

Opinion issued April 19, 2012
 

In The
Court of
Appeals
For The
First District
of Texas
————————————
NO. 01-10-00740-CV
NO. 01-10-01150-CV
———————————
Javier Alvarado, Appellant
V.
Lexington
Insurance Company,
Appellee

 

 
On Appeal from the 11th District Court
Harris County, Texas

Trial Court Case No. 2009-36711A
 

O P I N I O N
          Appellant,
Javier Alvarado, sued Lexington Insurance Company (“Lexington”) for breach of
contract, breach of the duty of good faith and fair dealing, and violations of
the Texas Insurance Code and the Deceptive Trade Practices Act (“DTPA”) after
Lexington rejected Alvarado’s claim for property damage following Hurricane
Ike.  The trial court rendered summary
judgment in favor of Lexington.  In one
issue, Alvarado contends that the trial court erred in rendering summary
judgment because Lexington did not conclusively negate Alvarado’s status as a
third-party beneficiary under the “force-placed” insurance policy issued by
Lexington to Alvarado’s mortgage lender.
          We
reverse and remand for further proceedings consistent with this opinion.
Background
          Before
May 2008, Alvarado maintained homeowner’s insurance on his property with
Columbia Lloyds.  Alvarado testified by
affidavit that when he refinanced his mortgage in May 2008 with Flagstar Bank
(“Flagstar”), a Flagstar representative informed him that he had to cancel his
policy with Columbia Lloyds and that Flagstar would obtain homeowner’s
insurance on his behalf.  Flagstar
obtained a “force-placed” insurance policy on Alvarado’s property with
Lexington (“the Policy”).[1]  Alvarado’s monthly payments to Flagstar
included the principal and interest on his mortgage, as well as taxes and the
premiums on the Policy.
          In
September 2008, Alvarado’s property sustained damage as a result of Hurricane
Ike.  Flagstar made a claim on the
Policy, and Lexington paid Flagstar $4,410.49 in damages.  According to Alvarado’s affidavit, Flagstar
did not provide any of these funds to Alvarado for the purpose of repairs, and
it did not apply these funds to the balance of his mortgage.  The application of these funds is not part of
the record.
          After
Lexington denied his claim for damages, Alvarado sued Lexington for breach of
contract, breach of the duty of good faith and fair dealing, and various
violations of the Texas Insurance Code and the DTPA.[2]  Alvarado alleged that he was the owner of the
Policy and that Lexington had “sold the policy, insuring the property to
[Alvarado] or [Alvarado’s] predecessors in interest.”  Among other allegations, Alvarado argued that
Lexington “failed to perform [its] contractual duty to adequately compensate
[Alvarado] under the terms of the policy” and that Lexington “misrepresented to
[Alvarado] that the damage to the property was not covered under the policy,
even though the damage was caused by a covered occurrence.”
          Lexington
moved for traditional summary judgment. 
It argued that Alvarado could not recover on any of his claims because
Lexington never entered into a contract with Alvarado; Alvarado was neither a
named insured nor an additional insured on the Policy; Flagstar obtained the
Policy “to protect its interest in the residence for which Flagstar was the
mortgagee”; the Policy provided that all payments for damages were to be made solely
to Flagstar; and the Policy “expressed no intent to benefit [Alvarado] in any
way.”  Lexington contended that Alvarado
did not qualify as a third-party beneficiary of the Policy and that, as a
result, no legal relationship existed between it and Alvarado and Alvarado
lacked standing to bring his claims.[3]
          As
summary judgment evidence, Lexington attached a copy of the Policy as Exhibit
A.  Lexington pointed out that the “Common
Policy Declarations” in the Policy provide that “Flagstar Bank, FSB” is the
“named insured” and that the “Mortgage Guard Property Policy” sectionfurther
defines “named insured” as “the Lending Institution named on the Declaration
Page” and “you” as “the Named Insured shown in the Declarations.”  It further pointed out that the Policy
states, “In consideration of the premium to be charged we will (as shown on the
Declaration Page) insure . . . the Lending Institution
(you, as shown on the Declaration Page) against direct physical loss resulting
from destruction of or damage to your property . . . .”  It also pointed to language in the Policy
stating that the Policy provides coverage for the dwelling, other structures on
the property, personal property, and loss of use “in which the insured has a
mortgage and/or owner interest.”Lexington argued that, although the Policy
covers personal property, that coverage is limited to the extent to which
Flagstar, as the named insured, has a mortgage or ownership interest in the
property.
The Policy also includes the following “Mortgage
Clause”:
 
Loss, if any, under this policy will be payable to the
mortgagee (or trustee) as its interests may appear under all present or future
mortgages upon the Covered Property described on the reporting forms in which
mortgagee may have an interest as mortgagee (or trustee) in order of precedence
of said mortgages.
 
Lexington pointed out that the “Loss Payable” clause
provides, “Loss will be adjusted with and made payable to you unless another
payee is specifically named.”  It
observed that this clause does not provide that Alvarado, the borrower, is
entitled to proceeds in excess of Flagstar’s insurable interest in the
property, nor does it allow Alvarado to participate in the claim adjustment
process.  It emphasized that neither
Alvarado nor his property is specifically mentioned in the Policy.
          In
response to Lexington’s summary judgment motion, Alvarado argued that
Endorsement #12 to the Policy, entitled “Special Broad Form Homeowners
Coverage,” expressly provides homeowners’ coverage for homeowners of properties
specified on reporting forms referenced by the Policy.  He argued that this endorsement directly
benefits him and supports his third-party beneficiary status.  Alvarado pointed to language in Endorsement
#12 defining “insured” as “[y]ou and residents of your household” and defining
“insured location” as the “residence premises,” which is further defined as
“[t]he one family dwelling where you reside.” 
He contended that this language refers to him and not to Flagstar, the
mortgage company.  Alvarado also pointed
out that Endorsement #12 provides coverage for direct physical loss to
property, additional living expenses, personal property damage, personal
liability for suits brought against the insured for bodily injury or property
damage, and medical payments to others.  He
contended that this coverage could only apply to him and not to Flagstar.  He also argued that Endorsement #12 confers a
benefit upon him because the endorsement’s “Mortgage Clause” provides, “If a
mortgagee is named in this policy, any loss payable under Coverage A or B will
be paid to the mortgagee and you, as interests appear.”  According to Alvarado, “This clearly shows
that the word ‘you’ in the Endorsement refers to
[Alvarado] . . . but it does not necessarily refer to the
mortgagee which would be Flagstar Bank.” 
Therefore, Alvarado contended, because Endorsement #12 “was intended to
confer a direct benefit” on him, he qualifies as a third-party beneficiary of
the Policy.
          Lexington
replied and argued that Endorsement #12 “only provides homeowners coverage for
property and damages in which Flagstar
has a mortgage and/or an ownership interest.” 
(Emphasis in original.)  Lexington
contended that the
Supplemental Declaration
Page [to the Policy] qualifies every
statement made about homeowner’s insurance in the Policy, leaving no doubt
that all homeowner’s coverage statements and inclusions are meant solely and exclusively to pertain to the
insured, Flagstar Bank’s, interest.  Any
references [Alvarado] makes to the Homeowners Coverage Form are limited by the
Supplemental Declaration Page.
 
