Court Opinion

ID: 6500775
Source: CourtListenerOpinion
Date Created: 2022-07-18 18:00:20.895271+00
Date Added: 2024-06-11T09:17:29.761847
License: Public Domain

Case: 21-40371    Document: 00516397343        Page: 1   Date Filed: 07/18/2022

          United States Court of Appeals
               for the Fifth Circuit                        United States Court of Appeals
                                                                     Fifth Circuit

                                                                   FILED
                                                                July 18, 2022
                                No. 21-40371
                                                                Lyle W. Cayce
                                                                     Clerk

   Sentry Select Insurance Company,

                                                         Plaintiff—Appellee,

                                    versus

   Home State County Mutual Insurance Company; Snap
   Insurance Service, L.L.C.,

                                                     Defendants—Appellees,

                                    versus

   Juan Antonio Ortiz Ramirez,

                                                     Defendant—Appellant.

                 Appeal from the United States District Court
                     for the Southern District of Texas
                           USDC No. 7:20-CV-16

   Before Smith, Costa, and Wilson, Circuit Judges.
Case: 21-40371      Document: 00516397343           Page: 2    Date Filed: 07/18/2022

                                     No. 21-40371

   Per Curiam:*
          This is an insurance coverage dispute arising out of a single-car
   automobile accident. Juan Antonio Ortiz Ramirez appeals from a judgment
   declaring that Sentry Select Insurance Company owes him neither defense
   nor indemnity in an underlying state action. The district court held that the
   “step down” provision in Sentry’s policy precluded coverage because
   Ramirez was already covered up to the minimum liability limits required by
   Texas law under a policy issued to his sister, Zusuky Ortiz, by Home State
   County Mutual Insurance Company. We find no error in the district court’s
   analysis and therefore affirm.
                                          I.
                                         A.
          On August 11, 2016, Ortiz entered a contract with Clark Knapp Honda
   in Pharr, Texas for the purchase of a Kia Forte. Ortiz paid $500 up front and
   agreed to finance the remaining $16,096.32. As part of the transaction, Ortiz
   agreed to provide proof of insurance coverage on the vehicle to Clark Knapp
   within 30 days.     She also “agree[d] to assume forthwith any and all
   responsibility for damage to the vehicle or resulting from the use,
   maintenance or operation of the vehicle,” as well as “to hold [Clark Knapp]
   free of any loss, claim, or liability resulting from any damage to the vehicle or
   from the vehicle’s use, maintenance or operation.”
          There was one catch to the deal: the Kia was undergoing repairs, so
   Clark Knapp lent Ortiz a Hyundai Elantra to drive until her Kia was ready.
   In the interim, on August 13, 2016, Ortiz paid an initial $260.18 premium for
   a personal auto liability insurance policy issued by Home State and
   administered by Snap Insurance Service, LLC. The policy’s “Declarations

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.

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Case: 21-40371      Document: 00516397343           Page: 3   Date Filed: 07/18/2022

                                     No. 21-40371

   Page” listed Ortiz as the named insured and the Kia as the insured vehicle.
   The policy provided the minimum amounts of motor vehicle liability
   insurance required under Texas law: bodily injury liability coverage up to
   $30,000 per person and $60,000 per accident, and property damage liability
   coverage up to $25,000 per accident. The same day she obtained the policy,
   Ortiz returned to Clark Knapp and provided proof of insurance. She left
   there driving the loaner Hyundai because the Kia was still undergoing repairs.
          Under the policy’s terms, Home State was obligated to “pay damages
   for bodily injury or property damage for which any covered person becomes
   legally responsible because of an auto accident.” A “covered person”
   included the named insured—Ortiz—and “any person using [the named
   insured’s] covered auto.” And a “covered auto” encompassed “[a]ny
   vehicle shown in the Declarations”—the Kia—and “[a]ny auto or trailer
   [the named insured] do[es] not own while used as a temporary substitute for [a
   covered auto] which is out of normal use because of its (a) breakdown; (b)
   repair; (c) servicing; (d) loss; or (e) destruction.”
          The next day, August 14, 2016, Ortiz’s brother Ramirez wrecked the
   Hyundai in a single-car accident. Ortiz and her other brother, Sky Drem
   Ortiz, were passengers and sustained injuries in the crash.
          Ortiz and Sky filed suit against Clark Knapp and Ramirez in state court
   in Hidalgo County, Texas, seeking relief under several negligence theories.
   Sentry, Clark Knapp’s insurer, provided Ramirez a defense in the state
   lawsuit under reservation of rights. Sentry’s policy provided Clark Knapp
   primary, excess, and umbrella liability coverage. Relevant here, the primary
   auto liability section contained a “step down” provision, which limited
   Sentry’s coverage obligation to “the amount needed to comply with
   [Texas’s] minimum limits after . . . other insurance is exhausted.”

