the tenth day.

       Accordingly, BankDirect then sent a Notice of Cancellation, which had the

effect of cancelling Plasma Fab’s policies. As found by this Court in its Opinion,

the effective date of the cancellation was December 5 (the tenth day) or December

6 (the eleventh day) at the latest. Opinion at 17. Thus, this Court has found that

ten or more days elapsed between the date BankDirect mailed the Notice of Intent

2
  For the September 14, 2008 payment due date, BankDirect’s Notice of Intent to Cancel was
dated September 24, 2008 and contained a cancellation date 10 days later, on October 4, 2008;
Plasma Fab did not make payment until day sixteen, on October 10, 2008. CR 865, CR 869
(Account Transaction History #116900). For the October 14, 2008 payment due date,
BankDirect’s Notice of Intent to Cancel was dated October 24, 2008 and contained a
cancellation date 10 days later, on November 3, 2008; Plasma Fab did not make payment until
day seventeen, on November 10, 2008. CR 866; CR 869 (Account Transaction History
#116900).

                                             5
to Cancel and the date the policies were cancelled. During that period, Plasma Fab

made no attempt to cure the default. On the thirteenth day (December 8) Plasma

Fab allegedly caused a fire at an apartment complex. CR 12, ¶ 21. It was only on

day fourteen (December 9)—fourteen days after the notice of intent to cancel was

mailed and the day after the fire had already occurred—that the November

payment was paid by Plasma Fab. CR 870.

      BankDirect attempted to have Plasma Fab’s policy reinstated by sending a

Request for Reinstatement on December 10 (CR 878) but because Plasma Fab’s

policies had twice previously been reinstated after cancellation, the insurance

company refused a third reinstatement. CR 886 (fax refusal, stating “Please note

that this was the 3rd reinstatement request on this account & the company only

allows 2—Reinstatement is DECLINED.”).

      After BankDirect obtained a summary judgment on Plasma Fab’s claims for

breach of contract, breach of fiduciary duty, and negligent misrepresentation, this

Court reversed the trial court’s order as to BankDirect. Opinion at 8-9. In relevant

part, this Court ruled that BankDirect failed to “establish[] as a matter of law that it

was within its authority to cancel the policy under the power of attorney” because

the Notice of Intent to Cancel was mailed nine days before the cancellation date

stated in the Notice. Id. at 7. BankDirect urges the Court to reconsider this portion

of its Opinion, for reasons set forth below.

                                           6
                                       ARGUMENT

I.     The Court Erred in Finding that BankDirect Did Not Comply with
       Section 651.161.

       A.     The Court’s Holding as to BankDirect Is Inconsistent with Its
              Holding as to Scottsdale.

       In the portion of its Opinion relating to whether the insurance company

(Scottsdale) proved that the insurance policy was cancelled with the notice

required by the terms of the policy, the Court relied on Texas case law holding that

“when less notice is given than is required by the policy, cancellation becomes

effective at the earliest date allowed under the contract.” Opinion at 17. In arguing

that it provided the statutorily-required notice of intent to cancel the policy,

BankDirect urged the Court to apply a similar rule—i.e., a rule that the notice of

intent to cancel should have become effective on the earliest date allowed under

the statute. Brief of Appellee BankDirect at 14-31. While there is no Texas law

applying an “effective at the earliest date” rule to a notice of intent to cancel,

BankDirect urged the Court to apply supportive law from other jurisdictions,3

which would have rendered BankDirect’s notice effective on the tenth day, thereby

complying with Section 651.161.

3
  See Wright v. Rumble, 476 A.2d 1250, 1253 (N.J. Super. Ct. App. Div. 1984) (holding that
premium finance company’s attempt to cancel policy “effective immediately” instead of
providing statutorily-required three days’ advance notice was not void but became effective upon
expiration of three-day statutory period); Maher v. Northland Ins. Co., 991 F. Supp. 878, 881-82
(E.D. Mich. 1998) (holding that notice of cancellation that was sent one day early became
effective after expiration of ten-day statutory period).

                                               7
      The Court’s refusal to apply an “effective at the earliest date” rule to a notice

of intent to cancel an insurance policy, while at the same time applying such a rule

to a notice of cancellation, is inconsistent and should be reconsidered. The

rationale for applying the rule to a notice of cancellation applies equally to a notice

of intent to cancel. When a notice of cancellation is prematurely dated but is

treated as effective on a later date (at the earliest date allowed under the contract or

statute), the insured has been provided the required amount of notice—regardless

of the fact that the notice of cancellation provided an earlier, improper date.

Accordingly, as explained in one of the insurance cancellation cases relied on by

this Court, an argument that a notice of cancellation is ineffective because it was

provided before the date allowed by a policy is “technical and without merit” and

instead the notice of cancellation “will be intended as operative” on the date

permitted by the policy. California-Western States Life Ins. Co. v. Williams, 120
S.W.2d 844, 846 (Tex. Civ. App.—El Paso 1938, writ dism’d), cited in Opinion at

17.

      The same rationale should apply to a notice of intent to cancel by a premium

finance company. Section 651.161(b) requires that the cancellation date stated in a

notice of intent to cancel must be a date that is not earlier than the tenth day after

the date the notice is mailed. But if less than ten days’ notice is provided, and the

cancellation date is deemed to be the tenth day (the earliest date allowable under

                                           8
Section 651.161(b)), then the insured will in fact have had ten days to attempt to

cure the default, and the purpose of Section 651.161(b) will have been satisfied. If

the insured is actually provided ten days between the mailing of the notice of intent

and the date the policy is cancelled to cure its defect, then just as in the notice of

cancellation cases such as California-Western, an argument that the notice is

ineffective is “technical” and should be rejected. The notice of intent to cancel

should be “intended as operative” on the earliest day permissible (here, on the

tenth day as called for by the statute), just as in the notice of cancellation cases

such as California-Western.

      This rationale is particularly applicable here, for two reasons. First, whether

Plasma Fab actually had ten days to cure the default before the policy was

cancelled is not hypothetical. This Court held (in the Scottsdale portion of the

Opinion) that Plasma Fab’s policy was cancelled on December 5 or December 6.

Opinion at 17 (“cancellation was therefore effective subsequent to receipt on

December 5, 2008, or on December 6, 2008, at the latest”). Thus, this Court has

already found that Plasma Fab’s policy was cancelled ten or more days after

BankDirect mailed the Notice of Intent to Cancel on November 25, 2008 — which

means that Plasma Fab actually had ten days to cure its default, as contemplated by

Section 651.161(b). The purpose of Section 651.161(b), which is to provide the

                                          9
insured 10 days in which to cure its default before cancellation, was satisfied. The

Court should therefore find that BankDirect complied with Section 651.161(b).

      Second, it is undisputed that Plasma Fab made no effort to cure the default

within the ten day statutory notice period. Plasma Fab did not attempt to cure its

default at any time during the nine day period specified in the Notice of Intent to

Cancel, or even on the tenth day. Nor did it attempt to cure on day eleven or

twelve, or even on day thirteen (December 8), when the fire occurred. It was on the

fourteenth day (December 9) after BankDirect mailed the Notice of Intent to

Cancel to Plasma Fab—which was the day after the fire occurred—that Plasma

Fab paid the past due November payment. And this failure to cure the default

within the ten-day statutory period was not an isolated occurrence on Plasma Fab’s

part. Plasma Fab had, in the prior two months, ignored the respective Notices of

Intent to Cancel and failed to cure its default within the ten day cancellation period.

