Court Opinion

ID: 5104673
Source: CourtListenerOpinion
Date Created: 2021-10-02 02:34:14.563447+00
Date Added: 2024-06-11T08:21:11.171211
License: Public Domain

EVELYN V. KEYES,
Justice, concurring.
The majority holds that Fina was never an additional insured under A & B’s insurance policies. Because I believe established law requires us to find that Fina became an additional insured under on A & B’s GCL policy on August 18, 1997, when the certificate of insurance naming Fina as an additional insured was issued by Continental, four days after Wisdom’s injury, I concur in the judgment only.
I. Continental’s Appeal
The Additional Insured Endorsement provided with A & B’s Continental insurance policies states that a person or organization becomes an additional insured only “if [1] you [A & B] are required to add another person or organization as an additional insured on this policy under a written contract or agreement currently in effect, or becoming effective during the term of the policy, and [2] a certificate of insurance has been issued.” The majority construes these provisions as conditions precedent to adding an insured to A & B’s policies. It reasons that the August 12, 1997 letter from A & B to Fina, offering “to furnish labor, tools, material (not furnished by Fina), equipment, insurance and supervision to complete steel erection for the above referenced buildings,” was insufficient to satisfy the condition in the Additional Insured Endorsement that A & B be “required to add another person or organization as an additional insured on this policy under a written contract or agreement.” Since this condition was not fulfilled, Fina was never insured by Continental, despite the acknowledged intentions of the parties and the issuance of a certificate of insurance expressly amending A & B’s Continental insurance policies to add Fina.
*172The majority acknowledges that Pina orally accepted A & B’s offer to insure it on August 12, the day the offer was made; that, on that same day, A & B asked Continental to add Fina to its insurance policies; and that, on August 18, A & B’s insurance agent issued a certificate of insurance showing A & B as the insured under various Continental policies and Fina as the certificate holder. However, the majority opines that the first condition precedent to Fina’s addition as an insured on A & B’s policies could be fulfilled only by a legally enforceable written contract requiring A & B to insure Fina under specific terms; and it points out that the certificate of insurance contained the following disclaimer: “This certificate is issued as a matter of information only and confers no rights upon the certificate holder [Fina]. This certificate does not amend, extend or alter the coverage afforded by the policies below.” Therefore, in the majority’s view, Fina did not become an insured even though, under the heading, “Additional Insured,” the certificate provided:
FINA, its parent, subsidiaries and affiliated companies, and their respective employees, officers and agents shall be named as additional insured in each of Contractor’s policies, except Workers’ Compensation; however, such extention [sic ] of coverage shall not apply with respect to any obligations for which FINA has specifically agreed to indemnify Contractor.
Since, in its view, Fina never was added to A & B’s insurance policies, the majority holds that Continental did not waive its subrogation rights against Fina, even though, again, the certificate of insurance provided, under the heading, “Subrogation”:
All policies shall be endorsed to provide that underwriters and insurance companies of Contractor shall not have any right of subrogation against FINA, its parent, subsidiaries and affiliated companies, and their respective agents, employees, officers, invitees, servants, contractors, subcontractors, underwriters and insurance companies.
Likewise, because a condition precedent to the addition of Fina as an insured in the Additional Insured Endorsement was not satisfied, the additional provisions in the Endorsement — -limiting Fina’s coverage to damages for liability arising out of premises A & B owned, rented, leased, or occupied or to coverage for A & B’s work for or on behalf of Fina and excluding coverage for exemplary damages assessed against Fina and for Fina’s own acts and omissions — never took effect. Nor did the provision stating that, if A & B agreed in writing to waive its right of recovery against any person or organization prior to the date of a loss, Continental likewise waived any right of recovery it might have against Fina because of payments it made for injury or damage arising out of A & B’s work done under a contract with Fina.
None of the foregoing writings, in the majority’s view, formed any part of the final contract formed between A & B and Fina or formed a contract between and among A & B, Continental and Fina. Rather, the majority holds that all prior oral and written negotiations and agreements between A & B and Fina merged into two purchase orders issued by Fina on August 22 and 25, 1997 for the proposed work showing A & B as the vendor and were extinguished. The majority observes that the reverse side of the purchase orders contains terms and conditions of the sale, as well as a merger clause, but that these terms and conditions do not refer to the provision of insurance by the seller to the buyer. Since the purchase orders do not provide for insurance or indemnity for *173Fina, or for waiver of subrogation rights by Continental, the majority holds that Fina cannot claim a right to a defense, to insurance, to indemnity, or to any other protection afforded by A & B’s insurance policies, regardless of any claim made against it in connection with its contract with A & B.
