Opinion
No. 01-02-00357-CV.
Opinion issued February 27, 2003.
Appeal from the 189th District Court District Court, Harris County, Texas, Trial Court Cause No. 2000-52046.
Panel consists of Justices NUCHIA, HANKS, and PRICE.
MEMORANDUM OPINION
This is an insurance coverage case, decided on cross-motions for summary judgment, in which the trial court construed a commercial general liability policy in favor of appellee, General Star Indemnity Company, and against appellant, Reginald V. Hall. The issue presented is whether Hall was an additional insured under a policy that General Star issued to Phonoscope, Inc., a company for which Hall was working as an independent contractor at the time he was injured. We affirm.
BACKGROUND
A. The Underlying Lawsuit
On December 31, 1995, Hall was injured on the job when a television cable he was hanging made contact with a power line. At the time of the accident, Hall was working for Frank Johnson, who, in turn, was a subcontractor of Phonoscope, Inc. As a result of the accident, Hall sued Johnson and Phonoscope.
General Star had issued a commercial general liability policy to Phonoscope and defended Phonoscope in the lawsuit. The jury found Phonoscope 15% at fault, Johnson 65% at fault, and Hall 20% at fault. General Star paid Phonoscope's portion of the judgment. Johnson, who was uninsured at the time, did not pay his portion of the judgment. Johnson has never claimed to be an insured under Phonoscope's policy, nor has he requested a defense or indemnity from General Star. Similarly, Phonoscope has never claimed that Johnson is covered under the policy issued by General Star.
B. The Coverage Dispute
After obtaining the judgment against Phonoscope and Johnson, Hall filed a suit against General Star seeking a declaration that the policy General Star had issued to Phonoscope also covered the uninsured subcontractor, Frank Johnson and his employees, such as Hall. General Star counterclaimed, seeking a declaration that its policy with Phonoscope did not provide coverage for Frank Johnson. Both parties moved for summary judgment. The trial court granted General Star's motion for summary judgment and denied Hall's motion. This appeal followed.
It should be noted that, although Hall worked for Johnson, his status as an employee or independent contractor of Johnson was never determined in the underlying suit. However, it is undisputed that Johnson was an independent contractor for Phonoscope.
Standard of Review
A. Summary Judgment
We follow the usual standard of review for traditional summary judgments granted under rule 166a(a) and (b) of the Rules of Civil Procedure: The party with the burden of proof must prove it is entitled to judgment by establishing each element of its claim or defense as a matter of law, or by negating an element of claim or defense of the opposing party as a matter of law. Tex.R.Civ.P. 166a(a), (b), (cmt.). When a motion for summary judgment raises multiple grounds, we may affirm if any ground is meritorious. Cincinnati Life Ins. Co. v. Cates, 927 S.W.2d 623, 625 (Tex. 1996). These standards are well-established in insurance-coverage cases. See e.g., State Farm Fire Cas. Co. v. Vaughn, 968 S.W.2d 931, 933 (Tex. 1998); Hanson v. Republic Ins. Co., 5 S.W.3d 324, 327 (Tex.App.-Houston [1st Dist.] 1999, pet. denied).
When, as here, both parties move for summary judgment and the trial court grants one motion and denies the other, we may determine all questions presented, including the propriety of overruling the losing party's motion, provided each party has fully met its burden and sought final judgment relief. CU Lloyd's v. Feldman, 977 S.W.2d 568, 569 (Tex. 1998); Hanson, 5 S.W.3d at 327.
B. Interpretation of Insurance Contracts
Insurance contracts are subject to the same rules of construction as ordinary contracts. Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823 (Tex. 1997); Hanson, 5 S.W.3d at 328. Accordingly, when a policy permits only one interpretation, we construe it as a matter of law and enforce it as written. Upshaw v. Trinity Cos., 842 S.W.2d 631, 633 (Tex. 1992); Hanson, 5 S.W.3d at 328. We must strive to effectuate the policy as the written expression of the parties' intent. State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995). To this end, we construe the terms of the policy as a whole, and consider all of its terms, not in isolation, but within the context of the policy. See id.; Forbau v. Aetna Life Ins. Co., 876 S.W.2d 132, 133-34 (Tex. 1994); Tumlinson v. St. Paul Ins. Co., 786 S.W.2d 406, 408 (Tex. App.-Houston [1st Dist.] 1990, writ denied).
CONSTRUCTION OF THE POLICY
The issue this Court must decide is whether the policy issued to Phonoscope covers uninsured, independent contractors, such as Frank Johnson. The policy describes an "insured" in the following manner:
1. If you are designated in the Declarations as:
* * * *
c. An organization other than a partnership or joint venture, you are an insured. Your executive officers and directors are insureds, but only with respect to their duties as your officers or directors. Your stockholders are also insureds, but only with respect to their liability as stockholders.
2. Each of the following is also an insured:
a. Your employees, other than your executive officers, but only for acts within the scope of their employment by you. . . .
(Emphasis added).
The policy also contains a number of endorsements entitled "Additional Insured — Owners, Lessees or Contractors" that name specific persons or entities as additional insureds under the policy. Each of these endorsements contains the language, "WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of your ongoing operations performed for that insured."