BankDirect’s mistake in mailing the Notice of Intent to Cancel a day late did not

make a difference, and the Court should not elevate form over substance under

these facts.

      B.       Existing Texas Law Holds That Technical Compliance with
               Section 651.161 Is Not Required.

      In its Opinion, the Court “observe[d] that BankDirect has cited no authority

for applying the substantial compliance approach taken in cases involving notices

of cancellation to a statutorily required notice of intent to cancel.” Opinion at 7 n.2

                                          10
(emphasis omitted). But, as discussed above, when the purpose of the notice

requirement has been met, there is no reason to differentiate between a case

involving a notice of cancellation and one involving a notice of intent to cancel. It

is true that there are no Texas cases addressing whether substantial compliance

with the Section 651.161(b) ten day notice requirement for a notice of intent to

cancel is sufficient. But there is Texas authority finding that a premium finance

company’s substantial compliance with the Section 651.161(d) notice requirement

is sufficient. INAC Corp. v. Underwriters at Lloyd’s, 56 S.W.3d 242 (Tex. App.—

Houston [14th Dist.] 2001, no pet.). BankDirect urges this Court to adopt the same

reasoning here.

       In INAC Corp., the Fourteenth Court squarely addressed whether a premium

finance company must strictly comply with a notice requirement of Section

651.161, or whether less than technical compliance is sufficient. INAC, a premium

finance company, mailed a notice of cancellation of the policies after the insured

defaulted on its payments to the finance company, but the notice failed to comply

with all of the requirements of Section 651.161.4 Specifically, Section 651.161(d)

requires the premium finance company to mail the notice of cancellation to the

insurer. However, INAC failed to mail the notice of cancellation to the insurer;

4
  The statute at issue in INAC Corp. was Texas Insurance Code § 24.17(d), the predecessor to
current Texas Insurance Code § 651.161(d). In 2003, the statute was codified with no
substantive change. Acts of 2003, 78th Leg., R.S., ch. 1274, § 2, eff. April 1, 2005.

                                            11
instead, it mailed the notice to the underwriters in care of the insurance company.
56 S.W.3d at 248. When INAC sued to recover the unearned premiums, the

defendants argued that INAC failed to comply with the unambiguous language of

Section 651.161(d) and therefore INAC’s notice was not legally effective. Id. at

247-48.

      Although the premium finance agreement in INAC Corp. also contained a

power of attorney authorizing the finance company to cancel the financed policies

in the event of default (id. at 245-46), the court did not focus on the existence of, or

language of, the power of attorney.        Instead, the court analyzed whether the

premium finance company complied with Section 651.161 even though the

requirements of the statute were not technically met. To answer this question, the

court relied on case law from other jurisdictions, “agree[ing] with the interpretation

that other states have given to similarly-worded-premium-finance statutes.” Id. at

249. The court further found that in determining the meaning of Section 651.161,

it had to consider the entire statute, its nature and object, and the consequences that

would follow from each construction, and “must avoid an interpretation that would

produce absurd results.”     Id.   Applying these principles to the “issue of first

impression under Texas law,” the court held that although Section 651.161(d)

requires that the premium finance company mail the notice of cancellation to “the

insurer,” INAC’s actions in mailing the notice of cancellation to the underwriters

                                          12
in care of the insurance company were sufficient to satisfy the Section 651.161(d)

notice requirement. Id.

      Applied here, those principles also weigh in favor of employing a substantial

compliance approach to the notice requirement in Section 651.161(b), just as the

Fourteenth Court of Appeals did with regard to Section 651.161(d). When the

object of Section 651.161(b) is considered—i.e., to give the insured 10 days in

which to cure its default to avoid cancellation of its insurance policy—that object

was satisfied. Plasma Fab was actually provided ten days between the date of the

mailing of the Notice of Intent to Cancel (November 25) and the cancellation date

itself (December 5 or December 6, Opinion at 17) during which it could have cured

its default (but did not). To interpret the statute in a manner that prohibits a

substantial compliance approach when the purpose of the statute was met would

run the risk, in the words of the Fourteenth Court, of producing “absurd” results.

Because the undisputed facts show that the insured in fact was provided the

required ten days to attempt to cure its defect but failed to do so, this Court should

find that BankDirect’s substantial compliance satisfied Section 651.161(b).

II.   The Court Erred in Relying on General Power of Attorney Law
      Regarding “Strict Construction” of Powers of Attorney.

      The “Power of Attorney” section of the premium finance agreement

irrevocably appointed BankDirect as Plasma Fab’s attorney-in-fact to effect

cancellation of the insurance policies upon (1) Plasma Fab’s default, and (2) “after

                                         13
proper notice has been mailed as required by law.” CR 839, ¶ 4. Because

BankDirect derived its authority to cancel the insurance policies from this “Power

of Attorney” section contained in the premium finance agreement, this Court relied

on general Texas law concerning powers of attorney to hold that BankDirect failed

to prove it had authority to cancel Plasma Fab’s insurance policies. The Court

erred in relying on general power of attorney case law to find against BankDirect.

      First, the existence of the power of attorney does not warrant a ruling against

BankDirect. The power of attorney provision requires mailing of proper notice “as

required by law.”    As shown above, a premium finance company can satisfy

Section 651.161 (the “law”) by substantially complying with the statute. Because

BankDirect substantially complied with Section 651.161(b), it provided “proper

notice” to Plasma Fab as “required by law” and therefore had authority under the

power of attorney to effect cancellation of the policy.

      This Court erred in reaching a different result by applying a rule of strict

construction to the power of attorney.        The Court relies on six cases for the

proposition that in Texas, courts are to construe powers of attorney strictly so as to

exclude the exercise of power not clearly given. Opinion at 7-8. In essence, each of

these cases applies the rule stated by the Texas Supreme Court in Gouldy v.

Metcalf:

      When an authority is conferred upon an agent by a formal
      instrument, as by a power of attorney, there are two rules of

                                         14
      construction to be carefully attended to: (1) the meaning of
      general words in the instrument will be restricted by the
      context, and construed accordingly. (2) The authority will be
      construed strictly, so as to exclude the exercise of any power
      which is not warranted either by the actual terms used, or as a
      necessary means of executing the authority with effect.

12 S.W. 830, 831 (Tex. 1889).

      None of the six cases involved a power of attorney provision in a lender-

borrower premium finance agreement. In Gouldy, the power of attorney granted,

among other powers, the power to buy, sell, or exchange property, to receive and

receipt for money, to sell and dispose of property, to give bills of sale thereto, or to

sell and transfer real estate and execute deeds thereto. Id. Natho v. State of Texas,

No. 3-11-00498-CR, 2014 WL 538787, at *1 (Tex. App.—Austin Feb. 6, 2014,

pet. ref’d), involved a statutory durable power of attorney signed by an elderly

person giving a family member general authority to act on her behalf.             First

National Bank in Dallas v. Kinabrew, 589 S.W.2d 137, 145 (Tex. Civ. App.—

Tyler 1979, writ ref’d n.r.e.), involved a general power of attorney that granted

broad powers with respect to mineral interests owned by the principal. AVCO

Corp. v. Interstate Southwest Ltd., 251 S.W.3d 632, 639 (Tex. App.—Houston

[14th] 2008, pet. denied), involved a power of attorney granted as part of an

assignment of claims agreement, which authorized prosecution of certain claims.

