Summary
holding that mold contamination resulting or ensuing from otherwise covered water damage is not excluded from coverage by virtue of the ensuing loss provision
Summary of this case from Fiess v. State Farm LloydsOpinion
No. 05-97-01479-CV.
Opinion Filed February 10, 2000. DO NOT PUBLISH. Tex.R.App.P. 47.
On Appeal from the 95th Judicial District Court, Dallas County, Texas, Trial Court Cause No. 94-09689-D.
AFFIRMED AS MODIFIED.
OPINION
The Home Insurance Company (Home) appeals the trial court's judgment finding coverage under Dennis D. and Claudia McClain's Texas standard homeowners insurance policy for mold and other fungi damage caused by rainwater entering through a leaky roof. In its first two issues, Home complains there was no coverage because the damage claim was excluded under the policy and the McClains had not met the policy's conditions. In its third issue, Home contends the McClains were not entitled to a second recovery under the policy because they were fully indemnified after they settled with Stark. In its fourth issue, Home asserts that it was due a $15,000 credit for a settlement paid in this cause. Because of our disposition of Home's issues, we modify the judgment by applying a $15,000 credit and affirm the judgment as modified.
BACKGROUND
In 1992, rainwater entered the McClains' residence through leaks in the new roof of an addition constructed by Jerry Stark d/b/a/ The Stark Companies and Stark Engineering, Inc. (collectively, Stark), as well as in the roof on the existing portion of the home. In April 1992, the McClains filed suit against Stark for lengthy delays and numerous construction defects. In the Stark lawsuit, the McClains alleged Stark's work on their home was defective and caused problems with the foundation, plumbing, electrical system, roof, structural integrity, and the heating, ventilation, and air conditioning (HVAC) system. In September 1992, the McClains discovered the leaking water had collected and soaked the stud areas behind the interior walls, damaging the walls, ceilings and subfloors. The rainwater provided an environment for mold and bacteria to grow. In late February or early March 1992, Ms. McClain notified Home of the water damage and the mold and fungus infestation that rendered the residence uninhabitable.
In October 1993, the McClains filed their fourth amended petition, alleging Stark caused serious environmental problems. In November 1993, the McClains settled with Stark. Under the terms of the settlement, the McClains released Stark from any and all liability for damage to their home in exchange for the payment of $260,000. The parties stipulated the damages exceeded $519,000. The settlement also stated that the settlement did not reflect any recovery for environmental remediation, move-out, hotel, or rental expenses. Stark went out of business sixty days after the lawsuit settled.
In December 1993, the McClains filed a claim under their homeowners policy to recover their remaining covered damages. On May 24, 1994, Home denied the claim based on the policy exclusion for mold and for violation of the policy's subrogation provision. In September 1994, the McClains filed suit against Home to obtain coverage. The McClains alleged water leaks from the roof caused water damage to the wood members and the sheetrock in interior walls. Additionally, they alleged the water flowed in the crawl spaces and "ponded," resulting in the growth of bacteria under the house. In their second amended petition, they added American Standard Lloyd's Insurance Company (American Standard) as a defendant. The McClains alleged that Home covered their residence from June 3, 1991 to June 3, 1992, and American Standard covered their residence from June 3, 1992 to June 3, 1993. The McClains settled with American Standard for $15,000.
In their motion for partial summary judgment, the McClains asked the trial court to find that the fungi and mold damage was not excluded under the policy. Home then filed a motion for summary judgment alleging there was no coverage because of the exclusion for fungi and mold damage and the policy's notice and subrogation conditions had not been met. The parties agreed to submit the issues remaining after determination of the summary judgment motions to the court on a stipulated record and some stipulated facts. The trial court granted the McClains' motion for partial summary judgment and denied Home's motion. In a separate judgment, the court then awarded the McClains money damages, pre-judgment interest, and attorney's fees. Home appeals.
