Lead Opinion
HANKINSON, Justice.
This case involves the written rejection exception to article 5.06-1 of the Texas Insurance Code, the statutory provision governing uninsured and underinsured motorists coverage. Michael T. Howard appeals the trial court’s grant of summary judgment in favor of INA County Mutual Insurance Company (“INA”) and the denial of his own summary judgment motion. Howard contends generally that the trial court erred by reforming the insurance policy to reject coverage retroactively under an expired policy and by considering the intent of the parties to the insurance policy in determining coverage. We hold that the parties’ intent may not be considered in determining whether the insured validly rejected uninsured/underin-sured motorists coverage under article 5.06-1(1) of the Texas Insurance Code, and therefore, uninsured/underinsured motorists coverage cannot be rejected retroactively. As a result, we conclude that uninsured/underin-sured motorists coverage existed at the time of Howard’s accident. We reverse the trial court’s judgment and remand to the trial court for further proceedings.
BACKGROUND
The facts are undisputed for the purposes of this appeal. Howard suffered personal injuries as the result of an automobile accident with an underinsured motorist on February 4, 1993. At the time of the accident, Howard was driving a company vehicle, acting within the scope of his employment with Palestine Contractors, Inc. (“Palestine”). INA insured Palestine for liability coverage on its vehicles under a commercial automobile policy issued for the period August 15, 1992 to August 15, 1993. The policy insured 202 vehicles for seventeen named insureds with an estimated one-year premium of $91,-522.
INA did not charge Palestine a premium for uninsured/underinsured motorists (“UM/ UIM”) coverage during the policy period. The policy included a Texas UM/UIM coverage selection form (the “original coverage selection form”). Palestine’s vice-president, Phil Jenkins, signed the form but failed to date it or to select any of the three coverage options available. That form appears within the copy of the entire policy attached to INA’s motion for summary judgment:
Palestine Contractors, Inc. United J iployers, Ins. Agency H 05824369
Named Insured or Applicant Agent’s Name Policy Number
In accordance with the provisions of Article 5.06-1, Texas Insurance Code, as amended, I acknowledge that I have been given the opportunity to purchase Uninsured/Underinsured Motorists Coverage in amounts up to the automobile liability coverage limits I have on the policy shown (or the policy for which I have applied), and I have also been given the right to reject the Uninsured/Underinsured Motorists Coverage and have made the following choice(s):
1. □ I hereby reject Uninsured/Underinsured Motorists Coverage in its entirety.
2. □ I hereby reject the property damage feature of Uninsured/Underinsured Motorists Coverage only.
3. □ I hereby accept Uninsured/Underinsured Motorists Coverage in its entirety, realizing that coverage will apply only for motor vehicles which meet the definition of “owned automobiles” as provided in this policy.
The rejection(s) indicated above shall apply on the policy shown (or applied for) and on all future renewals of such policy and all future policies issued to me by this Company because of change of vehicle or coverage, or because of an interruption of coverage, until I notify the company in writing that thereafter Uninsured/Underinsured Motorists Coverage is desired. /s/ Phil Jenkins
Signature of Named Insured or Applicant Date
In connection with the February 4, 1993 accident, Howard filed a claim for UIM benefits under Palestine’s policy. Because Jenkins signed the original coverage selection
On September 26,1994, Jenkins executed a new UM/UIM coverage rejection form (the “1994 coverage rejection form”), indicating Palestine’s rejection of UM/UIM coverage in its entirety for the policy period “8/15/92— 8/15/93.” That form provided in part:
In accordance with the provisions of Article 5.06-1, Texas Insurance Code, as amended, I have been given the opportunity to purchase Uninsured/Underinsured Motorists Coverage in amounts up to the automobile liability coverage limits I have on my policy, and I have also been given the right to reject Uninsured/Underin-sured Motorists Coverage and have made the following choice(s):
1. (xx) I hereby reject Uninsured/Underin-sured Motorists Coverage in its entirety; or
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The rejeetion(s) indicated above shall apply on my policy and on all future renewals of such policy and all future policies issued to me by this Company because of change of vehicle or coverage, or because of an interruption of coverage, until I notify the Company in writing that thereafter Uninsured/Underinsured Motorists Coverage is desired.
