Opinion
Civil No. 3:99-CV-0932-BC
September 29, 2000
MEMORANDUM OPINION AND ORDER
Before the Court is Plaintiff Legion Insurance Company's ("Legion") Motion for Summary Judgment, filed August 2, 2000. At issue is whether Legion may be held liable under one of its insurance policies which was issued based on the insured's misrepresentations in the application. Having reviewed the pertinent pleadings and the evidence submitted, the Court GRANTS Legion's motion for the reasons that follow.
The facts giving rise to this cans of action are undisputed and are taken from Legion's brief in support of its motion for summary judgment and the attached appendix of evidence.
Legion filed this declaratory judgment action seeking to avoid liability on one of its commercial liability insurance policies issued to defendant Texas Timber Group. Legion claims that the policy is void because it was issued based on certain fraudulent misrepresentations made by Texas Timber Group in the insurance application.
The policy provided insurance coverage to Texas Timber Group for its timber and logging operations. Pl.'s App. at 2, Ex. A. Legion issued the policy on or about January 28, 1998, pursuant to an application bearing the name of James A. Hennis ("Hennis"). Pl.'s Br. at 1-2; Pl.'s App., Ex. B. The application identified Texas Timber Group as an "individual" business rather than as a partnership, corporation, or some other business entity. Pl's App. at 32, Ex. B. It also indicated that Texas Timber Group had not been denied any insurance policy or coverage within the three years prior to the date of the application. Id. Legion's decision to issue the policy was also based on the recommendation of James Nichols ("Nichols"), Legion's agent and the underwriting manager for United Loggers and Contractors Insurance Agency ("United Loggers"), who had reviewed Texas Timber Group's application and forwarded it to Legion. Pl.'s Br. at 3-4; See Pl.'s App. at 32-34, Ex. B.
During the policy period, Texas Timber Group entered into several contracts to cut timber on certain tracts of land. Id. at 4. Following the completion of these projects, allegations arose that Texas Timber Group overcut timber on the designated properties and unlawfully trespassed on the property of other landowners. Id. As a result, Legion received numerous claims for losses against the policy. Id. at 2, 4. While investigating these claims, Legion discovered that certain information contained in the original insurance application submitted by Texas Timber Group was false. Id. at 2. For instance, Legion learned that Texas Timber Group was not an individual business as described in the application, but instead was operated as a partnership between Hennis and defendant Jeffrey Scott Clayborn ("Clayborn"). Id. Legion also learned that Clayborn was considered to be a poor insurance risk, and that, contrary to the statements contained in the application, Clayborn had recently been denied insurance coverage for his timber operations due to his failure to pay premiums. Id. In fact, it was Nichols who, on behalf of United Loggers, declined to renew an unrelated policy issued to Clayborn because he owed over $5,000 in unpaid premiums. Id. at 3.
In an apparent attempt to hide his identity and his affiliation with Texas Timber Group, Clayborn had forged Hennis' name on a January 28, 1998 letter to Nichols seeking a price quote for the insurance coverage issued by Legion. Id. at 2-3; See Pl.'s App. at 81, Ex. F. According to Legion, if Nicho1s had known of Clayborn's identity or his involvement with Texas Timber Group, he would not have accepted the application and Legion, in turn, would have never issued the policy. Id. at 4.
Legion filed its complaint for declaratory relief on April 26, 1999, naming several defendants including Texas Timber Group, Hennis, Clayborn and the various landowners who had filed loss claims against the insurance policy resulting from Texas Timber Group's timber operations. Pl.'s Compl. Legion seeks a declaration that, because of the fraudulent misrepresentations contained in the insurance application, the policy is void and Legion is not liable for any claims made pursuant thereto. Pl.'s Third Am. Compl. at ¶ 23. On August 2, 2000, Legion filed the instant summary judgment motion alleging that, under Texas law, it is entitled to judgment as a matter of law. Clayborn did not file a response. In fact, in the joint pretrial order submitted to the Court by Legion and Clayborn on September 19, 2000, Clayborn states that he has admitted to Legion's allegations and that he does not wish to enter a defense. Jt. Pretrial Order, received stamped Sept. 19, 2000 at 2. Before turning to the merits of Legion's motion, the Court will review the summaiy judgment standards governing its analysis.
