Opinion
No. SA-00-CA-357-RF
August 26, 2003
ORDER GRANTING DEFENDANT'S SECOND MOTION FOR SUMMARY JUDGMENT
BEFORE THE COURT is Defendant Mid-Continent Casualty Company's ("Mid-Continent") Second Motion for Summary Judgment (Docket No. 62). For the following reasons, the Court GRANTS the Motion.
I. Background
Plaintiffs Performance Autoplex II Ltd. and Performance Ford, L.P. (collectively "Performance") operate car dealerships in the states of Texas and Tennessee. Since 1988 or 1989, Performance has used McKane Morgan Associates ("McKane Morgan") as its insurance agency. Prior to December 1994 — the moment McKane Morgan began to offer Defendant Mid-Continent's insurance policies — McKane Morgan sold Performance an employee-dishonesty policy covering inventory losses attributable to criminal activity by an employee. Sometime before 1991, Michael Avellar, Vice President of Performance Automotive Group, Inc., contacted Abbie Morgan, a McKane Morgan employee, regarding a "substantial" inventory shortage. As there was no clear indication that employee malfeasance had caused the inventory loss, Morgan informed Avellar that the existing policy was inapplicable. But Morgan allegedly assured Avellar that as long as there was "independent evidence of employee theft, the inventory shortage would be covered in its entirety."
Def.'s Mot. Summ. J, Avellar Dep. at 32.
Pls.' Resp., Avellar Aff. at Ex. A (Docket No. 68). This statement conflicts slightly with Avellar's deposition testimony, in which he claimed that based on his conversation with Morgan, he understood that his "inventory losses would be covered if there was evidence that there was an employee crime that was . . . connected with the inventory loss." Def.'s Mot. Summ. J., Avellar Dep. at 33. Thus, it is less clear from Avellar's deposition whether he believed that any evidence of criminality would trigger total compensation.
From 1995 to 1998, Performance purchased Mid-Continent insurance policies containing a similar employee-dishonesty provision through McKane Morgan. Each year, Avellar would meet with Morgan and her colleague, Randy McKane, to discuss renewing the insurance coverage. Avellar attests that at each conference, he asked McKane and Morgan "if there were any variances from prior coverage and the variances discussed with [him] did not include any change in the employee dishonesty coverage."
Pls.' Resp., Avellar Aff. at Ex. A. Avellar makes substantially the same assertions in a second affidavit attached to Plaintiffs' supplemental response (Docket No. 69).
This litigation was sparked when Mid-Continent only partially paid two of Performance's claims, one based on an inventory loss due to employee theft. As to the latter, Mid-Continent maintained that only the amounts specifically traceable to the employee's misconduct were payable. Contrarily, Avellar claimed it was his understanding, based on his previous conversation with Morgan, that as long as there existed some evidence of employee delinquency, the total amount of the missing inventory was recoverable. After the presiding court granted summary judgment in favor of Mid-Continent, the Fifth Circuit reversed and remanded for consideration of Performance's claim brought under the Texas Insurance Code and based on Morgan's alleged misrepresentation of the scope of the employee-dishonesty policy. Mid-Continent now seeks summary judgment on the remaining claim.
See Performance Autoplex II Ltd. v. Mid-Continent Cas. Co., 322 F.3d 847 (5th Cir. 2003).
II. Discussion
A. Legal Standard
Summary judgment is appropriate when there are no genuine issues as to any material facts, and the moving party is entitled to judgment as a matter of law. A court must be satisfied that no reasonable trier of fact could find for the nonmoving party or, in other words, "that the evidence favoring the nonmoving party is insufficient to enable a reasonable jury to return a verdict in his favor." The moving party bears the burden of establishing that there are no genuine issues of material fact.
See FED. R. Civ. P. 56(c); Celotex Corp, v. Catrett, 477 U.S. 317, 322-323 (1986).
Lavespere v. Niagara Mack Tool Works, Inc., 910 F.2d 167, 178 (5th Cir. 1990) ( citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986)).