THE PARTIAL SUMMARY JUDGMENT
Home complains the trial court's partial summary judgment found coverage. Home asserts the coverage issue was raised by both motions for summary judgment. Home argues the issues concerning the exclusion for fungi and mold and the notice and subrogation issues were decided by the summary judgment. Thus, Home asserts we should review the coverage issues of this appeal under the summary judgment standard. The McClains claim the issues of coverage were tried to the court on a stipulated record requiring a review of the legal and factual sufficiency of the evidence.
In reviewing the two summary judgment motions, we observe that each party's motion did not mirror the other's. The McClains' motion only addressed the issue whether the fungi and mold damage was excluded from coverage. Home's motion addressed the exclusion issue and also asked for a denial of coverage because the McClains breached the policy's conditions. By granting the McClains' motion and denying Home's, the trial court could only have determined that the exclusion did not apply to the McClains' damages and that Home had not proved any of the alleged breaches of conditions as a matter of law. Those issues remained for the trial court's determination on the stipulated record. Therefore, we review the exclusion issue under the summary judgment standard. We review the other issues as issues tried to the court.
Exclusion For Loss By Mold or Fungi
In its first issue, Home asserts that the partial summary judgment is erroneous because the McClains' policy excludes loss caused by "mold or fungi." Home urges this exclusion applies even if the mold and fungi are caused by water damage. The McClains respond that the policy covers the ensuing loss from water damage, which in this case is mold and fungi.
Standard of Review
The standards for reviewing a summary judgment are well established. The party moving for summary judgment has the burden of showing that, except for the amount of damages, no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. See Tex.R.Civ.P. 166a(c); Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548 (Tex. 1985); Swilley v. Hughes, 488 S.W.2d 64, 67 (Tex. 1972). A defendant moving for summary judgment must either (1) disprove at least one element of the plaintiff's theory of recovery, or (2) plead and conclusively establish each essential element of an affirmative defense. See City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678-79 (Tex. 1979); Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 657 (Tex.App.-Dallas 1992, no writ). In order to determine if the trial court erred in granting the motion for summary judgment, we must consider the summary judgment evidence in the light most favorable to the non-movant, resolving doubts and indulging all reasonable inferences in favor of the non-movant. See Nixon, 690 S.W.2d at 548-49.
When both parties move for summary judgment, we must indulge all reasonable inferences and resolve all doubts in favor of the losing party. See Donahue v. Bowles, Troy, Donahue, Johnson, Inc., 949 S.W.2d 746, 750 (Tex.App.-Dallas 1997, writ denied); Bossin v. Towber, 894 S.W.2d 25, 29 (Tex.App.-Houston [14th Dist.] 1994, writ denied). When both parties file motions for summary judgment and one is granted and the other denied, we may consider all questions presented and render the judgment the trial court should have rendered. See Jones v. Strauss, 745 S.W.2d 898, 900 (Tex. 1988) (per curiam) (orig. proceeding). If a movant does not show its entitlement to summary judgment as a matter of law, this Court must remand the case to the trial court. See Gibbs v. General Motors Corp., 450 S.W.2d 827, 829 (Tex. 1970).
Discussion
The McClains' homeowners policy covers all losses except those specifically excluded. Among the losses not covered by the policy are losses caused by:
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"wear and tear, deterioration or any quality in property that causes it to damage or destroy itself," and
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"rust, rot, mold or other fungi."
Also in the exclusion portion, the policy provides that "[w]e do cover ensuing loss caused by . . . water damage . . . if the loss would otherwise be covered under this policy."
Home claims "[t]he `ensuing loss' exception covers only water damage which follows or results from mold or fungus damage. It does not cover mold and fungus damage, even if caused by water damage." In this articulation of the issue, Home ignores that the ensuing-loss provision is not limited by the mold and fungi exclusion, and, although the water damage was not the result of the mold and fungi, it was the result of the defective and deteriorated roof. Thus, the application of the mold and fungi exclusion is dependent on the application of the ensuing-loss provision.
