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Dateline Austin

Volume 24 - May 21, 1999 - Number 4

JUDICIARY REPORT

Edited by A. Burch Waldron, III, Law, Snakard & Gambill, Fort Worth

INSURANCE COMPANY EMPLOYEE HELD PERSONALLY RESPONSIBLE FOR MISREPRESENTING INSURANCE POLICY TERMS

Liberty Mutual Insurance Company, et. al. v. Garrison Contractors, Inc., 966 S.W.2d 482 (Tex. 1998).

Liberty Mutual Insurance Company sued its insured, Garrison Contractors, Inc., for additional premiums due on insurance policies sold to Garrison Contractors. Robert Garrett, Liberty Mutual's employee-agent, sold these policies to Garrison Contractors. Garrison Contractors filed a counterclaim against Liberty Mutual and sued Robert Garrett claiming that Robert Garrett misrepresented the premium terms for the insurance policies therefore making Liberty Mutual Insurance Company and Robert Garrett, individually, liable to Garrison Contractors based on common-law bad faith, breach of fiduciary duty, Deceptive Trade Practices Act violations, and violation of Texas Insurance Code §21.21. (Insurance Code Article 21.21 allows a person harmed by unfair competition methods or unfair or deceptive acts or practices to sue "the person or persons engaging in such acts or practices.")

In this case, the Texas Supreme Court was faced with the issue of whether Robert Garrett could be held individually liable for violating Insurance Code Article 21.21. The Texas Supreme Court concluded that Robert Garrett was engaged in the business of insurance and his misrepresentation concerning the insurance policy premiums did make him individually liable for violating Insurance Code Article 21.21.

In its analysis, the Texas Supreme Court concluded that only those employees of an insurance company who engage in the business of insurance can be held personally liable for violating Insurance Code Article 21.21. The Court concluded that those insurance company employees who have no responsibility for the sale or servicing of insurance policies and no special insurance expertise, such as a clerical worker or janitor, do not engage in the insurance business. Therefore, they could not be personally liable for violating Insurance Code Article 21.21.

The Texas Supreme Court concluded Robert Garrett was an employee who engaged in the business of insurance by considering his job responsibilities. Specifically, the Court found that Robert Garrett's job responsibilities included soliciting and obtaining insurance policy sales of the insurance company, explaining policy terms to prospective buyers, and explaining premium calculations to consumers, all of which required him to have a measure of expertise in the field which was necessary for him to perform his job. Furthermore, the Supreme Court also noted that Robert Garrett personally carried out the transaction that formed the core of Garrison Contractors' complaint. Therefore, as an insurance company employee who was engaged in the business of insurance, he had exposure for any of his acts or practices which violated Insurance Code Article 21.21, which in this case was alleged to be misrepresentation of policy terms and misrepresentation of premiums for the policies sold.

Author's Note: For people working in the title insurance business, this case is extremely significant in that now, anyone involved in a real estate closing involving title insurance is potentially individually liable for any damages an insured may have arising out of alleged misrepresentations concerning the title insurance policy or for any other conduct considered to be unfair competition methods or unfair deceptive acts or practices. While this case may ultimately be held to be inapplicable in a title insurance situation, it is certain that it will be asserted in the future. Therefore, escrow officers, closers, assistant closers, and anyone else in the title insurance company office that is engaged in the business of insurance, must be extremely careful in what they communicate to the public, their marketing activities or any other conduct in the title insurance business. Title company officers may want to consider creating a policy whereby questions concerning the title insurance policy are answered only by specifically designated people who are well trained and knowledgeable about the insurance policy. Furthermore, anyone who begins asking detailed and comprehensive questions concerning the policy should be referred to legal counsel for the title insurance company. Remember, in this case, Mr. Garrett did not become liable for making a misrepresentation arising out of any type of technical question about the insurance policy. He became liable as a result of alleged carelessness in giving an imprecise answer as to the amount of premiums due for the coverage in question.

INSURANCE AGENCY AND EMPLOYEE HELD NOT LIABLE FOR FAILURE TO UNILATERALLY ADVISE INSURED OF POLICY LIMITATIONS

Moore v. Whitney-Vaky Insurance Agency, 966 S.W.2d (Tex. App.- San Antonio 1998, no writ).

