Opinion
4:98-CV-1063-E.
February 26, 2001.
MEMORANDUM OPINION AND ORDER
Now before the Court is a Second Motion for Summary Judgment filed by Plaintiff, The Insurance Company of the State of Pennsylvania ("ICSOP"), in the above-styled and numbered cause. Defendant, Lawrence Hutter ("Hutter"), has responded in opposition, and ICSOP has filed a reply brief. After considering the motions and arguments of the parties, the record before the Court, and the applicable law, the Court makes the following determinations.
I. BACKGROUND
ICSOP first filed a Complaint for Declaratory Relief in this lawsuit on December 2, 1998. ICSOP seeks this Court's declaration that property/vandalism damage to a Fort Worth apartment complex owned by Hutter is not covered under a policy of insurance issued by ICSOP. In his answer, Hutter included a counterclaim for a declaration of coverage.
The parties agree on most of the facts underlying this dispute. In or about 1994, Hutter became interested if purchasing an apartment complex, Willow Bend Apartments in Fort Worth, Texas (the "Property"). The owner of the Property at that time was MW Holdings, Ltd. ("MW Holdings"). MW Holdings was unwilling to sell the Property to Hutter.
After further investigation, Hutter decided to obtain the mortgage to the Property, which was then held by the Federal Deposit Insurance Company ("FDIC"). On March 8, 1996, Hutter, through his partner's Subchapter S Corporation called Investona, purchased the mortgage note from FDIC. In June 1996, Ivestona assigned the mortgage note to Hutter, who in turn assigned the note to his company, Team Commercial Real Estate, L.C. ("Team Commercial").
From October 12, 1995 to October 12, 1996 (the "policy period"), the Property was insured by ICSOP, policy number CP 404-84-15. The named insured in the policy was MW Holdings and the originally named mortgagee was Guaranty Federal Bank. During the policy period, the property was damaged by vandalism and theft.
Endorsement #05 to the subject policy, effective March 5, 1996, amends the policy to name FDIC as the Mortgagee in place of Guaranty Federal Bank.
On August 5, 1997, the note on the Property was foreclosed. At the foreclosure sale, Hutter, through his company Team Commercial, purchased full title to the Property for $163,000. Thereafter, Hutter made a claim to ICSOP, based upon the subject policy, for the 1996 vandalism and theft losses. After more than a year of communications between the parties regarding the claim, ICSOP filed the present lawsuit.
II. ICSOP'S SECOND MOTION FOR SUMMARY JUDGMENT
This is ICSOP's second motion for summary judgment. The insurance company's first motion, filed on March 22, 2000, was granted in part and denied in part by an Order of this Court dated July 24, 2000. In its Order, the Court held that Hutter could not make a claim under the insurance policy as an owner of the Property, only as a mortgagee.
Subsequent to the Court's Order, in early August 2000, MW Holdings assigned all of its rights under the ICSOP insurance policy to Hutter. With leave of the Court, Hutter then filed a supplemental answer and counterclaim asserting a claim under the insurance policy as an assignee of MW Holdings.
With the Court's permission, ICSOP filed the present Second Motion for Summary Judgment on December 22, 2000, claiming that: (1) an anti-assignment provision in the insurance policy bars Hutter from bringing a claim as an assignee of MW Holdings; (2) any claims Hutter might have as an assignee or mortgagee are barred by limitations provisions in the insurance policy; (3) Hutter has not presented any competent summary judgment evidence that any indebtedness remained on the note for the Property after it was purchased by Hutter at foreclosure; and (4) ICSOP has no extra-contractual liability to Hutter.
III. SUMMARY JUDGMENT STANDARDS
Summary Judgment is proper when the record establishes that no genuine issue as to any material fact exists, and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Hill v. London, Stetelman, Kirkwood, Inc., 906 F.2d 204, 207 (5th Cir. 1990). The evidence in the record is to be viewed in the light most favorable to the nonmoving party. See Newell v. Oxford Management Inc., 912 F.2d 793, 795 (5th Cir.), reh'g denied, 918 F.2d 484 (1990);Medlin v. Palmer, 874 F.2d 1085, 1089 (5th Cir. 1989).
In order to prevail on a motion for summary judgment, the moving party has the initial burden of demonstrating that there is no genuine issue as to any material fact and that the movant is entitled to a judgment as a matter of law. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Williams v. Adams, 836 F.2d 958, 960 (5th Cir. 1988); Fed.R.Civ.P. 56(c). The party moving for summary judgment need not produce evidence showing the absence of a genuine issue of material fact with respect to an issue on which the nonmoving party bears the burden of proof.See Celotex Corp., 477 U.S. at 325. Rather, the party moving for summary judgment need only show that the party who bears the burden of proof has adduced no evidence to support an element essential to its case. See id.; Teply v. Mobil Oil Corp., 859 F.2d 375, 379 (5th Cir. 1988). If the movant bears the burden of proof on a claim or defense, he must establish all elements of the claim or defense to prevail on summary judgment.See U.S. v. Home Health Agency, Inc., 862 F. Supp. 129, 133 (N.D. Texas 1994) (Mahon, J.); Western Fire Insurance Co., v. Copeland, 651 F. Supp. 1051, 1053 (S.D. Miss. 1987), aff'd, 824 F.2d 970 (5th Cir. 1987).
