Palma v. Verex Assurance, Inc.

PARKER, Before DAVIS and Circuit Judges, and Judge. District BUNTON1, PARKER, ROBERT M. Judge: Circuit

I. FACTS 28, 1983, On November plaintiff-appellant (“Palma”) Nancy $121,300 borrowed Savings (“City & Loan Federal”) purchase a condominium. As a loan, condition of the Palma was purchase mortgage protect City insurance to Federal from a the event she default- ed on the loan. The insurance was purchased by City Federal from defendant- Assurance, (“Verex”). appellee Verex Inc. premiums were with Palma’s mon- ey, placed which had been in an escrow ac- count.

Palma lived in the condominium until No- vember of when she moved out of the property and used it property. as rental 1988, Palma defaulted obligation on her repay the note. After the default Fed- eral foreclosed on the condominium. On 3, 1988, May property public was sold at Texas, Judge sitting by designation. District of the Western District of $30,800 Federal, the mort- II. auction PROCEEDINGS BELOW gage holder. After the foreclosure there re- Palma filed suit state district court al- $115,825.14 principal mained a balance due leging pursuit that Verex’s owing City Federal under the terms inwas violation of the terms of mortgage 23, 1989, of the note. On June Verex policy. upon insurance diversity juris- Based $51,122.47 Federal diction Verex removed suit to the South- mortgage policy and insurance received an ern District of Texas and filed counterclaim for the attorneys’ and assignment of the entire due on fees.