(Emphasis added.)
On November 2, 1994, Howard and INA each filed motions for summary judgment. Howard moved for summary judgment on his bad faith claim, asserting as grounds that Palestine failed to meet the statutory requirements of the Texas Insurance Code for rejecting UM/UIM coverage because it failed to select either box rejecting coverage on the original coverage selection form. INA moved for summary judgment on two grounds: (1) Palestine and INA voluntarily reformed the policy retroactively to reflect their intent and agreement to reject the UM/ UIM coverage at the time INA originally issued the policy; and (2) INA was not liable for breach of the duty of good faith and fair dealing because no UM/UIM coverage existed under the policy. The trial court granted INA’s motion and ordered that Howard take nothing by his claim.
STANDARD OF REVIEW
This Court reviews a summary judgment de novo to determine whether a party’s right to prevail is established as a matter of law. See Capitan Enters., Inc. v. Jackson,
1. The movant for summary judgment has the burden of showing that there is no genuine issue of material fact and that it is entitled to summary judgment as a matter of law;
2. In deciding whether there is a disputed material fact issue precluding summary judgment, evidence favorable to the non-movant will be taken as true; and
3. Every reasonable inference must be indulged in favor of the non-movant and any doubts resolved in its favor.
Nixon v. Mr. Property Management Co., Inc.,
When both parties move for summary judgment, each party bears the burden of establishing that it is entitled to judgment as a matter of law, and neither party can prevail because of the other’s failure to discharge his burden. Guynes v. Galveston County,
DISCUSSION
In his first point of error, Howard challenges the trial court’s judgment by contending that Palestine failed to reject UM/UIM coverage in writing as a matter of law. Without the written rejection, Howard argues UM/UIM coverage existed as a matter of law. In related points of error four through six, Howard argues that: (1) the trial court could not reform the policy retroactively because the legislature created an express exception to the general rule allowing retroactive reformation of a contract; (2) retroactive reformation frustrates the statute’s operation by creating a class of insureds unable to obtain the coverage the legislature intended to provide; (3) the parties’ intent should not be considered in determining whether coverage existed; and (4) because the insurance policy had expired, retroactive reformation is improper.
INA argues that the policy can be reformed to reflect INA and Palestine’s agreement at the time the policy issued to reject UM/UIM coverage because: (1) the Texas Insurance Code does not specify the timing of the rejection; (2) Howard was never an insured under the policy; (3) INA and Palestine intended to reject the coverage; (4) Howard was not an intended beneficiary of UM/UIM coverage; and (5) considering intent is appropriate in reforming the policy. INA also contends that Howard failed to raise a point of error complaining about the denial of his summary judgment.
INA’s Summary Judgment
INA argues that the 1994 coverage rejection form reformed the policy to reflect INA and Palestine’s agreement to reject the UM/ UIM coverage. Because the policy, as reformed, rejects UM/UIM coverage in its entirety, INA further argues that it cannot be liable for denying Howard’s claim when no UM/UIM coverage existed.
To prevail on its summary judgment motion, INA must have negated an element of Howard’s cause of action for breach of the duty of good faith and fair dealing. An insurer owes a duty to deal fairly and in good faith with its insured in the processing and payment of claims. Republic Ins. Co. v. Stoker,
An insured’s claim seeking benefits under the policy is independent of an insured’s claim alleging bad faith against the insurer. Id. at 340-41 (citing Transportation Ins. Co. v. Moriel,
Article 5.06-1 of the Texas Insurance Code provides in part:
No automobile liability insurance ... covering liability arising out of the ownership, maintenance, or use of any motor vehicle shall be delivered or issued for delivery in this state unless coverage is provided therein or supplemental thereto, in at least the limits described in the Texas Motor Vehicle Safety-Responsibility Act, under provisions of the Board, for the protection of persons insured thereunder who are legally entitled to recover damages from owners or operators of uninsured or un-derinsured motor vehicles because of bodily injury ... resulting therefrom. The coverages required under this Article shall not be applicable where any insured named in the policy shall reject the coverage in writing; provided that unless the named insured thereafter requests such coverage in writing, such coverage need not be provided in or supplemental to a renewal policy where the named insured has rejected the coverage in connection with a policy previously issued to him by the same insurer or by an affiliate insurer.