In Gittings, Neiman-Marcus, Inc. v. Estes, 440 S.W.2d 90, 93 (Tex. Civ. App.—

Eastland 1969, no writ), the instrument “grant[ed] broad powers” to take

                                          15
possession of property and handle it to obtain the largest return consistent with

good business practices. Finally, Tetens v. Garcia, No. 03-96-00147-CV, 1996 WL
656443, at *1 (Tex. App.—Austin Nov. 13, 1996, no writ), involved a general

power of attorney authorizing signature/endorsement of the principal’s checks,

withdrawal of funds, and the power to make gifts of the principal’s property.

      The cited cases do not support the result reached by the Court. This case

does not represent a traditional power of attorney scenario. A premium finance

company is in the business of extending credit to those choosing to finance their

insurance policies. Cochran v. Paco, Inc., 606 F.2d 460, 466 (5th Cir. 1979). In a

premium finance agreement, the insured grants the premium finance company a

security interest in the refund of unearned premiums, and a mechanism (via a

power of attorney/appointment as attorney-in-fact) to collect the unearned

premiums directly from the insurer upon cancellation of the policy. Service Fin. v.

Adriatic Ins. Co., 46 S.W.3d 436 (Tex. App.—Waco 2001) (explaining premium

finance agreement), judgm’t vacated, 51 S.W.3d 450 (Tex. App.—Waco 2001)

(vacating judgment pursuant to settlement but refusing to withdraw opinion). “A

security interest in unearned premiums would be worthless without the means to

recover premiums, which can only be recovered upon cancellation of the policy.”

In re Maplewood Poultry Co., 2 B.R. 550, 553 (Bankr. D. Me. 1980).

                                        16
      Thus, the function of the power of attorney in a premium finance agreement

is to “afford [the premium finance company] a contractual remedy with which to

enforce its rights in its collateral in the event of default” by the insured. Id. at 552-

53. “The very reason the premium finance company executes a power of attorney

is to protect itself should the insured default in its payments.” Massachusetts Bay

Ins. Co. v. Photographic Assistance Corp., 732 F. Supp. 1572, 1577 (N.D. Ga.

1990) (emphasis added). Moreover, a power of attorney granted to a premium

finance company pursuant to a premium finance agreement “does not render it a

fiduciary” to the insured; rather, the premium finance company simply “stands in

the shoes of the insured when cancelling an insurance policy.” Gill Plumbing Co.

v. Imperial Premium Fin. Co., 445 S.E.2d 840, 843 (Ga. Ct. App. 1994);

Massachusetts Bay, 732 F. Supp. at 1575.

      The Gouldy standard of strict compliance should not apply to a power of

attorney in a premium finance agreement. But even if it does, the discussion above

provides the context in which such a power of attorney appears in a premium

finance agreement. And according to Gouldy, that is the context in which the

power of attorney language must be construed — i.e., a context in which the power

of attorney exists for the protection of BankDirect (the premium finance company)

not Plasma Fab (the insured). Gouldy, 12 S.W. at 831. In this context, there is no

reason to apply a rule of strict construction of a power of attorney against a

                                           17
premium finance company. Rather, this Court should determine, independent of

any law regarding strict construction of powers of attorney, whether BankDirect

complied with Section 651.161(b); if it did, then it had authority to effect

cancellation of Plasma Fab’s insurance policy. For the reasons discussed above in

Section I, this Court should hold that BankDirect complied with Section

651.161(b) in mailing its Notice of Intent to Cancel, and that it therefore had

authority to cancel Plasma Fab’s policies at issue.

                               CONCLUSION AND PRAYER
          For the foregoing reasons,5 Appellee BankDirect requests that the Court

grant rehearing, vacate the Court’s Opinion and Judgment dated May 8, 2015,

affirm the trial court’s judgment granting BankDirect’s motion for summary

judgment, and grant any other relief to which BankDirect is entitled.

                                                Respectfully submitted,

                                                /s/ Sandra G. Rodriguez
                                                D. Ferguson McNiel
                                                State Bar No. 13830300
                                                Sandra G. Rodriguez
                                                State Bar No. 00790752
                                                VINSON & ELKINS L.L.P.
                                                1001 Fannin Street, Suite 2500
                                                Houston, Texas 77002
                                                (713) 758-3882

5
    BankDirect also continues to urge all arguments set forth in its Brief of Appellee.

                                                  18
                                      (713) 615-5493 (facsimile)
                                      fmcniel@velaw.com
                                      srodriguez@velaw.com

                                      Amy Tankersley
                                      State Bar No. 24068623
                                      VINSON & ELKINS L.L.P.
                                      2001 Ross Avenue, Suite 3700
                                      Dallas, Texas 75201-2975
                                      (214) 220-7817
                                      (214) 999-7817 (facsimile)
                                      atankersley@velaw.com

                                      David B. H. Williams
                                      Admitted Pro Hac Vice
                                      David J. Strubbe
                                      Admitted Pro Hac Vice
                                      WILLIAMS BAX & SALTZMAN, P.C.
                                      221 N. LaSalle Street, 37th Floor
                                      Chicago, Illinois 60601
                                      (312) 372-3311
                                      (312) 372-5720 (facsimile)
                                      williams@wbs-law.com
                                      strubbe@wbs-law.com

                                      Attorneys for Appellee
                                      BankDirect Capital Finance, LLC

                     CERTIFICATE OF COMPLIANCE

      I certify that the foregoing document contains 4,483 words, excluding the
portions excluded by Texas Rule of Appellate Procedure 9.4(i)(1). It was prepared
in Microsoft Word using 14-point typeface for body text and 12-point typeface for
footnotes. In making this certificate of compliance, I am relying on the word count
provided by the software used to prepare the document.

                                               /s/ Sandra G. Rodriguez
                                               Sandra G. Rodriguez

                                        19
                        CERTIFICATE OF SERVICE
      I certify that on this 22nd day of May, 2015, a true and correct copy of the
foregoing document was served electronically upon counsel of record as follows:

    John C. Hart                            Ruben Valadez
    Bruce H. Rogers                         Otto “Skip” Good
    BROWN, DEAN, WISEMAN, PROCTOR,          LANGLEY & BANACK, INC.
      HART & HOWELL LLP                     745 East Mulberry
    306 W. 7th Street, Suite 200            Suite 900
    Fort Worth, Texas 76102                 San Antonio, Texas 78212
    (817) 332-1391 (telephone)              (210) 736-6600 (telephone)
    (817) 870-2427 (fax)                    (210) 735-6889 (fax)
    Attorneys for Appellants                Attorneys for Appellants

    J. Hampton Skelton                      Gregory R. Ave
    SKELTON & WOODY                         WALTERS, BALIDO & CRAIN, L.L.P.
    248 Addie Roy, Building          B,     900 Jackson Street, Suite 600
      Suite 302                             Dallas, Texas 75202
    Austin, Texas 78746                     (214) 347-8380 (telephone)
    (512) 651-7000 (telephone)              (214) 347-8381 (fax)
    (512) 651-7001 (fax)                    Attorneys for Appellee Scottsdale
    Attorney for Appellants                 Insurance Company

                                            /s/ Sandra G. Rodriguez
                                            Sandra G. Rodriguez

                                       20
U.S. 3518813v.1
      TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                                      NO. 03-13-00331-CV

                      Plasma Fab, LLC and Russell McCann, Appellants

                                                 v.