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Case: 21-40371        Document: 00516397343           Page: 4   Date Filed: 07/18/2022

                                       No. 21-40371

                                           B.
             In January 2020, Sentry filed this action in federal court against Home
   State, Snap, Ramirez, and Ortiz, seeking a declaratory judgment that Sentry
   had no duty to defend or indemnify Ramirez in the underlying state lawsuit.
   Sentry alleged that Ramirez was not an “insured” under Sentry’s policy
   covering Clark Knapp and that, even if he was, the policy’s step down
   provision precluded coverage because Ramirez was already insured up to the
   minimum liability limits required by Texas law under Ortiz’s Home State
   policy. In response, Ramirez filed a counterclaim seeking a competing
   declaration that he was entitled to a defense and indemnity under Sentry’s
   policy.
             Sentry moved for summary judgment on its own claims, as well as on
   Ramirez’s counterclaim.         Sentry boiled the case down to one issue:
   Ramirez’s coverage under the Home State policy. Sentry asserted that the
   Hyundai constituted a “covered auto” under the Home State policy because
   the vehicle was a “temporary substitute” for Ortiz’s Kia, “which [was] out
   of normal use because of its (a) breakdown; (b) repair; [or] (c) servicing . . . .”
   And because the Hyundai constituted a covered auto, Ramirez qualified as a
   “covered person,” that is, a “person using [the named insured’s] covered
   auto.”
             Home State, Snap, and Ramirez responded to Sentry’s motion,
   asserting, inter alia, that because “Ortiz never took possession of the Kia and
   never completed the purchase process, she failed to obtain an insurable
   interest in the vehicle.” They reasoned that there was thus no covered auto
   for which the Hyundai could have served as a temporary substitute. Home

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                                         No. 21-40371

   State and Snap also filed a cross-motion for summary judgment on Sentry’s
   claim for declaratory relief.1
           The district court determined that, under a plain reading of the Home
   State policy, “the Hyundai constitute[d] a ‘temporary substitute’ . . . and
   Ramirez qualifie[d] as a ‘covered person’ by virtue of his use of that vehicle
   on the date of the accident.” The court rejected the defendants’ argument
   that Ortiz never acquired an insurable interest in the Kia. Instead, the court
   found Ortiz’s assumption of liability for the Kia’s “use, maintenance or
   operation” sufficient to establish “an insurable interest in the Kia at the
   relevant time, and therefore to keep Ramirez’s use of the temporary
   substitute vehicle within coverage.” In sum, the court determined that
   Ramirez was covered under Ortiz’s policy with Home State, and the step
   down provision in Sentry’s policy relieved Sentry of any duty to defend or
   indemnify Ramirez in the underlying state action.
           After rejecting the defendants’ additional arguments, the district
   court entered a final judgment granting Sentry’s motion for summary
   judgment, denying Home State and Snap’s cross-motion, and dismissing
   Ramirez’s counterclaim.2 Ramirez appealed, and Sentry filed a motion to

           1
             On July 6, 2020, months after Sentry filed this action, Home State filed its own
   action against Ortiz and Ramirez in Texas state court seeking a declaration that it had no
   duty to defend or indemnify them in the underlying state lawsuit. Ortiz and Ramirez failed
   to appear, and Home State obtained a default judgment against them. As part of its cross-
   motion for summary judgment in this case, Home State asserted that the state court default
   judgment precluded coverage. The district court rejected this argument and as noted infra
   n.2, Home State did not appeal that ruling. Ramirez likewise does not challenge it on
   appeal.
           2
              Home State, Snap, and Ramirez asserted that a genuine dispute existed as to
   whether the Home State policy was void due to Ortiz’s failure to obtain a valid driver’s
   license; that Home State’s state court default judgment precluded a finding that the Home
   State policy afforded coverage; and that Ramirez was entitled to umbrella coverage under
   the Sentry policy. Home State and Snap did not appeal the district court’s judgment, and