I disagree. I would hold that A & B’s August 12, 1997 proposal and Fina’s acceptance were preliminary negotiations and agreements that merged into a legally enforceable insurance contract between and among A & B, Fina, and Continental with Continental’s issuance of a certificate of insurance on August 18, amending A & B’s policies to add Fina. Fina’s August 22 and 25, 1997 purchase orders concerned a substantially different matter — Fina’s purchase of labor and equipment from A & B to erect structural steel for the “Train 9” project under terns stated in the purchase orders. The merger clauses in these two orders, by their express terms, extinguished only “inconsistent” prior proposals, quotes, and written contracts. Since neither A & B’s obligation to insure Fina with respect to the project nor the contract of insurance is inconsistent with A & B’s purchase of labor and equipment from Fina, the insurance contract adding Fina as an additional insured is, in my view, valid and took effect under its terms on August 18, 1997, four days after Wisdom’s accident.
I would further hold that the requirement of a written contract obligating A & B to insure Fina is not a condition precedent to Fina’s addition to A & B’s Continental insurance policies, but a covenant that was satisfied by Continental’s issuance of a certificate of insurance expressly amending A & B’s policies to add Fina.

Formation of Contract

Insurance policies are contracts, and their construction is governed by the rules of construction applicable to all contracts. Balandran v. Safeco Ins. Co., 972 S.W.2d 738, 740-41 (Tex.1998); Grain Dealers Mut. Ins. Co. v. McKee, 943 S.W.2d 455, 458 (Tex.1997). In construing a written contract, the primary goal of the court “is to give effect to the written expression of the parties’ intent.” Balandran, 972 S.W.2d at 741. Moreover, insurance policies are interpreted and construed liberally in favor of the insured and strictly against the insurer, especially when the court is dealing with exceptions and limitations. Gonzalez v. Mission Am. Ins. Co., 795 S.W.2d 734, 737 (Tex.1990); Simpson v. GEICO Gen. Ins. Co., 907 S.W.2d 942, 945 (Tex.App.-Houston [1st Dist.] 1995, no writ).
A contract is established when agreement is reached on all terms, and preliminary agreements are expressly or impliedly incorporated into the final offer and acceptance. Kuzel v. Aetna Ins. Co., 650 S.W.2d 193, 195(Tex.App.-San Antonio 1983, writ ref' d n.r.e.); Ark. Oak Flooring Co. v. Mixon, 369 S.W.2d 804, 807(Tex.Civ.App.-Texarkana 1963, no writ) (oral agreement is not superseded or invalidated by subsequent integration or by written agreement if agreement is not inconsistent with integrated contract). As in all contracts, the offer and acceptance in insurance negotiations must be such as to evidence a complete agreement, or no obligations arise. Republic Nat’l Life Ins. Co. v. Hall, 149 Tex. 297, 232 S.W.2d 697, 699 (1950); Durham Life Ins. Co. v. Cole, 608 S.W.2d 838, 839 (Tex.Civ.App.-Eastland, 1980, writ ref'd n.r.e.).
Merger occurs when the parties to an earlier agreement enter into a subsequent written integrated agreement covering the same subject matter. Fish v. Tandy Corp., 948 S.W.2d 886, 898(Tex.App.-Fort Worth 1997, pet. denied). In a contract case, whether merger has occurred is *174largely a matter of the intention of the parties. Id. Before one contract is merged into another, the last contract (1) must be between the same parties as the first; (2) must embrace the same subject matter; and (3) must have been so intended by the parties. Id. Preliminary negotiations, whether written or unwritten, that have led to the execution of a written agreement are merged in it, and the writing must be taken as expressing the final views of the parties. Gulf Oil Corp. v. Spence & Howe Constr. Co., 356 S.W.2d 382, 385-86 (Tex.Civ.App.-Houston 1962), aff'd, 365 S.W.2d 631 (Tex.1963); Schultze v. Schultze, 209 S.W.2d 791, 795 (Tex.Civ.App.-Eastland 1948, writ ref'd n.r.e.). A subsequent agreement supersedes the original agreement, however, only to the extent of any inconsistencies. Leon Ltd. v. Albuquerque Commons P’ship, 862 S.W.2d 693, 700 (Tex.App.-El Paso 1993, no writ). Subsequent integration will not supersede or invalidate a written agreement relating to the same subject matter if the agreement is such that it might naturally be made as a separate agreement. Hubacek v. Ennis State Bank, 159 Tex. 166, 317 S.W.2d 30, 32 (1958); Fish, 948 S.W.2d at 898; Leon Ltd., 862 S.W.2d at 700-01.
