Comsys Information v. Twin City Fire Ins.

130 S.W.3d 181

COMSYS INFORMATION TECHNOLOGY SERVICES, INC. f/k/a Metamor Information Technology Services, Inc. f/k/a Comsys Technical Services, Inc., Appellant, v. TWIN CITY FIRE INSURANCE COMPANY and Specialty Risk Services, Inc. f/k/a ITT Specialty Risk Services, Inc., Appellee.

No. 14-02-00241-CV.

Court of Appeals of Texas, Houston (14th Dist.).

December 4, 2003.

Rehearing Overruled March 18, 2004.

Debora S. Pacholder, John Zavitsanos, Houston, TX, for appellants.

Amy Jean Schumacher, Gregory F. Burch, Houston, TX, for appellees.

Panel consists of Chief Justice BRISTER and Justices YATES and HUDSON.

OPINION

J. HARVEY HUDSON, Justice.

Comsys Information Technology Services, Inc. f/k/a Metamor Information Technology Services, Inc. f/k/a Comsys Technical Support Services, Inc. ("Comsys") appeals the denial of its summary judgment against Twin City Fire Insurance Company and Specialty Risk Services, Inc. f/k/a ITT Specialty Risk Services, Inc. (hereafter jointly referred to as "Twin City") and the granting of Twin City's summary judgment. We reverse and remand.

Comsys' predecessor, COREStaff, Inc., purchased an Excess Temporary Employment Contractors Errors or Omissions Liability Insurance Policy from Twin City. The effective date of the policy was July 25, 1997; it was to expire on July 25, 2000. The policy had a limit of $5,000,000 and a self-insured retention of $250,000.

Texas State Low Cost Insurance, Inc. ("TSLCI") hired Comsys to develop and implement a project known as the "Computer Automated Records System (CARS) Migration Project." On August 4, 1997, TSLCI notified Comsys that it intended to bring suit for negligence and negligent misrepresentation in failing to properly perform and supervise work performed on the computer system. On August 11, 1997, Comsys notified Twin City that TSLCI was going to file suit against it; Twin City acknowledged receipt of the notice. On September 11, 1997, TSLCI sued Comsys for problems with the computer project, asserting claims for negligence, gross negligence, negligent misrepresentation, DTPA violations, knowing DTPA violations, and breach of express and implied warranties. TSLCI also sought damages for overcharges, loss of revenue, and loss of good will.¹ Comsys filed a counterclaim against TSLCI for unpaid work.

On February 11, 2000, Comsys settled the TSLCI suit at mediation for $275,000, plus the forgiveness of $114,000 in unpaid work that Comsys had performed for TSLCI. Accordingly, Comsys sought recovery of approximately $139,000 on its insurance claim.

On March 28, 2000, Twin City denied coverage for Comsys' claim because Comsys settled the TSLCI suit without obtaining consent in violation of the terms of the policy. Comsys brought suit against Twin City, asserting claims for breach of contract, violations of articles 21.21 and 21.55 of the Texas Insurance Code, and breach of the duty of good faith and fair dealing. All parties moved for summary judgment. The trial court granted Twin City's motion for summary judgment, while denying Comsys' motion for partial summary judgment.

In its motion for summary judgment, Twin City asserted that Comsys was not entitled to coverage under the terms of the policy because (1) "it forfeited its right to recover ... when it settled the lawsuit with TSLCI without Twin City's ... consent," (2) "many or all of TSLCI's claims and alleged damages are excluded under the policy," (3) "Comsys cannot meet its burden of identifying what portion of the settlement, if any, was attributable to covered claims," and (4) it was "not entitled to recover for the debt that it `forgave' as part of the settlement." The trial court granted Twin City's motion for summary judgment without specifying the basis for its ruling.

COVERAGE UNDER THE POLICY

In its first point of error, Comsys contends the trial court erred in granting the motion for summary judgment because the policy expressly provides coverage for its claims.

We first observe that in an insurance contract dispute, the initial burden falls upon the insured to establish coverage under the terms of the policy. Venture Encoding Serv., Inc. v. Atlantic Mut. Ins. Co., 107 S.W.3d 729, 733 (Tex.App.-Fort Worth 2003, pet. denied). But while the initial burden fell upon Comsys, Twin City had the burden, in a summary judgment context, to show that no material fact issue existed and that it was entitled to judgment as a matter of law. Rhone-Poulenc, Inc. v. Steel, 997 S.W.2d 217, 222 (Tex.1999). Once the defendant establishes that no genuine issue of material fact exists regarding an element of the plaintiff's claim, the plaintiff must present competent summary judgment evidence raising a fact issue on that element. Guest v. Cochran, 993 S.W.2d 397, 401 (Tex.App.-Houston [14th Dist.] 1999, no pet.). In conducting this review, we take as true all evidence favorable to the nonmovant, and we make all reasonable inferences in the nonmovant's favor. KPMG Peat Marwick v. Harrison County Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex.1999). When both sides move for summary judgment and the trial court grants one motion and denies the other, the reviewing court should review all summary judgment evidence, determine all questions presented, and render the judgment the trial court should have rendered. Bradley v. State ex rel. White, 990 S.W.2d 245, 247 (Tex.1999).