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                                         No. 21-40371

   dismiss the appeal as frivolous and for sanctions under Federal Rule of
   Appellate Procedure 38. A panel of this court ordered the motion be carried
   with the case.
                                              II.
                                              A.
           “This court reviews a grant of summary judgment de novo, applying
   the same standard as the district court.” Renfroe v. Parker, 974 F.3d 594, 599
   (5th Cir. 2020). Summary judgment is appropriate “if the movant shows that
   there is no genuine dispute as to any material fact and the movant is entitled
   to judgment as a matter of law.” Fed. R. Civ. P. 56(a). As this is a
   diversity case, “we apply state substantive law and federal procedural rules.”
   Camacho v. Ford Motor Co., 993 F.3d 308, 311 (5th Cir. 2021).
           Ramirez’s sole argument on appeal is that the district court erred by
   determining that Ortiz had an insurable interest in the Kia that gave rise to
   coverage under the Home State policy. Under Texas law, the general rule is
   that “liability insurance, like other forms of insurance, must be supported by
   an insurable interest in the insured.” Gulf Ins. Co. v. Winn, 545 S.W.2d 526,
   527 (Tex. Civ. App.—San Antonio 1976, writ ref’d n.r.e.). Texas courts have
   made clear, however, that unless the policy requires it, actual ownership is
   not necessary to establish an insurable interest in the subject vehicle. See
   Snyder v. Allstate Ins. Co., 485 S.W.2d 769, 772 (Tex. 1972); Winn, 545
   S.W.2d at 527.
           In Winn, the insurer argued that the policy holder lacked an insurable
   interest because the vehicle named in the policy turned out to have been

   Ramirez does not raise these issues on appeal, so they are abandoned. See Cinel v. Connick,
   15 F.3d 1338, 1345 (5th Cir. 1994) (“An appellant abandons all issues not raised and argued
   in its initial brief on appeal.”).

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                                     No. 21-40371

   stolen. 545 S.W.2d at 527. In rejecting that argument, the Texas Court of
   Civil Appeals held that “the only interest necessary to the validity of an
   automobile liability policy is that the insured may incur liability because of
   the operation, maintenance, or use of the automobile.” Id. at 528. Because
   the named insured “was in possession of the [vehicle] and planned to operate
   it on the public roads,” the court found he was “confronted with the obvious
   possibility that [the] vehicle might be involved in a collision and subject him
   to potential civil liability.” Id. This sufficed to establish that the policy
   holder “had sufficient insurable interest in the [vehicle] to procure liability
   insurance coverage on it.” Id.
          Winn dictates the same result here. Ortiz entered into a written
   agreement with Clark Knapp for the purchase of the Kia. Pursuant to that
   contract, Ortiz made a down payment and obtained insurance. She also
   agreed to “assume forthwith any and all responsibility for damage to the
   vehicle or resulting from the use, maintenance or operation of the vehicle,”
   as well as “to hold [Clark Knapp] free of any loss, claim, or liability resulting
   from any damage to the vehicle or from the vehicle’s use, maintenance or
   operation.” Because Ortiz was subject to potential liability for the Kia’s
   “use, maintenance or operation,” she “had a sufficient insurable interest in
   the [Kia] to insure it with liability coverage.” Winn, 545 S.W.2d at 528.
          Ramirez contends that Winn is distinguishable because unlike the
   insured in Winn, Ortiz had neither possession nor control of the Kia at the
   time of the accident. He cites Gulf Ins. Co. v. Bobo, 595 S.W.2d 847 (Tex.
   1980), for the proposition that no insurable interest exists where the insured
   lacks both possession and control. Because Ortiz had neither, Ramirez
   maintains that Ortiz never obtained an insurable interest in the Kia, and
   consequently, “the Home State policy never insured a vehicle for which the
   Hyundai could serve as a substitute.”

