Opinion
01-21-00330-CV
05-11-2023
TEXAS FARM BUREAU MUTUAL INSURANCE COMPANY, Appellant v. MEREDITH MINCHEW, Appellee
On Appeal from the 333rd District Court Harris County, Texas Trial Court Case No. 2019-32212
Panel consists of Justices Kelly, Farris, and Radack.
The Honorable Sherry Radack, Senior Justice, Court of Appeals, First District of Texas at Houston, sitting by assignment.
MEMORANDUM OPINION
April L. Farris Justice
This is an appeal from a final declaratory judgment concerning the interpretation of an automobile insurance policy and an order awarding attorney's fees and costs to appellee Meredith Minchew. In two issues, appellant Texas Farm Bureau Mutual Insurance Company argues that the trial court erred by (1) interpreting the policy to declare that a clause in the policy providing reduced coverage does not apply; and (2) awarding attorney's fees and costs to Minchew as the prevailing party. We reverse and render in part and reverse and remand in part.
Background
On July 3, 2018, Minchew and her then-boyfriend, Brian Kaiser, were involved in a single-car accident when Kaiser allegedly drove his car off the road and into a ditch. Minchew was riding in the passenger seat, and she was transported to the hospital after allegedly suffering bodily injury. In a separate proceeding, which has been abated pending resolution of this case, Minchew sued Kaiser to recover damages for her injuries. Kaiser is not a party to this declaratory judgment action.
The record indicates that Kaiser also may have been injured in the accident, but coverage under the policy for his injuries is not at issue in this appeal.
At the time of the accident, Minchew and Kaiser were named insureds under a shared automobile insurance policy. Relevant here, the policy provided liability coverage in the amount of $300,000 per person "for bodily injury . . . for which any covered person becomes legally responsible because of an auto accident." However, the policy limited this amount of coverage to the statutory minimum amount of $30,000 per person per accident if the bodily injury was to a named insured:
[Texas Farm Bureau] do[es] not provide Liability Coverage for you or any family member for bodily injury to you or any family member, except to the extent of the minimum limits of Liability Coverage required by . . . [the] Texas Motor Vehicle Safety-Responsibility Act.See Tex. Transp. Code §§ 601.051, 601.072(a-1)(1) (providing minimum amounts of motor vehicle liability insurance coverage required by drivers operating motor vehicles in state). The policy defined "you" to include "the named insured shown in the Declarations[.]" The declarations page, in turn, listed Minchew and Kaiser as "Named Insured."
Although this clause is often referred to as a family-member exception, the parties agree that Minchew was not a "family member" of Kaiser as that term is defined in the policy. For clarity, we refer to the clause as a coverage-reducing clause.
Although the record is not clear, a claim was apparently filed under the policy requesting coverage for Minchew's bodily injuries. In a letter to Minchew, Texas Farm Bureau relied on the coverage-reducing clause quoted above in offering to settle her claims for $30,000. The letter stated that because Minchew was "listed and named" on the policy declarations page as a named insured, she met the definition of "you," and the clause therefore applied to limit coverage for her bodily injury claim to the statutory minimum. Minchew rejected the offer.
Minchew filed the underlying declaratory judgment action against Texas Farm Bureau seeking a declaration that the clause did not apply to limit coverage for her bodily injury claim. Texas Farm Bureau filed a counter-petition for a declaratory judgment seeking declarations that Minchew was a named insured under the policy and that the clause applied to limit coverage for her claim.
In her original petition, Minchew also sought a declaration of the extent of coverage for uninsured or underinsured motorists under the policy, but this claim was nonsuited prior to trial when Minchew filed an amended petition omitting this claim. See Gaskamp v. WSP USA, Inc., 596 S.W.3d 457, 468 (Tex. App.-Houston [1st Dist.] 2020, pet. dism'd) (en banc) (stating that filing of amended petition in civil case effectively nonsuits or voluntarily dismisses claims omitted in amended pleading). The parties agreed at trial that this claim was no longer in dispute.
Texas Farm Bureau also sought a declaration that the policy does not provide coverage to Minchew for uninsured or underinsured motorists, but as discussed above the claim was not at issue at trial.
The parties tried their case to the bench on an agreed stipulation of facts. The parties agreed to the following relevant facts:
• On July 3, 2018, "Minchew was a passenger involved in a single-car accident in a car driven by her then-boyfriend Brian Kaiser";
• At the time of the accident, Minchew and Kaiser shared an insurance policy issued by Texas Farm Bureau covering the car involved in the accident;
• The policy provided liability coverage up to $300,000 per person and $500,000 per accident;
• The policy defined "you" to include "the named insured shown in the Declarations"; and
• "Both Minchew and Kaiser were named insureds on the Policy," and they both "meet the definition of 'you.'"