(Emphasis in original.)  Lexington argued that, under the supplemental
declarations, any coverage provided pursuant to the Policy is limited to
property or damages in which the named insured, which is defined in the Common
Policy Declarations solely as Flagstar, has a mortgage or ownership
interest.  Lexington also argued that the
Policy language clearly defines “you” as the “Named Insured shown in the
Declarations” and that Alvarado is not named as an insured, additional insured,
or third-party beneficiary in any part of the Policy, including Endorsement
#12.
          On
August 19, 2010, the trial court granted Lexington’s motion for summary
judgment.  Because Alvarado’s claims
against Bower, Flagstar, and Proctor Financial remained pending, this was an
interlocutory order that was not yet final and appealable.  Alvarado, however, prematurely filed a notice
of appeal, and the appeal was assigned to this Court and given appellate cause
number 01-10-00740-CV.  Alvarado filed a
motion to sever his claims against Lexington, which the trial court granted,
and the trial court then rendered judgment in favor of Lexington on November
19, 2010.  After the trial court rendered
this final judgment, Alvarado filed a second notice of appeal, which resulted
in appellate cause number 01-10-01150-CV. 
We decide the first-filed appeal, appellate cause number 01-10-00740-CV,
and dismiss appellate cause number 01-10-01150-CV.[4]
 