"Ensuing losses" mean losses which follow or come afterward as a consequence. See McKool v. Reliance Ins. Co., 386 S.W.2d 344, 345 (Tex.Civ.App.-Dallas 1965, writ dism'd). To be an ensuing loss caused by water damage, the mold and fungi would necessarily have to follow or come afterward as a consequence of the water damage. See Merrimack Mut. Fire Ins. Co. v. McCaffree, 486 S.W.2d 616, 620 (Tex.Civ.App.-Dallas 1972, writ ref'd n.r.e.). In McCaffree, this Court held the fungi and mold damage was excluded because the facts did not support the conclusion that the fungi was caused by water damage. See id. The facts showed the damage was caused by fungi and termites. See id.Although this Court held the fungi damage was not covered, this Court did not hold that an ensuing loss of fungi and mold damage would never be covered. See id. This Court recognized that a set of facts could produce the conclusion that an ensuing loss of an excluded damage was caused by water damage resulting in coverage. See id. In addition, this Court discussed Employers Casualty Co. v. Holm, 393 S.W.2d 363 (Tex.Civ.App.-Houston 1965, no writ). See McCaffree, 486 S.W.2d 620. In Holm, the parties stipulated that the water passing into and under the wood flooring of the insured's house caused it to rot and deteriorate. See Holm, 393 S.W.2d at 366. The Holm court concluded that, as a matter of common knowledge, the more or less continual application of water to and against a house's wood flooring would cause warping, cracks, and water damage, which finally would result in rot and deterioration. See id. The court held "the loss which ensued or followed the water damage grew out of and was caused by water damage." Id.
Here, the water from the leaking roof pooling in the crawl spaces caused the mold and fungi. The facts are uncontroverted that the damages claimed were a consequence of water leaking from the roof. Both the McClains and Home acknowledged these facts in their pleadings, motions for summary judgments, and appellate briefs. Home does not claim the mold and fungi came from another source. Consequently, the loss that followed the water damage was caused by water damage. Therefore, under the facts of this case, the exclusion for fungi and mold damage does not apply. The trial court properly determined that the exclusion does not apply to the McClains' claim. Accordingly, the trial court properly granted the McClains' motion for summary judgment, and we resolve Home's first issue against it.
THE TRIAL
After the trial court determined that the exclusion for mold and fungi did not prevent coverage, the trial court tried the remaining issues on a stipulated record, which consisted of the summary judgment evidence and stipulations. In its second issue, Home complains that the McClains failed to comply with conditions of the policy by not giving prompt notice of their loss as required and by destroying Home's subrogation rights when they settled with Stark. In its third and fourth issues, Home complains that the McClains received a double recovery and that Home did not receive credit for American Standard's settlement in this case.
Standard of Review
Because the appellate record does not contain the trial court's findings of fact, we imply all findings of facts necessary to support the trial court's judgment. See Worford v. Stamper, 801 S.W.2d 108, 109 (Tex. 1990) (per curiam). However, where as here, a complete statement of facts appears in the record, Home may challenge these implied findings by contesting the legal and factual sufficiency of the evidence to support them. See Roberson v. Robinson, 768 S.W.2d 280, 281 (Tex. 1989) (per curiam). In reviewing such challenges, we apply the same standards used to review a trial court's explicit findings of fact or jury findings. See id. When reviewing a judgment on a legal sufficiency or "no evidence" challenge, we examine the record for evidence and inferences in support of the trial court's judgment and disregard all contrary inferences and evidence. See Heldenfels Bros., Inc. v. City of Corpus Christi, 832 S.W.2d 39, 41 (Tex. 1992). We uphold the implied finding if there is more than a scintilla of evidence to support it. See Leitch v. Hornsby, 935 S.W.2d 114, 118 (Tex. 1996).