The stipulation concluded that "[t]he only remaining issue[] to be decided is the interpretation of the Policy."
The parties relied on numerous exhibits, all of which were admitted without objection. The only evidence relevant to our interpretation of the clause in the insurance policy, however, is the insurance policy itself. The parties called no witnesses.
The trial consisted solely of the parties' closing arguments. Both parties primarily relied on two opinions from our sister courts of appeals to support their opposing interpretations of the disputed clause. Minchew argued that she is not considered a "named insured" under the policy; rather, she is considered a claimant under the policy because she is the injured party. Because Kaiser sought coverage for his action in allegedly causing Minchew's injury, "the named insured" in the coverage-reducing clause referred only to him. She argued that Texas Farm Bureau's interpretation allows it to "pick and choose" either insured to plug in for each "you" in the clause and reduce coverage accordingly, rendering the clause ambiguous.
Texas Farm Bureau, on the other hand, argued that the language in the policy did not support Minchew's interpretation. It argued that the first "you" in the clause-limiting "Liability Coverage for you . . . for bodily injury to you"-referred to Kaiser because he was the named insured whose liability coverage was at issue, and the second "you" referred to Minchew because she asserted the bodily injury claim and met the definition of "you."
The court entered a final declaratory judgment in favor of Minchew. The judgment declared that the policy listed both Minchew and Kaiser as named insureds, it provided liability coverage of $300,000 per person for bodily injury, and the coverage-reducing clause did not reduce coverage to the statutory minimum amount of $30,000. The judgment also determined that Minchew was the prevailing party, and it stated that a subsequent order concerning attorney's fees and court costs would follow.
The parties subsequently filed an agreed motion for attorney's fees. The parties agreed that, "[s]hould the Court exercise its discretion and award attorneys' fees to Plaintiff [Minchew] (the prevailing party)," the reasonable and necessary amount of her attorney's fees would be $5,000 through trial and $7,500 "[i]f the matter is appealed." The trial court granted the agreed motion and awarded Minchew $5,000 in attorney's fees through trial, $7,500 in attorney's fees because Texas Farm Bureau had filed a notice of appeal, and costs. This appeal followed.
Declaratory Judgment
In its first issue, Texas Farm Bureau challenges the trial court's declaration that the policy's coverage-reducing clause does not apply to limit coverage for Minchew's bodily injury claim to the statutory minimum amount of $30,000. Texas Farm Bureau argues that Minchew met the definition of "you" in the clause, and therefore the clause applies to reduce coverage for her claim.
A. Standard of Review
The Uniform Declaratory Judgments Act ("UDJA") authorizes Texas courts "to declare rights, status, and other legal relations whether or not further relief is or could be claimed." Tex. Civ. Prac. & Rem. Code § 37.003(a); see Allstate Ins. Co. v. Irwin, 627 S.W.3d 263, 269 (Tex. 2021) (stating that declaratory judgment is appropriate when real controversy exists between parties, and entire controversy may be determined by judicial declaration).
The UDJA's stated "purpose is to settle and to afford relief from uncertainty and insecurity with respect to rights, status, and other legal relations; and it is to be liberally construed and administered." Tex. Civ. Prac. & Rem. Code § 37.002(b). The Act is "intended to provide an effective remedy for settling disputes before substantial damages accrue," and it "is often preventative in nature." Irwin, 627 S.W.3d at 269; see also Bonham State Bank v. Beadle, 907 S.W.2d 465, 468 (Tex. 1995) ("A trial court has discretion to enter a declaratory judgment so long as it will serve a useful purpose or will terminate the controversy between the parties."). Any "person interested" under a written contract "may have determined any question of construction or validity" arising under the contract and "obtain a declaration of rights, status, or other legal relations thereunder." Tex. Civ. Prac. & Rem. Code § 37.004(a); see Irwin, 627 S.W.3d at 269.
We review declaratory judgments under the same standards used to review other judgments, looking to the procedure used to resolve the issue at trial to determine the appropriate standard of appellate review. Unocal Pipeline Co. v. BP Pipelines (Alaska) Inc., 512 S.W.3d 492, 499-500 (Tex. App.-Houston [1st Dist.] 2016, pet. denied) (op. on reh'g); see also Tex. Civ. Prac. & Rem. Code § 37.010. The parties tried the case on agreed stipulated facts, and we may therefore treat this case as one involving an agreed statement of facts under Rule of Civil Procedure 263. See Tex. R. Civ. P. 263; Lacis v. Lacis, 355 S.W.3d 727, 732 (Tex. App.- Houston [1st Dist.] 2011, pet. dism'd w.o.j.); accord Patton v. Porterfield, 411 S.W.3d 147, 153 (Tex. App.-Dallas 2013, pet. denied). Rule 263 provides:
Parties may submit matters in controversy to the court upon an agreed statement of facts filed with the clerk, upon which judgment shall be rendered as in other cases; and such agreed statement signed and certified by the court to be correct and the judgment rendered thereon shall constitute the record of the cause.Tex. R. Civ. P. 263.