 
Standard of Review
          We
review de novo the trial court’s ruling on a summary judgment motion.  Mann
Frankfort Stein &Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848
(Tex. 2009).  To prevail on a traditional
summary judgment motion, the movant must establish that no genuine issues of
material fact exist and that it is entitled to judgment as a matter of
law.  Tex.
R. Civ. P. 166a(c); Little v. Tex.
Dep’t of Criminal Justice, 148 S.W.3d 374, 381 (Tex. 2004).When a defendant moves for summary
judgment, it must either: (1) disprove at least one essential element of the
plaintiff’s cause of action, or (2) plead and conclusively establish each
essential element of its affirmative defense, thereby defeating the plaintiff’s
cause of action.  Cathey v. Booth, 900 S.W.2d 339, 341 (Tex. 1995).
          If
the movant meets its burden, the burden then shifts to the nonmovant to raise a
genuine issue of material fact precluding summary judgment.  See
Centeq Realty, Inc. v. Siegler, 899 S.W.2d 195, 197 (Tex. 1995).  The evidence raises a fact issue if
reasonable and fair-minded jurors could differ in their conclusions in light of
all of the summary judgment evidence.  Goodyear Tire & Rubber Co. v. Mayes,
236 S.W.3d 754, 755 (Tex. 2007) (per curiam). 
To determine if the nonmovant has raised a fact issue, we view the
evidence in the light most favorable to the nonmovant, crediting favorable
evidence if reasonable jurors could do so, and disregarding contrary evidence
unless reasonable jurors could not.  See Fielding, 289 S.W.3d at 848 (citing City of Keller v. Wilson, 168 S.W.3d
802, 827 (Tex. 2005)).  We indulge every
reasonable inference and resolve any doubts in the nonmovant’s favor.  See Sw.
Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002) (citing Sci. Spectrum, Inc. v. Martinez, 941
S.W.2d 910, 911 (Tex. 1997)).
Third-Party Beneficiary Status
          In
his sole issue, Alvarado contends that the trial court erred in rendering
summary judgment in favor of Lexington because Lexington failed to conclusively
negate his status as a third-party beneficiary of the Policy.  Lexington responds that this Court should
overrule Alvarado’s sole issue and affirm the summary judgment because Alvarado
failed to plead his third-party-beneficiary status.  It further argues that we should affirm the
summary judgment because Alvarado failed to raise a genuine issue of material
fact with respect to his third-party-beneficiary status.
1.    
Alvarado’s Right to Argue His
Third-Party-Beneficiary Status
          Before
we address the merits of Alvarado’s sole issue, we address Lexington’s
contention that Alvarado was required to plead third-party beneficiary status,
and that, because he did not, we should affirm the trial court’s summary
judgment on that basis alone.
          Lexington’s
contention is without merit.  Lexington
itself raised the issue of Alvarado’s third-party-beneficiary status by arguing
in its summary judgment motion that Alvarado did not qualify as a third-party
beneficiary to the Policy and therefore lacked standing.  Standing is a jurisdictional issue that
cannot be waived and may be raised at any time. 
See Tex. Ass’n of Bus. v. Tex. Air Control Bd., 852 S.W.2d 440, 445 (Tex.
1993).  Here, it was raised by Lexington as grounds for granting it summary judgment
against Alvarado.
          Rule
166a provides that a defendant against whom a claim is asserted “may, at any
time, move with or without supporting affidavits for summary judgment in his
favor as to all or any part thereof.”  Tex. R. Civ. P.166a(b).  The Rule further provides that summary
judgment shall be granted if the motion and the summary judgment evidence “show
that, except as to the amount of damages, there is no genuine issue as to any
material fact and the moving party is entitled to judgment as a matter of law
on the issues expressly set out in the motion or in an answer or other
response.”  Id. 166a(c).  Lexington moved
for summary judgment on all of Alvarado’s claims on the ground that he lacked
standing to pursue them because he was neither a party to the insurance
contract between Lexington and Flagstar nor a third-party beneficiary of the
contract.  Alvarado responded to this
issue in his summary judgment response. 
The issue of Alvarado’s third-party-beneficiary status was thus squarely
before the trial court in Lexington’s motion and Alvarado’s response.  Lexington’s contention that Alvarado may not
seek to overturn a summary judgment on the very issue it presented to the trial
court in its own motion as the basis for granting summary judgment is directly
contrary to the express language of Rule 166a and is without merit.
          We
now turn to the merits of Alvarado’s sole issue. 
2.    
Third-Party-Beneficiary Status Under
Force-Placed Insurance Policies
          Insurance contracts are subject to the same rules of
construction as ordinary contracts.  ArchonInvs., Inc. v. Great Am. Lloyds Ins.
Co., 174 S.W.3d 334, 338 (Tex. App.—Houston [1st Dist.] 2005, pet. denied)
(citing Trinity Universal Ins. Co. v.
Cowan, 945 S.W.2d 819, 823 (Tex. 1997)). 
When a policy permits only one reasonable interpretation, we construe it
as a matter of law and enforce it as written. 
Id. (citing Upshaw v. Trinity Cos., 842 S.W.2d 631,
633 (Tex. 1992)).  When construing an
insurance policy, “[w]e must strive to effectuate the policy as the written
expression of the parties’ intent.”  Id. (citing State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex.
1995)). To discern the intent of the parties to a contract,
the court examines and considers the entire writing to harmonize and give effect to all the provisions of the contract so that none will be
rendered meaningless, no single provision taken alone will be given controlling
effect, and all the provisions will be considered with reference to the whole
instrument.  In re Serv. Corp. Int’l, 355 S.W.3d 655, 661 (Tex. 2011).If the
term to be construed is unambiguous and susceptible of only one construction,
we “give the words in the policy their plain meaning.”  Archon,
174 S.W.3d at 338 (citing Devoe v.Great
Am. Ins., 50 S.W.3d 567, 571 (Tex. App.—Austin 2001, no pet.)).
          In
determining whether a third party can enforce a contract, we look only to the
intention of the contracting parties.  Basic Capital Mgmt., Inc. v. Dynex
Commercial, Inc., 348 S.W.3d 894, 900 (Tex. 2011); MCI Telecomms.Corp. v. Tex. Utils.Elec. Co., 995 S.W.2d 647, 651
(Tex. 1999); Union Pac. R.R. Co. v. Novus
Int’l, Inc., 113 S.W.3d 418, 421 (Tex. App.—Houston [1st Dist.] 2003, pet.
denied).  The fact that a person might
receive an incidental benefit from a contract to which he is not a party does
not give that person a right to enforce the contract. Basic Capital Mgmt., 348 S.W.3d at 899–900; MCI Telecomms., 995 S.W.2d at 651; Union Pac., 113 S.W.3d at 421. 
A third party may recover on a contract made between other parties only
if the contracting parties intended to secure a benefit to the third party and
only if the contracting parties entered into the contract directly for the
third party’s benefit. Basic Capital Mgmt.,
348 S.W.3d at 900; MCITelecomms., 995
S.W.2d at 651; Union Pac., 113 S.W.3d
at 421.  The third party must show that
he is either a donee or a creditor beneficiary of the contract, and not one who
is only incidentally benefitted by its performance.  MCITelecomms.,
995 S.W.2d at 651; Union Pac., 113
S.W.3d at 421.  A party is a donee
beneficiary if the promised performance will, when rendered, come to him as
pure donation.  MCITelecomms., 995 S.W.2d at 651; Union Pac., 113 S.W.3d at 421. 
If that performance will come to him in satisfaction of a legal duty
owed to him by the promisee, such as an “indebtedness, contractual obligation
or other legally enforceable commitment,” he is a creditor beneficiary.  MCITelecomms.,
995 S.W.2d at 651; Union Pac., 113
S.W.3d at 421.
          “We
glean intent from what the parties said in their contract, not what they
allegedly meant.”  Union Pac., 113 S.W.3d at 421. 
We will not create a third-party beneficiary contract by
implication.  Basic Capital Mgmt., 348 S.W.2d at 900; MCITelecomms., 995 S.W.2d at 651; Union Pac., 113 S.W.3d at 422; see
also Tawes v. Barnes, 340 S.W.3d 419, 425 (Tex. 2011) (“[I]n the absence of
a clear and unequivocal expression of the contracting parties’ intent to
directly benefit a third party, courts will not confer third-party beneficiary
status by implication.”).  As the Texas
Supreme Court held in MCITelcommunications,
The intention to contract or
confer a direct benefit to a third party must be clearly and fully spelled out
or enforcement by the third party must be denied.  Consequently, a presumption exists that
parties contracted for themselves unless it “clearly appears” that they
intended a third party to benefit from the contract.
 
