Kelvyn and Susana Lazo, Individualy, and d/b/a Lazo's Custom Woodwork and Pablo Abello, Individually and d/b/a Pablo Abello Insurance Agency v. RSI International, Inc. and St. Paul Reinsurance Company, Ltd.--Appeal from 61st District Court of Harris County

Affirmed and Memorandum Opinion filed August 30, 2007

Affirmed and Memorandum Opinion filed August 30, 2007.

In The

Fourteenth Court of Appeals

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NO. 14-06-00432-CV

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KELVYN AND SUSANA LAZO, INDIVIDUALLY, AND D/B/A LAZO=S CUSTOM WOODWORK AND PABLO ABELLO, INDIVIDUALLY, AND D/B/A PABLO ABELLO INSURANCE AGENCY, Appellants

V.

RSI INTERNATIONAL, INC. AND ST. PAUL REINSURANCE COMPANY, LTD., Appellees

On Appeal from the 61st District Court

Harris County, Texas

Trial Court Cause No. 02-63470-A

M E M O R A N D U M O P I N I O N

In this appeal, Kelvyn and Susana Lazo, individually and d/b/a Lazo=s Custom Woodwork (Lazo) and Pablo Abello, individually and d/b/a Pablo Abello Insurance Agency (Abello), appeal the granting of a summary judgment in favor of St. Paul Reinsurance Company (St. Paul) and its managing general agency, RSI International, Inc. (RSI). Four motions for summary judgment were filed, and the trial court ruled on three of them. The main issue in each motion, and the only issue on appeal, is whether an insurance policy underwritten by St. Paul and purchased by Lazo was in effect at the time of an accident. Finding that the policy had been cancelled, we affirm.

Factual and Procedural Background

Lazo works as a contractor, providing custom woodwork for construction projects. As a subcontractor, Lazo must maintain general liability insurance coverage to protect against the risk of loss occurring on the job. Lazo had purchased a policy of general liability insurance, underwritten by St. Paul, through a local agent, Pablo Abello. The premiums were financed through Surety Premium Finance Corp. (Surety). Surety paid all premiums in advance, and then collected periodic payments from Lazo. As part of its agreement to finance Lazo=s premiums, Surety had a power of attorney which enabled it to cancel the policy as though the cancellation were directly from Lazo if a payment from Lazo was more than ten days late.

The first payment under the finance agreement with Surety was due on June 18, 2001. Lazo was eight days late in his first payment. Despite the fact that the payment was not yet overdue enough to warrant cancellation, Surety sent a notice of cancellation to RSI on July 3, 2001. RSI subsequently issued an endorsement which read in pertinent part, AIt is hereby agreed that in consideration of the return premium of $578.00, this policy is cancelled effective 7/03/2001.@ For the next several months, Lazo continued making timely payments to Surety, never having been told that the policy had been cancelled, and St. Paul=s agent, RSI, retained the unearned premiums despite its duty to return any unearned premiums upon policy cancellation.

On August 25, 2002, Aniceto Garcia, a worker on a building project, fell from a ladder that he was climbing in order to inspect an air conditioning unit installed in the attic. Garcia sued Lazo, among others, claiming Lazo was negligent in failing to properly install and inspect the ladder leading to the attic. Lazo submitted Garcia=s claims to St. Paul, who denied coverage, claiming that prior to the filing of the case, coverage had been cancelled for failure to pay the required premiums.

As a result of this denial of coverage, Lazo, on July 16, 2004, filed a second lawsuit against several defendantsCAbello, Surety, RSI, and St. Paul. Lazo sought a declaratory judgment that the coverage contract was in full force and effect as of the date of the Garcia accident, and in his Eighth Amended Petition he asserted claims of breach of contract, negligence, breach of fiduciary duties, violations of the Texas Insurance Code, violations of the Texas Deceptive Trade Practices Act, fraud, and violation of common law duty of good faith and fair dealing. Over the next several months, the defendants filed answers, counterclaims, and cross-claims against each other. This suit, regarding insurance coverage, was consolidated with the personal injury suit on May 24, 2005.

On June 26, 2005, Abello filed a motion for partial summary judgment on the issue of whether the insurance policy was in force at the time of Garcia=s accident. Lazo also filed a motion for summary judgment solely on the issue of whether the policy had been cancelled. St. Paul filed a single response to both Abello=s and Lazo=s motions for summary judgment. St. Paul then filed its own motion for summary judgment on the coverage issue as well as on all collateral claims, and in an amended motion for summary judgment, sought indemnity from Abello and RSI. RSI answered all three motions for summary judgment separately, joined St. Paul=s first motion for summary judgment, and then later, after St. Paul amended its motion, RSI filed its own motion for summary judgment as to all claims asserted by Lazo, including coverage.