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                                     No. 21-40371

          Bobo involved an informal sale; there, the seller agreed to sell his truck,
   provided the buyer “would get some insurance on [it].” 595 S.W.2d at 848.
   The buyer showed the seller a receipt for collision insurance and
   subsequently took possession of the truck. Id. Before the parties could
   otherwise formalize the sale, the buyer wrecked the truck in an accident that
   injured the plaintiffs, who sought to recover against the buyer as a permissive
   user under the seller’s policy. Id. The Texas Supreme Court held that after
   the buyer agreed to the terms of the sale, provided proof of insurance, and
   took possession of the truck, “he had the sole right to control the use of the
   vehicle, and it was up to him, and no one else, to grant or deny permission to
   drive [it].” Id. Because the seller “had neither the right nor the power to
   control [the buyer’s] use of the [vehicle],” the buyer could not qualify as a
   permissive user under the seller’s policy. See id. at 848–49.
          Ramirez’s reliance on Bobo fails in at least two respects. First, unlike
   the seller in Bobo, at the time of the accident here, Ortiz had at least “the
   right,” if not “the power[,] to control” the Kia. Cf. id. at 849. Though she
   lacked physical possession of the vehicle, Ortiz had an enforceable contract
   with Clark Knapp to purchase the car, and she had fulfilled her side of the
   bargain. Specifically, she paid a down payment, agreed to pay the balance
   over 72 months, secured insurance, and provided Clark Knapp proof of her
   Home State policy. Clark Knapp was bound to deliver the Kia once repairs
   were complete, and Ortiz had the contractual right to force Clark Knapp to
   do so—which is why it lent Ortiz the Hyundai to drive in the meantime. Put
   differently, Ortiz had the “right to control the use of the [Kia],” id. at 848,
   and but for the fact that it was still in the shop, she would have had “the
   power to control [Ramirez’s] use of the [vehicle]” on the date of the
   accident, id. at 848–49, power she exercised with regard to the loaner
   Hyundai. If anything, Ortiz was more like the buyer in Bobo than the seller.

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                                     No. 21-40371

          Second, Bobo did not confront a situation in which a named insured,
   though not in possession of the vehicle, was nonetheless contractually liable
   for its “use, maintenance or operation.” Applying Winn, which Bobo did not
   purport to overrule, Ortiz’s assumption of liability under the contract to
   purchase the Kia generated an interest in the Kia sufficient to insure the
   vehicle. See Winn, 545 S.W.2d at 528. Because Ortiz had an insurable
   interest in the Kia, the Hyundai was also a “covered auto,” Ramirez was a
   “covered person,” and the step down provision in Sentry’s policy relieved
   Sentry of any obligation to provide coverage. Summary judgment in favor of
   Sentry was thus warranted.
                                         B.
          The merits thus addressed, Sentry seeks an award of $7,305 in
   attorney’s fees under Federal Rule of Appellate Procedure 38 “for having to
   respond to [Ramirez’s] frivolous appeal.” Rule 38 provides that “[i]f a court
   of appeals determines that an appeal is frivolous, it may, after a separately
   filed motion or notice from the court and reasonable opportunity to respond,
   award just damages and single or double costs to the appellee.” Fed. R.
   App. P. 38. “An appeal is frivolous if the result is obvious or the arguments
   of error are wholly without merit.” Coghlan v. Starkey, 852 F.2d 806, 811
   (5th Cir. 1988). “This standard is rarely met, and we generally only order
   sanctions when the ‘great weight of the authority . . . [is] clearly on point and
   [does] not favor the [sanctioned party].’” In re Green Hills Dev. Co., LLC,
   741 F.3d 651, 660 (5th Cir. 2014) (quoting Stevenson v. E.I. DuPont De
   Nemours & Co., 327 F.3d 400, 410 (5th Cir. 2003)).
          Sentry contends that Ramirez’s appeal is frivolous because “[h]e cites
   no legal authority whatsoever” for his assertion that the district court erred
   in granting summary judgment. But that is inaccurate. As noted supra,
   Ramirez cites Bobo to support his argument that Ortiz never obtained an

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   insurable interest in the Kia and distinguishes Winn from the present case.
   Though ultimately unsuccessful, Ramirez’s attempts to analogize and
   distinguish the few relevant Texas cases “were not entirely unreasonable.”
   Green Hills, 741 F.3d at 661. We have denied Rule 38 sanctions where
   appellants “faced long[er] odds,” see, e.g., 16 Front St., LLC v. Miss. Silicon,
   LLC, 886 F.3d 549, 561 (5th Cir. 2018), and decline to exercise our discretion
   to grant them here.
                                        III.
          For the foregoing reasons, we AFFIRM the district court’s summary
   judgment in favor of Sentry. We DENY Sentry’s motion for sanctions.
   Sentry’s motion to dismiss the appeal is DENIED AS MOOT.
                                                                   AFFIRMED.

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