Moore owned an apartment complex. He obtained fire, liability, and workmen's compensation insurance from McClain, an employee of Whitney-Vaky, the insurance agent. Moore never inquired about what risks were covered by the policy. McClain never discussed with him what the policy covered.

In 1993, Moore was sued by a former employee for retaliatory discharge. Moore tendered the matter to the insurance carrier. Coverage was denied pursuant to the policy terms.

Thereafter, Moore sued the underwriter, McClain, and Whitney-Vaky. The underwriter was granted summary judgment and Moore's action against it is not discussed in the present case.

Moore's action against the agent, Whitney-Vaky and its employee, McClain, was based on negligence, breach of contract, fraud, and Insurance Code and DTPA violations. In essence, Moore argued that McClain and Whitney-Vaky had a duty to advise him that retaliatory discharge suits were not covered by the policy.

The trial court granted the defendants a summary judgment on all claims. The court of appeals affirmed the trial court's judgment.

With regard to negligence, the court noted that an insurance agent's common law duties were stated by the Texas Supreme Court in a 1992 case, May v. United Services Association of America, 844 S.W.2d 66 (Tex. 1992). The court said that an agent must (1) use reasonable diligence in securing the requested insurance and (2) inform the client promptly if unable to do so. A duty to disclose coverage limitations only arises if there is a request to discuss or disclose specific coverage issues or there is a "special relationship" between the client and agent. A course of dealing which involves advising the client on his or her insurance needs may create a "special relationship."

The Court of Appeals found no special relationship in this case. Moore never discussed coverage limitations with McClain.

Concerning the alleged Insurance Code and DTPA violations, the court held that absent specific misrepresentations about coverage, a claim based solely on the insured's mistaken belief concerning the scope of coverage is not actionable.

Author's Note: The Moore opinion does strike a blow against the theory that, "my insurance agent is my guardian angel." However, it should also remind title agents to discuss policy coverage only as directed by the underwriter. In general, this may mean directing a potential insured to contact the underwriter if they have specific questions not readily answered by the policy. Besides not creating additional liability unintentionally, deferring discussion of such matters to the underwriter may protect the agent from "special relationship" liability created over a period of time.

HOMESTEADS AND CORPORATIONS

McKee v. Smith, 965 S.W.2d 52 (Tex. App.- Fort Worth 1998, writ denied).

Robert McKee, Appellant, attempted to force the sale of real property to satisfy a judgment against Wanda Smith, Appellee. Smith was the sole owner of the real property which she leased to a corporation wholly owned by her husband. The corporation was the only means of support for the family and the leased real property was the only place of business for the corporation.

The Texas Constitution has exempted a debtor's real property used as a family's primary place of business from forced sale since 1876. The Texas Property Code also provides for this business homestead exemption.

In this case, the Fort Worth Court of Appeals followed the Fifth Circuit Court of Appeals decision, which had previously applied Texas law and held in In re John Taylor Co., that the business homestead exemption applies to real property titled to a family member but subsequently leased to a corporation that is wholly owned by a member of the family. See in re John Taylor Co., 935 F.2d 75, 76-77 (5th Cir. 1991). Furthermore, the Texas Supreme Court has directed the Texas courts to construe the business homestead exemption liberally. See Cocke v. Conquest, 35 S.W.2d 673, 678 (1931).

Author's Note: Caution should be practiced when a homestead, urban or rural, is transferred by sale or lease to a family related corporation. It should never be presumed that because the claimed homestead is transferred by sale or lease to a corporation, the homestead exemption is not applicable.

DANGEROUS CONDITIONS - DUTY TO DISCLOSE

Hicks v. Humble Oil and Refining Co., 970 S.W.2d 90 (Tex. App.- Houston [14th Dist.] 1998, writ denied).

In Hicks, the background facts were that Humble Oil and Refining Company had used a 45-acre tract for storage of crude oil in unlined earthen pits for approximately 20 years. After abandoning the use of the pits for oil storage, Humble sold the tract to Thomas H. Hicks in 1945. Over the years, various members of the Hicks family built homes on the land. In 1994, several members of the Hicks family filed suit claiming Exxon was negligent in storing the oil on the land because of the contamination it caused and that Exxon's negligence caused personal injuries to the Hicks family. The Plaintiffs also asserted theories of negligence per se, strict liability, and nuisance.

