Opinion
NO. 4:01-CV-0263-A
September 25, 2001
MEMORANDUM OPINION and ORDER
Came on for consideration the motion of defendants United Benefit Life Insurance Company ("UBL"), Central Reserve Life Insurance Company ("CRL"), and Ceres Group, Inc., ("Ceres") for summary judgment. The court, having considered the motion, the response and supplemental response of plaintiffs, Lisa Edens, Billy Edens, and Lacy Edens ("Lacy"), movants' replies, the record, the summary judgment evidence, and applicable authorities, finds that the motion should be granted in part and denied in part.
I. Plaintiffs' Claims
On March 13, 2001, plaintiffs filed their original petition in the 48th Judicial District Court of Tarrant County, Texas. The action was brought before this court by notice of removal filed March 30, 2001. On August 9, 2001, having obtained leave of court, plaintiffs filed their first amended complaint.
Plaintiffs seek to recover benefits under what is denominated as a group health insurance policy issued by UBL and other damages related to movants' handling of their claim. The claim for benefits arose out of an August 23, 1998, accident when a car driven by Lacy struck a guardrail, severing her left leg, and causing other serious injuries. Plaintiffs assert causes of action for breach of contract, violations of Article 21.21 of the Texas Insurance Code, violations of the Texas Deceptive Trade Practices — Consumer Protection Act, fraud and misrepresentation, violation of Article 21.55 of the Texas Insurance Code, breach of duty of good faith and fair dealing, negligence, and negligence per se. They also seek a declaratory judgment that they are entitled to the relief they seek.
II. Grounds of the Motion
Movants seek judgment in their favor on each of the claims raised by plaintiffs. Independently, movants assert that CRL and Ceres are not liable to plaintiffs because: (1) they are not parties to any sort of written agreement with plaintiffs; (2) CRL is a reinsurer whose duties run only to UBL; (3) plaintiffs are not third-party beneficiaries of the reinsurance agreement; (4) the status of CRL and Ceres as direct and indirect shareholders of UBL does not render them liable; and (5) CLR and Ceres did not have any involvement in the determination that plaintiffs' claims were excluded from coverage.
III. Summary Judgment Evidence
Pertinent evidence in the summary judgment record is set forth under this heading.
A. The Insurance Policy, the Certificate of Coverage, and Circumstances of Purchase of the Coverage.
Effective January 1, 1990, UBL issued its policy number 1001 (the "policy") in the name American Association of Consumer Benefits ("AACB"). The policy pays for losses resulting from sickness or injury while the policy is in force. It expressly provides, under the heading "SECTION III-EXCLUSIONS AND LIMITATIONS":
A. Benefits will not be paid or coverage provided for any loss resulting directly or indirectly from or by the following:
. . . .
5. Voluntary use of drugs, narcotics, hallucinogens, or alcohol unless ordered by a Physician or except as provided in Section I, Benefits, Paragraph I;
. . . .
11. Any loss to which a contributing cause was the insured Person's being engaged in an illegal occupation or illegal activity;
12. Any loss sustained or contracted while an Insured Person is intoxicated, or under the influence of any narcotic unless administered on the advice of a Physician. . . .
Mot. for Summ. J., App. at 103. On December 22, 1995, the acting Deputy Insurance Commissioner of the State of Texas approved the policy.
On May 1, 1997, UBL issued its certificate of insurance number 055091249 under the policy to Billy Edens. Mr. Edens was not a member of AACB before he acquired the insurance coverage. The agent who sold the coverage to him said that he had to enroll as a member of AACB as a condition to obtaining the coverage. The only reason Mr. Edens joined the AACB was to obtain the insurance coverage. Other than the ability to place the coverage, Mr. Edens did not receive any benefit from his membership in AACB. The agent could not have filled out the application for the insurance unless Mr. Edens agreed to become a member of the AACB. Based on his years of experience, the agent said that the insurance coverage sold to Mr. Edens, as well as similar-type insurance coverage he sold through UBL to other individuals, was for all intents and purposes sold and treated as individual health and accident insurance policies. The agent had never sold UBL insurance coverage of that kind during the two years he was selling it to an individual who was already a member of the AACB. In fact, he was never provided a list of the AACB members to whom UBL insurance products could be marketed.