995 S.W.2d at 651;see alsoBasic Capital Mgmt., 348 S.W.3d at 900 (quoting same).
Due to the presumption against
finding third-party beneficiaries to contracts, courts will generally deny
third-party-beneficiary claims unless: 
(1) the obligation of the bargain-giver is fully spelled out, (2) it is
unmistakable that a benefit to the third party was within the contemplation of
the contracting parties, and (3) the contracting parties contemplated that the
third party would be vested with the right to sue for enforcement of the
contract.  Union Pac., 113 S.W.3d at 422. 
We resolve all doubts against conferring third-party-beneficiary
status.  Tawes, 340 S.W.3d at 425; see
also First Union Nat’l Bank v. Richmont Capital Partners I, L.P., 168
S.W.3d 917, 929 (Tex. App.—Dallas 2005, no pet.) (“If there is any reasonable
doubt as to the intent of the contracting parties to confer a direct benefit on
the third party, then the third-party beneficiary claim must fail.”).
          Texas’s
third-party beneficiary policy was recently examined and explained by the Texas
Supreme Court in Basic Capital
Management.348 S.W.3d 894.  In that
case, Basic managed real estate investment trusts, including American Realty
Trust, Inc. (“ART”) and Transcontinental Realty Investors, Inc. (“TCI”).  Id.
at 896.  Basic and Dynex signed a Commitment,
in which Dynex agreed to loan funds to “single-asset, bankruptcy-remote
entities” (“SABREs”) owned by ART and TCI if Basic would “propose other
acceptable SABREs to borrow $160 million over a two-year period.”  Id.
at 896–97.  The issue on appeal was
whether ART and TCI could recover damages from Dynex for its alleged breach of
the Commitment as third-party beneficiaries to the Commitment.  Id.
at 898.
The supreme court reasoned that,
because the intention to confer a direct benefit to a third party must be
clearly and fully spelled out in the contract for that party to have standing
as a third-party beneficiary, “a presumption exists that parties contracted for
themselves unless it clearly appears that they intended a third party to
benefit from the contract.”  Id. at 900.Although only Dynex and Basic
had signed the Commitment, “Dynex knew that the purpose of the Commitment was
to secure future financing for ART and TCI, real estate investment trusts that
Basic managed and in which it held an ownership interest.”  Id.  Not only was Basic not intended to be the
borrower, but the Commitment expressly required that the borrowers be SABREs
acceptable to Dynex, and Dynex knew that Basic would not own the SABREs.  Id.  The court concluded that this requirement was
for Dynex’s benefit, since SABREs are designed to provide more certain recourse
to collateral in the event of default.  Id. 
The court pointed out that “SABRE-borrowers provided a mechanism for ART
and TCI to hold investment property directly but in a way that would provide
Dynex greater security.”  Id. 
Thus, “if Dynex and Basic did not intend the Commitment to benefit ART
and TCI directly, then the Commitment had no purpose whatsoever.”  Id.  Moreover, the Commitment “clearly and fully
spelled out the benefit to ART and TCI because their role was basic to Dynex’s
and Basic’s agreement.”  Id. at 901.  The court concluded, “The Commitment itself,
and the undisputed evidence regarding its negotiation and purpose, establish
that ART and TCI were third-party beneficiaries.”  Id.
          Although
Texas state courts have addressed whether a party may be a third-party
beneficiary in the general insurance policy context, they have not addressed
the specific issue of whether a homeowner-borrower qualifies as a third-party
beneficiary under a force-placed insurance policy entered into between the
insurance company and the mortgage company. 
See, e.g., Paragon Sales Co. v. N.H. Ins. Co., 774
S.W.2d 659, 660–61 (Tex. 1989) (holding distributor presented some evidence
that it was third-party beneficiary of indemnity contract between insurance
company and public motor carrier).  As a
result of Hurricanes Dolly, Katrina, and Rita, however, some federal courts
within the Fifth Circuit Court of Appeals’ jurisdiction, primarily in
Louisiana, have addressed this issue and have reached differing conclusions as
to the homeowner’s third-party-beneficiary status according to the specific
terms of the policy and the facts of the case.
          When
deciding whether a homeowner-borrower is a third-party beneficiary under a
force-placed insurance policy, the federal courts applying state law, like the
Texas courts, have looked to the language of the policy to determine whether any
of the provisions clearly confer a direct benefit upon the borrower.  Thus, the Fifth Circuit has found third-party
beneficiary status to exist (1) when the policy, although only listing the
mortgage company as a named insured, contains a subrogation clause providing
that the homeowner-borrower will not be liable to the insurance company for any
loss paid to the insured and (2) when the policy contains a provision allowing
for temporary housing expenses to be paid to the homeowner-borrower.  See
Palma v. Verex Assurance, Inc., 79 F.3d 1453, 1457–58 (5th Cir. 1996)
(subrogation clause case decided under Texas law).  In Palma,
the Fifth Circuit held that the inclusion of the subrogation clause within the
insurance policy demonstrated a clear intention on the part of the contracting
parties to benefit the homeowner-borrower. 
Seeid.at
1458 (“[The subrogation clause] is written for the sole benefit of the
borrower. . . .  We also find that the insurance
contract was actually made, in part, for the benefit of Palma [the
borrower].”); see also Henderson v.
Certain Underwriters at Lloyds, London, Civil Action No. 09-1320, 2009 WL
3190710, at *3 (E.D. La. Sept. 30, 2009) (slip op.) (noting that plaintiff’s
standing was limited solely to seeking temporary housing expenses because this
was only clause in policy providing direct benefit to borrower).
Primarily, the federal district
courts have focused on whether the policy contains one of two specific clauses
that may benefit the borrower:  (1) an
“excess loss” or “residual payment” clause or (2) a clause providing that
the insurer will adjust all personal property losses with, and pay any such
proceeds to, the borrower.  A common
excess loss clause provides as follows:
We will adjust all losses
with you [the mortgagee and named insured]. 
We will pay you but in no event more than the amount of your interest in
the “insured location.”  Amounts payable
in excess of your interest will be paid to the “borrower” unless some other
person is named by the “borrower” to receive
payment . . . .
 