Exxon filed a motion for summary judgment, alleging no duty to the Hicks family. The court granted Exxon's motion for summary judgment.

First, the court concluded that Exxon owed no legal duty under negligence law to the Hicks family. Exxon argued that the summary judgment evidence showed that, when Thomas Hicks purchased the property in 1945, he was aware of the existing earthen pits, and the fact that Exxon stored oil in them. As evidence of Hicks' actual knowledge of the presence of the pits, Exxon furnished an affidavit by Hicks dated 1958 in which he stated he knew Exxon had earthen storage pits on the property and that they had been used to store oil.

The court relied on the general rule that vendors of real property are not liable for injuries caused by dangerous conditions on the property after conveying it away. The court found that this case did not fall under an exception to the rule, which states that, if the vendor does not disclose or actively conceals the existence of the dangerous condition, the vendor is liable. This exception did not apply when the vendee had actual knowledge of the dangerous condition. Because Hicks had actual knowledge of the use of the property for storage of oil in earthen storage pits, when he bought the property in 1945, Exxon was found to have no duty to him or his descendants as a matter of law.

The trial court also granted Exxon's motion for summary judgment against the Plaintiffs' allegations of negligence per se because several statutes, asserted by the Plaintiffs, were not passed until after Hicks bought the property from Exxon, and the court found that those statutes were prospective only in their operation.

The court also disposed of the Plaintiffs' arguments under nuisance and strict liability as a matter of law.

The lesson of this case is that if an owner had knowledge of soil contamination at the time he purchased the property, he and his successors cannot later complain about the condition. However, the court did not discuss the scenario under which the purchaser had no knowledge of the contamination, and the contamination was not disclosed; the case leaves the impression that this scenario would have been sufficient to raise a fact issue on at least some of the legal theories asserted.

FENCES AND NEIGHBORS

Green v. Parrack, 974 S.W.2d 200 (Tex. App.-San Antonio, 1998, no writ).

The Greens and Parrack lived on adjacent residential lots. Before this dispute began, a tall split-rail fence divided the backyards of the two houses. the fence had been in existence since 1969. Neither party was aware that the fence encroached approximately eight inches on the Greens' property as it ran toward the back of the lots. However, in 1992, the Greens built a small 3' high fence on the front half of their property along the property line. The front fence revealed the back fence encroachment because the two fences did not meet flush.

Parrack sued the Greens in a prior action claiming that the new "front fence" encroached on her property. Parrack asserted that because her back fence had encroached on 8" of the Greens' property since 1969, she had a right to the 8" of the Greens' property along the entire common boundary line under the theory of adverse possession. The trial court, however, ordered a take nothing judgment against Parrack.

Approximately three months after the judgment in the prior action was entered, Parrack replaced her back fence. The new fence consisted of a concrete foundation with steel posts and wooden slats. The Greens filed this suit for declaratory judgment seeking removal of Parrack's new fence contending that the new fence encroached an additional 13" onto their property.

Following a bench trial, the trial court entered a take nothing judgment against the Greens finding that "a good fence in south Texas makes good neighbors and Ms. Parrack built a good fence that would be expensive and difficult to remove." The court further based its decision upon the legal theory of de minimis non curat lex. Under this theory, the trial court held that an encroachment of less than 2' is not material on an approximately 67' wide residential lot.

The appellate court reversed the trial court and entered declaratory judgment in favor of the Greens requiring the removal of Parrack's encroaching fence. In so doing, the court noted that good fences do not necessarily make good neighbors, and that the quality of Parrack's fence did not justify Parrack's invasion of the integrity of the Greens' property rights. Further, the court held that the doctrine of de minimis non curat lez could not be appropriately applied in a case where the damages at issue consisted of loss of the use of almost 2' of private property, especially in light of the fact that Parrack built the fence in blatant violation of the court's judgment in the prior action.

Author's Note: This case aptly demonstrates the principle that real estate is sacred in Texas. Consequently, even a small encroachment should not be disregarded in closing a transaction on the basis that it is de minimis. It is, therefore, extremely important to review the surveys prior to closing in order to note and except any and all encroachments.


Many thanks to the following for their summaries of the above cases and their comments:

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Last updated on 05/06/99 15:50:06.