Nevertheless, UBL required that insurance coverage of the kind obtained by Mr. Edens be purchased through the AACB.
The certificate of coverage acquired by Mr. Edens extended the insurance to Lisa, his wife, and their children, Cory and Lacy. The certificate provides, in Section VII, titled "EXCLUSIONS AMD LIMITATIONS":
A. What Charges Are Not Covered? Benefits will not be paid or coverage provided for any loss resulting directly or indirectly from or by the following:
. . . .
2. Any intentionally self-inflicted Injury or death; voluntary use of drugs, narcotics, hallucinogens, or alcohol unless ordered by a Physician or except as provided in Section IV, Benefits, paragraph O; any loss sustained or contracted while an Insured Person is intoxicated, or under the influence of any narcotic unless administered on the advice of a Physician; . . . any loss to which a contributing cause was the Insured Person's being engaged in an illegal occupation or illegal activity. . . .
Mot. for Summ. J., App. at 146.
B. Lacy's Accident and Events Preceding and Following It.
On August 22, 1998, Lacy, whose parents were out of town, and some of her friends, including Jerri Lynn Sharp ("Sharp"), decided to have an impromptu party to celebrate Lacy's going away to junior college. Since Lacy and her friends were under age, they had a boyfriend buy beer for them. Over the course of the evening, Lacy voluntarily drank at least two beers, two to four large glasses of Barcardirum and Orange Slice, and one or more swigs from a bottle of Jack Daniels. Lacy could not recall anything she had eaten after lunch that day. Sharp, who was with Lacy the entire day, recalled that they did not eat dinner.
Around midnight, or later, Lacy and Sharp decided to make a two-and-a-half-hour drive from their hometown of Strawn to The Colony to see Kristin Powell ("Powell"), a friend who formerly lived in Strawn. Before leaving, Lacy unsuccessfully attempted at least four times to reach Powell by telephone. Lacy had previously driven to The Colony to see Powell on four occasions. Each time she confirmed in advance that Powell was home and made the trip during daylight hours. She had not previously driven during the middle of the night to visit a friend she was not sure was home. Lacy and Sharp took the remaining beers and bottle of Jack Daniels with them on the trip to The Colony but did not drink along the way. According to Sharp, both girls knew that they were already drunk. They did not make any stops along the way to The Colony. They searched unsuccessfully for Powell and then decided to drive back to Strawn. On the return trip, Sharp passed out on one or more occasions as a result of her alcohol consumption. She recalled waking up once and talking with Lacy. The next time she woke up, the accident had happened.
At around 8:00 a.m. on August 23, 1998, approximately one mile from the exit to Milsap on Interstate 20, Lacy's car struck the guardrail at full speed. The accident involved only her car and occurred in daylight when conditions were dry. The impact turned her car sideways and the guardrail entered the driver's side and amputated her lower left leg. Alcohol was in the car at the time of the wreck. According to the paramedics' report, Lacy smelled of alcohol. Lacy admitted that she had consumed alcohol prior to the accident. The accident report did not reflect that any external factor, such as road conditions or other vehicles, played any role in the accident.
Lacy was removed from her car and transported by helicopter to Baylor University Medical Center ("BUMC"). At approximately 9:30 a.m., Lacy's serum alcohol level was found to be .081 grams per milliliter. Although Lacy was not charged with any criminal violation in connection with the accident, she admitted that she could have been charged with illegally consuming an alcoholic beverage, illegally possessing an alcoholic beverage, and illegally operating a motor vehicle in a public place with a detectible amount of alcohol in her system.
Lacy testified by deposition that: She did not believe her consumption of alcohol played any role in her decision to go to The Colony, and that she would have done the same thing if she had not consumed alcohol; she decided to drive back from The Colony early the morning of August 23 because, after having considered sleeping in the car, she believed that she was physically capable of driving home; she was tired as she was driving home, but did not think she would fall asleep; immediately before the accident she had the thought that it was going to be great to get home and go to sleep, when "just all of a sudden [she] opened her eyes" when she had the accident, Pls.' Resp., App. at 8; at the time of the accident she had not consumed alcohol for over eight hours; she was not feeling the effects of the alcohol at the time of the accident; she does not believe that her earlier alcohol consumption contributed at all to the accident; and, she is certain that before the accident she was not impaired from alcohol.