A case tried on agreed facts is similar to a special verdict and constitutes "the parties' request for judgment under the applicable law." Lacis, 355 S.W.3d at 732 (quoting State Farm Lloyds v. Kessler, 932 S.W.2d 732, 735 (Tex. App.-Fort Worth 1996, writ denied)). The agreed facts are binding on the parties, the trial court, and the reviewing court. Chu v. Windermere Lakes Homeowners Ass'n, 652 S.W.3d 899, 901 (Tex. App.-Houston [14th Dist.] 2022, pet. filed); Patton, 411 S.W.3d at 153. We conclusively presume that the parties brought before the court all facts necessary to present and adjudicate the case. Patton, 411 S.W.3d at 154. We afford no presumptions in favor of the judgment because the trial court was not required to resolve factual issues in rendering judgment. Lacis, 355 S.W.3d at 732. We need decide only whether the trial court correctly applied the law to the agreed facts. Id. Because the issue is purely a legal question, we review the judgment de novo. Id.
B. Law Governing Interpretation of Insurance Policies
Courts interpret insurance policies under well-established rules of contract construction. Great Am. Ins. Co. v. Primo, 512 S.W.3d 890, 892 (Tex. 2017); StarNet Ins. Co. v. RiceTec, Inc., 586 S.W.3d 434, 444 (Tex. App.-Houston [1st Dist.] 2019, pet. denied). In construing an insurance policy, we must determine the parties' intent "as reflected in the terms of the policy itself." StarNet Ins., 586 S.W.3d at 444 (quoting Nassar v. Liberty Mut. Fire Ins. Co., 508 S.W.3d 254, 257-58 (Tex. 2017) (per curiam)). We must "examine the entire agreement and seek to harmonize and give effect to all provisions so that none will be meaningless." Id. (quoting Nassar, 508 S.W.3d at 258). "No phrase, sentence, or section should be isolated from its setting and considered apart from other contractual provisions." Id. Courts may not insert language or provisions into a contract that the parties did not use, and courts may not rewrite the contract. Primo, 512 S.W.3d at 893; Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd's London, 327 S.W.3d 118, 126 (Tex. 2010) ("Courts strive to honor the parties' agreement and not remake their contract by reading additional provisions into it.").
Terms in an insurance policy are given their plain, ordinary meaning unless the policy provides a definition for a term. Anadarko Petroleum Corp. v. Houston Cas. Co., 573 S.W.3d 187, 192 (Tex. 2019). When an insurance policy defines a term, the definition controls our interpretation of the policy. Evanston Ins. Co. v. Legacy of Life, Inc., 370 S.W.3d 377, 381 (Tex. 2012); see Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 219 (Tex. 2003) ("Reliance on defined terms in insurance policies to construe those contracts is necessary to determine the intent of the parties and integral to the application of basic principles of contract interpretation to insurance policies."). When a term is not defined, we determine its plain and ordinary meaning by reading it "in context and in light of the rules of grammar and common usage." Nassar, 508 S.W.3d at 258 (quoting RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015)); see Primo, 512 S.W.3d at 893 ("[W]e assign terms their ordinary and generally accepted meaning unless the contract directs otherwise.").
If only one party's interpretation of the policy is reasonable, then the policy is not ambiguous and we will adopt the reasonable interpretation. Nassar, 508 S.W.3d at 258; StarNet Ins., 586 S.W.3d at 445; see Primo, 512 S.W.3d at 893 ("If the language lends itself to a clear and definite legal meaning, the contract is not ambiguous and will be construed as a matter of law."). When both parties' interpretations of a policy are reasonable, however, the policy is ambiguous. Nassar, 508 S.W.3d at 258; StarNet Ins., 586 S.W.3d at 445. An ambiguous policy means more than simply one "denoting a lack of clarity in language." StarNet Ins., 586 S.W.3d at 445 (quoting Nassar, 508 S.W.3d at 258). Parties' conflicting interpretations of a policy does not necessarily mean that the policy is ambiguous. Nassar, 508 S.W.3d at 258; StarNet Ins., 586 S.W.3d at 445. "A policy is ambiguous if it is genuinely subject to more than one meaning after applying the pertinent rules of contract interpretation." StarNet Ins., 586 S.W.3d at 445 (quoting Nassar, 508 S.W.3d at 258).