Once the moving party has made an initial showing, the party opposing the motion must come forward with competent summary judgment evidence showing the existence of a genuine fact issue.See Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 585 (1986); Anderson, 477 U.S. at 257. In order to avoid summary judgment, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586. Rule 56(e) requires that the nonmoving party "set forth specific facts showing that there is a genuine issue for trial."Anderson, 477 U.S. at 256.
In making its determination on the motion, the Court must look at the full record including the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits. See Williams, 836 F.2d at 961. All reasonable inferences to be drawn from the underlying facts must be viewed in the light most favorable to the party opposing the motion and any doubt must be resolved in their favor. See Matsushita, 475 U.S. at 587-90;Meyers v. M/V Eugenio, 842 F.2d 815, 816 (5th Cir. 1988). The Court's function, however, is not to "weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249.
IV. DISCUSSION
A. Hutter's Mortgagee Claim
As in its original Motion for Summary Judgment, ICSOP again attacks Hutter's claim for coverage under the insurance policy as a mortgagee of the Property. ICSOP contends that this claim is time-barred by limitations provisions in the policy and Texas law, and that Hutter has failed to present any competent summary judgment evidence that he has an insurable interest in the Property as its mortgagee.
1. Limitations
Texas law sets a four-year statute of limitations for breach of contract actions. See Tex. Civ. Rem. Code §§ 16.004, 16.051. Parties may agree, however, to a lesser period not shorter than two years. See Tex. Civ. Rem. Code § 16.070;Holston v. Implement Dealers Mut. Fire Ins. Co., 206 F.2d 682, 683-84 (5th Cir. 1953) (holding that contractual provision in insurance policy setting limitation period of two years and one day was valid under Texas law).
The insurance policy issued by ICSOP contains a provision stating that a legal claim cannot be brought more than two years and one day "after the date on which the direct physical loss or damages occurred." Pl.'s Summ. J. App., p. 0015. Although there is uncertainty as to the exact date of the vandalism and property damage to the Property, there is no dispute that it occurred before the expiration of ICSOP's insurance policy on October 12, 1996. Considering that Hutter first asserted his counterclaim for insurance coverage as a mortgagee on February 8, 1999, this claim clearly falls outside the policy's limitations period, which required any suits for coverage to be filed no later than October 13, 1998 — two years and one day after the expiration of the policy.
Hutter contends, however, that section 16.069 of the Texas Civil Practice Remedies Code saves his claim from dismissal. It states:
If a counterclaim . . . arises out of the same transaction or occurrence that is the basis of an action, a party to the action may file the counterclaim . . . even though as a separate action it would be barred by limitation on the date the party's answer is required.
Texas courts apply the "logical-relationship" test to determine whether two causes of action arise from the same transaction or occurrence. See Tindle v. Jackson Nat'l Life Ins. Co., 837 S.W.2d 795, 798 (Tex.App.-Dallas 1992, no writ). If some of the same facts are relevant to both claims, there is a logical relationship, and the causes of action arise from the same transaction or occurrence. See id.
Applying the "logical-relationship" test to this case, there is little doubt that Hutter's counterclaim as mortgagee of the Property arises from the same transaction or occurrence as ICSOP's declaratory judgment action. The same facts that are relevant to ICSOP's action also bear upon Hutter's claim. Thus, § 16.069 requires that Hutter's counterclaim not be dismissed on limitations grounds, even though the insurance policy's limitations provision would prevent the claim from succeeding as an independent action.
2. No Evidence Motion
ICSOP also alleges that Hutter's mortgagee claim should be dismissed because he has failed to present sufficient summary judgment evidence that he has an insurable interest in the Property. While ICSOP is correct that the question of whether a party has an insurable interest in property is a question of law (see Jones v. Texas Pacific Indem. Co., 853 S.W.2d 791, 794 (Tex.App.-Dallas 1993, no writ)), the insurance company ignores clear Texas precedent holding that, as a matter of law, a mortgagee has an insurable interest in the mortgage property limited to the indebtedness which the mortgagor owes under the note and mortgage. See Campagna v. Underwriters at Lloyds London, 549 S.W.2d 17, 19 (Tex.Civ.App.-Dallas 1977, writ ref'd n.r.e.); see also Southwestern Graphite Co. v. Fidelity Guar. Ins. Corp., 201 F.2d 553, 555 (5th Cir. 1953) ("The . . . mortgagor and mortgagee . . . have independent insurable interests.").