The officer who investigated the accident could not determine whether alcohol contributed directly or indirectly to the accident. He concluded that the factors and conditions contributing to the accident were fatigue, sleep, and faulty evasive action. Based on his experience, it is possible for a driver who has not had anything to drink to fall asleep at the wheel. A paramedic who cared for Lacy at the scene of the accident testified by declaration that she did not appear to be intoxicated or impaired by reason of alcohol. The paramedic said that when he conversed with Lacy while she was still in the wrecked automobile she was alert and oriented to person, place, time, and event. The doctor who was in charge of Lacy's care when she was brought to the hospital shortly after the accident, and who at that time was with Lacy for approximately one hour continuously, had the impression that Lacy did not have an altered mental status. When Lacy came to the hospital she did not appear drunk at all, and she was alert and oriented. He did not detect anything to cause him to think that Lacy had an alcohol abuse problem.
C. The Handling of the Claims.
UBL was notified of Lacy's accident shortly after it occurred and issued a pre-certification number relating to her care. UBL received bills from various providers. One of the bills received was for the serum alcohol test, which prompted UBL to request BUMC's records. A request for records was made on or about December 15, 1998. Full records were not received until April 8, 1999. In addition to the serum alcohol test, the records also reflected a secondary diagnosis upon Lacy's admission to the hospital of "alcohol abuse-continuous." On April 9, 1999, UBL concluded that plaintiff's claims were excluded from coverage and began advising Lacy's providers of that conclusion.
D. The Relationships Between UBL, CRL, and Ceres.
CRL is the parent corporation of UBL and is, in turn, owned by Ceres. CRL and UBL are parties to a transition agreement, which provides in pertinent part:
1. Reinsurance Transaction. Pursuant to the terms of this Agreement and the agreements attached hereto, [UBL] will cede to [CRL] and [CRL] will reinsure on an indemnity basis from [UBL], subject to applicable laws, all of [UBL's] liabilities in and to all insurance policies and certificates issued by [UBL] and in force at 12:01 a.m. Central Time on August 1, 1998 (the "Effective Time") (the "United Policies"). The cession of the United Policies will be effected by a Reinsurance Agreement (the "Reinsurance Agreement") in the form of Exhibit A attached hereto, and the related Trust Agreement in the form of Exhibit B hereto, to be executed at the Closing (as defined below).
. . . .
16. Miscellaneous Provisions.
(h) No Third-Party Beneficiary. Nothing expressed or implied in this Agreement is intended or shall be construed to confer on or give to any person, firm, or entity other than the parties hereto and American Association for Consumer Benefits any rights or remedies under or by reason of this Agreement or any transaction contemplated hereby, except as otherwise specifically provided in or contemplated by this Agreement.
Mot. for Summ. J., App. at 168, 176.
UBL and CRL also entered into an indemnity reinsurance agreement, which provided in pertinent part:
ARTICLE I.
BUSINESS REINSURED
Effective as of 12:01 a.m., Central Time, on August 1, 1998 (the "Effective Time"), [UBL] hereby cedes to [CRL], and [CRL] hereby reinsures from [UBL], 100% of the policy liabilities under all policies, endorsements, riders, certificates, and other contracts of insurance issued or assumed by [UBL] prior to the Effective Time that are identified in Exhibit A attached hereto and made a part hereof (each a "Policy" and collectively, the "Policies").
. . . .
ARTICLE XII
NO THIRD-PARTY RIGHTS
[CRL's] co-insurance of the policy liabilities pursuant to this Agreement with respect to any of the Policies is intended for the sole benefit of the parties to this Agreement and shall not create any right on the part of any policyholder, insured, claimant or beneficiary under such Policies against [CRL] or any legal relationship between such policyholders, insureds, claimants or beneficiaries and [CRL]; provided, however, that notwithstanding the foregoing, policyholders of Policies reinsured hereunder shall be deemed to be third party beneficiaries for the purposes of Article XI [titled "Insolvency"] hereunder.