According Legion, the only parties remaining in this case are Legion and Clayborn. All other defendants have either defaulted or settled their claims against Legion.
II. Summary Judgment Standards
Under Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is appropriate when the pleadings and record evidence show that no genuine issue of material fact exists and that, as a matter of law, the movant is entitled to judgment. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). "[T]he substantive law will identify which facts are material' Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510 (1986). Only disputes about those facts will preclude the granting of summary judgment. Id. In a motion for summary judgment, the burden is on the movant to prove that no genuine issue of material fact exists. Latimer v. Smithkline French Lab 919 F.2d 301, 303 (5th Cir. 1990). The movant makes such a showing by informing the court of the basis of its motion and by identifying the portions of the record which reveal there are no genuine issues of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548 (1986). The movant may rely on the pleadings, depositions, admissions, and affidavits, if any, to show that no genuine issue of material fact exists. Fed.R.Civ.P. 56(c) .
Once the movant makes this showing, the burden shifts to the non-movant to show that summary judgment is not appropriate. Little, 37 F.3d at 1075 (citing Celotex, 477 U.S. at 325, 106 S. Ct. at 2553-54). "This burden is not satisfied with `some metaphysical doubt as to the material facts,'. . . by `conclusory allegations,'. . . by `unsubstantiated assertions,' or by only a `scintilla' of evidence." Id. (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S. Ct. 1348, 1356 (1986). Rather, the non-moving party must "come forward with `specific facts showing that there is a genuine issue for trial.'" Matsushita, 475 U.S. at 587, 106 S. Ct. at 1356 (quoting FED. R. CIV. P. 56(e)). In determining whether a genuine issue for trial exists, the court must view all of the evidence in the light most favorable to the non-movant, and the evidence must be sufficient such that a reasonable jury could return a verdict for the non-movant. Munoz v. Orr, 200 F.3d 291, 302 (5th Cir. 2000); Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.
Rule 56(e) permits a proper summary judgment motion to be opposed by the non-movant by many kinds of evidentiary materials listed in the rule. Fed.R.Civ.P. 56(e). if the adverse party does not so respond, the court may grant summary judgment if the movant has made a prima facie showing that it is entitled to such relief Eversly v. Mbank, 843 F.2d 172, 174 (5th Cir. 1988); Fed. B. Civ. P. 56(e). A court may not grant a default summary judgment simply because the non-movant has failed to respond. Eversly, 843 F.2d at 174; Tutton v. Garland Indep. School Dist, 733 F. Supp. 1113, 1117 (N.D.Tex. 1990). The court may, however, accept the movant's evidence as undisputed. United States v. $252,671.48 in U.S. Currency, 734 F. Supp. 254, 256 (N.D.Tex. 1990); Tutton, 733 F. Supp. at 1117 . The court must then determine if the movant has made a prima facie showing of its entitlement to summary judgment based upon the movant's undisputed evidence. Vega v. Parsley, 700 F. Supp. 879, 881 (W.D. Tex. 1988). To make this determination, the Court now turns to address Legion's motion.
III. Analysis
Legion claims that it may avoid liability under the policy because of the misrepresentations contained in the application. Pl.'s Br. at 5.
Under Texas law, five elements must be pled and proven before an insurer may avoid liability under a policy based on misrepresentations made by the insured in an insurance application: (1) the making of the representation; (2) the falsity of the representation; (3) the intent to deceive on the part of the insured; (4) reliance on the representation by the insurer; and (5) materiality of the representation. Mayes v. Massachusetts Mut. Life Ins. Co ., 608 S.W.2d 612, 616 (Tex. 1980). The Court will discuss these elements in turn.