On February 3, 2006, the trial court granted RSI=s motion for summary judgment. The court also granted St. Paul=s motion for summary judgment as to coverage and all collateral claims asserted by Lazo, but denied St. Paul=s motion as to indemnity against Abello and RSI. Finally, the court denied Abello=s partial summary judgment motion seeking a declaration that the policy was in effect at the time of the accident. Nothing in the record indicates that the court ever ruled on Lazo=s motion for summary judgment. On May 25, 2006, the court entered an order that all claims by Lazo and Abello against RSI and St. Paul be severed and that a final judgment be entered as to all issues between RSI, St. Paul and the remaining parties. Abello and Lazo brought this appeal.

Analysis

The sole issue on appeal is whether the trial court erred in deciding that the policy purchased by Lazo had been effectively cancelled as a matter of law at the time Garcia=s accident took place.

I. Standard of Review

We review the trial court=s summary judgment de novo. Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). When reviewing a summary judgment, we take as true all evidence favorable to the nonmovant, and we indulge every reasonable inference and resolve any doubts in the nonmovant=s favor. Provident Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 215 (Tex. 2003). When more than one party files a motion for partial summary judgment on the same issue, and the trial court grants one or more motions and denies one or more motions, the reviewing court should review all summary judgment evidence and determine all questions presented. See Dorsett, 164 S.W.3d at 661. The reviewing court should render the judgment the trial court should have rendered. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356 (Tex. 2000).

II. Policy Had Been Effectively Cancelled

The language of the original policy says that cancellation of the policy will be effective even if a refund has not been made or offered. Lazo and Abello urge three reasons that this contract language does not control: 1) failure to follow the Insurance Code=s mandate that unearned premiums be returned within 60 days of cancellation prevents cancellation; 2) the language used in an endorsement makes cancellation dependent on the return of unearned premiums; and 3) equitable estoppel prevents St. Paul from cancelling the policy.[1] We discuss these arguments in turn.

A. Return of Unearned Premiums Not Prerequisite to Cancellation Under Insurance Code

Lazo and Abello argue that when an insurer fails to return unearned premiums within the allotted time, the result is that the policy is not cancelled. The provision of the Insurance Code relied upon by Lazo and Abello is former Texas Insurance Code article 24.17(f), which provides the following in pertinent part:

Whenever a financed insurance contract is canceled, and the premium finance agreement contains an assignment or power of attorney for the benefit of the premium finance company, the insurer shall return whatever unearned premiums are due under the insurance contract directly to the premium finance company within 60 days after the policy cancellation date.

Act of June 14, 1989, 71st Leg. R.S., ch. 690, ' 2, 1989 Tex. Gen. Laws 3187, 3187, repealed by Act of June 21, 2003, 78th Leg. R.S., ch. 1274, ' 26(b)(4) (current version at Tex. Ins. Code ' 651.162(b)) (because former Tex. Ins. Code art. 24.17 governs this case, we will cite to the article). Plain statutory language does not support Lazo and Abello=s argument. Nowhere in the remainder of the section nor in the remainder of the Insurance Code is the failure to refund unearned premiums connected to the continued effectiveness of the insurance contract. In fact, the plain language of the section suggests that cancellation occurs separately from the refunding of any unearned premiums. See id. (providing that the refund of premiums is to occur within 60 days of cancellation).

Neither Lazo nor Abello provides any case law to support their proposition. A recent case from this court, although it does not expressly refer to former article 24.17(f), establishes that the failure to return unearned premiums is immaterial to cancellation of the policy when the contract language does not make return of unearned premiums a condition precedent to cancellation. See Autobond Acceptance Corp. v. Progressive N. Ins. Co., 76 S.W.3d 489, 494 (Tex. App.CHouston [14th Dist.] 2002, pet. denied); see also Austin Fire Ins. Co. v. Polemanakos, 207 S.W. 922, 924B25 (Tex. Comm=n App. 1919, judgm=t adopted); Ins. Co. of Tex. v. Parmelee, 274 S.W.2d 944, 946 (Tex. Civ. App.CAustin 1955, no writ); Transcontinental Ins. Co. of N.Y. v. Frazier, 60 S.W.2d 268, 270 (Tex. Civ. App.CWaco 1933, no writ); Ellis v. Hartford Fire Ins. Co., 21 S.W.2d 88, 91 (Tex. Civ. App.CAmarillo 1929, writ ref=d); 2 Lee R. Russ & Thomas F. Segalla, Couch on Insurance ' 32:62 (3d ed. 2006) (stating the general rule that return of unearned premiums is not a prerequisite to cancellation, and citing cases from several jurisdictions); 43 Am. Jur. 2d Insurance ' 436 (2003) (same).