. . . .
ARTICLE XVII
MISCELLANEOUS
No Third Party Beneficiary. Except as otherwise provided herein, the terms and provisions of this Agreement are intended solely for the benefit of the parties hereto, and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other person, and no such rights shall be conferred upon any person or entity not a party to this Agreement.
Mot. for Summ. J., App. at 223, 229, 232.
UBL and CRL also entered into an administrative services agreement, which provided in pertinent part:
ARTICLE I.
Purpose
[UBL] and [CRL] have entered into a Transition Agreement (the "Transition Agreement") and an Indemnity Reinsurance Agreement (the "Reinsurance Agreement") pursuant to which the insurance policies described in Exhibit A attached hereto and incorporated herein by reference and all insurance policies written by [UBL] after the date hereof to the extent provided in the Transition Agreement and/or the Reinsurance Agreement (the "United Policies") are to be reinsured from [UBL] to [CRL]. The parties have agreed that [CRL] will provide all administration with respect to the United Policies at the expense of [CRL] as if [CRL] issued the United Policies. This Agreement sets forth the conditions under which [CRL], or its affiliates and subsidiaries, shall perform all services with respect to the administration of United Policies including, but not limited to, all actuarial, underwriting, compliance, legal, issuance, accounting, administration, data processing, systems, and claims processing services with respect to the United Policies.
ARTICLE II
Policies To Be Administered by [CRL]
This Agreement shall apply to the United Policies. [CRL] shall be responsible for providing, at its sole cost and expense, all services with respect to the United Policies in accordance with industry standards as if [CRL] issued the United Policies, including, but not limited to, all actuarial, underwriting, compliance, legal, issuance, accounting, administration, data processing, systems and claims functions and services. All costs and expenses of administering the United Policies as provided above and all general and administrative expenses relating thereto shall be the sole responsibility of [CRL].
. . . .
ARTICLE IV
Payment of Claims
[CRL] shall adjust and settle all claims ensuing from the United Policies and maintain all records relating thereto.
[CRL] shall not incur any expense or obligation of any kind or nature, other than as authorized in this Agreement, in the name or on behalf of [UBL] without express written authority from [UBL] in each instance.
. . . .
ARTICLE X
Compensation
All services to be provided by [CRL] under the terms of this Agreement are being provided by [CRL] in accordance with the terms of the Transition Agreement and the Reinsurance Agreement. No compensation shall be payable to [CRL] hereunder except that [CRL] shall be entitled to all profit derived from the United Policies.
. . . .
ARTICLE XIII Miscellaneous Provisions
SECTION I. [CRL's] relationship with [UBL] shall be that of independent contractor and nothing in this Agreement shall be construed as creating the relationship of employer and employee between [UBL] and officers, employees or agents of [CRL] or the relationship of a partner or joint venture between the parties. [CRL's] authority shall extend no further than is expressly stated in this Agreement and no power or authority shall be implied from the granting or denial of powers specifically mentioned herein. [UBL] shall exercise no control over the hours, office locations, or manner of performance of duties hereunder except insofar as herein provided.
. . . .
SECTION VII. This Agreement shall inure to the benefit of and be binding upon the parties hereto. Except as otherwise expressly provided for herein, the Agreement shall not inure to the benefit of, be enforceable by or create any right or cause of action in any person other [than] the parties hereto.
Mot. for Summ. J., App. 236, 237, 239, 240, 241.
E. The Consent Order.
In April 1999, UBL and the Commissioner of Insurance of the State of Texas entered into a consent order. The consent order, dated April 19, 1999, settled a complaint of the Texas Department of Insurance against UBL. Based on certain agreed findings of fact, the Commissioner made conclusions of law, including the following:
5. UBL violated TEX. INS. CODE ANN. art. 3.51-6, § 1(a)(2) in issuing a master group health insurance policy to AACB, which did not have an active existence of two years when the group master policy was issued and was not maintained in good faith for purposes other than obtaining insurance.
The order did not address how group health insurance certificates previously sold in Texas would be treated.