     BankDirect Capital Finance, LLC, a Subsidiary of Texas Capital Bank, N.A.; and
                        Scottsdale Insurance Company, Appellees

     FROM THE DISTRICT COURT OF TRAVIS COUNTY, 250TH JUDICIAL DISTRICT
     NO. D-1-GN-12-001816, HONORABLE STEPHEN YELENOSKY, JUDGE PRESIDING

                                          OPINION

               Plasma Fab, LLC and Russell McCann, sole owner of Plasma Fab, (jointly Plasma

Fab) appeal the trial court’s order granting the motions for summary judgment of BankDirect Capital

Finance, LLC, a Subsidiary of Texas Capital Bank, N.A., and Scottsdale Insurance Company. The

central issue in BankDirect’s and Scottsdale’s motions for summary judgment, and on appeal, is

whether a general liability insurance policy Plasma Fab purchased from Scottsdale and financed

through premium finance company BankDirect was in effect at the time of Plasma Fab’s loss. For

the reasons that follow, we affirm the trial court’s order in part and reverse and remand in part.

                     FACTUAL AND PROCEDURAL BACKGROUND

               Plasma Fab, an ornamental iron construction contractor, purchased a general liability

policy from Scottsdale in May 2008 and financed payment through premium finance company
BankDirect. BankDirect paid all premiums in advance, and Plasma Fab was to make monthly

payments to BankDirect. The premium finance agreement gave BankDirect a limited power of

attorney and authority to cancel the policy on behalf of Plasma Fab and seek a refund of unearned

premiums for nonpayment of premium “after proper notice has been mailed as required by law.”

Plasma Fab was chronically late making payments, and twice the policy was cancelled and

reinstated. It is the third cancellation that is at issue.

                On November 24, 2008, BankDirect prepared a notice of intent to cancel the policy

effective December 4, 2008, which was ten days following the date the notice was prepared.

However, BankDirect did not mail the notice of intent to cancel to Plasma Fab until the next day,

November 25, 2008, so that the stated date of cancellation was only nine days after the date the

notice was mailed. On December 4, 2008, after 5:00 p.m., BankDirect mailed a notice of

cancellation to Scottsdale effective December 4, 2008.

                In February 2009, Plasma Fab was sued for causing a fire on December 8, 2008, that

destroyed the La Frontera apartment complex in Round Rock, Texas. Scottsdale denied coverage

on the ground that the policy had been cancelled prior to the fire. After a judgment was rendered

against Plasma Fab for approximately $6 million, Plasma Fab filed suit against Scottsdale for breach

of contract and violations of the Insurance Code for which remedy is allowed under the Deceptive

Trade Practices Act (DTPA). See Tex. Ins. Code §§ 541.060(a)(1), (a)(2)(A), (a)(3); Tex. Bus.

& Com. Code § 17.50(4). Plasma Fab also sued BankDirect for breach of contract, breach of

fiduciary duty, deceptive trade practices, and negligent misrepresentation.         Scottsdale and

                                                     2
BankDirect filed motions for summary judgment on all claims, which the trial court granted. This

appeal followed.1

                                          DISCUSSION

               In five issues, Plasma Fab challenges the trial court’s summary judgment on

the ground that the policy had not been effectively cancelled at the time of the fire. We review

a trial court’s decision to grant summary judgment de novo. Travelers Ins. Co. v. Joachim,

315 S.W.3d 860, 862 (Tex. 2010). To prevail on a summary judgment motion, the movant must

demonstrate that there are no genuine issues of material fact and that it is entitled to judgment as a

matter of law. Tex. R. Civ. P. 166a(c); Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211,

215–16 (Tex. 2003). When the trial court does not specify the grounds for granting the motion, we

must uphold the judgment if any of the grounds asserted in the motion and preserved for appellate

review are meritorious. Knott, 128 S.W.3d at 216.

Waiver

               We begin with Plasma Fab’s fifth issue, in which it addresses BankDirect’s

contention in its motion for summary judgment that Plasma Fab waived its right to complain of

cancellation of the policy by cashing BankDirect’s check for the return of unearned premiums.

Waiver is an affirmative defense that must be pleaded and proven by the party asserting it. See Tex.

R. Civ. P. 94; Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 344

       1
        Plasma Fab also filed motions for partial summary judgment against Scottsdale and
BankDirect, which the trial court denied, but Plasma Fab does not appeal the denial of its motions.

                                                  3
(Tex. 2011). The elements of waiver include (1) an existing right, benefit, or advantage held by a

party; (2) the party’s actual knowledge of its existence; and (3) the party’s actual intent to relinquish

the right, or intentional conduct inconsistent with the right. Ulico Cas. Co. v. Allied Pilots Ass’n,

262 S.W.3d 773, 778 (Tex. 2008). Although waiver is usually a question of fact, where, as here, the

relevant facts are clearly established and undisputed, it becomes a question of law. Jernigan

v. Langley, 111 S.W.3d 153, 156–57 (Tex. 2003) (per curiam).

                The record shows that BankDirect issued check number 92444 dated May 8, 2009,

in the amount of $205.82. Although the check was made payable to Plasma Fab, LLC, it was

endorsed for deposit by William Gammon Insurance, Plasma Fab’s insurance agent. There is no

evidence in the summary judgment record indicating when, how, or even whether the refund was

subsequently transferred to and accepted or cashed by Plasma Fab. Nor is there any evidence

showing that Plasma Fab was aware of its right to complain of the cancellation and intentionally

relinquished or knowingly acted inconsistently with that right. On this record, we cannot conclude

that BankDirect met its summary judgment burden of establishing as a matter of law its affirmative

defense that Plasma Fab waived its complaint concerning cancellation of the policy. See Tex. R.

Civ. P. 94; Kirk v. Kemper Investors Life Ins. Co., 448 F. Supp. 2d 828, 838–39 (S.D. Tex. 2006)

(explaining that insurer had not shown waiver where testimony of insured’s life insurance

beneficiary did not indicate he knew he had right to bring claim or that by accepting check he was

giving up that claim, and where there was no evidence he consulted attorney); Italian Cowboy

Partners, 341 S.W.3d at 344; Knott, 128 S.W.3d at 215–16; cf. Cates v. Continental Cas. Co.,

366 S.W.2d 126, 127–28 (Tex. Civ. App.—Dallas 1963, no writ) (where insured endorsed and

                                                   4
cashed refund check with statement on back that it was in full refund of all premiums and policy was

surrendered as null and void from date of issue, parties entered new binding contract and insured

could not sue insurer under policy). We sustain Plasma Fab’s fifth issue.

Plasma Fab’s Claims Against BankDirect

       Power of Attorney

               In its second issue, Plasma Fab challenges the summary judgment as to BankDirect

on the ground that the cancellation was ineffective because BankDirect failed to comply with

statutory requirements and therefore lacked authority to cancel under the terms of the power of

attorney. Although Plasma Fab couches its argument in terms of BankDirect’s “lack[ing] authority”

and “ha[ving] no power,” its assertions amount to an argument that BankDirect exceeded the

authority given it under the limited power of attorney. The premium finance agreement provided

as follows:

       4. Power of Attorney. Insured hereby irrevocably appoints BankDirect as its
       Attorney-in-Fact upon the occurrence of an Event of Default (defined below) and,
       after proper notice has been mailed as required by law, grants to BankDirect authority
       to effect cancellation of the Policies, and to receive any unearned premium or other
       amounts with respect to the Policies assigned as security herein, and to sign any
       check or draft issued thereto in Insured’s name and to direct the insurance companies
       to make said check or draft payable to BankDirect. . . .