If the dispositive issue is one on which the nonmoving party will bear the burden of proof at trial, the moving party may satisfy its burden by merely pointing out that the evidence in the record contains insufficient proof concerning an essential element of the nonmoving party's claim. The burden then shifts to the nonmoving party, who must, by submitting or referring to evidence, set out specific facts showing that a genuine issue exists. The nonmovant may not rest upon the pleadings, but must identify specific facts establishing that a genuine issue exists for trial. The court, in turn, "must draw all reasonable inferences in favor of the nonmoving party, and . . . may not make credibility determinations or weigh the evidence."
See Celotex, 477 U.S. at 325; see also Lavespere, 910 F.2d at 178.
See Celotex, 477 U.S. at 324.
See id. at 325; Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1996).
Reeves v. Sanderson Plumbing Prods., Inc. 530 U.S. 133, 150 (2000) (citations omitted).
B. Analysis
Article 21.21 of the Texas Insurance Code protects individuals from deceptive practices in the insurance industry. Specifically, Section 4(11)(b) of Article 21.21 defines as a deceptive act or practice the misrepresentation of an insurance policy by "failing to state a material fact that is necessary to make other statements made not misleading, considering the circumstances under which the statements were made. . . ." In order to establish a prima facie case of misrepresentation, the insured bears the burden of showing that the "person making the statement was an agent of the insurance company and that the statement was false."
See TEX. INS. CODE ANN, art. 21.21 (Vernon 1981 Supp. 2003).
Id. § 4(11)(b).
See Performance Autoplex II Ltd., 322 F.3d at 859 (citing Celtic Life Ins. Co. v. Coats, 885 S.W.2d 96, 98-99 (Tex. 1994); Royal Globe Ins. Co. v. Bar Consultants, Inc., 577 S.W.2d 688, 690-91 (Tex. 1979)).
Mid-Continent argues that summary judgment is proper here given that the misleading statements made by Morgan occurred prior to the period when McKane-Morgan was acting as its agent. Mid-Continent further points out that Morgan's misstatements about the scope of employee-dishonesty coverage concerned a policy issued by another insurer, unrelated to a Mid-Continent policy. On this basis, Mid-Continent urges that it cannot be held liable for Morgan's potentially deceptive explanation of the policy.
While Performance admits in its response that Morgan's statements predated its purchase of the Mid-Continent policy at issue here, it contends that she "reaffirmed" the misrepresentation each year when she met with Avellar to renew the policy. According to Performance, since Morgan's discussions with Avellar regarding alterations to the coverage did not include a clarification of the employee-dishonesty clause, her silence in effect "re-misrepresented" that the employee-dishonesty provision would cover the entire inventory loss upon proof of employee wrongdoing. Thus, Performance asserts that Morgan's omission is actionable under Article 21.21 Section 4(11)(b) of the Texas Insurance Code and that it is "simply irrelevant" that the initial misstatement took place outside of the agency relationship.
Pls.' Resp. at 2; see also Pls.' Suppl. Resp. ¶ 1-2.
Pls.' Resp. at 2.
The Court declines to adopt Performance's interpretation and instead finds as a matter of law that Mid-Continent cannot be held accountable under Article 21.21 Section 4(11)(b) of the Texas Insurance Code for Morgan's neglect. That is, the Court cannot conclude that during the routine renewal discussions between Avellar and McKane-Morgan, Morgan's failure to clear up a potentially misleading interpretation of the employee-dishonesty clause from a prior policy amounted to an improper omission for which Mid-Continent should be held financially responsible. Moreover, on these facts, the Court has difficulty conceiving how Avellar's innocuous questions regarding changes in the coverage would have triggered Morgan's duty — or at least jogged her memory — to elucidate the misleading interpretation of the employee-dishonesty clause made years earlier, for a different policy. Certainly, Performance has not pointed to any legal authority supporting this theory of liability. Thus, even assuming that there are genuine issues of material fact as to whether Morgan's original statements concerning the employee-dishonesty policy were false, her neglect — years later and in the absence of any specific inquiry by Avellar — to explain the provision, cannot constitute a failure to state a material fact actionable under Article 21.21 Section 4(11)(b) of the Texas Insurance Code. Accordingly, the Court finds that the circumstances surrounding Morgan's initial misstatement are too attenuated from her later silence during the parties' renewal discussions, and summary judgment in favor of Mid-Continent is appropriate.
III. Conclusion
For the foregoing reasons, the Court GRANTS Mid-Continent's Second Motion for Summary Judgment and DISMISSES WITH PREJUDICE Performance's remaining claim.