Tex Ins.Code Ann. art. 5.06-1(1) (Vernon 1981) (emphasis added). This Court has recognized the legislature’s purpose of protecting conscientious, insured motorists from financial loss caused by negligent, financially irresponsible owners and operators of uninsured or underinsured motor vehicles. See Farmers Tex. County Mut. Ins. Co. v. Griffin,
Courts must liberally construe article 5.06-1 to give full effect to the public policy broadly requiring UM/UIM coverage. Stracener v. United Servs. Auto. Ass’n, 111 S.W.2d 378, 382 (Tex.1989); Sloan,
Initially, we note that INA does not argue that its original coverage selection form met the written rejection requirement of article 5.06-1(1). Howard argues that no written rejection of UM/UIM coverage existed as a matter of law. INA’s summary judgment evidence includes: (1) a copy of the policy containing the original coverage selection form and the 1994 coverage rejection form; and (2) the affidavits of Jenkins and Raymond C. Hall. This evidence shows that Jenkins signed the original coverage selection form offering three options for coverage under the policy. The form provided a method to: (1) reject UM/UIM coverage in its entirety; (2) reject the property damage feature of UM/UIM coverage; or (3) accept the UM/ UIM coverage in its entirety. Jenkins failed, however, to date the form or to select any coverage option. Through Hall’s affidavit testimony, INA conceded that the original rejection form failed to meet article 5.06-
We strictly construe the policy language that purports to reject coverage. See Sloan,
INA argues, however, that because article 5.06-1(1) does not require the rejection to be in writing before the accident, the parties were entitled to reform the policy to reflect their intent to reject the coverage at the time the policy issued. INA argues that the real issue in this case is whether the contracting parties originally intended to reject the coverage before the accident but had not done so because of a mutual mistake. INA contends the evidence showing mutual mistake includes: (1) the absence of a premium charge for UM/UIM coverage; and (2) Jenkins’s and Hall’s affidavit testimony that the parties intended to reject the coverage. Finally, INA contends that without reformation, an insured could never make changes to the policy once the policy issued. We disagree with all of these contentions.
Courts may equitably reform a contract if the parties prove a definitive and explicit agreement, understood in the same sense by both, but by their mutual mistake, the written contract fails to express the agreement. Huttleston v. Beacon Nat’l Ins. Co.,
INA’s summary judgment evidence included the affidavits of Jenkins and Hall. Jenkins testified that at the time he signed the original rejection form on behalf of Palestine, “it was the intention” of Palestine to reject UM/UIM coverage. Hall testified that INA issued the September 26,1994 rejection form to “correct the original” form to “accurately reflect that such coverage was and is rejected for the policy period August 15,1992 to August 15,1993.” INA also argued that it charged and Palestine paid no premium for UM/UIM coverage, evidenced by the copy of the policy attached to its motion.
Statutes bearing on the subject matter of insurance contracts or defining the rights and liabilities of parties to insurance contracts become a part of the contract. See Carroll v. Universal Underwriters Ins. Co.,
To the extent INA argues that the 1994 coverage rejection form was adequate to reform the August 15, 1992 to August 15, 1993 policy, we note the plain language of that form rejects coverage on “my policy and on all future renewals of such policy and all future policies.” On September 26, 1994, “my policy” referred to the only policy in effect at that time: the renewal of the August 15, 1992 to August 15, 1993 policy. Because of its specific language, the 1994 coverage rejection form applied only to the renewal policy. See Berry v. Texas Farm Bureau Mut. Ins. Co.,
We do not hold today that an insurance policy may never be reformed. Our holdings do not interfere with the ability of parties to contract freely, and we do not expand the law. Instead, coverage in this case rests upon the plain language of article 5.06-1 of the Texas Insurance Code. There, we find no language that indicates a written agreement to reject UM/UIM coverage, entered after a policy issues, could or should have retroactive effect — including the effect of extinguishing claims that may have arisen during the interim.