Here, A & B’s August 12, 1997 proposal offered “to furnish labor, tools, certain materials (not furnished by Fina), equipment, insurance, and supervision to complete the steel erection for the above-referenced buildings,” i.e., buildings for the Train 9 project (emphasis added). Fina orally accepted this offer the same day; and, on that day, A & B notified its insurance carrier, Continental, to add Fina as an additional insured to its policies. A & B’s proposal, Fina’s acceptance, A & B’s notification of Continental, Continental’s issuance of the certificate of insurance adding Fina to A & B’s policies, and the policies themselves, evidence a clear intent on the part of A & B, Fina, and Continental to furnish insurance to Fina for the Train 9 project under specific terms. This intent is fully consistent with and finalizes the intent expressed by the parties in their prior oral and written negotiations and agreements that Fina be added to A & B’s Continental insurance policies for the Train 9 project. The preliminary communications merged into the written contract of insurance on August 18, 1997, when the certificate of insurance amended Continental’s policies to add Fina.
The purchase orders executed by Fina on August 22 and 25 constitute a separate contract from the insurance contract: these comprised a commercial contract between A & B and Fina finalizing the terms of the purchases reflected in the orders. A & B’s August 12 proposal to furnish labor, tools, and certain equipment for the Train 9 project merged into this final agreement; and, to the extent the proposal was inconsistent with the purchase orders, it was extinguished. The merger clause on the back of the August 22 and 25 orders merely memorializes the merger doctrine; it does not change that doctrine. See Fish, 948 S.W.2d at 898. Since the terms of the purchase orders are not inconsistent with the terms of the insurance contract, but instead pertain to a separate agreement between A & B and Fina covering a different subject matter, the insurance agreement between and among A & B, Fina, and Continental did not merge into the purchase orders and was not extinguished by them.
Nevertheless, because, under the express terms of the Additional Insured Endorsement, A & B’s insurance policies were amended to insure Fina on August 18, 1997, the date the certificate of insurance issued, Fina was not insured by Continental on August 14, 1997, the date Wisdom was injured. See Republic Nat’l Life Ins. Co. v. Hall, 232 S.W.2d at 699 (offer *175and acceptance in insurance negotiations must be such as to evidence complete agreement, or no obligations arise); Inglish v. Prudential Ins. Co., 928 S.W.2d 702, 706 (Tex.App.-Houston [1st Dist.] 1996, writ denied) (there is no insurance contract unless and until application for insurance is accepted by insurer). Fina was, therefore, not insured by Continental for Wisdom’s injury and Continental had no obligation to defend or cover Fina for Wisdom’s claims.

Conditions Precedent

I also respectfully disagree with the majority’s interpretation of the provision in the Additional Insured Endorsement that A & B must be required by a written contract to add Fina as an additional insured on its Continental policies as a condition precedent to the addition of Fina to those policies which could be satisfied only by a prior written agreement legally binding A & B to insure Fina; and I disagree with its holding that the terms of the provision were not satisfied because A & B’s August 12, 1997 written proposal to insure Fina for the Train 9 project was not a legally binding agreement to insure Fina.