Thus, it is clear that Hutter has an insurable interest in the Property as a matter of law; how much of an interest is the question of fact that has yet to be resolved. As this Court noted in its Order of July 24, 2000, "the only remaining fact issue regarding Hutter's ability to make a claim under the insurance policy as a mortgagee is to what extent his insurable interest was reduced, if not wholly extinguished, by the consideration he received by purchasing the Property . . . at the foreclosure sale." Order at p. 7. As the party moving for summary judgment, ICSOP has the burden of demonstrating that there is no genuine issue as to any material fact and that the company therefore is entitled to a judgment as a matter of law.See Anderson, 477 U.S. at 256 (1986). ICSOP has failed to do so, and thus its Second Motion for Summary Judgment is DENIED with regards to Hutter's mortgagee claim under the insurance policy.
B. Hutter's Claim As An Assignee
Attempting to find a way around the confines of this Court's Order of July 24, 2000, in order to obtain insurance coverage for the damage to the Property, Hutter now asserts that he was assigned all of MW Holdings' rights under the ICSOP insurance policy pursuant to an agreement executed only days after the Court's Order. The insurance company argues that Hutter's claims as an assignee are barred both by the limitations provisions in the insurance policy and Texas law, and by the policy's antiassignment clause.
1. Limitations
Hutter filed his supplemental answer and counterclaim, alleging a claim as an assignee of MW Holdings, on October 23, 2000. As discussed in section (A)(1) above, ICSOP's insurance policy contained a limitations provision requiring any claims to be filled before October 13, 1998. Thus, Hutter's assignee claim, brought more than two years after the expiration of the limitations period, appears to be barred.
Hutter argues, however, that because his original counterclaim was permissible under Texas Civil Practice Remedies Code § 16.069 (see above), his assignee claim is a permissible amendment under § 16.068, which provides:
If a filed pleading relates to a cause of action, cross action, counterclaim, or defense that is not subject to a plea of limitation when the pleading is filed, a subsequent amendment or supplement to the pleading that changes the facts or grounds of liability or defense is not subject to a plea of limitation unless the amendment or supplement is wholly based upon a new, distinct, or different transaction or occurrence.
Under this "relation back" doctrine, if an amended pleading does not allege a wholly new, distinct, or different transaction or occurrence, then it relates back to the original filing and is not subject to a limitations defense. See Milestone Props., Inc. v. Federated Metals Corp., 867 S.W.2d 113, 116 (Tex.App. — Austin 1993, no writ).
Hutter's assignee claim arises from the same set of facts underlying his original counterclaim, and thus clearly relates back to the first pleading. As this Court already has held that Hutter's mortgagee claim properly avoids the insurance policy's limitations provision by virtue of § 16.069, Hutter's assignee claim likewise is protected by § 16.068. Hutter's assignee claim cannot be dismissed on limitations grounds.
ICSOP argues that applicable Fifth Circuit precedent prevents Hutter from filing a supplemental answer and counterclaim under § 16.068 that relates back to the original answer and counterclaim he filed pursuant to § 16.069. See MBank Fort Worth, N.A. v. Trans Meridian, Inc., 716 F.2d 716, 719-20 (5th Cir. 1987). ICSOP's argument is unpersuasive.
In MBank, the Fifth Circuit held that § 16.068 could not be applied to extend the time to file an amended DPTA counterclaim beyond the 30 days permitted under § 16.069. See id. This holding was premised, however, on the fact that no Texas court had yet ruled on this issue. See id. at 720. Subsequent to the ruling in MBank, Texas courts have found that a counterclaim timely filed under § 16.069 may be amended pursuant to § 16.068 provided the facts or grounds of liability asserted in the amendment arise out of the same transaction or occurrence. See Barraza v. Koliba, 933 S.W.2d 164, 167 (Tex.App.-San Antonio 1996, writ denied); E.P. Operating Co. v. Sonora Exploration Corp., 862 S.W.2d 149, 152 (Tex.App. — Houston [1st Dist.] 1993, writ denied) ("We disagree with the reasoning of the court in MBank and specifically disapprove of it here."). This Court believes that, considering the development of Texas state law on this issue, the Fifth Circuit would most likely modify its holding in MBank to be consistent with Texas state law precedent.
2. Anti-Assignment Clause
The "Common Policy Conditions" of ICSOP's insurance policy include a provision stating that, "Your rights and duties under this policy may not be transferred without our written consent except in the case of death of an individual named insured." Pl.'s Summ. J. App., p. 0006. ICSOP contends that this antiassignment clause prevents MW Holdings from assigning its rights and interests under the policy to Hutter.