Palma’s note. sought Palma then to have her claims against Verex certified as a class action. 1, 1991, Verex, April subsequent On The case magistrate judge was referred to a Federal, assignee City of demanded that Pal- pretrial management. for magistrate $117,521.98 repay “deficiency ma bal- initially recommended that some of Palma’s ance due.” This amount included accrued claims be certified in a class action but set foreclosure, interest and costs of as well as a aside that recommendation after reconsider- proceeds credit for the received from the ing standing. magistrate found of foreclosure condominium. The third-party beneficiary Palma was not a amount demanded did include a credit for the insurance contract and recommended proceeds that class certification be denied as to mortgage guarantee pol- under the and all claims based an assertion of icy. third-party beneficiary magis- status. The trate then recommended that Verex’s motion difficulty sorting We have had out the summary judgment granted for be and rec- concerning record the economic facts of the ommended the dismissal of all of Palma’s litigation claims this and have unable been except claims alleging those debt collection apparent to resolve some inconsistencies. violations, Deceptive violations of the Trade get believe we can at least (“DTPA”), Practices Act wrongful fore- ballpark summary approaches with a closure. adopted mag- The district court accuracy. thereby denying istrate’s recommendations class certification of the dismissed claims and $121,300 Palma for the house. She granting summary judg- motion Verex’s for mortgage payments payments made claims, except wrongful ment all fore- approximately insurance for closure. years. years four after four proceeded The case to trial on Palma’s $30,800 payments and a credit to wrongful day foreclosure claim. After a one her balance the foreclosure bench trial the district court issued its find- $115,825.14. she still owed The difference ings of facts and conclusions of law and en- apparently charges was attributable to as- judgment tered final in favor of Verex. The by City sessed Federal’s at- $419,898.12. judgment awarded Verex Pal- torneys. way, To state it another Palma was appealed. ma assessed foreclosure costs that in effect $30,800 wiped out the credit from the fore- III. ANALYSIS proceeds. However, story closure is far A. ART. STANDING & 21.21 By granted from over. the time the court summary judgment Verex’s motion for granted The district court Verex’s ruled wrongful Palma on her fore- summary judgment motion as to Palma’s closure claim she was assessed additional upon alleged claims based violations of the attorneys’ lawyers fees for Verex’s in the concluding Texas Insurance Code after $225,750. astonishing amount of This addi- standing Palma did not have to assert those 21.21(16) judgment against tional amount raised the claims under art. of the Texas In $419,898.12. Palma to a total of surance Code.2 We review the district analysis disposed summary judgment by magis- 2. The actual of all issues was conducted denied). court noted that Her summary judgment de novo. writ grant of court’s (5th Price, standing art. 21.21 to mann broadened under v. Thomas represen persons had relied on Cir.1992). include who Warfield, 904 F.2d at tations of the insured. jurisdiction in case The district recognizing Despite expressly diversity citizenship and it was based standing to beneficiaries extended Chaffin apply bound to that was correctly held policies, standing limited Warfield the State of Texas. Erie law of substantive privity of contract or those who to those with Tompkins, 304 U.S. 58 S.Ct. R. Co. on the words or deeds had relied (1938). begin 817, 822, We our L.Ed. recognized analysis was later insurer. This court’s decision ex- district review determining standing test” for as “the new applicable law. amining the Burzynski, art. 21.21. In Re 989 F.2d under 21.21(16)of the Texas Insurance Code Art. Cir.1993). (5th 733, 741 provides: recently Supreme Court ad- The Texas actual dam- who has sustained Any person standing art. 21.21 the con- dressed under engaging in of another’s ages as a result an text of a claim asserted under automobile §in 4 of this practice act or declared an by third-party in a liability policy claimant deceptive or acts be] ... unfair [to Article arising action an insurer out of direct of insurance or in ... in the business type In that an accident with the insured. by § 17.46 of the Business practice defined action, third-party that claim- the court held ... an unlawful Code and Commerce standing ants are not entitled to under art. may practice maintain an action trade Watson, 21.21. Ins. v. 876 Allstate Co. person engaging ... in such against the (Tex.1994). court found 150 acts, added). (emphasis weighed against following that factors “any person” appear to be Although granting standing third-party claim- to the permit sufficiently to Palma to have broad ant: narrowly standing, appears it to have been court, interpreting third-party the laws This A claimant has no contract construed. insured, Texas, privity has has held that “absent with the insurer or the not by paid any premiums, legal has no relation- or some sort reliance bringing ship special relationship the claim on the or person words to the insurer insurer, short, insurer, a suit will not lie under of trust with the has deeds of Fidelity Deposit expect 21.21.” v. no basis which to or demand art. Warfield (5th Cir.1990). Co., In of the extra-contractual obli- 904 F.2d the benefit analyzed reaching holding gations imposed the court two on insurers under art. appeal regard the Texas courts of 21.21with to their insureds. decisions from standing 21.21. that addressed under art. had Id. at 149. The court then noted that al v. Transamerica The first case was Chaffin though previously standing it had extended Co., (Tex.App.