We limit our holdings only to those insurance contracts governed by article 5.06-1 of the Texas Insurance Code. Our decision harmonizes the public policy supporting the legislation with the specific facts of this case. Jenkins failed to reject the coverage at the time he signed the original coverage selection form. When Jenkins finally rejected UM/ UIM coverage on the 1994 coverage rejection form, that rejection became effective only on the date executed. Thus, Jenkins’s testimony that Palestine intended to reject UM/UIM coverage at the time the policy issued and INA’s contention that the absence of a premium charge or payment for the coverage evidenced the parties’ intent to reject the coverage carry no weight and must not be considered in determining whether Palestine rejected coverage at the time the August 15, 1992 policy issued.
If we did not so hold and, instead, considered INA’s and Palestine’s intent and reformed the policy to reject coverage retroactively, we would be judicially rewriting the limited exception to UM/UIM coverage to include circumstances unique to each situation — such as the absence of a premium charged or paid for coverage in the absence of a clear written expression of rejection. That result would not only increase and burden litigation, but would also violate the public policy our legislature has already declared and our courts must recognize and support: absent a written rejection of coverage by the insured, every automobile liability coverage policy includes UM/UIM coverage by operation of law.
Because INA’s policy insuring Palestine contained no written rejection of the mandated UM/UIM coverage, UM/UIM coverage existed at.the time of the accident. The trial court erred in granting INA’s summary judgment.
Howard’s Summary Judgment
We liberally construe Howard’s first point of error to complain that the trial court erred in denying his summary judgment. Howard sued INA for a breaeh of the duty of good faith and fair dealing by its wrongful denial of his claim for UM/UIM benefits. Howard asserted in his motion for summary judgment that INA wrongfully denied the claim because it had no written rejection of the coverage as required under article 5.06-1 of
As an insurer, INA owed its insured a duty to deal fairly and in good faith in the processing and payment of claims. See Stoker,
Howard asserted as the sole ground for summary judgment that UM/UIM coverage existed because Palestine failed to select a rejection option when it signed the original coverage selection form. We have concluded that because Palestine failed to reject the UM/UIM coverage in writing, UM/UIM coverage existed under the policy. We have also concluded that INA could not reform the policy to reject UM/UIM coverage retroactively. Even with UM/UIM coverage established as a matter of law, however, Howard’s motion for summary judgment failed to set forth grounds and present proof establishing as a matter of law each element of his cause of action.
Howard argued, in effect, that because the policy included UM/UIM coverage, no reasonable basis existed for INA to deny his claim. Howard failed to allege and present any evidence, much less conclusive evidence, that he was insured under the policy. Howard failed to allege and present conclusive evidence that a reasonable insurer under similar circumstances would not have denied his claim and that INA knew or should have known that no reasonable basis for denying his claim existed at the time INA denied it. See Stoker,
We sustain points of error four, five, six, and that portion of Howard’s first point of error complaining the trial court erred in granting INA’s summary judgment motion, but we overrule that portion of Howard’s first point of error complaining the trial court erred in denying his summary judgment motion. Because of our disposition of these points, we need not consider Howard’s second and third points of error.
We reverse the trial court’s judgment and remand for further proceedings consistent with this opinion.
Notes
. But see Oldaker v. Travelers Ins. Co.,
. Howard asserts in his second point of error that allowing INA and Palestine to reform the insurance policy to reject coverage retroactively would dramatically and unfairly affect his rights arising from the accident, the law, and the policy. In his third point of error, Howard asserts that the trial court erred in admitting as evidence the reformed contract between INA and Palestine because the contract was neither relevant nor admissible evidence pursuant to rules 401 and 402 of the Texas Rules of Civil Evidence.
Dissenting Opinion
dissenting.
Because I believe the trial court properly reformed the insurance contract to reflect the actual agreement of the contracting parties, I respectfully dissent.