Here, the summary judgment reflects that TSLCI sent a demand letter to Comsys in August 1997, seeking $402,000 in damages. TSLCI subsequently filed suit against Comsys on September 11, 1997. It is apparent from Twin City's file notes dated September 16, 1997, that Twin City was aware that the amount of TSLCI's alleged damages might exceed the $250,000 self-insured retainer and after a preliminary coverage review, determined that certain exclusions might apply to preclude coverage of some of TSLCI's damages.² Twin City did not, however, exercise its right to defend Comsys, but simply asked Comsys if it could obtain a settlement of less than $250,000. In an affidavit submitted in support of Twin City's motion for summary judgment, Mike McCallum, litigation specialist for Twin City, stated that in November 1997, Comsys informed Twin City that it thought it could settle the TSLCI suit within the $250,000 self-insured retention. McCallum explained that he called Comsys' defense counsel, David Chamberlain, in November 1999, to determine whether the case had a true value over $250,000. According to McCallum, Chamberlain told him it might take up to $150,000 to settle the TSLCI case; Twin City set the reserve at $200,000.

McCallum further stated that he spoke to Amir Alavi, senior vice president of Comsys, on December 21, 1999, to discuss potential coverage questions and inquire whether Comsys wanted Twin City to address the coverage issues at that time or wait until the claim had an obvious value in excess of the $250,000 retention. McCallum asserts that although Alavi told him he would discuss the issue with Comsys' insurance attorney and get back to him, Alavi did not follow up with him. When McCallum next spoke to Alavi on January 21, 2000, Alavi, again, did not follow up with him.

According to McCallum, on February 3, 2000, Chamberlain requested that he attend the mediation conference scheduled for February 11, 2000. On February 7, 2000, Chamberlain advised McCallum that Comsys had not evaluated the claim in excess of $250,000, but there had been some discussion about offering $250,000 and waiving the $114,000 in unpaid bills; Comsys still had not requested a coverage opinion.

On February 9, 2000, two days prior to the scheduled mediation, Alavi formally requested a coverage opinion from Twin City. When Alavi called McCallum during the February 11, 2000 mediation, advising him that the figure under discussion was in the $350,000 range, McCallum advised him that he could not authorize a settlement because the claim had not been fully evaluated for coverage or value.

Also, during the mediation, Alavi faxed a letter to McCallum informing him that Comsys was in a position to make a settlement offer of $200,000 in cash plus forgiveness of $114,000 in debt and requesting that McCallum provide the reasons for Twin City's unwillingness to acknowledge coverage. Responding by letter, McCallum informed Alavi that Twin City would not be able to render a coverage position because two days was not adequate time in which to render a final opinion and further pointed out that Comsys had not provided an evaluation indicating a valuation in excess of $250,000 and "[o]ur first notice of your evaluation (based on your current offer to plaintiff) in excess of your retention was today."

A month-and-a-half after settlement, Twin City denied coverage because (1) Comsys was not "legally obligated" to pay damages since TSLCI obtained a settlement rather than a judgment, and (2) Comsys settled without Twin City's consent.³

Waiver of the Consent Clause

Comsys contends Twin City waived the settlement-without-consent provision when it waited a month-and-a-half after the settlement to finally deny coverage. Alternatively, Comsys argues that Twin City is estopped to rely upon the consent provisions by its delay in deciding coverage. See Minnesota Mut. Life Ins. Co. v. Morse, 487 S.W.2d 317, 320 (Tex.1972); Farmers Tex. County Mut. Ins. Co. v. Wilkinson, 601 S.W.2d 520, 521 (Tex.Civ. App.-Austin 1980, writ ref'd n.r.e.) (holding the doctrines of waiver and estoppel may operate to avoid conditions that would otherwise result in forfeiture of an insurance policy).

Waiver is an intentional relinquishment of a known right or intentional conduct inconsistent with that right. Jernigan v. Langley, 111 S.W.3d 153, 156 (Tex.2003) (per curiam); United States Fid. & Guar. Co. v. Bimco Iron & Metal Corp., 464 S.W.2d 353, 357 (Tex.1971). Waiver can be established by either an express renunciation of a known right or by silence or inaction for so long a period as to...