It is well established that, because of their harshness, conditions are not favored in Texas law; and, in construing a contract, forfeiture by finding a condition precedent is to be avoided when another reasonable reading of the contract is possible. Hohenberg Bros. Co. v. George E. Gibbons & Co., 537 S.W.2d 1, 3 (Tex.1976); America’s Favorite Chicken Co. v. Samaras, 929 S.W.2d 617, 627 (Tex.App.-San Antonio 1996, writ denied). Whether a certain contractual provision is a condition rather than a promise must be gathered from the contract as a whole and from the intent of the parties. Hohenberg Bros., 537 S.W.2d at 3; Belmont Constructors, Inc. v. Lyondell Petrochemical Co., 896 S.W.2d 352, 354 (Tex.App.-Houston [1st Dist.] 1995, no writ). Where the intent of the parties is doubtful or where a condition would impose an absurd or impossible result, the agreement will be interpreted as creating a covenant rather than a condition. Hohenberg Bros., 537 S.W.2d at 2; Belmont Constructors, 896 S.W.2d at 357. Courts must presume that the objective of an insurance contract is to insure and should not construe a policy to defeat that objective unless the language requires it. Goswick v. Employers’ Cas. Co., 440 S.W.2d 287, 289 (Tex.1969); Warrilow v. Norrell, 791 S.W.2d 515, 524 (Tex.App.-Corpus Christi 1989, writ denied).
It is much more reasonable to construe the provision in the Additional Insured Endorsement that A & B be required by a written contract to insure Fina as a covenant that was satisfied by the contract insuring Fina which became effective on August 18, when the certificate of insurance issued, rather than as a condition requiring a separate, legally enforceable prior agreement to insure as a necessary prerequisite for the addition of an insured to A & B’s Continental policies. Not only is the majority’s interpretation of the provision unreasonable, the majority construes the Additional Insured Endorsement strictly against the insured and in favor of the insurer who drafted it, contrary to established authority; and it construes the Endorsement in such a way as to defeat the acknowledged intent of the parties and the objective of insuring Fina expressly stated in the certificate of insurance. The majority’s holding is, therefore, contrary to established law.
Moreover, an insurer’s insertion of a condition precedent to the formation of insurance contracts into its policies that is designed to and does thwart the legitimate expectations and intentions of potential insureds, through language that gives no hint of its draconian consequences, is *176clearly against public policy. See Goswick, 440 S.W.2d at 289 (courts must presume that the objective of an insurance contract is to insure and should not construe a policy to defeat that objective unless the language requires it); see also DeSantis v. Wackenhut Corp., 793 S.W.2d 670, 677 (Tex.1990) (the most basic policy of a law is the protection of the parties’ justified expectations); Chase Manhattan Bank, N.A. v. Greenbriar North Section II, 835 S.W.2d 720, 723, 725 (Tex.App.-Houston [1st Dist.] 1992, no writ) (same; parties may not include conditions in their contracts that violate law or public policy).
For the foregoing reasons, I concur with that part of the judgment disposing of Continental’s appeal on the grounds that Fina was not insured by A & B’s policies on August 14, 1997, the date of Wisdom’s injury, but not for the majority’s reasons.
II. Fina’s Appeal
In response to Fina’s appeal, the majority affirms the trial court’s ruling that Continental did not waive its right of subrogation against Fina. However, it rules as it does because of its narrow construction of the contract between Fina and A & B. It observes that A & B’s proposal makes a single mention of insurance, with no specific details or terms, and that the proposal makes no reference at all to subrogation or a waiver. It concludes that, because there is no language to create an ambiguity in the offer, the awareness and intention of A & B and Fina are irrelevant. I again disagree.
The certificate of insurance issued by A & B’s insurer on August 18,1997 expressly provides that Fina is an additional insured as of the date of issuance of the certificate and that “[a]ll policies shall be endorsed to provide that underwriters and insurance companies of Contractor shall not have any right of subrogation against FINA.” The problem is that the insurance policy did not take effect until August 18, 1997, after Wisdom’s accident.
Fina also argues that subrogation of an insurer against its insured has been rejected in Texas, citing Texas Association of Counties County Government Risk Management Pool v. Matagorda County, 52 S.W.3d 128, 134 (Tex.2000). I agree; but Texas Association of Counties also holds that an insurer paying a claim under a policy is equitably subrogated to any claim the insured may have against a third party responsible for the insured’s injury. Id. at 133. As Fina was not insured by Continental under A & B’s policies on August 14, 1997, the date of Wisdom’s injury, Continental was not seeking subrogation against its insured when it sought subrogation to Wisdom’s rights against Fina; Fina is a third party with respect to Continental for Wisdom’s claims against it. I concur, therefore, in the majority’s holding that Continental did not waive its right of sub-rogation to Wisdom’s rights to recover from Fina.