The failure to comply with former article 24.17(f) does not mean that the insurance policy will survive despite cancellation. Therefore, we overrule appellants= first argument.

B. Endorsement Language Not Controlling

Lazo and Abello argue alternatively that the contract language, as amended by an endorsement issued by St. Paul, makes the return of unearned premiums a condition precedent to cancellation.

An insured has the right to cancel an insurance policy in accordance with a specific policy provision giving it the right to do so. See Autobond Acceptance Corp., 76 S.W.3d at 494. Here, the policy provisions provided that the Afirst Named Insured@ may cancel the policy by mailing or delivering to the insurance company advance written notice of cancellation, and that the notice will state the effective date of cancellation, on which date the policy period will end. Surety, under its power of attorney, gave notice of cancellation, with the effective date of cancellation being July 3, 2001. Thus, the contract was cancelled effective July 3, 2001. The endorsement in question was not issued until August 17, 2001, approximately a month and a half after the contract was already cancelled. The contract that the endorsement purported to amend was no longer effective as a legal obligation. See Savage v. Doyle, 153 S.W.3d 231, 235 (Tex. App.CBeaumont 2004, no pet.); Ferguson v. DRG/Colony N., Ltd., 764 S.W.2d 874, 887 (Tex. App.CAustin 1989, writ denied). Thus, there was nothing to amend. The endorsement was, at that point, a nullity. We overrule Lazo and Abello=s second argument.

C. Equitable Estoppel Not Applicable

Abello=s third argument is that equitable estoppel precludes a finding that the policy was cancelled.[2] According to the Texas Supreme Court, equitable estoppel requires the following elements: 1) a false representation or concealment of material facts; 2) made with knowledge, actual or constructive, of the facts; 3) the party to whom it was made must have been without knowledge or means of knowledge of the real facts; 4) it must have been made with the intention that it should be acted on; and 5) the party to whom it was made must have relied on or acted on it to his prejudice. Gulbenkian v. Penn, 252 S.W.2d 929, 932 (Tex. 1952).

Abello fails to set out the elements of estoppel, or point to specific evidence that would prove each element. The only argument Abello makes regarding estoppel is that St. Paul admitted that it has held Lazo=s money for years and had no plans to give it back. This is insufficient to prove even the first element. As we held above, refund of the unearned premiums is not necessary to cancellation. Therefore, retention of the funds is not inconsistent with the position that the policy had been cancelled. See id. (noting that plain contradiction of former allegations or acts is necessary to invoke estoppel). Furthermore, payment of the unearned premiums would have been to Surety, not to the insured, which means that even had reimbursement of the unearned premiums been made, it would not have put Lazo on notice that his policy was cancelled, unless the refund was for more than Lazo owed. See Tex. Ins. Code art. 24.17(g). St. Paul and RSI did nothing inconsistent with their position that the policy had been cancelled. Therefore, there was no Afalse representation@ of continued coverage. See Gulbenkian, 252 S.W.2d at 932.[3] We overrule Abello=s third argument.

Conclusion

Having overruled each argument making up Lazo and Abello=s sole issue on appeal, we affirm the judgment of the trial court.

/s/ Wanda McKee Fowler

Justice

Judgment rendered and Memorandum Opinion filed August 30, 2007.

Panel consists of Justices Anderson, Fowler, and Seymore.

[1] Lazo and Abello, with an exception noted below, make the same arguments. Therefore, we consider them together.

[2] Although Lazo purports to adopt all of Abello=s arguments by reference, Lazo did not include the equitable estoppel ground in his motion for summary judgment. Therefore, he cannot assert it as a ground for reversing the summary judgment on appeal. See Tex. R. Civ. P. 166a(c).

[3] We note that Lazo makes an additional argument in his brief concerning the Aduty to defend.@ However, this argument assumes the existence of an insurance policy. Since we have held the policy had been cancelled at the time of the Garcia injury, we need not address this issue.