- Ins. 731 S.W.2d third-party automobile in beneficiaries of n.r.e.). 1987, writ ref'd Dist.] Houston [14th policies, surance it refused to extend stand court, Chaffin, discussing stated that the ing third-party policies claimants of those ‘person’ that the term Texas court “held (citing Dairy art. 21.21. Id. at 150 under or a art. 21.21 means either insured bene Childress, County land Mut. Ins. Co. v. Warfield, ficiary policy.” 904 F.2d at (Tex.1983)).3 S.W.2d 770 Hosp. 326. The second case was Hermann Co., unique Due to the nature of the Ins. National Standard case, Palma, policy in the instant [1st Dist.] - Houston policy, party analysis who has obtained trate. we will refer to the third though by the be- it were conducted trial court judgment is an intended an insured adopted magistrate's cause it tions. recommenda- third-party beneficiary insur- of the automobile standing in order to ance and is entitled to Dairyland County policy provisions. enforce the Dairyland purposes the court held Mut. Ins. 650 S.W.2d at 775-76. recovering attorney's fees under an automobile Watson, third-party claimant in district unlike the court was correct when found that satisfies most of the the factors discussed standing Palma lacked to sue under art. Supreme weighed the Texas Court 21.21. against standing in that case. Palma had a 1. THIRD-PARTY BENEFICIARY insured, Federal, contract with the STATUS mortgage. the form of a Palma law, Under Texas in order for Palma premiums for the insurance. Ad- qualify as a third-party beneficiary ditionally, designated by Palma is name in insurance contract she prove the certificate of insurance issued must three (1) things: Federal. The considerations that privy she was not to the weighed against standing weigh in Watson agreements written between Verex and granting standing (2) favor of in- Federal; that the contract was made at stant case. because the court did benefit; (3) part least in for her that the expressly state that these factors were contracting parties intended for Palma to deciding be used when whether a benefit agreements. their written Tal standing entitled to under art. 21.21 we must man Home Fed. Sav. & Loan Ass’n Illi Supreme determine what the Texas Court Ins., nois v. American Bankers presented would do if it were with the issue (5th Cir.1991) (internal citations before us. omitted). presented point “When with an unsettled It undisputed is that Palma was not law, of state our role under Erie is to deter- privy to the contract entered into between Supreme mine how the [Texas] Court would City Federal, Verex and thereby satisfying presented if resolve issue with it.” Coat- analysis. the first element of the Whether DPI, Inc., ings Mfrs., 474, Inc. v. the contract was made for her benefit is (5th Cir.1991). by 479 The factors discussed solely language derived from the of the con Supreme the Texas Court in Watson tract. Id. weighed against extending standing to the third-party present claimant that case are Condition 15 of the contract for This, in the instant case. combined with the insurance states: unique insurance, nature of we be- 15. NO RIGHT OF SUBROGATION impacts analysis standing lieve on our AGAINST THE BORROWER. The Bor- Consequently, under art. 21.21. conclude rower Company shall not be liable to the Supreme that if the pre- Texas Court were for loss to the Insured question sented with the before us it would however, policy; provided, to this that the standing hold that under art. 21.21 is satis- real single-family estate shall consist of a by only fied not those can who establish dwelling occupied Borrower; by the other- privity of contract represen- or reliance on a wise, Company reserves the insurer, by tation of the but also those who make a claim the Borrower for they can establish that were an intended or suffered third-party beneficiary of the insurance con- Company. Therefore, tract.4 we must determine language only, This third-party whether Palma was an intended benefits the borrower beneficiary very of the contract between this case Palma. Yerex next City and Federal in order to determine if the condition in the contract states: see, Co., Mtg. 4. But Mtg. Pineda v. P.M.I. Ins. 843 late court's decision. Pineda v. P.M.I. Ins. 660, Co., (Tex.1993). (Tex.App. Corpus S.W.2d 665 Christi 851 S.W.2d 191 While we are - curiam, 1992) per holdings writ denied appellate 851 S.W.2d 191 not bound of state (Tex.1993). Pineda, courts, Corpus disregard Christi court we are not to them unless we stated, persuasive “[T]he [borrowers] were neither insureds are convinced other data that the [mortgage policy, Supreme under the insurance] nor in Texas Court would rule otherwise. privity 223, contractual with [insurer]. Nor were West v. American Tel. & Tel. 311 U.S. 179, policy (1940). beneficiaries under the of insurance 61 S.Ct. 85 L.Ed. 139 Although to ... weighed lender.” Id. the Texas Watsons discussion of factors that writ, Supreme against standing Court denied it stated that it was under art. 21.21 in that case approving disapproving appel presents neither us with such data. 1458 (Tex.Civ.App. APPLI- PROVISIONS S.W.2d TO WHOM n.r.e.); Talman, 924 F.2d at writ ref'd see CABLE. Bank). binding and be Republic benefit of (quoting inure Nat’l