By its plain language, the agreement afforded BankDirect authority to cancel the policy only upon

the occurrence of two conditions—default by Plasma Fab and the mailing by BankDirect of proper

notice as required by law. It is undisputed that Plasma Fab failed to timely pay its premium and

defaulted, thus triggering the first condition of the power of attorney. Plasma Fab argues that

                                                 5
BankDirect also failed to meet the second condition by failing to comply with the notice

requirements of the Premium Finance Act. See Tex. Ins. Code §§ 651.001–.209 (the Act). Section

651.161(b) of the Act provides that to cancel for nonpayment of premium, a premium finance

company must mail to the insured a written notice that the company will cancel by a stated date

unless the default is cured, and the stated date “may not be earlier than the 10th day after the date the

notice is mailed.” See id. § 651.161(b). It is clear from the record that BankDirect mailed a notice

of intent to cancel with an effective date only nine days after the date of the mailing.

                BankDirect does not dispute that it failed to strictly comply with section 651.161(b)

and instead focuses on the effectiveness of the cancellation in light of its failure to comply.

BankDirect cites Texas and federal cases involving cancellations by insurance companies under

policy terms and cases from other state jurisdictions involving cancellations by premium finance

companies. The courts in these cases generally hold that notices of cancellation that do not comport

with policy terms or the applicable premium finance statute are not void but become effective on the

earliest date allowed by the policy or statute. See, e.g., SGF Global, Inc. v. Hartford Cas. Ins. Co.,

Civ. Action No. H-04-4534, 2007 U.S. Dist. LEXIS 8309, at *11 (S.D. Tex. Feb. 27, 2007); Wright

v. Rumble, 476 A.2d 1250, 1253 (N.J. Super. Ct. App. Div. 1984). BankDirect urges us to apply this

“substantial compliance” approach to the facts of this case.

                However, BankDirect does not directly address its authority under the power of

attorney. It has cited no authority, and we have found none, applying a substantial compliance

standard in determining whether actions taken under a power of attorney fall within the authority

                                                   6
granted by the power of attorney.2 To the contrary, it is well established that courts are to construe

powers of attorney strictly so as to exclude the exercise of power not clearly given. See

Gouldy v. Metcalf, 12 S.W. 830, 831 (Tex. 1889) (authority conferred by power of attorney

strictly construed to exclude exercise of any power not warranted by actual terms used or “as a

necessary means of executing the authority with effect”); Natho v. State, No. 03-11-00498-CR,

2014 Tex. App. LEXIS 1427, at *8 (Tex. App.—Austin Feb. 6, 2014, pet. ref’d) (not designated for

publication) (citing Gouldy, 12 S.W. at 831). “The nature and extent of the authority granted must

be ascertained from the instrument granting the power of attorney and such instrument is to

be strictly construed to limit the authority of the attorney in fact.” First Nat’l Bank in Dallas

v. Kinabrew, 589 S.W.2d 137, 145 (Tex. Civ. App.—Tyler 1979, writ ref’d n.r.e.).

               Here, the grant of authority under the power of attorney was not broad; instead, the

language unambiguously limited BankDirect’s authority to cancel the policy to circumstances in

which two conditions were met. It is undisputed that BankDirect failed to meet the second condition

by mailing the notice of intent to cancel only nine days before the cancellation date stated in the

notice. In light of the long-standing rule of construction that we construe powers of attorney strictly

so as to limit the authority of the attorney in fact, see Gouldy, 12 S.W. at 831; Kinabrew, 589 S.W.2d

at 145, and in the absence of any authority for applying a more lenient standard, we cannot conclude

that BankDirect established as a matter of law that it was within its authority to cancel the policy

under the power of attorney. See AVCO Corp. v. Interstate SW, Ltd., 251 S.W.3d 632, 664 (Tex.

       2
           We also observe that BankDirect has cited no authority for applying the substantial
compliance approach taken in cases involving notices of cancellation to a statutorily required notice
of intent to cancel.

                                                  7
App.—Houston [14th Dist.] 2007, pet. denied) (where power of attorney granted authority to

prosecute certain claims as of 1996, authority did not extend to tort claims arising subsequently);

Hardy v. Robinson, 170 S.W.3d 777, 781 (Tex. App.—Waco 2005, no pet.) (strictly construed,

power of attorney authorized attorney in fact to pursue specific lawsuit and create trust from

proceeds but did not itself create trust); Gittings, Neiman-Marcus, Inc. v. Estes, 440 S.W.2d 90,

92–93 (Tex. Civ. App.—Eastland 1969, no writ) (power of attorney authorizing attorney in fact to

“take possession of property” and “handle it [to] obtain the largest return consistent with good

business practices” did not authorize attorney in fact to bind principal as guarantor of debt of

another); Tetens v. Garcia, No. 03-96-00147-CV, 1996 Tex. App. LEXIS 5019, at *7–8 (Tex.

App.—Austin Nov. 13, 1996, no writ) (not designated for publication) (where power of attorney

conferred broad powers to manage properties and to “do and perform all and every act and thing

whatsoever requisite and necessary to be done in and about the premises,” as well as numerous

specific powers, attorney in fact exceeded authority by altering funds in a manner that removed

trust beneficiary).

                We therefore conclude that BankDirect failed to meet its burden of showing that it

was entitled to summary judgment as a matter of law as to BankDirect’s claims for breach of contract

and breach of fiduciary duty. See Tex. R. Civ. P. 166a(c); Knott, 128 S.W.3d at 215–16; Plummer

v. Estate of Plummer, 51 S.W.3d 840, 842 (Tex. App.—Texarkana 2001, pet. denied) (power of

attorney creates agency relationship, and agent owes fiduciary duty to principal with respect to

matters within scope of agency); Tetens, 1996 Tex. App. LEXIS 5019, at *10 (appointment of

attorney in fact creates fiduciary relationship and attorney in fact who exceeded authority under

                                                 8
power of attorney breached fiduciary duty to principal). We sustain Plasma Fab’s second issue as

to BankDirect’s exceeding its authority under the power of attorney. For reasons discussed below,

however, we do not conclude that cancellation was ineffective, and we overrule Plasma Fab’s second

issue as to that argument.

        Limitation of Liability

                We turn next to Plasma Fab’s third issue, in which it addresses BankDirect’s

alternative argument in its motion for summary judgment that even if BankDirect acted improperly

in exercising its right under the power of attorney to cancel the policy, BankDirect is not liable for

Plasma Fab’s loss under the terms of the limitation of liability provision in the premium finance

agreement. The agreement included the following provision:

        16. Liability. Neither BANKDIRECT nor its assignee shall be liable for any loss or
        damage to the Insured by reason of failure of any insurance company to issue or
        maintain in force any of the Policies or by reason of the exercise by BANKDIRECT
        or its assignee of the rights conferred herein, including, but not limited to
        BANKDIRECT’s exercise of the right of cancellation, except in the event of willful
        or intentional misconduct by BANKDIRECT.

Plasma Fab contends that this provision did not provide fair notice of BankDirect’s intent to

exculpate itself from liability for future occurrences and was therefore unenforceable.

                As a pre-injury release of BankDirect’s liability for losses, the limitation of liability

provision is a risk-shifting contractual agreement, and to be enforceable, it must satisfy the fair notice

doctrine. See Sydlik v. REEIII, Inc., 195 S.W.3d 329, 332 (Tex. App.—Houston [14th Dist.] 2006,

no pet.) (citing Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 507–09 (Tex. 1993)

                                                    9
(holding fair notice requirements apply to releases and other exculpatory agreements)). The fair

notice requirements include the conspicuousness requirement and the express negligence doctrine.