When a policy is ambiguous, "we must resolve the uncertainty by adopting the construction that most favors the insured . . . even if the construction urged by the insurer appears to be more reasonable or a more accurate reflection of the parties' intent." Nassar, 508 S.W.3d at 258 (quoting RSUI Indem., 466 S.W.3d at 118); StarNet Ins., 586 S.W.3d at 445. "[E]xceptions or limitations on liability are strictly construed against the insurer and in favor of the insured," and the parties' "intent to exclude coverage must be expressed in clear and unambiguous language." Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991). When interpreting language in an insurance policy, we must determine whether the insured's interpretation is reasonable. Nassar, 508 S.W.3d at 258; StarNet Ins., 586 S.W.3d at 445. If it is reasonable, then we must adopt the insured's interpretation even if the insurer's interpretation appears to be also reasonable or more reasonable. Nassar, 508 S.W.3d at 258; StarNet Ins., 586 S.W.3d at 445.
C. Analysis
The parties dispute whether Minchew is considered a named insured under the policy triggering application of the clause reducing liability coverage for bodily injury to a named insured from the policy limit of $300,000 to the statutory minimum amount of $30,000. Texas Farm Bureau argues that the policy is unambiguous and the clause therefore applies to reduce coverage for Minchew's bodily injury claim. Minchew responds that while she is listed as one of two named insureds under the policy, she is not seeking to invoke her coverage under the policy. Rather, she is asserting a claim for bodily injury against her coinsured, thereby invoking his coverage, and therefore she is not considered a named insured under the policy for purposes of the coverage-reducing clause.
1. Relevant Policy Provisions and Parties' Stipulations
The policy provides coverage in the amount of $300,000 per person if a named insured becomes legally responsible for bodily injury caused by an automobile accident. In dispute here, the coverage-reducing clause in the policy provides:
[Texas Farm Bureau] do[es] not provide Liability Coverage for you . . . for bodily injury to you . . ., except to the extent of the minimum limits of Liability Coverage required by . . . [the] Texas Motor Vehicle Safety-Responsibility Act.
This clause limits liability coverage "for bodily injury to you" to the statutory minimum amount of $30,000 per person per accident. See Tex. Transp. Code § 601.072(a-1)(1). The policy defines "you" as "the named insured shown in the Declarations," and the declarations page of the insurance policy lists both Minchew and Kaiser as "Named Insured." The parties stipulated that "[b]oth Minchew and Kaiser were named insureds on the Policy and meet the definition of 'you.'" See Patton, 411 S.W.3d at 153 (stating that agreed facts are binding on parties, trial court, and reviewing court).
2. Interpretation of Insurance Policy
To support their opposing positions, both parties primarily rely on two cases from our sister courts of appeals construing coverage-reducing clauses identical to the one in dispute here.
In the first case, the Dallas Court of Appeals considered whether an identical clause applied to reduce liability coverage under an auto policy for a stepdaughter who was killed in a single-car accident while riding as a passenger in a car driven by her stepfather. Kidd v. State Farm Mut. Auto. Ins. Co., No. 05-16-01387-CV, 2018 WL 1755487, at *1 (Tex. App.-Dallas Apr. 12, 2018, pet. denied) (mem. op.). The stepfather and his wife, the stepdaughter's biological mother, were both named insureds on the State Farm auto policy, but the stepdaughter was not insured under the policy. Id. The stepdaughter's estate asserted a claim against State Farm, but State Farm determined that the coverage-reducing clause applied to the claim and thus tendered only the statutory minimum amount to settle the claim. Id. at *2. The estate refused the tender and sought a declaratory judgment that the clause did not apply to limit coverage. Id.
On appeal of the trial court's grant of summary judgment in favor of State Farm, the stepdaughter's estate argued that the clause did not apply to reduce coverage because "you" referred to the stepfather, who was the at-fault party and who was not a "family member" of the stepdaughter. Id. at *3. The court disagreed. It stated that "you" is defined as the named insured, which includes both the stepfather and the mother even though the mother was not involved in the accident, and the stepdaughter is a "family member" of the mother as defined in the policy. Id. The court also stated that the policy language does not limit the definition of "you" to an at-fault insured. Id.
In Kidd, the policy's definitions of "you" and "family member" controlled the court's interpretation of the disputed terms, as they should. See id.; accord Legacy of Life, 370 S.W.3d at 381; Knott, 128 S.W.3d at 219. As with the clause in Kidd, the coverage-reducing clause at issue here does not define "you" to refer only to an at-fault insured. See StarNet Ins., 586 S.W.3d at 444 (stating that, in construing insurance policy, courts consider parties' intent as reflected in terms of policy itself). Thus, Kidd does not support Minchew's argument that "you" refers only to Kaiser because he was the at-fault driver whose coverage under the policy is at issue.