shall Company and the Insured and stranger insurance contract is not assigns. Federal; and their successors she is between Verex specifically identified borrower as the law, Texas contracts Under Consequently, itself. the Talman written; however, generally are enforced analysis. decision does affect our interpret are ambiguous insurance contracts National Union ed insurer. clearly in- The contract insurance was Co., Inc., Energy Ins. Co. Hudson Fire tended, part, Palma.5 Conse- benefit (Tex.1991). interpreta having three sat- quently, the elements been contract, including an tion of isfied, we find Palma is an intended ambiguous, legal determina it is is a whether third-party beneficiary of the contract for subject Truehart v. to de novo review. tion mortgage insurance entered into between (5th Cir.1989). Blandon, F.2d Federal. Verex Therefore, Condition 15 we must examine in- Having that Palma is an determined 16 in order to determine and Condition third-party beneficiary, ap- it would tended ambiguity exists. grant a reversal pear that of the trial sole 15 is written for the benefit Condition summary judgment on this issue is all policy specifies addi- of the borrower. finding for us to do. remains 16 which tional beneficiaries Condition alternatively the trial found fact seven court policy provisions are written states that third-party if Palma that even were a benefi- Federal. for the benefit ciary she could not enforce the contract for mutually condition exclusive. Neither This insurance. alternative However, provisions create if these two upon interpretation based the district court’s ambiguity against it is to be construed Verex. language contained Condition 15 of within Co., Fire Ins. 811 S.W.2d at National Union relating contract for to wheth- insurance event, any ambiguity In we find upon validity dependent er the contract’s was by Conditions 15 and 16. We also created occupying the property. Palma actually the insurance contract was find that made, part, for of Palma. the benefit 2. OWNER OCCUPANCY Finally, must if Verex we determine review novo and We conclusions of law de the contract to Federal intended benefit findings of fact for clear error. Switzer contracting parties The intent Palma. Stores, Inc., 52 F.3d Wal-Mart from four corners of is discerned (5th Cir.1995). The classified district court Talman, 924 F.2d at instrument. See applica its alternative determination of the (“It purpose of the con is the intention and bility upon of Condition which focused parties, as within the tracting disclosed four occupancy, finding of fact. instrument, corners of the which should con finding upon because this was based an inter omitted). trol”) (internal citation pretation policy of the it is reviewed as a “[wjhere court One Texas has stated conclusion of law. Harbor Ins. v. Urban Co. stranger contends that it was intended that Co., (5th Cir.1993). Constr. contract should inure to Consequently, we a de novo review. conduct clearly must be his benefit such intention Condition 15 that the borrower If states apparent. concerning there is doubt appears is not liable Verex “for to the regard the intent in this as it itself, provided, policy; should be con- Insured to this such doubt however, Republic that the real estate shall consist of strued such intent.” Nat’l Co., single-family dwelling occupied by Ins. the Bor- Bank v. Nat’l Bankers 427 a Life 5. See "CONTRACTUAL RIGHTS AND ASSIGN- conferred on Palma. MENT", infra, for a discussion of benefits added). (emphasis Consequently, to determine the amount of the rower." Palma was re- we must determine whether Verex was entitled to collect. property at the time of quired occupy five, finding In of fact number the trial protec- to be entitled to the default order court found that Palma was entitled to a to borrowers Condition 15.