See, e.g., Turner v. Gen. Ins. Co. of Am., Civil
Action No. 5:09cv00057-DCB-JMR, 2009 WL 3247302, at *3 (S.D. Miss. Oct. 7,
2009) (slip op.).  If the policy provides
coverage for personal property, the insurance policy may include a clause
providing that the insurer will adjust all losses to personal property with the
homeowner-borrower and will pay the borrower any proceeds for such loss, unless
the borrower has named another person to receive payment.  Id.
A number of courts in the cases in
which there were force-placed policies with such clauses have found
third-party-beneficiary status for homeowners under the terms of the particular
policy.  For example, in Lee v. Safeco Insurance Co. of America,
the United States District Court for the Eastern District of Louisiana held
that the excess loss clause, which “clearly stipulate[d] that the portion of
any loss payment exceeding the value of [the mortgagee’s] interest in the
property will be paid directly to [the homeowner-borrower],” manifested a
“clear intent to benefit the borrower.” 
Civil Action No. 08-1100, 2008 WL 2622997, at *4 (E.D. La. July 2, 2008)
(not designated for publication); see
Turner, 2009 WL 3247302, at *4; Beck
v. State Farm Fire &Cas. Co., No. 2:07 CV 1998, 2008 WL 4155301, at *2
(W.D. La. Sept. 5, 2008) (not designated for publication) (finding third-party-beneficiary
status when policy contained excess loss clause and provision allowing for
adjustment of personal property losses with and payment of such losses to
borrower); Navarrete v. Gen. Ins. Co. of
Am., Civil Action No. 07-4865, 2008 WL 659477, at *2 (E.D. La. Mar. 7,
2008) (not designated for publication) (same); Peters v. Safeco Gen. Ins. of Am., Civil Action No. 07-5612, 2008
WL 544226, at *1 (E.D. La. Feb. 25, 2008) (not designated for publication)
(same); Martin v. Safeco Ins. Co.,
Civil Action No. 06-6889, 2007 WL 2071662, at *3 (E.D. La. July 13, 2007) (not
designated for publication) (same); see
also Hickman v. Safeco Ins. Co. of Am., 695 N.W.2d 365, 370–71 (Minn. 2005)
(holding same when policy contained excess loss clause, coverage for personal
property, provision that insurer would adjust personal property losses with
borrower and would pay borrower, and provision allowing borrower to seek
arbitration of appraisal of covered loss).
          The
Eastern District of Louisiana has also held, however, that a homeowner-borrower
was not a third-party beneficiary to
an insurance policy containing an excess loss clause when the claimed damages
did not exceed the mortgagee’s interest in the property, as required by the
terms of the policy for her to be considered an additional insured.  Graphia
v. Balboa Ins. Co., 517 F. Supp. 2d 854 (E.D. La. 2007).  In Graphia,
the policy provided that the borrower “shall be considered an additional
insured with respect to any residual amounts of insurance over and above [the
mortgagee’s] insurable interest.”  Id. at 857.  The borrower claimed damages of $56,542.91,
and she presented evidence that the balance remaining on her loan was
$110,000.  Id.  The court noted that
there was “no amount ‘due for the loss’ that exceeds [the mortgagee’s]
insurable interest.”  Id. 
The court concluded, “The contract does manifest a clear intention to
benefit Graphia, but only to the extent that she has an insurable interest in
the property.  The contract evidences no
intent to give plaintiff personal rights in the insurance coverage for losses
that do [not] exceed the mortgagee’s insurable interest.”  Id.
at 858.  Because her losses did not
exceed the mortgagee’s interest in the property, Graphia received only an
incidental benefit from this policy and, therefore, could not enforce the
contract.  Id.; cf. Mingo v. Meritplan
Ins. Co., No. 2:06 CV 1914, 2007 WL 4292026, at *3 (W.D. La. Dec. 4, 2007)
(not designated for publication) (denying insurer’s motion to dismiss for lack
of standing because parties disputed amount of loss and record did not reflect
either amount of mortgage or mortgagee’s interest in property).
          The
federal courts have also found the force-placed homeowner not to be a
third-party beneficiary when the homeowner did not receive a direct benefit
from the policy under the policy’s own terms. 
Specifically, the federal courts have denied third-party beneficiary
status when the insurance policy states (1) that it does not provide coverage
for loss of use, personal liability, or personal property, (2) that the
mortgagee is the sole insured, (3) that the policy is intended to protect the
mortgagee’s interest only and not the borrower’s, or (4) that all losses
will be adjusted with and made payable to the named insured, the mortgage
company.  See Williams v. Certain Underwriters at Lloyd’s of London, 398 Fed.
App’x 44, 48–49 (5th Cir. 2010) (not designated for publication) (policy
specified that mortgagee was sole insured and all benefits were payable
directly to mortgagee); Lumpkins v.
Balboa Ins. Co., 812 F. Supp. 2d 1280, 1283–84 (N.D. Okla. 2011) (policy
provided no coverage for contents, personal effects, personal living expenses,
fair rental value or liability and stated that contract was only with named
insured and only intended to protect named insured’s interest); Barrios v. Great Am. Assurance Co.,
Civil Action No. H-10-3511, 2011 WL 3608510, at *4 (S.D. Tex. Aug. 16, 2011)
(slip op.) (policy specified that, unless homeowners coverage was specifically
added by endorsement, homeowner-mortgagor was not insured under policy); Williams v. Fid. Nat’l Ins. Co., Civil
Action No. 07-4428, 2009 WL 2922310, at *3 (E.D. La. Sept. 8, 2009) (not
designated for publication) (policy specified that, despite insurable interests
of homeowner, only mortgagee was insured under policy); Simpson v. Balboa Ins. Co., Civil Action No. 2:08cv281KS-MTP, 2009
WL 1291275, at *3–4 (S.D. Miss. May 7, 2009) (policy provided no coverage for
loss of use, personal liability, or personal property and no right of borrower
to participate in claim adjustment); Jones
v. Proctor Fin. Ins. Corp., Civil Action No. 06-9503, 2007 WL 4206863, at
*3 (E.D. La. Nov. 21, 2007) (not designated for publication) (policy provided
no coverage for personal property, and adjustment of and payment for loss would
be made solely to mortgagee); Paulk v.
Balboa Ins. Co., No. 1:04CV97, 2006 WL 1994864, at *3 (S.D. Miss. July 14,
2006) (not designated for publication) (same); see also Scheaffer v. Balboa Ins. Co., 1 So. 3d 756, 759 (La. Ct.
App. 2008) (notice of premium informed borrower that he was not insured under
policy, that he was not entitled to receive proceeds, and that policy protected
only mortgagee’s interest).  Mere payment
of the force-placed-policy premiums by the homeowner-borrower, without more,
does not necessarily confer third-party-beneficiary status on the
borrower.  See Scheaffer, 1 So. 3d at 760; Lee,
2008 WL 2622997, at *3 (“Mere payment or reimbursement of insurance premiums by
a plaintiff to an insurance provider does not create a right to recovery under
an insurance policy when the plaintiff is not the named insured and is nowhere
named in the policy.”).
3.    
Alvarado’s Status Under Flagstar’s
Force-Placed Policy
          On
appeal,Alvarado argues that he has third-party-beneficiary status under the
Policy.  He contends that Endorsement #12
to the Policy, which provides “Special Broad Form Homeowners Coverage,” is
analogous to an excess loss clause or a clause allowing for adjustment and
payment of losses to the borrower.  He
argues that it demonstrates that Lexington and Flagstar clearly intended to
benefit him because the terms of this endorsement provide the type of coverage
that he, as the homeowner, would seek to obtain if he contracted directly with
Lexington to procure homeowner’s insurance and that these provisions are
irrelevant to Flagstar as the mortgagee of the property.  He points out that Flagstar required the
Policy when it loaned him the money to purchase his house and took a mortgage
on it.  Alvarado paid the premiums on
this force-placed Policy as a separate part of his monthly mortgage payments,
and Endorsement #3 to the Policy required a higher premium for the Special
Broad Form Homeowners Coverage.
Lexington responds that Flagstar is
the sole named insured in the Policy, that Alvarado is not mentioned in the Policy,
and that the plain language of the Policy can reasonably be construed only as
protecting Flagstar’s mortgage interest in the property up to the extent of
that interest, not as protecting Alvarado’s interest.  It argues, therefore, that the Policy cannot
be construed as intended to benefit Alvarado, as a matter of law; that Alvarado
is not a third-party beneficiary to the Policy under prevailing law construing
force-placed insurance policies; and that Alvarado has failed to raise a
material fact issue as to his third-party-beneficiary status.
a.    
The “Common Policy Declarations” and the “Supplemental
Declaration Page” of the Policy
 
