DeAnna and Phillip Hofstetter, Individually and as Judgement Creditors and Turnover Assignees of Maria I. Benitiz v. Loya Insurance Company

Opinion issued April 28, 2011

In The

Court of

Appeals

For The

First District

of Texas

————————————

NO. 01-10-00104-CV

———————————

DeAnna and Phillip Hofstetter, Individually and as Judgment

Creditors and Turnover Assignees of Maria I. Benitiz , Appellants

V.

Loya

Insurance Company ,

Appellee

On Appeal from the 129th District Court

Harris County, Texas

Trial Court Case No. 2008-44994

MEMORANDUM OPINION

This

appeal concerns the applicability of an excluded driver endorsement provision

in an auto insurance policy. DeAnna and

Phillip Hofstetter appeal the trial court’s traditional summary judgment in

favor of Loya Insurance Company. They

contend that the endorsement provision was procured by misrepresentations and

was not enforceable. They also assert

that the testimony of the policyholder was not credible and cannot support

summary judgment.

We

affirm.

Background

While

driving a car owned by his mother, Juan Revuelta hit the Hofstetters car

causing damages. Revuelta’s mother,

Maria Benitiz, insured that car and two other vehicles with Loya Insurance

Company and had renewed that policy two times before the accident and once

afterwards. In her initial policy, two

renewals before the accident, and one renewal after the accident, Benitiz

signed an endorsement to the policy in which she agreed that “none of the

insurance coverage afforded by this policy” applied while Revuelta was

“operating your covered auto or any other motor vehicle.” The exclusion appeared on a separate page and

included the following language: “515A. EXCLUSION OF NAMED DRIVER & PARTIAL

REJECTION OF COVERAGES . . . WARNING!

READ THIS ENDORSEMENT CAREFULLY! ”

The

Hofstetters sued Revuelta and Benitiz for negligence. Loya denied coverage and refused to provide a

defense. The trial court found in favor

of the Hofstetters, awarded damages, and rendered a turnover order granting them

any rights held by Benitiz or Revuelta to sue under the Loya policy.

The

Hofstetters then sued Loya for breach of contract, violations of the Insurance

Code, and negligence. Loya moved for a

traditional summary judgment on the ground that the policy expressly excluded Revuelta

as a covered driver. As summary judgment

evidence, Loya attached the endorsement to the original policy, the renewals,

and excerpts from Benitiz’s deposition testimony. The policy is written in English and Benitiz

speaks Spanish primarily. In her

deposition, Benitiz testified that Loya explained the policy’s terms to

her in Spanish when she purchased it and at each of the renewals . Benitiz

stated that she had the opportunity to ask questions and that she understood

the policy.

The

Hofstetters responded by citing other portions of Benitiz’s deposition

testimony. Benitiz

testified that she believed the car itself to be insured even if the policy did

not cover Revuelta. They also contended that her credibility had been called

into doubt. They also relied on

Revuelta’s deposition testimony that Loya told him he was covered by the

policy, but removed from coverage after the accident. The trial court granted the summary

judgment motion and the Hofstetters appealed.

Summary Judgment

In one issue, the Hofstetters argue the trial court erred

in granting Loya’s summary judgment motion.

They contend they raised a fact issue on whether Loya made

misrepresentations to procure the driver exclusion. They also contend that Benitiz’s deposition

testimony is not credible and cannot support summary judgment.

A. Standard of Review

We review a trial

court’s summary judgment de novo. Travelers

Ins. Co. v. Joachim , 315 S.W.3d

860, 862 (Tex. 2010) . Under the

traditional standard for summary judgment, the movant has the burden to show

that no genuine issue of material fact exists and the trial court should grant

judgment as a matter of law. Tex. R. Civ. P. 166a(c); KPMG Peat

Marwick v. Harrison Cnty. Hous. Fin. Corp. , 988 S.W.2d 746, 748 (Tex. 1999). A defendant moving for traditional summary

judgment must conclusively negate at least one essential element of each of the

plaintiff’s causes of action or conclusively establish each element of an affirmative

defense. Sci. Spectrum, Inc. v.

Martinez , 941 S.W.2d 910,

911 (Tex. 1997). The motion must state

the specific grounds relied upon for summary judgment. See Tex. R. Civ. P. 166a(c) . When

reviewing a summary judgment motion, we must (1) take as true all evidence

favorable to the nonmovant, and (2) indulge every reasonable inference and

resolve any doubts in the nonmovant’s favor.