Dresser, 853 S.W.2d at 508; Sydlik, 195 S.W.3d at 332. An agreement that fails to satisfy either of

the two requirements is unenforceable as a matter of law. Storage & Processors, Inc. v. Reyes,

134 S.W.3d 190, 192 (Tex. 2004). Whether a provision complies with the fair notice requirements

is a question of law for the court. Littlefield v. Schaefer, 955 S.W.2d 272, 275 (Tex. 1997); Dresser,
853 S.W.2d at 509.

               The dispositive issue, then, is whether BankDirect established as a matter of law that

the limitation of liability provision is conspicuous. The supreme court has adopted the Uniform

Commercial Code (UCC) definition of conspicuousness for risk-shifting agreements such as this that

relieve a party of responsibility in advance. See Dresser, 853 S.W.2d at 511 (adopting prior version

of definition). The current UCC definition provides:

       (10) “Conspicuous,” with reference to a term, means so written, displayed, or
       presented that a reasonable person against which it is to operate ought to have noticed
       it. Whether a term is “conspicuous” or not is a decision for the court. Conspicuous
       terms include the following:

               (A) a heading in capitals equal to or greater in size than the surrounding text,
               or in contrasting type, font, or color to the surrounding text of the same or
               lesser size; and

               (B) language in the body of a record or display in larger type than the
               surrounding text, or in contrasting type, font, or color to the
               surrounding text of the same size, or set off from surrounding text of
               the same size by symbols or other marks that call attention to the
               language.

                                                 10
Tex. Bus. & Com. Code § 1.201(10). Under this definition, a provision is conspicuous when a

reasonable person ought to have noticed it. Id.; Dresser, 853 S.W.2d at 511. Stated differently,

“‘something must appear on the face of the [contract] to attract the attention of a reasonable person

when he looks at it.’” Reyes, 134 S.W.3d at 192 (quoting Dresser, 853 S.W.2d at 508) (brackets in

original); Sydlik, 195 S.W.3d at 332. Language may satisfy the conspicuousness requirement by

appearing in capital headings, contrasting type, font, or color, or an extremely short document, or

by otherwise calling attention to itself. See Tex. Bus. & Com. Code § 1.201(10); Reyes, 134 S.W.3d

at 192; Dresser, 853 S.W.2d at 511.

               Applying these standards to the provision at issue, we conclude that BankDirect did

not meet its burden of establishing as a matter of law that the limitation of liability in the premium

finance agreement is conspicuous. See Reyes, 134 S.W.3d at 192; Dresser, 853 S.W.2d at 511. The

summary judgment evidence shows that it is located in paragraph 16, in the second column of a page

that appears to be the third page of the agreement, and is in the same small print and font as the

remainder of the agreement.        There are no bold or capital letters, other than the name

“BANKDIRECT,” no symbols or other marks to call attention to it, and its heading is “Liability,”

not “Limitation of Liability.” Therefore, BankDirect has not shown as a matter of law that the

provision complies with the fair notice requirement of conspicuousness. See Reyes, 134 S.W.3d at

192; Knott, 128 S.W.3d at 215–16; Dresser, 853 S.W.2d at 511 (provision not conspicuous where

it appeared on back of work order in series of numbered paragraphs without headings or contrasting

type and document not short enough so that every term considered conspicuous); compare Sydlik,
195 S.W.3d at 332 (release conspicuous where document was only one page with three paragraphs

                                                 11
and statement in large, bold, underlined letters at top that it was release and where releasing party

initialed each paragraph). Because we conclude that Bank Direct has not met its burden on

conspicuousness, we need not reach Plasma Fab’s argument that BankDirect failed to show that the

limitation of liability provision does not meet the express negligence doctrine. See Reyes,
134 S.W.3d at 192; Dresser, 853 S.W.2d at 510. We sustain Plasma Fab’s third issue.3

Plasma Fab’s Claims against Scottsdale

       Scottsdale’s Liability for BankDirect’s Actions

               As part of its second issue, Plasma Fab argues that the trial court erred in granting

summary judgment in favor of Scottsdale because Scottsdale failed to establish as a matter of law

that the cancellation was effective. Plasma Fab contends that Scottsdale’s failure to verify that

BankDirect complied with statutory cancellation procedures rendered the cancellation ineffective.

Although no Texas cases have resolved this issue, a number of cases from other jurisdictions

involving similar fact patterns and statutory schemes have addressed it. A leading case supporting

Plasma Fab’s position, and the primary case on which Plasma Fab relies, is Insurance Co. of N. Am.

v. Cooke, 624 So. 2d 252 (Fla. 1993). In Cooke, the Florida Supreme Court, when faced with a

certified question from the district court involving statutory language similar to section 651.161(b),

held that where an insured denies receipt of the notice of intent to cancel, an insurer who raises the

defense of cancellation must prove the premium finance company complied with the statutory

       3
            Having concluded that BankDirect failed to meet its summary judgment burden of
establishing that the provision is enforceable, we do not reach Plasma Fab’s fourth issue, in which
it argues in the alternative that even if the provision is valid, it does not relieve BankDirect of
liability because BankDirect engaged in willful or intentional misconduct.

                                                 12
provisions in order to avoid liability under an insurance policy. See id. at 255; see also Kende

Leasing Corp. v. A.I. Credit Corp., 524 A.2d 1306, 1308, 1311–13 (N.J. Super. Ct. App. Div. 1987)

(where insured denied receipt of notice of intent to cancel, court reasoned that if insurer could

effectively cancel despite failure of premium finance company to send notice of intent to cancel,

notice requirement would be meaningless and remedy against premium finance company would be

less effective because purpose of notice was to prevent cancellation, and held cancellation ineffective

and insurer liable on policy as if cancellation had not occurred); see also Felican v. State Farm Mut.

Ins. Co., 449 N.Y.S.2d 887, 892 (Sup. Ct. N.Y. App. Term 1982) (where there was insufficient proof

premium finance company mailed notice of cancellation, insurer did not meet burden to prove policy

had been cancelled and was required to afford coverage).

               The opposing view is represented by Carr v. Peerless Ins. Co., 724 A.2d 454

(Vt. 1998). In Carr, the court reasoned that there was nothing in the statutory scheme making the

insurer responsible for the improper action of the premium finance company, the insurer was not a

party to the premium finance agreement, and there was no supervisory or monitoring relationship

between the insurer and the premium finance company. See id. at 458. The court concluded that

“any wrong here was committed by the premium finance company, and it is therefore the party to

whom the insured should turn for recovery.” See id. at 459; see also Universal Fire & Cas. Ins. Co.

v. Jabin, 16 F.3d 1465, 1468–70 (7th Cir. 1994) (reasoning that to construe premium finance act “as

reaching beyond premium finance companies to protect insureds by giving them recourse against

insurers as well, would torture the Act’s ordinary meaning” and holding that language prohibiting

cancellation without compliance with notice requirements applied to premium finance company but

                                                  13
not insurer); Illinois Ins. Guar. Fund v. Evanston Paper & Paper Shredding Co., 649 N.E.2d 568,

569 (Ill. App. Ct. 1995) (holding that if insured grants premium finance company power to cancel,

insurer may cancel at premium finance company’s behest and that if premium finance company

violates its statutory duties, insured must seek reparation from premium finance company and not

insurer, who has no continuing duty to insure under cancelled contract).