IV. Applicable Summary Judgment Principles
A party is entitled to summary judgment on all or any part of a claim as to which there is no genuine issue of material fact and as to which the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). The moving party has the initial burden of showing that there is no genuine issue of material fact.Anderson, 477 U.S. at 256. The movant may discharge this burden by pointing out the absence of evidence to support one or more essential elements of the non-moving party's claim "since a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). Once the moving party has carried its burden under Rule 56(c), the non-moving party must do more than merely show that there is some metaphysical doubt as to the material facts. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The party opposing the motion may not rest on mere allegations or denials of pleading, but must set forth specific facts showing a genuine issue for trial. Anderson, 477 U.S. at 248, 256. To meet this burden, the nonmovant must "identify specific evidence in the record and articulate the `precise manner' in which that evidence support[s] [its] claim[s]." Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir. 1994). An issue is material only if its resolution could affect the outcome of the action. Anderson, 477 U.S. at 248. Unsupported allegations, conclusory in nature, are insufficient to defeat a proper motion for summary judgment. Simmons v. Lyons, 746 F.2d 265, 269 (5th Cir. 1984).
The standard for granting a summary judgment is the same as the standard for a directed verdict. Celotex Corp., 477 U.S. at 323. If the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.Matsushita, 475 U.S. at 597.
V. Law Applied to the Facts
A. Claims Under the Policy.
Plaintiffs' first cause of action is for breach of contract. Movants maintain that they are not liable for breach of contract, because coverage was excluded under the policy provisions recited above. Plaintiffs respond that the exclusions do not apply because the policy is not a legitimate group health policy under the Texas Insurance Code. If plaintiffs are correct, the policy must be reformed to comply with the requirements of Article 3.70-3(B)(8) (9) of the Texas Insurance Code. TEX. INS. CODE ANN. art. 3.70-4(B) (Vernon 1981).
Neither side addresses the issue of who has the burden of proof to show that the policy is or is not a group policy. The court is inclined to think that the defendants have the burden of proof on that issue. Texas law has a general statutory provision requiring that if an accident and sickness policy delivered or issued for delivery to any person in Texas contains provisions on certain subjects, those provisions, except under circumstances apparently not applicable here, must be worded consistent with the wording of the applicable part of the statute. TEX. INS. CODE ANN. art. 3.70-3(A) (B) (Vernon 1981). The statutory provisions relating to illegal conduct and intoxication are as follows:
(8) A provision as follows:
Illegal Occupation: The insurer shall not be liable for any loss to which a contributing cause was the insured's commission of or attempt to commit a felony or to which a contributing cause was the insured's being engaged in an illegal occupation.
(9) A provision as follows:
Intoxicants and Narcotics: The insurer shall not be liable for any loss sustained or contracted in consequence of the insured's being intoxicated or under the influence of any narcotic unless administered on the advice of a physician.Id. art. 3.70-3(B)(8) (9).
The provisions of Article 3.70-3 are not applicable to any group policy of insurance (with exceptions not applicable here). TEX. INS. CODE ANN. art. 3.70-8 (Vernon Supp. 2001). In order to qualify as a group policy of insurance, Texas law requires that, if the policy is issued to an association (such as AACB), the association be one "which has been organized and has had an active existence for at least two years, and which is maintained in good faith for purposes other than that of obtaining insurance. . . ." Id. art. 3.51-6, § 1(a)(2).
Therefore, a qualifying group policy of insurance is excepted from the general requirements of Texas insurance law. The court tentatively has concluded that the insurer has the obligation to establish that the insurance policy comes within the exception. Thus far, the court has not found legal authority that provides assistance on this subject. The court anticipates that in advance of the pretrial conference to be conducted in this case each party will provide a memorandum to the court containing the arguments and authorities that support that party's position on the issue of burden of proof. For the time being, the court notes that defendants have not adduced any summary judgment evidence that the insurance policy at issue qualifies as a policy of group accident and health insurance under Texas law.