tion afforded $30,800 proceeds credit amount of —the provides guidance us with no Condition 15 received at foreclosure. of fact occupancy is to be determined. as to when six, number the trial court found that “the occupancy is determined at the time the owing, debt due and applying after into, then Palma is contract was entered credits, $115,825.14.” proper all lawful and is clearly language of Condition 15. within This is the amount that the trial court deter- occupancy at if is determined mined that Federal was entitled to col- default, court cor- time of then district lect from Palma —the same amount that was rectly that Palma was afforded no found ultimately assigned to Verex. The trial court ambiguity apparent protection. The and it fact”, findings “findings classified these Nation- interpreted must be Verex. were based the trial court’s Co., Fire Ins. at 555. al Union interpretation of conditions contained in the Therefore, occupancy we hold that is deter- Consequently, contract for insurance. we at the time the contract of insurance mined conduct a de novo review in order to deter- , policy entered into and the was issued. mine the trial court when it erred deter- determination, find As a result of this we mined the amount of the due and in its alternative that the district court erred owing by Palma. Harbor See Ins. finding, and hold that Palma satisfied the at F.2d language policy occupying of the dwelling at contract of insurance the time the

was entered into and the was issued. Bidding a. Condition 10 and error, impact concerning Requirements ability to enforce the terms of the When Federal elected to collect mort- contract, is discussed below. gage the contract for THE B. ASSIGNMENT OF DEFICIEN- imposed bidding requirements BALANCE CY upon City bidding require- Federal. These assignment contends impacted ments therefore the amount that deficiency balance to Verex violated her con- might remain as a after fore- statutes, rights, specific tractual and/or property. closure The relevant public policy of the State of Texas. We will policy conditions of the form read as follows: arguments. address each of these 10. PROCEDURE UNDER ... FAULT 1. CONTRACTUAL RIGHTS AND AS- also to Insured shall furnish the Com- SIGNMENT (15) pany, days prior at least to the fore- Palma, by virtue of her status as a sale, any, indicating if closure a statement third-party beneficiary, is a borrower who due, anticipated the amount to be at the Eastex, rights. Temple has contractual See sale, time to the Insured under the Partners, Ltd., Inc. v. Old Orchard Creek policy required terms of the and shall be to (Tex.App. writ - Dallas bid, sale, at the the amount due to the denied). She is entitled to enforce the condi (em- policy Insured under the terms policy tions contained the insurance added).... phasis (the “third-party her. affect See id. benefi ciary” OF LOSS —The rely upon ... is entitled to and to COMPUTATION payable amount of loss to the Insured shall provisions.). enforce all of the contract’s Al principal be limited to the balance due though erroneously the trial court found that mortgage agreement, Palma was not to to the accu- entitled enforce the condi insurance, computed through tions contained in the contract for mulated- interest proceeded conveyance, it interpret the conditions con date of the tender of as here- (penalty tained in the contract for insurance in order inafter set forth interest exclud- ed), hazard insurance entire amount taxes and due under the terms of the real estate necessarily mortgage if advanced. intended to collect mort- premiums gage proceeds after foreclosure. PAY A TO PERCENT- 13. OPTION THE AMOUNT DUE —In lieu AGE OF approach urged contrary Palma mortgage conveyance of the title to the ques it the law as existed at the time payment in accordance with premises and challenge If a tion. debtor wanted to Company shall have the Condition amount bid the lender at foreclosure the option paying percentage of the required law in Texas debtor establish: amount due to the Insured accordance (1) proceeds the amount of received coverage with the amount of selected and “grossly from at sale foreclosure was inade paid for as indicated on the face of the (2) quate”, irregularity in the fore Certificate, subsequent or Certificate Only closure sale. after a of both amendments, and shall have no claim to “gross inadequacy” irregularity estate, payment such full said real be prohibit proceeds being the court discharge Company’s of the lia- and final calculating deficiency. Thomp used bility. Chrysler Corp., son v. First Business Credit that under the Palma contends writ). Although approach was amended above, quoted intended to 1991,7 early statute the amendment proceeds collect the concerning does not affect our decision what required total amount was to bid the of the legally obligated amount the lender was foreclosure, thereby eliminating due at debt prior statutory change. bid to the balance on the note. requires Condition the lender to bid trial court considered Palma’s “full- (1) either: the full amount of the balance due argument” rejected debt bid it. find- note, (2) on the as defined Condition ing fact number one the court found that twenty-five percent no less than of the bal- require 10 did not the lender to Condition approaches per- ance. Either of these pay at as its bid foreclosure sale the full mitted under the terms of the contract for amount of the loan. the trial court insurance, long as the amount bid was not require specify did not what Condition 10 did “grossly inadequate” and there had been no Federal. irregularity in the foreclosure sale. Argument” b. “Full-Debt Bid By requiring the lender to bid minimum twenty-five Federal intended to percent collect the of the total amount proceeds being due before entitled to collect insurance foreclosure, after Condition 10 it to the borrower was afforded some [City degree bid “the amount due to under Federal] of assurance that he would be receiv- policy.” ing the terms contends a fair credit on his balance. that the amount due under the terms of the The lender still had to bid an amount that by law, looking complied is to be determined at the with Texas and this amount 11, language might contained in twenty-five Condition entitled be more than the minimum “Computation of adopt percent, Loss”. we were to no event should it have been Palma, reasoning preferred by the we would less. The lender an could also bid amount requiring be lenders who entered into twenty-five percent con that was both less than 24, 1984,6 prior February law, long tracts to to bid the and not violative of Texas as he request On this date the Texas Board of Insurance that the court in which the action is 44262, issued Board Order in which the lan- pending to determine the fair market value of the guage governing bidding requirements was delet- property date [foreclosed] real the ed. foreclosure sale. If the court determines that the price fair market value exceeded the foreclosure judge-made changed by 7. This was statute rule foreclosure, person against at the time of the April legislature when the Texas enacted deficiency sought whom the is entitled to an Code, § Property 51.003 of the Texas which equal offset to the excess amount. among changes, permitted other the to borrower deficiency mortgage guaranty properly credit the balance that collect intend to did not Only when the lender after proceeds. would have remained foreclosure. Pal- insurance proceeds $37,139.72 insurance would ma was to a credit of to collect entitled intended foreclosure, of the con- obligated proceeds under the terms leaving he be from the sale at twénty-fíve per- $111,447.16.10 deficiency a minimum tract to bid balance of As dis- cent, assuming that this amount was neither cussed below the trial court further erred of an inadequate” nor the result “grossly it deficiency when failed to credit with foreclosure sale. irregularity the proceeds by City the insurance received Fed- eral. case, City pur- In instant Federal $30,- at foreclosure for property chased the c. Condition 15 and Waiver amount was then credited 800.8 This Subrogation The trial court balance. by City amount bid Federal , found that rights Condition 15 waived Verex’s to “grossly inadequate”. It is not nec-