Insurance policies are contracts and, as such, are subject to rules applicable to contracts generally. Hernandez v. Gulf Group Lloyds,
For the remedy of reformation to be available on the ground of mutual mistake the parties must have reached a definite and explicit agreement, understood in the same sense by both, which agreement has been misstated in the written contract because of a mistake common to both contracting parties. Zurich Ins. Co.,
As the majority acknowledges, courts in this state have repeatedly allowed insurance contracts to be reformed to reflect the true contract that existed between the parties. Champlin Oil & Refining Co. v. Chastain,
In fact, courts in this state have discussed reformation as an option when dealing with a rejection of coverage under article 5.06-1. In Oldaker v. Travelers Insurance Co., the court discussed article 5.06-1 and whether there was a mutual mistake allowing the court the option to reform the contract. Ol-daker,
The majority opinion goes beyond any other case in this jurisdiction and expands the current law to severely restrict an individual’s contractual freedoms. The majority points to the Employers Casualty Co. v. Sloan, Unigard Security Insurance Co. v. Schaefer, and Guarantee Insurance Co. v. Boggs decisions in support of its public policy expansion of the law. However, none of these cases is directly on point or expands the law as the majority opinion does.
The Sloan decision deals with an oral contract, where the coverage was denied orally, but the agreement was never memorialized in writing and the parties did not seek reformation. Employers Casualty Co. v. Sloan,
In Unigard the court addressed Personal Injury Protection under article 5.06-3 and a written “Exclusion .of Named Driver” that
The Boggs decision simply analyzes the rejection of coverage language of article 5.06-1. Specifically, the court determines that the word “issued” in the statute must be strictly construed. Guarantee Ins. Co. v. Boggs,
I agree with the majority’s analysis of the policies behind article 5.06-1. However, in this case, there is no question that, with the reformation, the rejection of uninsured/un-derinsured coverage by Palestine falls within the plain language and policies of the statute. There is a clear showing of mutual mistake. Both parties to the contract agreed that the terms of the insurance contract included a rejection of uninsured/underinsured coverage. On these terms the parties had a “meeting of the minds” upon which the contract was created. Palestine did not pay a premium for the coverage. The written me-morialization of the contract did not reflect this coverage as required by article 5.06-1. The parties sought to reform the contract to reflect their true agreement. The reformation was in writing, as required by article 5.06-1, and related back to when the original agreement was signed, therefore reflecting the true agreement or contract of the parties.
Although the majority limits its holding only to bar reformation under the rejection of uninsured/underinsured coverage under article 5.05-1, the bar will affect more than the limited circumstances involved in this case. Mutual mistake is not the only case when reformation may be utilized by the courts. Reformation may also be warranted in the case of fraud. See Zurich Ins. Co.,
Additionally, the freedom to contract is an important right that the courts should seek to uphold. The legislature has provided the insured with the automatic inclusion of uninsured/underinsured coverage when the parties fail to address the coverage during negotiations. However, uninsured/un-derinsured coverage is not mandatory in this state. See Greene v. Great Am. Ins. Co.,
If the legislature wishes to expand the law so that reformation under these circumstances is not a proper remedy, thus limiting the contracting parties’ contractual freedoms, then it should do so, but this Court should not take it upon itself to expand the law beyond the plain language of the statute.
The Texas Supreme Court has stated that one of the purposes of article 5.06-1 was to protect the conscientious and thoughtful motorist against losses caused by negligent, financially irresponsible motorists. Francis v. International Serv. Ins. Co.,
Reformation is an equitable remedy that should be used sparingly. However, when the facts are clear and both parties are in agreement, as in this case, the courts should have the ability to reform contracts to reflect the true contract made between the parties. Because I believe that INA and Palestine, the two parties to the contract, effectively reformed their contract for insurance to reject the uninsured/underinsured coverage, I would overrule Howard’s points of error. I would affirm the trial court’s judgment that the uninsured/underinsured coverage was not in effect at the time of the accident.
. Even when the legislature mandates that a term of an agreement be in writing, reformation is not barred. For example, the statute of frauds is no bar to the reformation of a contract for the sale of land where the parties had an agreement and by their mutual mistake failed to state the agreement in the writing. National Resort Communities, Inc. v. Cain,
. The Unigard court stated in dicta that its holding also applied to article 5.06-1 since the public policy aspects of the two coverages are so similar. Unigard,