Valence Operating Co. v. Dorsett , 164 S.W.3d 656, 661 (Tex. 2005); Provident Life Accid. Ins.

Co. v. Knott , 128 S.W.3d

211, 215 (Tex. 2003).

Once a defendant moving for summary judgment establishes all of the

elements of an affirmative defense as a matter of law, the burden of production

shifts to the non-movant to defeat the defendant’s affirmative defense. See EPGT Tex. Pipeline, L.P. v. Harris

Cnty. Flood Control Dist. , 176 S.W.3d 330, 335 (Tex. App.—Houston [1st

Dist.] 2004, pet. dism’d). The

non-movant’s response will defeat a facially valid affirmative defense if it

(1) demonstrates that the motion’s legal position regarding the affirmative

defense is unsound, (2) raises a fact issue on the elements of the affirmative

defense, or (3) sets forth a counter-affirmative defense to the affirmative

defense. [1] See Tex.

R. Civ. P. 94; s ee also Walters v.

Cleveland Reg’l Med. Ctr. ,

307 S.W.3d 292, 295 (Tex. 2010) (holding that when movant defendant proved

statute of limitations affirmative defense burden shifted to non-movant to

raise fact issue on lack of reasonable opportunity to discover and bring suit

within limitations period); G.C.

Bldgs., Inc. v. RGS Contractors, Inc. , 188 S.W.3d 739, 742 (Tex. App.—Dallas 2006, no pet.)

(stating that if defendant establishes affirmative defense in a summary

judgment motion, “ the burden then shifts to

the party opposing the motion to raise a genuine issue of material fact or show

the defendant’s legal position is unsound”); Head v. U.S. Inspect DFW, Inc. , 159 S.W.3d 731, 740 (Tex. App.—Fort

Worth 2005, no pet.); Resolution Trust Corp. v. Ammons , 836 S.W.2d 705,

710 (Tex. App.—Houston [1st Dist.] 1992, no writ) (stating that a plaintiff may

defeat defendant’s summary judgment “by raising a fact issue on each element of

its counter-affirmative defense”). If the non-movant asserts a counter-affirmative

defense to overcome the established affirmative defense, the non-movant must

provide summary judgment evidence to raise a fact issue for each element of the

counter-affirmative defense. See Rabe

v. Dillard’s Inc. , 214 S.W.3d 767, 768 (Tex. App.—Dallas 2007, no pet.).

B. Excluded Driver Affirmative

Defense

An

exclusion from coverage is an affirmative defense. See Tex. Ins. Code Ann. § 554.002 (West

2009); see also Lone Star Heat Treating

Co. v. Liberty Mut. Fire Ins. Co. , 233 S.W.3d 524, 526 (Tex. App.—Houston

[14th Dist.] 2007, no pet.). Therefore, Loya bore the burden of proving

that the parties agreed to the exclusion. See

McFadden v. Am.

United Life Ins. Co. ,

658 S.W.2d 147, 148 (Tex. 1983) (stating that insurance company moving for

summary judgment did not satisfy its burden to demonstrate as matter of law

that claim was excluded under insurance policy). As summary judgment evidence of the policy exclusion, Loya attached the

original excluded driver provision, each of the renewals, and Benitiz’s

testimony identifying her signature.

The Hofstetters argue that we must strictly construe the policy against

the insurer, but that rule only applies if the policy is ambiguous. An exclusion of coverage must be expressed in clear and

unambiguous language. Nat’l Union

Fire Ins. Co. of Pittsburgh, Pa. v. Hudson Energy Co., Inc. , 811 S.W.2d

552, 555 (Tex. 1991). O nly

when a policy “is susceptible of more than one reasonable interpretation” does

a court “resolve the uncertainty by adopting the construction that most favors

the insured.” Id. The Hofstetters do not

allege any ambiguity in the policy. The

policy clearly excludes coverage for any operations of the vehicle by Revuelta

and in capitalized letters informs the policyholder of the driver

exclusion. Loya, therefore, satisfied its burden of proof as

the movant to demonstrate its affirmative defense that Revuelta was excluded

from coverage. The burden of proof then

shifted to Hofstetters to raise a fact issue on that exclusion or to come

forward with proof of its own claim to negate that exclusion.