No-assignment clauses in insurance policies have consistently been enforced by Texas courts. See Texas Farmers Ins. Co. v. Gerdes, 880 S.W.2d 215, 218 (Tex.App.-Fort Worth 1994, writ denied); Dallas County Hosp. Dist. v. Pioneer Cas. Co., 402 S.W.2d 287, 288 (Tex.App.-Fort Worth 1966, writ ref'd n.r.e.). The Fifth Circuit, applying Texas law, also has upheld the validity of anti-assignment provisions in insurance contracts.See Conoco, Inc. v. Republic Ins. Co., 819 F.2d 120, 124 (5th Cir. 1987).
In the face of this strong precedent supporting the validity of the anti-assignment clause in ICSOP's insurance policy, Hutter makes two unconvincing arguments. First, citing toHernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994), he contends that Texas law requires ICSOP to demonstrate prejudice in order to assert the anti-assignment provision as a defense. Despite the expansive scope that Hutter would like to giveHernandez, the case only requires that an insurer show prejudice to enforce a settlement-without-consent exclusion.See Hernandez, 875 S.W.2d at 692. Although the Fifth Circuit has expanded the rationale of Hernandez to require an insurer to demonstrate prejudice to enforce notice-of-occurrence, notice-of-claim, and notice-of-suit clauses (see Hanson Prod. Co. v. Americas Ins. Co., 108 F.3d 627 (5th Cir. 1997)), there is no authority that supports extending the prejudice requirement to anti-assignment provisions. As noted above, Texas courts and the Fifth Circuit have endorsed the validity of anti-assignment clauses, and have never indicated that prejudice must be shown before an insurer can enforce such a provision. This Court refuses to read such a requirement into Texas law.
Second, Hutter asserts that the Texas cases permitting the enforcement of anti-assignment clauses do not govern a situation, as in this case, where the assignment is made after a loss has occurred. In support of this contention, Hutter cites to McLaren v. Imperial Cas. Indem. Co., 767 F. Supp. 1364 (N.D. Tex. 1991) (McBryde, J.), in which the district court noted that:
No Texas case has been cited by the parties, and none has been found, on this subject; however, the court has no doubt that a Texas court would hold that the policy prohibition against assignment of an interest under the policy is inapplicable to the assignment of causes of action that have come into existence after the loss has occurred.McLaren, 767 F. Supp. at 1377.
McLaren is not an accurate statement of Texas law, for two reasons. First, the passage cited above is dicta, as the court decided the case on other grounds, and devoted only a single paragraph to addressing the insurance company defendants' argument that an anti-assignment clause barred the plaintiff's action. See id. at 1370-77. Second, the Fifth Circuit inConoco and the Texas Court of Appeals in Gerdes (a case decided after McLaren) both approved the enforcement of anti-assignment clauses in situations where the assignment occurred after the loss. See Conoco, 819 F.2d at 124;Gerdes, 880 S.W.2d at 217. Hutter's argument that a post-loss assignment avoids an insurance policy's no-assignment clause would have this Court ignore applicable precedent to create new Texas law on this issue, something that this Court obviously is extremely reluctant to do. Considering that the Fifth Circuit and the Texas Court of Appeals already have spoken on this matter, Hutter's argument is without merit, and must be rejected.
In sum, this Court holds that the no-assignment provision contained in ICSOP's insurance contract effectively barred an assignment of rights from MW Holdings to Hutter. It is undisputed that ICSOP did not consent to the assignment executed by MW Holdings and Hutter, and without such consent the insurance policy's anti-assignment clause prevents Hutter from acquiring any rights against ICSOP. See Ex. B to Pl.'s Mot. for Summ. J. at ¶ 4. Accordingly, ICSOP's Second Motion for Summary Judgment is GRANTED with regards to Hutter's assignee claim.
C. Extra-Contractual Claims
In an Order dated July 24, 2000, this Court granted summary judgment for ICSOP on Hutter's alleged extra-contractual claims against the insurance company. See Order at p. 17. To the extent that Hutter's Supplemental Answer and Counterclaim reasserts any such extra-contractual claims, this Court reiterates that ICSOP is entitled to summary judgment. Thus, ICSOP's Second Motion for Summary Judgment is GRANTED with regards to Hutter's extra-contractual claims.
V. CONCLUSION
Having reviewed the record before the Court and the applicable law, the Court determines that ICSOP's Second Motion for Summary Judgment should be GRANTED IN PART and DENIED IN PART. ICSOP's motion is granted as to Hutter's claim as an assignee of MW Holdings, but denied as to his claim as a mortgagee under the insurance policy. In addition, ICSOP's Second Motion for Summary Judgment is granted as to any extra-contractual claims asserted in Hutter's Supplemental Answer and Counterclaim.
It is therefore ORDERED that ICSOP's Second Motion for Summary Judgment is hereby GRANTED IN PART and DENIED IN PART as set forth previously herein.