It is undisputed that Frank Johnson is not listed as an additional insured anywhere in the policy. Instead, Hall argues that he is covered as an employee of Phonoscope because of the following provision, entitled "INDEPENDENT CONTRACTORS AND SUB-CONTRACTORS COVERAGE REQUIREMENT ENDORSEMENT AMENDED CONDITION," which provides:
With respect to operations performed on your behalf by independent contractors or subcontractors, the following applies:
(1) You agree that you require that those who under take a job for you or on your behalf will obtain and maintain insurance, for the duration of the job, for legal liability arising out of their operations. Insurance carried by independent contractors or sub-contractors will provide coverage equal to or greater than the coverage provided by this policy, and will also provide limits at least equal to those scheduled below.
(2) It is further agreed that subject to the above, such insurance as is provided by this policy shall be excess over such insurance as described in the schedule below. The terms and conditions of the policy relating to "other insurance" (Section IV, Item 4 of CG0001) are amended accordingly.
(3) Failure to comply with these conditions does not alter the coverage provided by this policy. However, should you fail to comply, independent contractors or subcontractors will be considered your employees and a premium charged accordingly. For the purposes of this endorsement the entire cost of all sublet work will be use as payroll (premium base) for the work performed.
(Emphasis added).
Hall argues that because Johnson was not insured, under the language above, he was nonetheless an employee of Phonoscope and covered under the section of the policy covering employees acting within the scope of their employment. General Star, however, contends that the language on which Hall relied was merely a condition requiring Phonoscope to make sure that their independent contractors carried their own insurance, and that if they did not, an additional premium would be charged to Phonoscope.
We cannot agree with Hall's interpretation of the language referenced above, because it does not give effect to the entire language of the endorsement, nor does it consider the policy as a whole. See Balandran v. Safeco Ins. Co., 972 S.W.2d 738, 741 (Tex. 1998) (court must look at all parts of policy so as to give meaning to every sentence, clause, and word); see also Sears, Roebuck and Co. v. Comm'l Union Ins. Corp., 982 S.W.2d 151, 154 (Tex.App.-Houston [1st Dist.] 1998, no writ) (interpretation based on isolated fragments of policy is improper).
The very first sentence of paragraph 3 of the referenced endorsement provides unequivocally, "Failure to comply with these conditions does not alter the coverage provided by this policy." In contrast, every other endorsement that creates additional insured coverage explicitly provides, "WHO IS AN INSURED (Section II) is amended to include as an insured the person or organization shown in the Schedule . . ." Therefore, we must conclude that had General Star and Phonoscope intended to give additional insured status to Frank Johnson, they would have so stated, as was done with every other additional insured.
Nevertheless, Hall argues that paragraph (3) of the endorsement must have intended to extend coverage to uninsured, independent contractors because, otherwise, there would be no need for an increased premium. As pointed out in appellee's brief, insurance policies are underwritten with the goal of collecting the appropriate amount of premium in light of the financial risk undertaken. The issue, then, is what financial risk would the additional premium cover? There are several possibilities.
First, the premium would compensate General Star for the risk it would assume if one of the named additional insureds on the policy did not have the required insurance coverage and General Star was required to provide primary, as opposed to excess insurance coverage. General Star had contractually agreed that its coverage would be excess to that of the named additional insureds; but, if the additional insured did not have the required coverage, General Star would have faced increased liability by having to provide primary coverage. The collection of the additional premium, then, would assure that General Star collected a sufficient premium in light of the increased risk it faced if the named additional insureds did not carry the required insurance.
Second, the additional premium would compensate General Star in the event that Phonoscope was found jointly and severally liable with an uninsured subcontractor, and Phonoscope was more than 50% at fault. In such a situation, Phonoscope, i.e. General Star, could be compelled to pay 100% of the judgment, with a right of contribution against an uninsured subcontractor . See Tex. Civ. Prac. Rem. Code Ann. §§ 33.013(b), 33.015 (Vernon 1997). The additional premium charged, thus, would compensate General Star in the event that it was required to pay the entire judgment on behalf of its insured, even though its insured was only responsible for a portion of the fault, simply because there was no other insurer available to pay the uninsured subcontractor's portion of the judgment. Put simply, General Star's contribution right would likely be more valuable if there was another insurer standing behind the sub-contractor, and the increased premium was deemed necessary in situations where there was no second insurer.
Finally, the additional premium would compensate General Star for the cost of litigation, even if meritless, that it would face in the event that the subcontractor did not carry insurance, and General Star became embroiled in litigation because it was the only possible policy against which an injured subcontractor could make a claim. In fact, that is the exact situation faced in this case. The increased premium, in this case, compensates General Star for the cost of this litigation, which likely could have been avoided if Phonoscope had required Johnson to carry insurance.
Therefore, we cannot agree with Hall that the increased premium provided in the endorsement was, as a matter of law, charged in exchange for adding coverage for uninsured subcontractors. In fact, we believe that the unambiguous language of the contract compels the opposite conclusion that the endorsement did "not alter the coverage provided by the policy," but instead, compensated General Star for contingencies not present at the time the initial premium was calculated. Because Johnson is not a named insured or an additional insured under the express terms of the policy, and the endorsement at issue does not alter the coverage provided by the policy, the policy, as a matter of law, provides no coverage to Johnson or his employee, Hall. Accordingly, the trial court properly granted General Star's motion for summary judgment and denied Hall's motion for summary judgment.
We further note that, even if Hall were considered an employee of Phonoscope, the General Star policy excludes coverage for "bodily injury" to employees.
We affirm the judgment.