was not pursue Palma “for in trial essary for us to determine whether the policy.” to this sured The amount amount it found that court erred when $51,122.47. City Federal was It is “grossly inade- by City Federal was bid clear that Palma was entitled to enforce the it is clear that the trial court quate” because rights subrogation present waiver of in Con it found that there had been erred when dition which entitled her to a credit of 10 of contract. violation of Condition $51,122.47 assigned by City on the amount Federal to Verex.11 The trial court should interpreted If the trial court had Condition properly have written, City credited balance have found that 10 as paid by owed Palma with the amount a minimum Federal was to submit $37,139.72.9 City If it Verex to Federal. had done so it twenty-five percent, or bid of interpreting assigna would have found that the trial court’s error Condi- $60,326.69.12 it failed to ble to Verex was compounded tion 10 was when .25, money x 9. Total indebtedness at time of foreclosure 8. Palma entered into an earnest = 7, 1988, $148,558.88 $37,139.72. April x with a third on wherein or: .25 $60,000. purchase price parties agreed ato Then, — approve the sale. Federal refused 10. Total indebtedness at time foreclosure 28, 1983, — pur property = on November $148,588.88 $37,139.72 sale or: $30,- by City chased at foreclosure Federal for $111,447.16. pro Federal then collected insurance $51,122.47 subsequently sold the ceeds of Ass'n, 11. But Hunt v. Sav. & Loan cf. Jefferson $57,000 property approximately just two assigned Verex then was months later. denied, denied), writ cert. 489 U.S. deficiency remaining pursue Palma on the Hunt, (1989). S.Ct. 103 L.Ed.2d 837 the note. the court found that the borrower was not enti Verex, trial, general counsel for Thomas At proceeds tled to an offset for Anderson, occasionally stated that Verex advised received the lender. The instant case is dis foreclosure, as to what amount to bid at lenders tinguishable offsetting we are not because remember for certain if had but could not Instead, amount recoverable the lender. City Federal in the instant case. This is advised crediting proceeds against are practice, light peculiar fact assigned by amount the lender to the insurer disregarded the terms of the prohibits the in because the insurance contract bidding insurance contract that dictated at fore- recovering proceeds. those Addition surer from closure. ally, Hunt was written the since the time that insurer, apparent It is that a who 51.003(d), legislature § has enacted which Texas assignment pursue bor- intends to receive requires defi the lender to credit borrower's deficiencies, has an interest in the rowers pro ciency any balance with property being sold at foreclosure for the lowest ceeds that are received. This enactment essen all, price possible. obligated After the insurer is tially reverses Hunt. pay proceeds contract to the insured. If he to can minimize the amount closure, received at fore- 12. remaining then the amount of the defi- (total $148,588.88 ciency larger. dangers at time fore- This is one of the indebtedness will be closure) policy language protected against, that the and it - 37,139.72 (minimum interpretation provides support $ bid Condi- to our of the con- 10) at in the instant case. tion tractual conditions issue stated, viously in violated Condition 15’s limita by the trial court commited errors The rights. subrogation tion on Under amount of the Verex’s determining the than finding agreement in art. 21.21A the was “other as it to further err caused balance expressed policy” in the and therefore finding of fact number eight. was. number fact illegal. “It is a familiar law of contracts that the stated that “Verex is trial court eight the claimed, illegal agreement an is unenforceable.” Di and has assignee of the Houston Ins. Francesco v. Gen. it under the lawful as- right to recover the (Tex.App S.W.2d This is erro- agreement.” signment - Texarkana writ). agreement illegality of the assignment agreement vi- no the neous because contract, right giving pursue Verex the to Palma for express terms of the the olated deficiency provides independent the rights as a third- violating Palma’s thereby reversing judgment of ground for the of the errors beneficiary. As result facts, trial court. finding trial court’s present judgment trial must reverse 3. PUBLIC POLICY court. judg Our decision to reverse the 2. ILLEGAL ASSIGNMENT strengthened by court is ment of the trial considerations; assignment contends public poli public policy City Feder entered into between agreement cy may of the State of Texas be derived from illegal it violated because constitution, statutes, al and Verex judicial its deci Code, the Texas Insurance art. 21.21A of Dairyland County sions. Mut. Ins. Co. part: provides, (Tex.Civ. which Wallgren, 477 n.r.e.). App. writ ref'd Worth may any insurer ... make 1. No Section - Fort Terms and conditions the contract for agreement as to of insurance contract insurance, prescribed which have been expressed than other such contract Board, approved by represent the Insurance policy issued thereon.... public policy of the state. Id. any any person violates Section contrary to actions the Board which are Article, person provisions of this relevant statutes or decisions of the courts do shall, penalty spe- in addition to other represent public policy. See American guilty of a A cifically provided, be Class Ranzau, Liberty Ins. Co. v. 481 S.W.2d misdemeanor. (Tex.1972) (“the may not 796-97 Board act commissioner, upon giving 4. The Section with, contrary only and in consistent mail, hearing by days’ notice of certified of, statutory express pur furtherance may hearing, suspend or cancel . County poses.”); Nat’l Mut. Fire Ins Co. v. certificate, charter, permit, or license Johnson, 829 S.W.2d engage in the business of insurance 1) (Insurance 1992, aff'd, -Austin association, society, corporation, or contrary Board’s actions which are to ex violating Arti- person of this legislative press represent pub do not cle. policy). lic agreement entered into between Ve- City clearly violated the In the instant case there are no stat rex and judicial period original assign- for insurance. The utes or decisions for the time gave question provide guidance us with agreement ment Verex the determining public policy as it relates to pursue Palma for the entire amount agreement propriety assignment This amount included balance. had entered into between Verex and Federa the amount which Verex which, pre- language l.13 because the con- Federal in insurance — 51,122.47 (Condition public policy subrogation $ 15 limit on It is clear that the current assignment agreement clearly prohibits the Texas _ rights)_ statute, partially at issue. The current which 60,326.69 (amount assignable $ Feder- insurance, mortgage guaranty part governs al) provides: insurance was ex- Because she did not raise the other claims on in the contract for tained adopted by appeal, disposition the Texas the trial approved and court’s of those pressly Insurance, a basis for other claims is final. of we have See Matter Texas Board of discerning public policy Mortgage Corp., as it relates to Texas’ Servs. (5th Cir.1985) (“issues Wallgren, supra. appeal actions of Verex. See not raised on Appellant may the brief be considered May the Texas Board of On waived, and cannot be noticed or enter- 13772. As Insurance issued Board Order by Appeals”). tained Court The finali- statute, by incorporated ev- ty rulings precludes those other her from ery condition contained in the order into its qualifying a representative class in the policy for insurance. Included subsequently event a class is certified where- 10 and which the order were Conditions representative in the class asserts claims that 'discussed, previously violated were both substantially are the same or similar those by City and Federal Verex. Condition by appealed. asserted Palma which were not when failed to was violated 23(a) (class representative See Fed.R.Civ.P. foreclosure, proper at which re- place a bid “fairly adequately protect must the in- larger deficiency would have sulted a than class”). Therefore, terests of the we need placed proper Federal had a existed not determine whether trial court erred pursued Palma for this bid. Verex then when it denied class certification. deficiency crediting it with incorrect without proceeds paid of insurance the amount City Federal. Their failure to credit IV. CONCLUSION deficiency balance resulted in a violation of requests this court to reverse the 15. The violations of Condition Conditions judgment However, of the trial court. public policy violations of the and 15 were only adequately issues that have been briefed they provide of Texas and of the State wrongful foreclosure, are those relate to independent reversing judg- for basis for Verex’s counterclaim court. ment of the trial fees, attorneys’ grant summary and the CERTIFICATION C. CLASS judgment standing to Verex on the issue of im- Palma contends that the district court Accordingly, under art. 21.21. our reversal properly considered the merits of the case judgment of the trial court’s is limited to determining