Minchew also argues that the Kidd court determined that substituting each of multiple named insureds for "you" would create variations in the meaning of the term, rendering it ambiguous, but the court also determined the ambiguity issue had become moot. This is an incorrect reading of the court's holding that "the only reasonable interpretation is that the policy unambiguously excludes coverage for [the stepfather] for injury to [the stepdaughter] except to the extent of the statutory minimum limits." See Kidd, 2018 WL 1755487, at *4 (emphasis added). Contrary to Minchew's assertion, the opinion does not determine that "you" is ambiguous, nor does it mention mootness. We conclude that the Kidd court's interpretation of the coverage-reducing clause supports Texas Farm Bureau's interpretation of the clause here.
The second opinion relied upon by the parties is one that was later withdrawn by the Fort Worth Court of Appeals on the parties' agreed motion to dismiss the appeal. Verhoev v. Progressive Cnty. Mut. Ins. Co., 300 S.W.3d 803 (Tex. App.- Fort Worth 2009), withdrawn, No. 02-08-00055-CV, 2009 WL 4547125 (Tex. App.-Fort Worth Dec. 3, 2009, no pet.) (per curiam) (mem. op.). Withdrawn opinions generally lack precedential value. E.g., Walden v. Affiliated Comput. Servs., Inc., 97 S.W.3d 303, 330 n.22 (Tex. App.-Houston [14th Dist.] 2003, pet. denied). Here, both parties rely on the reasoning in the opinion, and it is one of only two cases interpreting a provision like the one in dispute here. We will therefore consider the opinion. See Pearson v. K-Mart Corp., 755 S.W.2d 217, 219 (Tex. App.-Houston [1st Dist.] 1988, no writ) (considering withdrawn opinion upon which both parties' appellate arguments relied).
In Verhoev, a divorced couple shared an auto insurance policy listing both as named insureds. 300 S.W.3d at 805. The ex-wife was injured in a single-car accident while riding as a passenger in a car owned and driven by the ex-husband. Id. She filed a claim for liability coverage under the policy, but Progressive tendered only the statutory minimum amount of coverage in reliance on a coverage-reducing clause identical to the one at issue in this case. Id. at 805, 807.
The Fort Worth Court of Appeals held that the clause applied to reduce coverage. Id. at 811. The ex-wife had argued that common rules of grammar allowed either named insured to be substituted for "you," thereby rendering the clause ambiguous for failing to distinguish between the named insureds under the policy. Id. at 809-10. The court disagreed, reasoning that despite any grammatical abnormalities, "courts do not interpret policy terms in a vacuum." Id. at 810. Rather, terms must be interpreted in the context of the policy language. Id.
The court stated that the coverage-reducing clause itself provided the necessary context because it "distinguishes between and provides the basis for determining which named insured is the antecedent for 'you' in both places" in the clause. Id. In the phrase, "We do not provide liability coverage for you for bodily injury to you," the first "you" referred to the ex-husband because he was the insured seeking coverage, and the second "you" referred to the ex-wife because she was the injured party. Id. (emphasis added.) The court therefore held that the clause applied to limit coverage for the ex-wife's bodily injury claim. Id. at 811.
While we recognize that Verhoev has been withdrawn and lacks precedential value, the facts are analogous to those here and the court addressed the precise issue with which we are presented: whether one named insured's liability coverage is reduced to the statutory minimum for bodily injury to another named insured. The court rejected the argument that common grammar rules revealed ambiguity in the text. See id. at 809-10. The court stated that the grammar argument, while superficially appealing, lost its persuasiveness when considering the context of the coverage-reducing clause. Id. at 810. In the clause, the first "you" expressly referred to the person seeking liability coverage, while the second "you" expressly referred to the person who was injured. Id. We find this reasoning persuasive and supportive of Texas Farm Bureau's interpretation of the policy.
Minchew argues that this interpretation "is not supported by common rules of grammar," but we disagree. Minchew argues that the policy says "you," not "Minchew and Kaiser" or "Minchew and/or Kaiser." But "you" is defined in the policy as "the named insured," and Minchew is listed as a named insured in the policy. This definition of "you" controls our interpretation of the policy. See Legacy of Life, 370 S.W.3d at 381 (stating that definition of term in insurance policy controls interpretation of policy); Knott, 128 S.W.3d at 219.
Furthermore, Minchew stipulated that both she and Kaiser met the definition of "you" in the policy, and this stipulation is binding on her and this Court. See Chu, 652 S.W.3d at 901; Patton, 411 S.W.3d at 153. Minchew also argues that "you" is singular and does not distinguish between the multiple insureds, and "they" would have been clearer. Perhaps the policy could have more clearly defined "you" as either "a named insured" or "any named insured" or by listing the name of each insured in the definition. But lack of clarity in the language of a policy does not make the policy ambiguous. StarNet Ins., 586 S.W.3d at 445.