In a factual sufficiency review, we consider all the evidence and not only the evidence supporting the judgment. See Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 406-07 (Tex.), cert. denied, 119 S.Ct. 541 (1998). We may reverse a judgment for factual insufficiency only if it is so against the great weight and preponderance of the evidence that it is clearly wrong or manifestly unjust. See id. at 407.
Prompt Notice
Because the trial court found coverage, it impliedly found the McClains did not breach the condition requiring prompt notification of their loss. In its second issue, Home contends the McClains' notice was not prompt as a matter of law because the evidence shows that Home received notice after the Stark settlement and release. The McClains respond that Ms. McClain notified Home before settling with Stark.
The evidence shows the McClains learned about the water damage in late September 1992. They were informed of the high levels of mold in October 1992, and they moved out of the house in December 1992. There is evidence in the stipulated record that Ms. McClain notified Home of their loss in late February or early March 1993. Home offered a McClains' claim letter dated after the settlement with Stark. After reviewing the record, we conclude the evidence is legally and factually sufficient to support the trial court's implied finding as to the date of notice. Accordingly, we resolve Home's second issue concerning notice against it.
Subrogation
By finding coverage, the trial court impliedly did not find the McClains failed to observe the policy's subrogation condition. In Home's second issue, it asserts that the McClains' settlement with Stark without Home's consent precluded coverage as a matter of law. Home and the McClains agree the McClains settled without Home's consent. The McClains, however, respond that Home was not prejudiced by the settlement with Stark, and, therefore, coverage is not precluded.
The policy provides that an insured may waive in writing before a loss all rights of recovery against any person. It further provides that if the policyholder has not waived, Home may require an assignment of rights of recovery for a loss to the extent that payment is made by Home. The insured is required to sign an assignment, if requested. This homeowners policy did not have an explicit exclusion of coverage for settlement without consent of the insurer.
An insurance company loses its right of subrogation when an insured settles with a tortfeasor prior to payment by the insurer. See Foundation Reserve Ins. Co. v. Cody, 458 S.W.2d 214, 216 (Tex.Civ.App.-Dallas 1970, no writ). However, the supreme court has held, even when there is a settlement-without-consent exclusion, an insurer may escape liability only when the insurer is actually prejudiced by the insured's settlement with the tortfeasor. See Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691, 693 (Tex. 1994) (interpreting provision of uninsured/underinsured motorist policy). In Hernandez, the supreme court reasoned that one party's material breach of a contract discharges or excuses the other party's obligation to perform. See id. at 692. A factor in determining the materiality of the breach is "the extent to which the nonbreaching party will be deprived of the benefit that it could have reasonably anticipated from full performance." Id. at 693. The supreme court noted that, in those instances where any extinguished subrogation right had no value, the insurer might not be deprived of the contract's expected benefit. See id. And where the insurer was not prejudiced by the settlement, the breach was not material. See id. This reasoning applies equally to the McClains' policy, which is an indemnity policy with subrogation provisions but no settlement-without-consent exclusion. Thus, Home was required to show that losing its right to subrogation actually prejudiced it.
First, the McClains presented evidence showing Stark was not solvent after the settlement. The record showed that after the settlement Stark ceased operations and had a negative net worth of $550,000. Next, the pleadings showed construction defect damages requested from Stark were not covered by the policy. Finally, the McClains pleaded in this case that some of the water damage was caused by the original roof and was not caused by Stark. Home relied on the fact that the McClains settled without its consent as prejudice in itself. It did not present any evidence of prejudice. On this record, Home did not prove it was prejudiced by the settlement. Accordingly, the evidence is legally and factually sufficient to support the trial court's implied finding on subrogation, and we resolve Home's second issue concerning subrogation against it.
Double Recovery
Because the trial court found Home liable for $125,000, it impliedly found these damages did not duplicate the Stark settlement. Although Home stipulated damages of $125,000 in this cause, in its third issue Home claims it is entitled to a set-off in the amount of the $260,000 Stark settlement because that settlement exceeded the McClains' damages. The McClains respond that the evidence shows the Stark settlement did not compensate them for all their damages.