          As
Lexington states, the “Common Policy Declarations” in the “Commercial Lines
Policy” at issue list “Flagstar Bank, FSB” as the sole “Named Insured.”These
Declarations state that the Policy “consists of the following coverage parts
for which a premium is indicated,” namely, a “Mortgage Guard Property Coverage
Part.”  The Common Policy Declarations
then state:
THESE DECLARATIONS TOGETHER
WITH THE COMMON POLICY CONDITIONS, COVERAGE PART DECLARATIONS, COVERAGE PART
COVERAGE FORM(S) AND FORMS AND ENDORSEMENTS, IF ANY, ISSUED TO FORM A PART
THEREOF, COMPLETE THE ABOVE NUMBERED POLICY.
 
For the “Form(s) and Endorsements(s) made part of
this policy at time of issue,” the Common Policy Declarations page states, “See
attached Table of Contents.”  The Table
of Contents lists as “[c]overage forms and endorsements forming a part of this
policy” the “Mortgage Guard Property Policy” and a number of additional
endorsements, including Endorsement #12, a “Homeowners 3 Special Form”
providing “Special Broad Form Homeowner’s Coverage.”  The Common Policy Declarations state that the
complete Policy consists not only of the common declarations and policy
conditions, but also of the coverage part declarations, coverage part forms,
and “the forms and endorsements, if any, issued to form a part” of the
Policy.  In this case, therefore, the
Policy at issue includes not only the Common Policy Declarations and the
Mortgage Guard Property Policy with its declarations, but also Endorsement #12,
the Special Broad Form Homeowner’s Coverage form, with its declarations.
          In
addition to the Common Policy Declarations, the Policy includes a “Supplemental
Declaration Page” that sets out Lexington’s “Limits of Liability” under the
Common Policy:
$1,000,000.  Per property                On
Commercial or Residential Properties*
 
$500,000.  Per location                     Mobile
Home Properties*
 
$1,000,000.  Per property                          Windstorm
and Hail only*
 
Homeowners Coverage as
reported as HO on the reporting form
 
A.   Dwelling-$500,000.  Any one loss*
 
B.   Other Structures-$50,000.  Or 10% of the insured value, whichever is the
lesser*
 
C.   Personal Property-$250,000.  Or 50% of the insured value, whichever is the
lesser*
 
D.   Loss of Use-$100,000.  Or 20% of the insured value, whichever is the
lesser*
 
*in which the Insured has a
mortgage and/or owner interest and which is specifically described in the
Reporting Mechanism agreed upon by the Company.
 
Thus, the Policy provides that Lexington’s liability
is limited to $1,000,000 “per property.” 
Additionally, coverage for properties with “Homeowners Coverage as
reported as HO on the reporting form” is limited to $500,000 for “any one
loss,” plus the lesser of $50,000 or 10% of the insured value for any other
structure on the property, plus the lesser of $250,000 or 50% of the insured
value of any personal property, plus the lesser of $100,000 or 20% of the
insured value for loss of use.  An
asterisk by each of these categories of covered loss limits Lexington’s
liability to properties “in which the Insured has a mortgage and/or owner
interest and which is specifically described in the Reporting Mechanism agreed
upon by the Company.”  The parties do not
dispute that Alvarado’s property was among the properties with “Homeowners
Coverage” reported by Flagstar on Lexington’s reporting form and specifically
described by Flagstar in Lexington’s Reporting Mechanism at the time of the
occurrence made the basis of his claim.
b.    
The “Mortgage Guard Property Policy”
 
          The
“Mortgage Guard Property Policy” provides that “[t]hroughout this policy the
words ‘you’ and ‘your’ refer to the Named Insured shown in the Declarations,”
namely Flagstar, and that “[t]he words ‘we’, ‘us’ and ‘our’ refer to the
Company providing this insurance,” i.e., Lexington.  The Mortgage Guard Property Policy sets out
the agreement of Lexington and Flagstar with respect to this part of the Policy:

In consideration of the
premium to be charged we will (as shown on the Declaration Page) insure (but
only in the event there is no other insurance applicable) the Lending
Institution (you, as shown on the Declaration Page [here, Flagstar]) against
direct physical loss resulting from destruction of or damage to your property,
reported by you on the reporting forms furnished by us, for the Covered Causes
of Loss described in this policy.
 