Minchew's grammar-related arguments lack merit when "you" is considered in the context of the clause reducing "Liability Coverage for you . . . for bodily injury to you . . ." The first "you" is the named insured seeking liability coverage, which both parties agree is Kaiser. The second "you" refers to the named insured with a bodily injury claim. Under the plain language of the policy, Minchew is a named insured and she has a claim for bodily injury, and she therefore meets the definition of "you" in the policy. See Legacy of Life, 370 S.W.3d at 381 (stating that policy's definition of term controls court's interpretation of term). Minchew also stipulated that she was a named insured and met the definition of "you" under the policy. Therefore, when considered in the context of the coverage-reducing clause, the second "you" refers to Minchew.
Finally, Minchew advances two related extratextual arguments in support of her interpretation. First, she relies on a Beaumont Court of Appeals opinion to argue that because she is asserting a claim against an at-fault driver who is co-insured under the same policy, she is deemed a third-party claimant rather than an insured seeking benefits under the policy. See Rumley v. Allstate Indem. Co., 924 S.W.2d 448 (Tex. App.-Beaumont 1996, no writ). Although some of the facts in Rumley are similar to those present here, that case concerned whether an insurer owed a duty of good faith and fair dealing to an insured injured in an auto accident caused by a co-insured. Id. at 449. The court determined that despite the parties' contractual relationship, the injured insured "was antagonistic to both insurer and [co-insured] spouse," and therefore she was considered a third-party who could not rely on the insurer's good faith any more than another injured party could. Id. at 450. Thus, the court concluded that the insurer did not owe a duty of good faith and fair dealing to the injured insured asserting a claim under the shared policy. Id.
Generally, the duty of good faith and fair dealing arises from the contractual relationship between an insurer and an insured, and thus the insurer owes this duty only to the insured, not to a third-party claimant. Hudspeth v. Enter. Life Ins. Co., 358 S.W.3d 373, 389 (Tex. App.-Houston [1st Dist.] 2011, no pet.); Tamez v. Certain Underwriters at Lloyd's London, Int'l Accident Facilities, Inc., 999 S.W.2d 12, 21 (Tex. App.-Houston [14th Dist.] 1998, pet. denied). A breach of this duty arises "when it is alleged that there is no reasonable basis for denial of a claim or delay in payment or a failure on the part of the insurer to determine whether there is any reasonable basis for the denial or delay." Elephant Ins. Co. v. Kenyon, 644 S.W.3d 137, 148 (Tex. 2022) (citation omitted).
Unlike in Rumley, there is no dispute here concerning the nature of the relationship between Texas Farm Bureau and Minchew or whether the former owes any duty to the latter. We recognize that Rumley contains some language helpful to Minchew's position. For example, the court stated that the claimant-insured was in an "antagonistic" position to both the tortfeasor co-insured and the insurer, and "she assumed the posture of a third-party claimant" when she asserted a liability claim against her co-insured spouse. Rumley, 924 S.W.2d at 450. But these statements were made in the context of deciding whether the insurer owed a duty of good faith and fair dealing to the claimant. Nothing in the opinion indicates that the rule should be applied more broadly outside the context of a claim for breach of the duty of good faith and fair dealing. Nor does the opinion concern the interpretation of policy language or rely on principles of policy interpretation. Furthermore, nothing in the language of the policy at issue here allows for a reasonable interpretation that Minchew is a third-party claimant rather than a "named insured" under the policy. Rumley does not apply to our interpretation of the policy, and thus it is inapposite.
Minchew's second extratextual argument concerns the doctrine of severability of interests, which she contends applies here even though the policy does not contain a severability-of-interests clause. When an insurance policy includes a severability-of-interests clause, sometimes called a separation-of-insureds clause, "each insured against whom a claim is brought is treated as if it was the only insured under the policy." Bituminous Cas. Corp. v. Maxey, 110 S.W.3d 203, 210 (Tex. App.- Houston [1st Dist.] 2003, pet. denied) (op. on reh'g); accord Com. Std. Ins. Co. v. Am. Gen. Ins. Co., 455 S.W.2d 714, 720 (Tex. 1970) (stating that severability-of-interests clause should be construed such that "the rights of each insured under the policy are to be determined as if there were no other person protected thereby"). These clauses are intended "to provide each insured with separate coverage, as if each were separately insured with a distinct policy, subject to the liability limits of the policy." Maxey, 110 S.W.3d at 210; see Com. Std. Ins., 455 S.W.2d at 721 (stating that severability-of-interests clause operates so that each insured under shared policy is considered "as a separate and distinct individual apart from any and every other person who may be entitled to coverage"). In other words, the clause provides coverage for an "innocent" insured who is injured by the conduct of a co- insured under a policy. Maxey, 110 S.W.3d at 210 (citing State Farm Fire & Cas. Ins. Co. v. Keegan, 209 F.3d 767, 769 (5th Cir. 2000)).