               We are more persuaded by the reasoning of the courts in Carr, Jabin, and Evanston

Paper. We must construe the Premium Finance Act as a whole according to its plain language and

ordinary meaning. See Zanchi v. Lane, 408 S.W.3d 373, 376 (Tex. 2013); Railroad Comm’n of Tex.

v. Texas Citizens for a Safe Future & Clean Water, 336 S.W.3d 619, 624 (Tex. 2011). The Act

regulates premium finance companies and agreements. See Tex. Ins. Code §§ 651.001–.209. The

plain language of section 651.161, which provides that a premium finance company may not cancel

a policy except as provided by that section, comports with the Act’s function of regulating premium

finance companies, not insurers. See id. § 651.161(a); see also Jabin, 16 F.3d at 1468. Nothing in

the statutory scheme either imposes the requirements of section 651.161 on the insurer or suggests

that the insurer is responsible for the failure of the premium finance company to comply, and to

construe it so as to impose such responsibility on the insurer would “torture” the statute’s ordinary

meaning. See Jabin, 16 F.3d at 1468; Zanchi, 408 S.W.3d at 376; Carr, 724 A.2d at 458. We

cannot read the phrase “[a]n insurance premium finance company may not cancel an insurance

contract” to mean “an insurance premium finance company or an insurer may not cancel an insurance

contract.” See Zanchi, 408 S.W.3d at 376; Texas Citizens, 336 S.W.3d at 624; Evanston, 649 N.E.2d

at 570–71 (citing Haft v. Charter Oak Fire Ins., 635 N.E.2d 843, 938 (Ill. App. Ct. 1994)) (if

                                                 14
legislature had intended violation of notice provision to block cancellation of policy it could have

so stated).4

               Further, Scottsdale is not a party to the premium finance agreement and has no

supervisory or monitoring role as to BankDirect. See Carr, 724 A.2d at 458. Moreover, we agree

with the court in Carr that an insured’s remedy against a premium finance company is no less

effective than a remedy against the insurer in discouraging improper cancellations by the premium

finance company in the future. See id. at 459. We therefore conclude that Scottsdale met its

summary judgement burden of establishing that under the plain language and ordinary meaning of

section 651.161, it had no obligation to verify BankDirect’s compliance with the statutory notice

provisions and that cancellation was effective regardless of BankDirect’s failure to comply with the

statutory notice requirements. See Jabin, 16 F.3d at 1468, 1470; Zanchi, 408 S.W.3d at 376; Texas

Citizens, 336 S.W.3d at 624; Knott, 128 S.W.3d at 215–16; Carr, 724 A.2d at 458–59; see also

Biggs v. United States Fire Ins. Co., 611 S.W.2d 624, 629 (Tex. 1981) (agent acting within scope

        4
          The language of section 651.161 also serves to distinguish Insurance Co. of N. Am.
v. Cooke, 624 So. 2d 252 (Fla. 1993) and Felican v. State Farm Mut. Ins. Co., 449 N.Y.S.2d 887
(Sup. Ct. N.Y. App. Term 1982). The applicable statutes construed in those cases provided broadly
that “the insurance contract shall not be cancelled” unless such cancellation is effectuated in
accordance with the statutory notice provisions. See Cooke, 624 So. 2d at 255 n.2; Felican,
449 N.Y.S.2d at 890. In contrast, the language of section 651.161 specifically prohibits cancellation
only by “the insurance premium finance company.” See Tex. Ins. Code § 651.161(a). In addition,
we observe that after the Florida Supreme Court’s holding in Cooke, the Florida Legislature amended
the premium finance statute to provide that upon receipt of the cancellation notice by the insurer,
“the insurance contract shall be cancelled with the same force and effect as if the notice of
cancellation had been submitted by the insured himself, whether or not the premium finance
company has complied with the notice requirement of this subsection . . . .” See Bamboo Garden
of Orlando, Inc. v. Oak Brook Prop. & Cas. Co., 773 So. 2d 81, 83–84 (Fla. Dist. Ct. App. 2000)
(discussing legislative changes and concluding it was legislature’s intent not to burden insurer with
responsibility of ensuring finance company complies with notice provisions).

                                                 15
of apparent authority binds principal as though principal had performed action). We overrule Plasma

Fab’s second issue as to Scottsdale’s obligation to verify BankDirect’s compliance with statutory

notice requirements.

       Advance Written Notice

               In its first issue, Plasma Fab argues that Scottsdale was not entitled to summary

judgment because it failed to establish cancellation as a matter of law. In particular, Plasma Fab

argues that there was no “advance written notice” of cancellation. The policy provided that the

insured may cancel the policy “by mailing or delivering to [Scottsdale] advance written notice of

cancellation.” Plasma Fab contends that because BankDirect did not mail the notice of cancellation

until after 5:00 p.m. on December 4, 2008, Scottsdale could not have received it until December 5

at the earliest, making cancellation effective December 4 retroactive. Consequently, Plasma Fab

argues, the notice was not “advance.” It is Plasma Fab’s contention that Scottsdale, which had the

burden to prove its affirmative defense of cancellation, had to establish that this provision of the

policy had been met. Although cancellation is an affirmative defense on which Scottsdale had the

burden of proof, see Tex. R. Civ. P. 94; Anchor Cas. Co. v. Crisp, 346 S.W.2d 364, 367 (Tex. Civ.

App.—Amarillo 1961, no writ) (insurer had burden to establish defense of cancellation); Republic

W. Ins. Co. v. Rockmore, No. 3-02-CV-1569-K, 2005 U.S. Dist. LEXIS 327, at *21 (N.D. Tex.

Jan. 10, 2005) (“Under Texas law, cancellation is an affirmative defense which must be proved by

the insurer at trial.”), we do not find this argument persuasive.

               First, is was Plasma Fab who cancelled the policy, through its agent, acting with

apparent authority under the power of attorney, see Biggs, 611 S.W.2d at 629, and Scottsdale merely

                                                 16
complied with the terms of the policy in cancelling as of the date specified by Plasma Fab through

BankDirect. Further, the policy also provided that the notice of cancellation “will state the effective

date of cancellation” and “[t]he policy period will end on that date.” Texas courts have long held

that, in circumstances other than retroactive cancellation after a loss has occurred, when less notice

is given than is required by the policy, cancellation becomes effective at the earliest date allowed

under the contract. See, e.g., Brewer v. Maryland Cas. Co., 245 S.W.2d 532, 534 (Tex. Civ.

App.—San Antonio 1952, writ ref’d n.r.e.) (notice of cancellation effective at earlier date than

permitted by policy controlled by the policy); Frontier-Pontiac, Inc. v. Dubuque Fire & Marine Ins.

Co., 166 S.W.2d 746, 747 (Tex. Civ. App.—Fort Worth 1942, no writ) (notice of cancellation

effective immediately or within less time that provided in policy sufficient to cancel policy at end

of time set out in policy); California-Western States Life Ins. Co. v. Williams, 120 S.W.2d 844, 846

(Tex. Civ. App.—El Paso 1938, writ dism’d) (explaining that notice that the policy “is hereby

cancelled” would take effect five days after receipt of notice, as provided by policy).