In contrast, plaintiffs have come forward with summary judgment evidence to raise a genuine fact issue as to whether the policy is a legitimate group policy. See decls. of Lisa Edens and Ken Songer. Also, plaintiffs rely on the consent order to show that the policy was issued in violation of Article 3.51-6 of the Texas Insurance Code. Movants do not dispute that the policy at issue here is the policy discussed in the consent order. They urge instead that the consent order is inadmissible under Rule 408 of the Federal Rules of Evidence. The authorities they cite are persuasive, but the court does not need to decide this issue now. The court expects the parties to provide prior to the pretrial conference further argument and authorities in support of their respective positions on the issue.
For the purpose of this motion, the court assumes that the policy is an individual policy to which Article 3.70-3 applies and that the policy exclusions are replaced by the exclusions of Article 3.70-3(B)(8) (9). Under those provisions, movants must show as cause for the accident Lacy's intoxication or the commission or attempt to commit a felony. Defendants do not contend that Lacy was committing or attempting to commit a felony.
Even if the exclusions in the policy were found to be applicable, an argument can be made that, as a practical matter, the outcome will be the same. The exclusions only apply "for any loss resulting directly or indirectly from or by the following. . . ." The "following" includes voluntary use of alcohol, being engaged in an illegal activity, and a loss sustained while an insured person is intoxicated. The conclusion that would seem to follow is that, even if the policy exclusions were to be given effect, the defendants, who have the burden of proof on this issue, would be required to convince a fact-finder that a cause of the accident was a diminished ability on the part of Lacy to act with full mental and physical capabilities because of alcohol consumption.
To the extent the observations in this footnote are inconsistent with the contents of the court's September 4, 2001, Memorandum Opinion and Order, the court is reconsidering the latter on the basis of the more complete record.
As the court discussed in its September 4, 2001, memorandum opinion and order, the term "intoxicated" has a commonly understood meaning and is neither ambiguous nor defective. See El Chico Corp. v. Poole, 732 S.W.2d 306, 312-13 (Tex. 1987); Campos v. State. 623 S.W.2d 657, 659 (Tex.Crim.App. 1981). According to Black's Law Dictionary, intoxication means a "diminished ability to act with full mental and physical capabilities because of alcohol or drug consumption." BLACK'S LAW DICTIONARY 827 (7th ed. 1999). Though the evidence upon which the movants rely is persuasive, the court is not prepared to conclude from the summary judgment record that the evidence establishes as a matter of law that Lacy's accident resulted from a diminished ability on her part to act with full mental and physical capabilities because of alcohol consumption. The issue of proof of causation as a matter of law will be revisited at the conclusion of the evidence.
B. Fraud and Misrepresentation.
Movants urge that they are entitled to judgment as a matter of law on plaintiffs' fraud and misrepresentation claims because any purportedly false statements were not made to plaintiffs themselves and caused them no injury. See Ernst Young, L.L.P. v. Pacific Mut. Life Ins. Co., 44 TEX. SUP. CT. J. 955 (Tex. June 21, 2001). Plaintiffs make no response, apparently conceding that they cannot prevail on these claims.
C. Extracontractual Claims.
To prevail on their extracontractual causes of action, plaintiffs must prove that there were no facts that, if believed, would justify denial of their claim by UBL. Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456, 459 (5th Cir. 1997); Watson v. State Farm Lloyds, 56 F. Supp.2d 734, 736 (N.D. Tex. 1999). Here, the undisputed facts surrounding the accident establish that no reasonable jury could conclude that the insurer had no reasonable basis for denial of plaintiffs' claim. Douglas v. State Farm Lloyds, 37 F. Supp.2d 532, 545 (S.D. Tex. 1999). There is summary judgment evidence, which is undisputed, that the insurer had a reasonable basis for denying payment of the claim. Certainly, there is no summary judgment evidence that the insurer knew, or should have known, that it had no such reasonable basis. Even though there is a bona fide coverage dispute, movants are entitled to summary judgment as to the extracontractual causes of action. Id. at 543.
D. Article 21.55.
Plaintiffs assert as their "fifth cause of action" a right of recovery under Article 21.55 of the Texas Insurance Code. Pls.' First Am. Compl. at 22. If it is determined that plaintiffs' claim should have been paid, the penalty under Article 21.55 will be automatic. Higginbotham, 103 F.3d at 461. Therefore, the motion for summary judgment is being denied as to the claims under Article 21.55.