C. Fraudulent

Inducement

The Hofstetters next argue that Loya’s fraud made the

exclusion provision unenforceable. The

elements of a fraudulent misrepresentation claim include proof by the plaintiff

that (1) the defendant made a material misrepresentation; (2) the

representation was false; (3) the defendant knew the representation was false

when made or made it recklessly without any knowledge of the truth and as a

positive assertion; (4) the defendant made the representation with the

intention that it should be acted upon; (5) the representation was in fact

justifiably relied upon; and (6) damage to the plaintiff resulted. See Grant Thornton LLP v. Prospect High Income Fund ,

314 S.W.3d 913, 923 (Tex. 2010); see

also Ernst & Young, L.L.P. v. Pacific Mut. Life Ins. Co. ,

51 S.W.3d 573, 575 (Tex. 2001) . As a general rule, a party is not bound by a

contract procured by fraud. Formosa Plastics Corp. USA v. Presidio Eng’rs

& Contractors, Inc. , 960 S.W.2d 41, 46 (Tex. 1998); see also Schlumberger Tech. Corp. v. Swanson , 959 S.W.2d 171, 179 (Tex. 1997).

1. Misrepresentations

to Revuelta

Revuelta testified that he believed the policy covered his

conduct while driving his mother’s car and that someone at Loya told him he was

covered. Revuelta stated that:

Q. Did anyone at Fred Loya Insurance, when you

went to make a payment, ever tell you were on the policy?

A. Yes.

They told me I was on it, but then I was taken off.

Q. Was it before the accident with the

Hofstetters that you were told you were taken off?

A. No. It

was when that happened, right after it happened.

Q. After it happened, you were told you were not

on the policy?

A. Yea.

This testimony constitutes the only

evidence of a misrepresentation of his status as an excluded driver and amounts

to some evidence that Loya made a misrepresentation to Revuelta. Granted, Revuelta testified shortly after the

above exchange that:

Q: Okay.

When you went to make a payment, did anyone there tell you that you were—that

it was your policy or that you were on the policy?

A: No. I

guess they just accepted a payment, and that’s it. I guess they just looked at it as a normal

transaction.

This

second statement contradicts his other deposition testimony, but that conflict

may create a fact issue. See Wheeler v. Yettie Kersting Mem’l Hosp. ,

866 S.W.2d 32, 50 (Tex. App.—Houston [1st Dist.] 1993, no writ) (stating

internal inconsistencies in deposition testimony may raise fact issue at

summary judgment). Reading the evidence

in the light most favorable to the Hofstetters as the nonmovants, they

presented “ more than a scintilla

of evidence” establishing that a misrepresentation was made to Revuela. See Ford Motor Co. v. Ridgway , 135

S.W.3d 598, 600 (Tex. 2004).

Revuelta, however, was not a party to the

insurance contract signed by his mother.

A false representation made indirectly to a third party and later relied

on by the defrauded party may constitute fraud under certain

circumstances. See BP Am. Prod. Co. v. Marshall , 288 S.W.3d 430 , 444–45 (Tex.

App.—San Antonio 2008, pet. granted) (holding misrepresentations made to one

sibling acting as agent for all siblings constituted misrepresentations to all

siblings). “[A] person who makes a

misrepresentation is liable to the person or class of persons the maker intends

or ‘has reason to expect’ will act in reliance upon the

misrepresentation.” Ernst & Young , 51 S.W.3d at 578 . “Even an obvious risk that a

misrepresentation might be repeated to a third party is not enough to satisfy

the reason-to-expect standard; rather, the alleged fraudfeasor must ‘have

information that would lead a reasonable man to conclude that there is an especial likelihood that it will

reach those persons and will influence

their conduct .’” Id. at 580 (quoting Restatement (Second)

of Torts § 531 cmt. d (1977)) (emphasis added).

To show indirect misrepresentation, the Hofstetters must

show Loya intended that the statement made to Revuelta reach Benitiz and induce

her to sign the excluded driver provision. [2] A statement made to a son paying his mother’s

car insurance bill would have an especial likelihood to reach the mother and

influence her conduct regarding that insurance.

The Hofstetters, however, did not argue here or at the trial court that

the alleged misrepresentation to Revuelta was communicated to Benitiz or that

Benitiz relied on that misrepresentation in signing the endorsement. Instead of indirect misrepresentation, the

Hofstetters argued that both mother and son believed the car to be insured

while driven by Revuelta. Thus, they

have not raised an issue on indirect misrepresentation to Benitiz through

misrepresentations made to Revuelta.