A. Making of False Representation/Intent to Deceive
During discovery in this case, Clayborn admitted that he prepared and sent the January 28, 1998 letter to Nichols seeking a price quote for the insurance coverage provided by Legion for Texas Timber Group. Pl.'s App. at 81-83, Exs. F and G. He also admitted to forging Hennis' signature on the letter with the intent to defraud Nichols and United Loggers. Id. at 82, Ex. G. The uncontroverted evidence further shows that Texas Timber Group was operated by Clayborn and Hennis as a partnership with each sharing an equal ownership interest. Id. at 45, Ex. C ( Hennis Depo. at 11), 74-75, Ex. D. Yet, the insurance application indisputably identifies Texas Timber Group as an "individual" business rather than as a "partnership." Id. at 32, Ex. B. Additionally, the application states that Texas Timber Group had not been denied any insurance policy or coverage within the three years prior to the application date. Id. To the contrary, Nichols on behalf of United Loggers had recently declined to renew an unrelated policy issued to Clayborn due to his failure to pay over $5,000 in premiums. Id. at 80, Ex. E ( Nichols Aff. at ¶¶ 6-7).
"It is now settled law that if the answers to the questions in the [insurance] application were untrue at the time they were given, the untrue answers constituted misrepresentations." Mayes, 608 S.W.2d at 616 . The undisputed and competent summary judgment evidence, as discussed above, clearly establishes that Clayborn, with the intent to defraud Nichols and United Loggers, made misrepresentations to Nichols in securing Legion's insurance coverage by forging Hennis' signature on the January 28 1998 letter. The application also contains misrepresentations regarding the structure of Texas Timber Group's business, the involvement of Clayborn as a partner, and the recent denial of insurance coverage for Clayborn. Accordingly, the first three elements necessary for Legion to avoid liability under the policy have been satisfied.
B. Reliance By the Insurer
The undisputed evidence likewise establishes that Legion relied on the misrepresentations in issuing the policy. The policy itself by its terms provides that "[b]y accepting this policy, you agree
. . . [Legion] ha[s] issued the policy in reliance upon your representations." Pl.'s App. at 12, Ex. A. Moreover, Nichols, as Legion's agent, stated in his affidavit that he relied on the representations contained in the January 28, 1999 letter and in the insurance application in processing the application and forwarding it to Legion. Id. at 79, Ex. E ( Nichols Aff. at ¶¶ 4-5). Had he known of Clayborn's involvement with Texas Timber Group, Nichols states that he would not have accepted the application or had the policy issued. Id. at 80 ( Nichols Aff. at ¶ 10).
C. Materiality of the Representations
The fifth and final element, the materiality of the representation, "has been construed to mean the materiality of the representation to the insurer's decision to issue the policy . . ." Progressive County Mut. Ins. Co. v. Boman, 780 S.W.2d 436, 439 (Tex.App.-Texarkana 1989, n.w.h.) (citations omitted). Nichols stated in his affidavit that he was personally responsible for handling Texas Timber Group's application. Pl.'s App., Ex. E at 79 ( Nichols Aff. at ¶ 2). He knew Clayborn to be a poor insurance risk due to his failure to pay the premiums for an unrelated policy, but he was unaware of Clayborn's involvement with Texas Timber Group. Id. at 80 ( Nichols Aff. at ¶¶ 6-9). Nichols affirms that if he had known of Clayborn's involvement with Texas Timber Group, he would not have accepted the application and forwarded it to Legion for the policy to be issued. Id. ( Nichols Aff. at ¶ 10). Thus, the uncontroverted evidence clearly shows that the representations made by Texas Timber Group in the application; i.e., failing to disclose the true structure of its business and Clayborn's involvement in the partnership, were material to Nichols' and, consequently, to decision to issue the policy. Lesion's
Based on the undisputed evidence, the Court finds that Legion has made a prima facie showing of its entitlement to summary judgment. See Vega, 700 F. Supp at 881 . Because Clayborn has failed to submit any evidence raising a genuine fact issue as to five elements necessary for Legion to avoid liability under the policy, the Court further finds that Legion is entitled to judgment as a matter of law and, therefore, its motion for summary judgment is GRANTED.
IV. Conclusio
For the foregoing reasons, Legion's Motion for Summary Judgment is GRANTED.