E. Claims Against CRL and Ceres.
Movants finally argue that plaintiffs cannot establish liability of CRL or Ceres for any of the claims asserted. Plaintiffs make no response as to their claims against Ceres, apparently abandoning such claims. Therefore, summary judgment is being entered as to plaintiffs' claims against Ceres.
The court is not persuaded that plaintiffs cannot establish liability on the part of CRL. Normally, privity of contract must exist between a plaintiff and an insurance company before insurance benefits can be recovered from the company. Norris v. Housing Auth., 980 F. Supp. 885, 892 (S.D. Tex. 1997). There is no evidence of any contract between CRL and plaintiffs that would give rise to a special relationship between them. See Natividad v. Alexsis, Inc., 875 S.W.2d 695, 698 (Tex. 1994). Whatever agreements UBL may have entered into with CRL, ordinarily an insurer's duty to its insureds cannot be delegated. Id. Plaintiffs rely on the reinsurance and related agreements to establish that CRL owed a duty to them. Those agreements provide, however, that they do not benefit third parties. See Old Stone Bank v. Fidelity Bank, 749 F. Supp. 147, 152-53 (N.D. Tex. 1990) (the language of the instruments controls).
The court's concern is that for all intents and purposes CRL was the insurer. A reasonable conclusion that might be drawn from the administrative services agreement is that UBL was simply fronting for CRL in the provision of health and accident insurance by CRL to the public. That agreement suggests that, realistically, UBL was doing no more than to provide insurance policy and certificate forms bearing its name and address and, perhaps, a sales organization, and that all other aspects of the insurance undertaken in the name UBL were the responsibility of, and performed by, CRL, which, pursuant to the agreement between the two, was entitled to all profits derived from policies issued in the name UBL. The parties have not provided the court authorities dealing with such a "fronting company" relationship. Presumably they will do so in advance of the pretrial conference. In the meantime, the court has concluded that the summary judgment record will not support a summary judgment in favor of CRL.
VI. Plaintiffs' Request for Declaratory Judgment
Somewhat aside the issues raised by the motion for summary judgment, the court has concluded that there is no need for declaratory relief in this case. All declaratory relief sought by plaintiffs is on issues that are directly in dispute, with the consequence that for the court to enter a declaratory judgment as to any of those issues would be a redundancy. Therefore, the court has concluded, independent of the motion for summary judgment, that plaintiffs' request for declaratory judgment should be dismissed without prejudice.
VII. ORDER
For the reasons discussed in this memorandum opinion and order,
The court ORDERS that movants' motion for summary judgment be, and is hereby, granted as to (1) plaintiffs' claims against Ceres, (2) plaintiffs' claims designated in the first amended complaint as "SECOND CAUSE OF ACTION: VIOLATIONS OF ARTICLE 21.21," (3) plaintiffs' claims designated in the first amended complaint as "THIRD CAUSE OF ACTION: DECEPTIVE TRADE PRACTICES," (4) plaintiffs' claims designated in the first amended complaint as "FOURTH CAUSE OF ACTION: FRAUD AND MISREPRESENTATION," (5) plaintiffs' claims designated in the first amended complaint as "SIXTH CAUSE OF ACTION: BREACH OF DUTY OF GOOD FAITH AND FAIR DEALING," (6) plaintiffs' claims designated in the first amended complaint as "SEVENTH CAUSE OF ACTION: NEGLIGENCE," and (7) plaintiffs' claims designated in the first amended complaint as "EIGHTH CAUSE OF ACTION: NEGLIGENCE PER SE"; and,
The court further ORDERS that each of the claims and causes of action as to which the motion for summary judgment is granted be, and are hereby, dismissed.
The court further ORDERS that the motion for summary judgment be, and is hereby, denied as to plaintiffs' breach of contract claim and plaintiffs' request for recovery under Article 21.55 of the Texas Insurance Code.
The court further ORDERS that plaintiffs' request for declaratory judgment be, and is hereby, dismissed without prejudice.
The court determines that there is no just reason for delay in, and hereby directs, entry of final judgment as to the dismissal of all claims and causes of action as to which defendants' motion for summary judgment is being granted by this order.