The right of equitable subrogation is granted to an insurer to prevent the insured from receiving a double recovery. See Ortiz v. Great Southern Fire Cas. Ins. Co., 597 S.W.2d 342, 343 (Tex. 1980). An insurer is not entitled to subrogation if the insured's loss is in excess of the amounts recovered from the insurer and the third party causing the loss. See id. An insurer can recover only the excess collected from the wrongdoer after the insured is fully compensated for his loss, including the costs and expenses of collection. See id.
The settlement damages excluded "punitive damages, mental anguish, diminution in value or environmental remediation, move-out, hotel or rental expenses." The Stark damages for construction defects and delays were not covered by the McClains' policy. Further, the claim made in this cause is for "move-out expenses, loss-of-use living expenses, ozone treatment, ventilation replacement, and floor[,] ceiling[,] and wall covering replacement," most of which were not provided for in the settlement. The Stark settlement stipulated that the damages exceeded $519,000. Stark paid the McClains $260,000; of this amount, the McClains' net recovery was $145,000, after $115,000 in attorney's fees were paid. Thus, of the $519,000 in damages, the McClains recovered $145,00 in the settlement. The judgment awarded the McClains $125,000. Therefore, under the settlement and judgment, the McClains recovered $270,000 in actual damages. The evidence shows the sum of the two recoveries did not exceed the McClains' actual damages. Further, there is no showing that the two recoveries would be for the same injury. Because the evidence is legally and factually sufficient to support the implied finding that the McClains had not been fully compensated by the Stark settlement, the trial court properly awarded damages in the amount of $125,000. Accordingly, we resolve Home's third issue against it.
Settlement Credit
In its fourth issue, Home asserts it is entitled to a $15,000 credit for the McClains' settlement in this case with American Standard. Home argues the McClains are entitled to only one satisfaction of their claim. The McClains respond that the one satisfaction rule only applies for tort injuries and is not applicable to a breach of contract action.
Under the one satisfaction rule, a plaintiff is entitled to only one recovery for any damages suffered. See Crown Life Ins. Co. v. Casteel, 43 Tex. Sup.Ct. J. 348, 356, 2000 WL 72142, at *11 (Jan. 27, 2000) (op. on reh'g) (not yet released for publication); Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 7 (Tex. 1991). The one satisfaction rule's purpose is to make the plaintiff whole, but not more than whole, for his injuries. See Stewart Title Guar. Co., 822 S.W.2d at 7-8. Whether the one satisfaction rule applies is determined not by the type of cause of action but by the injury. See id.; Facciolla v. Linbeck Constr. Corp., 968 S.W.2d 435, 449 (Tex.App.-Texarkana 1998, no writ) (finding fraud and breach of contract claims co-existed, damages must be reduced to reflect a single recovery of actual damages). If there is a single injury, there can be only one recovery. See Stewart Title Guar.Co., 822 S.W.2d at 7-8.
The McClains pleaded the same injury against Home and American Standard. They pleaded, in part:
The costs and expenses resulting from the water damage and ensuing bacteria infestation, including but not limited to Plaintiffs' move-out expenses, loss-of-use living expenses, ozone treatment, ventilation replacement, and floor, ceiling and wall covering replacement, as well as the loss itself, were covered by Defendants' policies.
The parties stipulated that the damages for the injury alleged in this case were $125,000, and American Standard settled for $15,000. Because there was a single injury caused by the water damage, the one satisfaction rule applied. Home is entitled to a credit for the American Standard settlement. Because the evidence does not support the trial court's implied finding that Home was not entitled to a settlement credit, we sustain Home's fourth issue.
CONCLUSION
Based on our resolution of Home's four issues, we modify the trial court's judgment by deducting $15,000 from the McClains' actual damages recovery; the McClains are entitled to recover from Home $110,000 in actual damages. We affirm the trial court's judgment as modified.