The Mortgage Guard Property Policy thus protects
Flagstar against physical loss to its property reported on Lexington’s
reporting forms, but “only in the event there is no other insurance
applicable.”
The Mortgage Guard Property Policy
identifies several types of interest the “Named Insured” lending institution,
Flagstar, may have in a property and may report on Lexington’s reporting
forms.  These include a “Loan” consisting
of “an advance of funds or a loan secured by a note and first or second
‘mortgage interest/loan balance’ evidenced by a contract of sale for real property.”  Correspondingly, the Policy defines a
“Borrower” as an individual “obligated on a
‘loan’ . . . and [who] has . . . an
interest in the property securing such ‘loan.’” 
The Mortgage Guard Property Policy states, “Loss will be adjusted with
and made payable to you unless another payee is specifically named.”  The “Mortgage Clause” states, “Loss, if any,
under this policy will be payable to the mortgagee [Flagstar] (or trustee) as
its interests may appear under all present or future mortgages upon the Covered
Property described on the reporting forms in which mortgagee may have an
interest as mortgagee (or trustee) in order of precedence of said mortgages.”Thus,
the Mortgage Guard Property Policy, by its own terms, insures Flagstar against
direct physical loss resulting from the destruction of or damage to “your
property,” i.e., property in which it has a mortgage or ownership interest and
that is reported by Flagstar on Lexington’s reporting forms, if any, in the
event there is no other insurance applicable.
          The
“Policy Conditions” for the Mortgage Guard Property Policy confirm the intent
of the contracting parties to cover physical loss to covered property at
described locations, stating, “Our liability for loss with respect to any
property covered will not exceed the Limit of Liability stated in the
Declarations as applicable, nor exceed, in any event, the lesser of the amount
it would cost to repair or replace with material of like kind and quality, or
the amount of insurance specified on each Covered Property at the Described
Location on the reporting forms completed by you and furnished to us.”
Provisions in the Mortgage Guard
Property Policy specify the means by which Flagstar must report damage for
property; they grant it permission, “[i]n the event of
loss . . . to make reasonable repairs . . . provided
the repairs are confined solely to the protection of the Covered Property from
further damage and provided you keep an accurate record of the repair
expenditures,” to “be included in determining the amount of loss”; they impose
duties of notice, reporting of damage, and protection of the covered property
in the event of loss; they provide for the examination of Flagstar or its
representative “about any matter relating to this insurance or a claim”; and, “[i]n the event of a dual interest,” they
allow Lexington to require the agreement of “any mortgagor claiming coverage or monetary benefit under this
insurance” to “submit to an examination under
oath . . . about any matter relating to this insurance or a
claim.”  (Emphasis added.)  These provisions thus recognize that the
Mortgage Guard Property Policy covers payment for repairs to damaged property
within the scope of the Policy, and they also recognize that a mortgagor, as
well as Flagstar, may claim “coverage or monetary benefit under this
insurance.” 
          It is
undisputed that Alvarado is the owner of residential property described by
Flagstar on Lexington’s reporting forms and that Flagstar reported damage to
Alvarado’s property to Lexington.  It is
not possible to determine from the summary judgment record, however, precisely
what claims either Flagstar or Alvarado submitted to Lexington with respect to
damage to the property or what amount of money for what losses was paid by
Lexington to Flagstar.  Nor is it
possible to ascertain the extent of Flagstar’s mortgage interest in Alvarado’s
property.  However, Alvarado avers that
his property sustained damage as a result of Hurricane Ike in 2008, that
Flagstar made a claim on the Policy, and that Lexington paid Flagstar $4,410.49
in damages.  He further avers that
Flagstar did not provide any of these funds to him for the purpose of repairs
and that it did not apply these funds to the balance of his mortgage.  We find each of these uncontested facts as
stated by Alvarado, the nonmovant, to be true, as we must under summary
judgment law. See Fielding, 289
S.W.3d at 848; City of Keller, 168
S.W.3d at 827.  
          We
conclude that the Policy manifests a clear intent to directly benefit both
Flagstar and “any mortgagor claiming coverage or monetary benefit” for damage
to property under the Policy as their interests may appear as mortgagee or
mortgagor of a covered property at the described locations listed by Flagstar
on Lexington’s reporting forms.  We
further conclude that Flagstar is the mortgagee of Alvarado’s property and that
Alvarado is a mortgagor with an ownership interest in a property described on
Lexington’s forms whose property was damaged and for which Flagstar submitted a
claim and was paid.  However, it is not
possible to determine from the Mortgage Guard Property Policy whether Alvarado
was a mortgagor who had a right to claim coverage under the Policy for damage
to his property.  Therefore, we turn to
Endorsement #12 of the Policy.
c.     
Endorsement #12:  Special Broad Form Homeowners Coverage
          Endorsement
#12, titled “Special Broad Form Homeowners Coverage,” is relied upon by Alvarado
to show his third-party-beneficiary status under the Policy.  It provides the type of coverage that an
individual homeowner would generally seek from an insurance company, instead of
the coverage that a mortgagee seeking solely to protect its monetary interest
in the property would typically seek. 
Endorsement #12 states, “It is understood and agreed [by Flagstar and
Lexington] that the following coverages are added to this policy and that these
coverages apply only to owner occupied properties reported as ‘HO’ property
type by the Insured [Flagstar]:  Special
Broad Form Homeowners Coverage, Homeowners 3, Special Form, ED. 10-00 (HO-3,
Ed. 10-00).”  This statement is
immediately followed by declarations specific to Endorsement #12 that
incorporate the property coverage limits from the Common Policy Declarations
and Supplemental Declaration Page and add additional “Property Coverage,” “Liability
Coverages,” and “Exclusions.”  The
endorsement states, “All other terms and conditions remain unchanged.”  It is undisputed that Endorsement #12 formed
a part of the Policy insuring Alvarado’s property.
The Homeowners Coverage provided by
Endorsement #12 is spelled out on the Special Form.  Section I, “Property Coverage,” provides
coverage up to the “[l]imit stated on the Declaration Page.”  This part of the Homeowners Coverage clearly
references the limits for property damage for residences referred to on the
Supplemental Declaration Page of the Policy. 
In addition, Section II, “Liability Coverages,” provides coverage to the