               Here, the record reflects that Plasma Fab, through BankDirect, gave notice of

cancellation to Scottsdale, with the stated effective date of December 4, 2008, and that Plasma Fab

received the notice on December 5, 2008. Under the terms of the policy requiring advance written

notice, cancellation was therefore effective subsequent to receipt on December 5, 2008, or on

December 6, 2008, at the latest. See Brewer, 245 S.W.2d at 534; Frontier-Pontiac, 166 S.W.2d at

747; Williams, 120 S.W.2d at 846. Either way, advance written notice of cancellation was provided

                                                  17
prior to cancellation, and cancellation was effective prior to the fire.5 Thus, we conclude that

Scottsdale met its burden of establishing that the policy was cancelled by Plasma Fab in accordance

with the terms of the policy and that it was entitled to summary judgment on this issue as a matter

of law.6 See Tex. R. Civ. P. 166a(c); Knott, 128 S.W.3d at 215–16; see also Lazo v. RSI Int’l, Inc.,

No. 14-06-00432-CV, 2007 Tex. App. LEXIS 7077, at *9 (Tex. App.—Houston [14th Dist.]

Aug. 30, 2007, no pet.) (mem. op.) (construing identical policy language and holding that where

premium finance company sent notice of cancellation on July 3, 2001, to be effective July 3, 2001,

contract was cancelled effective July 3, 2001). We overrule Plasma Fab’s first issue.

        Reinstatement

                In the alternative to the arguments in its first and second issues, Plasma Fab contends

that even if the policy was effectively cancelled, Scottsdale failed to establish as a matter of law that

it did not reinstate the policy with no interruption in coverage. The summary judgment record does

not support this argument. The notice of cancellation at issue was mailed by BankDirect on

December 4, 2008, and resulted from Plasma Fab’s failure to pay its November premium. Prior to

that, on November 19, 2008, Scottsdale had mailed to BankDirect a notice of cancellation that was

        5
            We find Plasma Fab’s reliance on Stroop v. Northern County Mutual Insurance
Co. misplaced. See No. 05-97-01517-CV, 2000 Tex. App. LEXIS 8082 (Tex. App.—Dallas
Dec. 4, 2000, pet. denied). In Stroop, the issue was whether an insured and an insurer could
retroactively cancel a policy after a collision occurred when the insured was covered by another
insurer, see id. at *8, the parties stipulated that no advance written notice had been provided, see id.
at *3, and the court held that the attempted cancellation violated public policy, see id. at *15. We
find Stroop inapposite.
        6
          Plasma Fab also contends that Scottsdale’s burden to establish cancellation included
proving that BankDirect complied with the statutory notice provisions, an argument we have
already rejected.

                                                   18
to be effective December 1, 2008. That notice of cancellation was based on Plasma Fab’s failure to

pay its October premium. However, although Plasma Fab was late in paying, it had paid its October

premium on November 11, 2008. Consequently, on December 9, 2008, Scottsdale sent a notice of

reinstatement, rescinding the notice of cancellation that was to be effective December 1, 2008, for

failure to pay the October premium and reinstating the policy for the second time. In the meantime,

Plasma Fab had become delinquent on its November premium, and BankDirect prepared the notice

of intent to cancel at issue, stating a cancellation date of December 4, 2008. Thus, by its express

terms, the reinstatement dated December 9 applied to the cancellation that was to be effective

December 1, not to the cancellation stating an effective date of December 4, 2008, for which

Scottsdale subsequently declined reinstatement. We conclude that Scottsdale met its summary

judgment burden of establishing that it did not reinstate the policy, see Knott, 128 S.W.3d at 215–16,

and overrule the remainder of Plasma Fab’s first and second issues.

       Claims for Violations of Insurance Code and DTPA

               In its reply brief, Plasma Fab argues that Scottsdale was not entitled to summary

judgment as to its claims against Scottsdale for violations of the Insurance Code for which remedy

is allowed under the DTPA. See Tex. Ins. Code §§ 541.060(a)(1), (a)(2)(A), (a)(3); Tex. Bus.

& Com. Code § 17.50(4).7 Plasma Fab claimed that Scottsdale committed these violations by issuing

       7
          Ordinarily, an issue raised for the first time in a reply brief is waived and need not be
considered by an appellate court. See McAlester Fuel Co. v. Smith Int’l, Inc., 257 S.W.3d 732, 737
(Tex. App.—Houston [1st Dist.] 2007, pet. denied); Hutchison v. Pharris, 158 S.W.3d 554, 563
(Tex. App.—Fort Worth 2005, no pet.). However, Scottsdale fully briefed the issue of Plasma Fab’s
claims for violations of the Insurance Code and DTPA, and Plasma Fab responded in its reply brief.
Therefore, this issue is properly before us. See McAlester Fuel, 257 S.W.3d at 737 (addressing

                                                 19
a false representation in denying Plasma Fab’s claim when Scottsdale had reinstated the policy and

issued Endorsement Number 7 voiding Endorsement Number 6, which purported to cancel the policy

retroactive to December 4, 2008. Having already concluded that the policy was effectively cancelled

and not reinstated, we further conclude that Scottsdale established as a matter of law that its denial

of the claim was not a false representation as a matter of law. See Knott, 128 S.W.3d at 215–16.

Further, the endorsements were not issued until after the policy was cancelled, and the policy they

purported to amend was no longer in effect. There was nothing to amend, and the endorsements

were a nullity. See Lazo, 2007 Tex. App. LEXIS 7077, at *9–10. We overrule Plasma Fab’s reply

issue as to its claims against Scottsdale for violations of the Insurance Code and DTPA.

                                          CONCLUSION

               We reverse the trial court’s order granting BankDirect’s motion for summary

judgment as to Plasma Fab’s claims against BankDirect and remand for further proceedings

consistent with this opinion. We affirm the trial court’s order in all other respects.

contentions asserted in reply brief that replied to issues fully briefed by appellee); Hutchison,
158 S.W.3d at 563 (issue raised by appellant for first time in reply brief properly before court
because parties joined issue when appellee fully argued issue and appellant replied); cf. Sunbeam
Envtl. Servs. Inc. v. Texas Workers’ Comp. Ins. Facility, 71 S.W.3d 846, 851 (Tex. App.—Austin
2002, no pet.) (where appellant raised issue in reply brief that was not raised in opening brief or
argued by appellee, appellant waived issue).

                                                 20
                                              _____________________________________________

                                              Melissa Goodwin, Justice

Before Justices Puryear, Goodwin, and Field

Affirmed in Part; Reversed and Remanded in Part;

Filed: May 8, 2015

                                                21
       TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

                            JUDGMENT RENDERED MAY 8, 2015

                                       NO. 03-13-00331-CV

                      Plasma Fab, LLC and Russell McCann, Appellant

                                                  v.

     BankDirect Capital Finance, LLC, a Subsidiary of Texas Capital Bank, N.A.; and
                        Scottsdale Insurance Company, Appellee

         APPEAL FROM THE 250TH DISTRICT COURT OF TRAVIS COUNTY
              BEFORE JUSTICES PURYEAR, GOODWIN, AND FIELD
           AFFIRMED IN PART; REVERSED AND REMANDED IN PART –
                      OPINION BY JUSTICE GOODWIN

This is an appeal from the judgment signed by the trial court on April 25, 2013. Having

reviewed the record and the parties’ arguments, the Court holds that there was reversible error in

the trial court’s judgment.      The Court reverses the portion of the judgment that grants

BankDirect’s motion for summary judgment as to Plasma Fab’s claims against BankDirect and

remands the cause to the trial court for further proceedings consistent with this opinion. The

Court affirms the remainder of the trial court’s judgment. Each party shall bear their own costs

relating to this appeal, both in this Court and in the court below.