2. Misrepresentations

to Benitiz

The Hofstetters next assert that they raised a fact issue

that Loya mislead Benitiz into believing that the policy provided coverage to

her son because the car itself was covered by the policy. They assert Benitiz does not read, write or

understand English and was dependent on Loya to explain the English policy to

her. Benitiz testified that Loya explained

the policy in Spanish when she purchased the policy and at each renewal. When Loya asked who she believed to be insured

on the policy, she replied, “Well, I was — it was only me.” She stated that her son “was not named on the

policy,” but at the same time stated that the policy covered the car if she

gave him permission to drive it. In

follow-up questions, she testified:

Q. And did you

understand that the insurance did not apply to your son?

A. Yes.

In

response to questions from the Hofstetters, she testified:

Q. It was your understanding, based on what Fred

Loya Insurance told you, that if your children drove those cars they were

covered for collisions they got in. Correct?

A. No.

Q. Were you given an opportunity to ask

questions about what you were signing?

A.

Yes.

Q. And did you understand what you were signing?

A: Yes

Q. And you understood that your son Revuelta was

not covered by these insurance policies?

A. Yes.

Benitiz also testified, however, that

she reported Revuelta’s accident to Loya “not because I knew my son was insured

but because my car was insured by the insurance.” Her testimony when read in its most favorable

light, and giving all reasonable inferences to the nonmovant, is that she believed

her car was covered regardless of who was driving it.

Benitiz’s

testimony does not raise a fact issue on fraud.

Fraud requires proof of an affirmative misrepresentation, not simply a

misunderstanding by a party. See Orion Ref. Corp. v. UOP , 259 S.W.3d 749 , 771–72 (Tex.

App.—Houston [1st Dist.] 2007, pet. denied) (stating misunderstanding and other

evidence do not amount to actionable misrepresentations). The

Hofstetters did not offer any summary judgment evidence that Loya made an

affirmative misrepresentation to Benitiz.

She never testified regarding the substance of the explanations given by

Loya about the terms of her policy. The

source of her misunderstanding was not addressed in her deposition. Benitiz may have believed

that the exclusion only applied if Revuelta did not have her consent to drive

or believed that the policy covered the car and not the driver. Her belief is immaterial unless it was based

on a misrepresentation by Loya.

3. Witness Credibility

The

Hofstetters contend that Benitiz’s deposition testimony is not credible because

of internal inconsistencies and conflicts with Revuelta’s testimony and Loya’s

documents. They rely on Casso v. Brand , 776 S.W.2d 551, 558

(Tex. 1989), which stated, “If the credibility of the affiant or deponent is

likely to be a dispositive factor in the resolution of the case, then summary

judgment is inappropriate.” Casso dealt with the testimony of an

interested witness and the requirement that their testimony be “clear,

positive, and direct, otherwise credible and free from contradictions and

inconsistencies, and could have been readily controverted.” See Tex. R. Civ. P. 166a(c); Casso , 776 S.W.2d at 558 ; CEBI Metal Sanavi Ve Ticaret A.S. v. Garcia ,

108 S.W.3d 464, 465 (Tex. App.—Houston [14th Dist.] 2003, no pet.) (holding

testimony of workplace supervisor not sufficient to support summary judgment

when his negligence was at issue, and movant presented no other evidence of

facts surrounding accident).

Benitiz is

not an interested witness to the suit between the Hofstetters and Loya. Even if we consider her to be an interested

witness indirectly, that interest favors the Hofstetters who are suing on her

claims under the policy and seeking to collect damages from Loya instead of

from her and her son.

More

importantly, Loya established the existence of the exclusion even without

Benitiz’s testimony. An affidavit from

Loya’s record’s custodian attested to the excluded driver endorsement in the

original policy and the three renewals, one signed after the accident. The Hofstetters did not object to that evidence. It then became their burden to raise a fact

issue that Loya procured the policy by fraud.

See Black v. Victoria Lloyds Ins.

Co. , 797 S.W.2d 20, 25 (Tex. 1990) (stating that policyholder successfully

raised fact issue on insurance company’s summary judgment motion arguing policy

exclusion). Even if we only give weight

to the portion of Benitiz’s testimony that supports the Hofstetters, i.e. the

testimony that she believed the policy covered the car while Revuelta drove it,

they still failed to present evidence of any misrepresentation by Loya.