In this case, a severability-of-interests clause would provide Minchew with the result she seeks. Such a clause would require us to interpret the shared policy as if it were two policies: one policy listing Kaiser as the only named insured and a separate policy listing Minchew as the only named insured. See Com. Std. Ins., 455 S.W.2d at 719-21; Maxey, 110 S.W.3d at 210. Because Minchew is asserting a claim against Kaiser for allegedly causing her bodily injury, his coverage would be triggered under his separate policy listing only him as a named insured, and therefore the clause would not apply to reduce coverage for the "innocent" Minchew's bodily injury claim. See Maxey, 110 S.W.3d at 210. The problem with this argument, however, is that the policy here does not include a severability-of-interests clause.
Nevertheless, Minchew argues that a common law "doctrine of severability" implies a severability-of-interests clause in the policy. Minchew's argument relies solely on Verhoev, the withdrawn opinion discussed above, which stated:
Although the policy does not contain a severability of interests clause providing that it is to be interpreted separately as to each insured, the common law "doctrine of severability" holds that, even in absence of such a clause, where a policy uses the term "the insured" when there is more than one insured, an exclusion is to be applied to each insured separately, with the term "the insured" applying only to the insured seeking coverage.300 S.W.3d at 810.
As support for this common law doctrine, Verhoev relied on an earlier Texas Supreme Court case which concerned a policy with an express severability-of-interests clause and which did not mention such a common law doctrine. Id. (citing Com. Std Ins, 455 S.W.2d at 720) And despite finding the existence of a common law doctrine of severability of interests, the Verhoev court declined to apply the doctrine in that case, holding instead that the coverage-reducing clause applied to reduce coverage as discussed above 300 S.W.3d at 810-11; see Id. at 817 (Walker, J, concurring and dissenting) (criticizing majority opinion for recognizing common law "doctrine of severability" but failing to apply doctrine "in contradiction to the principles of law it has just set forth"). Kidd rejected a similar argument urging the court to imply a severability-of-interests provision in reliance on Verhoev. See Kidd, 2018 WL 1755487, at *3 n.4. Minchew cites no other authority supporting such a common law doctrine or a rule that courts imply a severability-of-interests provision in a policy without one. Our own research has not uncovered any such authority. We may not add clauses to or rewrite an insurance policy. See Primo, 512 S.W.3d at 893. We therefore decline to rely on Verhoev to imply a severability-of-interests clause in the policy that does not contain such a clause.
We conclude that Texas Farm Bureau's interpretation of the disputed coverage-reducing clause is the only reasonable interpretation of the policy. Therefore, the policy is not ambiguous, and we adopt this interpretation. See Nassar, 508 S.W.3d at 258; Primo, 512 S.W.3d at 893. The trial court erred by finding that the coverage-reducing clause in the policy does not apply to Minchew's bodily injury claim and that coverage for her claim remains at $300,000. We hold that, as a matter of law, the disputed clause limits liability coverage under the policy to the statutory minimum amount of $30,000 for Minchew's bodily injury claims.
We sustain Texas Farm Bureau's first issue.
Attorney's Fees and Costs
In its second issue, Texas Farm Bureau contends that the trial court abused its discretion by awarding attorney's fees and costs to Minchew as the prevailing party. Minchew contends that the parties agreed on attorney's fees and costs and therefore Texas Farm Bureau has "no basis . . . to appeal attorney['s] fees."
In a declaratory judgment action under Civil Practice and Remedies Code Chapter 37, "the court may award costs and reasonable and necessary attorney's fees as are equitable and just." Tex. Civ. Prac. & Rem. Code § 37.009. "Such awards are committed to the trial court's sound discretion and reviewed for abuse" of that discretion. Irwin, 627 S.W.3d at 270. This discretion is subject to the requirements in section 37.009 "that any fees awarded be reasonable and necessary, which are matters of fact, and to the additional requirements that fees be equitable and just, which are matters of law." Bocquet v. Herring, 972 S.W.2d 19, 21 (Tex. 1998); Sohani v. Sunesara, 608 S.W.3d 532, 537-38 (Tex. App.-Houston [1st Dist.] 2020, no pet.); Tex. Civ. Prac. & Rem. Code § 37.009.