when whether the case should those issues. All issues not raised are be certified as a class action. There were judgment waived and the as to final those separate approximately sixteen issues dis- Therefore, judgment other issues. posed judgment, in- the trial court’s part, trial court is REVERSED in AF- certify cluding the trial court’s decision not to part, FIRMED in and the case is REMAND- claims in a class action. proceedings ED for further consistent with only ap- issues addressed Palma on opinion. (1) grant peal are: the trial court’s of sum- mary judgment based its of lack DAVIS, Judge, W. Circuit EUGENE (2) 21.21, standing to sue under art. dissenting: judgment denying trial court’s Palma relief (3) foreclosure, majority’s wrongful disagree legal the trial I with the conclu- beneficiary judgment third-party claim sion is a Verex’s that Palma attorneys’ policy. I and the related claim for fees. of Verex’s therefore dissent. squarely mortgage guaranty pursue No Palma for a falls provision prohibition restricting shall contain a which allows subro- within the insurers from gation rights pursuing or other claim the insurer borrowers for deficiencies via “subro- deficiency arising gation rights the borrower other claim”. single-family the contract for between Ve- foreclosure sale of because dwelling occupied by prin- rex and Federal was entered into in late borrower as cipal public policy we must determine residence of the borrower. what Texas, 1A(c) (Vernon mortgage guaranty § insur- Tex.Ins.Code Ann. Art. 21.50 of ance, as it relates 1996) added). (emphasis Assignment was at that time. beneficiary occupy not the 15 of the because she did majority holds that Clause The Therefore, third-party beneficiary defaulted. premises a when she policy makes Palma pro- right to claim a waiver of subro- contract. Clause she has to the insurance gation. vides: OF SUBROGATION NO RIGHT however, assume, that this Even we THE BORROWER.