The Hofstetters contend that other evidence in the record

undermines the credibility of Benitiz’s testimony and raises a fact issue on

fraud. The remaining evidence they rely

on, however, fails to demonstrate any affirmative misrepresentation by Loya to

Benitiz on the excluded driver provision.

They assert that Loya documents raise a fact issue. First, they allege that the policy shows

evidence of other fraud in that Loya charged a premium on a fourth car. Taking this evidence as true, the inclusion

of an extra car does not equate to a misrepresentation by Loya regarding the

excluded driver provision. Second, they

assert that Loya failed to adjust or discount Benitiz’s premium to reflect the

excluded driver provision. The cases

relied on by the Hostetters do not state a rule requiring a discount in

exchange for an excluded driver endorsement, nor can we find any cases creating

such a rule. See Wright v. Rodney D. Young Ins. Agency , 905 S.W.2d 293, 296

(Tex. App.—Fort Worth 1995, no writ); see

also Emmert v. Progressive Cnty. Mut. Ins. Co. , 882 S.W.2d 32, 34 (Tex.

App.—Tyler 1994, writ denied). Neither

of these arguments undermines Benitiz’s testimony or raises a fact issue as to

fraudulent inducement on the excluded driver provision.

The Hofstetters also assert that inconsistencies between

Benitiz and Revuelta’s testimony raise a fact issue on fraud and Benitiz’s

credibility. Even if we assume the

testimony to be inconsistent, neither deposition demonstrates an actionable

misrepresentation. Both Benitiz and

Revuelta believed that the Loya policy covered the accident with the

Hofstetters. But the source of Benitiz’s

misunderstanding was never identified in the summary judgment record and the

only evidence of Loya’s misrepresentations is the indirect statement to

Revuelta.

The Hofstetters finally argue that the excluded driver

endorsement is contrary to the Texas Motor Vehicle Safety Responsibility Act because

it sends drivers onto the road who do not know that they are uninsured. See

generally Tex. Transp. Code Ann. §

601.001 et seq. ( West 1999) .

T he purpose of the Texas Motor Vehicle Safety Responsibility

Act “was to protect potential claimants from losses resulting from automobile

accidents by requiring that all drivers obtain automobile liability

insurance.” Wright , 905 S.W.2d at 295 . The act does not require an insured to notify

family members that they have been excluded from coverage on a policy nor does

it prohibit insurers from excluding drivers with their insured’s approval. Numerous courts have held that the named

driver exclusion is not against Texas public policy. Id.

at 296 ; Zamora v. Dairyland County

Mut. Ins. Co. , 930 S.W.2d 739, 741 (Tex. App.—Corpus Christi 1996, writ

denied); Valdez v. Safeway Managing Gen. Agency for State and Cnty. Mut.

Fire Ins. Co. , No. 01-94-00196-CV,

1995 WL 71414 , at *2 (Tex. App.—Houston [1st Dist.] Feb. 23, 1995, no writ)

(not designated for publication); W. Alliance Ins. Co. v. Albarez ,

380 S.W.2d 710, 715 (Tex. Civ. App.—Austin 1964, writ ref’d n.r.e.).

Conclusion

Loya established conclusive proof of

its affirmative defense of exclusion under the auto insurance policy and the

Hofstetters failed to raise a fact issue on their claim of fraud. We overrule the Hofstetter’s sole issue on

appeal and affirm the judgment of the trial court.

Harvey

Brown

Justice

Panel

consists of Justices Jennings, Higley, and Brown.

[1] A

counter-affirmative defense does not seek to overcome the affirmative defense

by denying the affirmative defense, but seeks to establish an independent

reason why the affirmative defense does not bar the plaintiff’s claim. See Tex.

Beef Cattle Co. v. Green , 921 S.W.2d 203, 212 (Tex. 1996) (stating that

affirmative defenses are matters of avoidance and defining such defenses). When a defendant moves for summary judgment

based on an affirmative defense, the plaintiff can counter with its own

“counter-affirmative defense” to that defense.

[2] Benitiz renewed the policy and the

excluded driver provision twice before the accident. Therefore, a statement made after she bought

the policy could still induce reliance in the renewals.