After entering declarations favoring Minchew's interpretation of the insurance policy, the final declaratory judgment determined that "Minchew has prevailed on her declaratory action brought in accordance with [Civil Practice and Remedies Code] Chapter 37 . . . ." The judgment stated that the parties had agreed to reserve presenting evidence on the issue of attorney's fees and costs until the court determined which party prevailed, and the court would sign a subsequent order concerning that issue. The parties then filed an agreed motion for attorney's fees, which stated that "[s]hould the Court exercise its discretion and award attorneys' fees to Plaintiff [Minchew] (the prevailing party), the Parties agree the amount of fees reasonable and necessary in this matter" would be $5,000 through trial and, "[i]f the matter is appealed," an additional $7,500. The parties further agreed that Minchew would not seek payment of any fees until this appeal concluded. The court entered an order awarding Minchew $5,000 for attorney's fees through trial, $7,500 for attorney's fees on appeal, and $413.35 in costs.
An award of fees to a party under the UDJA "is not dependent on a finding that the party 'substantially prevailed.'" Sohani, 608 S.W.3d at 538 (quoting Barshop v. Medina Cnty. Underground Water Conservation Dist., 925 S.W.2d 618, 637 (Tex. 1996)). A trial court may award reasonable and necessary attorney's fees to a non-prevailing party as are equitable and just. Tex. Civ. Prac. & Rem. Code § 37.009; Feldman v. KPMG LLP, 438 S.W.3d 678, 685 (Tex. App.-Houston [1st Dist.] 2014, no pet.). But a "prevailing party in a declaratory judgment action is not entitled to attorney's fees simply as a matter of law; entitlement depends upon what is equitable and just, . . ." Sohani, 608 S.W.3d at 538 (quoting Marion v. Davis, 106 S.W.3d 860, 868 (Tex. App.-Dallas 2003, pet. denied)). Nevertheless, "[w]here the extent to which a party prevailed has changed on appeal," reviewing courts generally "remand the issue of attorney fees to the trial court for reconsideration of what is equitable and just." Farmers Grp., Inc. v. Geter, 620 S.W.3d 702, 712 (Tex. 2021) (citation omitted); see Sohani, 608 S.W.3d at 538 ("When an appellate court reverses a declaratory judgment, it may reverse an attorney's fee award, but it is not required to do so.") (quoting Kachina Pipeline Co. v. Lillis, 471 S.W.3d 445, 455 (Tex. 2015)); Bowers v. Taylor, 263 S.W.3d 260, 269 (Tex. App.-Houston [1st Dist.] 2007, no pet.) (reversing and remanding award of attorney's fees to prevailing party in declaratory judgment action after reversing summary judgment in favor of that party).
We disagree with Texas Farm Bureau that the trial court's award of attorney's fees and costs to Minchew constituted an abuse of discretion merely because we have now reversed the declaratory judgment and Minchew is no longer the prevailing party. An award of attorney's fees and costs under Chapter 37 to a non- prevailing party can be appropriate. Feldman, 438 S.W.3d at 685. Nevertheless, the declaratory judgment based the award of attorney's fees and costs solely upon Minchew's status as the prevailing party, but she is no longer the prevailing party. See Clearpoint Crossing Prop. Owners Ass'n v. Chambers, 569 S.W.3d 195, 203 (Tex. App.-Houston [1st Dist.] 2018, pet. denied) (stating that attorney's fees award in declaratory judgment action was based on party's status as prevailing party and concluding that because court reversed judgment, attorney's fees award should also be reversed and remanded to trial court); Bowers, 263 S.W.3d at 269.
We also disagree with Minchew that the parties agreed to the award of attorney's fees and costs. Although the parties agreed to an amount of attorney's fees and costs, the agreed amounts were conditioned on the trial court's exercise of its discretion to award attorney's fees and costs in the first place.
In these circumstances, we conclude that the proper course of action is to reverse the award of attorney's fees and costs to Minchew and remand to the trial court for the limited purpose of determining whether to "award costs and reasonable and necessary attorney's fees as are equitable and just" in light of this Court's judgment. See Tex. Civ. Prac. & Rem. Code § 37.009; Geter, 620 S.W.3d at 712; Sohani, 608 S.W.3d at 538.
We sustain Texas Farm Bureau's second issue.
Conclusion
We reverse the trial court's declaratory judgment and render judgment declaring that the auto insurance policy issued by Texas Farm Bureau to Brian Kaiser and Meredith Minchew provides liability coverage limited to the statutory minimum amount of $30,000 for Minchew's claim of bodily injury allegedly resulting from a motor-vehicle accident caused by Kaiser on July 3, 2018. We further reverse the trial court's determination that Minchew was the prevailing party and the order awarding attorney's fees and costs to Minchew. We remand to the trial court to determine whether to award attorney's fees and costs in light of this Court's judgment.