AGAINST ambiguous as to when the clause is borrower not be liable to the Borrower shall occupy premises, I still con must the any loss to the Insured Company for third-party that Palma not a benefi clude is however, policy;' provided, pursuant to this ciary. requires claiming .that one Texas law estate shall consist of sin- that the real third-party beneficiary that to be a establish dwelling occupied by the Bor- gle-family clearly parties intended to the to the contract otherwise, rower; Company the reserves Corpus benefit her. In Christi Bank & claim the Bor- right to make a (Tex. Smith, Trust v. 503-04 any paid or suf- rower for loss 1975), Supreme the Texas Court summarized Company. fered this well-established rule as follows: that, majority when its agree I with the contracting parties The intention of the met, designed are Clause 15 is conditions controlling significance to a determi- is subrogation the in- a waiver of from afford may party that a third enforce the nation me, It is clear to surer to the borrower. intent, provision. deriving In contract however, that in this case all of the conditions begin presumption par- that must with met; which served the real estate themselves, were ties contract for and a contract subject loan was not a for the as collateral having will not be construed as been made dwelling occupied by family the bor- “single parties of third it for the benefit unless of the loss. at the time rower” clearly appears that such was the intention (citations contracting parties, omit- majority disposes occupation ted). concluding policy is condition interpretation ambiguous reasonable conclusion, Contrary majority’s to the —one requirement occupation must be met bootstrap third-party cannot ben- issues; another is that at the time the eficiary ambiguous provision. status from an be met at the time of the loss. must clearly contract demonstrate that must Having ambiguous, declared Clause parties intended to benefit her. ambiguity against majority then resolves the Republic National Bank v. National majority concludes that the insurer. The Banker’s Insurance Life therefore, Palma, beneficiary third-party is a n.r.e.), (Tex.Civ.App. writ refd though, even at the time she defaulted upon by majority, purport relied does not loan, long to live on the she had since ceased case, a different rule. In that to announce premises. an intermediate Texas court stated the third- majority, ambiguity party beneficiary I find no rule as follows: “Where a Unlike the stranger reader on the contends that it was intended that It focuses the Clause period: “the borrower shall not of a contract should inure to relevant time company any clearly to the loss his benefit such intention must be be hable policy.” apparent. concerning If to this This there is doubt insured regard appears as it phrase orients the clause toward the time the intent itself, such doubt should be con when the insured suffers a loss. And the Id. at A can occur is the date on strued such intent.” earliest such sum, stranger I to a contract is one who is not a which the borrower defaults. read give party borrower the to the contract. As evidenced her Clause 15 to beneficiary any right third-party sta the insurer waive efforts achieve insist tus, Palma was not a to this insurance subrogation against her for if, if, only proceeds paid to the insured contract between Yerex and Federal. any lingering point, on this occupied premises at the there is doubt the borrower Thus, interpreting mortgage guar- time of the Palma is not a the Texas cases default. unanimously policies hold that anty insurance to such contracts. is not

a borrower Mortgage Ins. v. PMI

Pineda 1992), (Tex.App. Corpus Christi - curiam, per 851 S.W.2d

writ denied

(Tex.1993); v. Atlantic Fin. Mort Shields 441, (Tex.App.-

gage Corp., 799 S.W.2d writ); Hunt v. El Paso Jefferson Assoc., 762, 765

Savings Loan & denied), cert. writ

denied, 489 U.S. 109 S.Ct. (1989).

L.Ed.2d 837 conclusion, Palma was not occu- because premises at time the insured

pying the loss, clearly estab- Palma cannot

suffered third-party beneficiary of that she is a

lish And, third-party benefi- 15. without

Clause status, may

ciary not claim the benefit subrogation policy’s waiver of clause.

I therefore affirm the district

judgment.

Phillip CAPPELLO, individ R. and Edna

ually Phillip Cappello R. as Admin Cappel the Estate of Kirk P.

istrator of

lo, Plaintiffs-Appellants,

DUNCAN AIRCRAFT SALES OF

FLORIDA, Inc., Defendant-

Appellee.

No. 94-5543. Appeals,

United States Court

Sixth Circuit.

Argued June

Decided March

Case Details

Case Name: Palma v. Verex Assurance, Inc.

Court Name: Court of Appeals for the Fifth Circuit

Date Published: Apr 16, 1996

Citation: 79 F.3d 1453

Docket Number: 95-20034

Court Abbreviation: 5th Cir.