owners of the specified properties for “Personal Liability” of “$100,000 per
person/$300,000 per occurrence” and coverage for “Medical Pay to others” of
“$1,000 per person/$25,000 per accident.” 
This Homeowners Coverage part of the Policy further provides that “[t]he
combined limit of liability under the policy for Special Broad Form Homeowners
Coverage shall not exceed $1,000,000 for the policy period.”
Endorsement #12 also states that
“[t]he earned premium for each daily period shall be calculated by multiplying
the total amount of insurance specified on the reporting form furnished by the
Company by the rate stated on the Rates and Deductibles Page.”  The Rates and Deductibles page—Endorsement #3
to the Policy—specifies that, for “Special Broad Form Homeowners Coverage,”
“each claim for loss or damage (separately occurring) shall be adjusted
separately,” and it defines the deductible for different types of covered
properties, including Occupied Residences. 
Endorsement #3 charges a higher premium for Special Broad Form
Homeowners Coverage.  Finally,
Endorsement #12 specifies that the homeowner’s coverage ceases to apply when a
property becomes vacant or goes into foreclosure, and it further specifies that
“[o]n the date the property status changes the regular residential coverage as
indicated in the Residential Property Coverages policy section will apply to
that property,” i.e., the coverage indicated on the Supplemental Declaration
Page of the Common Policy applies, and not the coverage indicated in
Endorsement #12.
The “Definitions” part of Endorsement
#12defines the term “Insured” for the purpose of properties covered under the
“Homeowners Coverage” addition to the Policy in terms that can reasonably refer
only to Alvarado as the homeowner, not to Flagstar.  Section A of the “Definitions” states, “In
this policy, ‘you’ and ‘your’ refer to the ‘named insured’ shown in the
Declarations and the spouse if a resident of the same household.  ‘We’, ‘us’ and ‘our’ refer to the Company
providing this insurance.”  Section B of
the “Definitions” states, “In addition, certain words and phrases are defined
as follows.”  Definition 5 defines
“Insured” to mean, in pertinent part, “[y]ou and residents of your household
who are . . . [y]our relatives; or . . . [o]ther
persons under the age of 21 and in the care of any person named above.”  Thus, the “insured” for purposes of
Endorsement #12 can reasonably be interpreted only as the homeowner of a
covered property, and not as the “Named Insured” under the Common Policy,
Flagstar, or as the “insured” Lending Institution under the Mortgage Guard Property
Policy, also Flagstar.
“Insured location” is defined to
mean, in pertinent part, “the ‘residence premises.’”  “Residence premises” is further defined as
“[t]he one family dwelling where you reside . . . and which
is shown as the ‘residence premises’ in the Declarations” and “other structures
and grounds at that location.”
          “Occurrence”
is defined to mean, in pertinent part, “an accident, including continuous or
repeated exposure to substantially the same general harmful condition, which
results, during the policy period, in . . . [p]roperty
damage,” i.e., “physical injury to, destruction of, or loss of use of tangible
property.”  The “Deductible” part of the endorsement
states, “Unless otherwise noted in this policy, the following deductible
provision applies:  Subject to the policy
limits that apply, we will pay only that part of the total of all loss payable
under Section 1 [“Property Coverages”] that exceeds the deductible amount shown
in the Declarations.”
          Subsection
A of “Section 1—Property
Coverages” of Endorsement #12 expressly states, “We
cover . . . [t]he dwelling on the ‘residence premises’
shown in the Declarations, including structures attached to the dwelling;
and . . . [m]aterials and supplies located on or next to
the ‘residence premises’ used to construct, alter or repair the dwelling or
other structures on the ‘residence premises.’” 
Subsections B, C, and D of Section 1 provide insurance coverage for,
among other things, personal property, loss of use, which includes additional
living expenses and fair rental value, debris removal, reasonable repairs, and
credit card fraud.
          Finally,
“Section 1—Conditions” of Endorsement
#12 provides that, “[e]ven if more than one person has an insurable interest in
the property covered, [Lexington] will not be liable in any one loss [t]o an
‘insured’ for more than the amount of such ‘insured’s’ interest at the time of
loss.”  The “Loss Payment” provision
states:  “We will adjust all losses with
you.  We will pay you unless some other
person is named in the policy or is legally entitled to receive payment.”  Endorsement #12 also includes a “Mortgage
Clause” that provides, “If a mortgagee is named in this policy, any loss
payable . . . will be paid to the mortgagee and you, as interests appear.”  (Emphasis added.)  “Section II—Liability Coverages” provides personal liability coverage for bodily
injury or property damage, as well as coverage for medical payments to others.
All of these provisions of this
endorsement are meaningful only if the “Insured” and “you” referenced in the
Definitions and Property Coverages of Endorsement #12 mean the homeowner of an
owner-occupied property reported by Flagstar to Lexington on Lexington’s
reporting forms as having force-placed Homeowners Coverage and if the
Homeowners Coverage part of the Policy is interpreted as directly insuring the
homeowner against loss to property, both real and personal, as well as insuring
him against personal liability and certain other personal losses, such as loss
of use of the property and additional living expenses.
          We
conclude that the language in Endorsement #12 makes clearly apparent the
contracting parties’ intent to confer a direct benefit on the homeowner of
“owner occupied properties reported as ‘HO’ property type by the Insured” and
that that benefit was made applicable to Alvarado when his property was “added
to this policy” by Flagstar on Lexington’s reporting forms.  See
Basic Capital Mgmt., 348 S.W.3d at 900; MCITelecomms.,
995 S.W.2d at 651; see also Palma, 79
F.3d at 1457–58 (holding that homeowner-borrower was third-party beneficiary of
force-placed insurance policy when policy contained provision that was for
“sole benefit” of borrower); Henderson,
2009 WL 3190710, at *3 (limiting standing to seeking temporary housing benefits
because this was only clause in policy providing benefit to homeowner); Beck, 2008 WL 4155301, at *2 (finding
third-party-beneficiary status when policy contained excess loss clause and
allowed adjustment of personal property damages with borrower); Navarrete, 2008 WL 659477, at *2 (same);
Hickman, 695 N.W.2d at 370–71 (same).  We further conclude that, because Alvarado
pays the premiums on his policy directly to Flagstar, which forwards them to
Lexington, and, in return, Alvarado receives the property and liability
coverage provided by the Policy under the “Special Broad Form Homeowners
Coverage” added by Endorsement #12, Alvarado is a creditor beneficiary of the
contract between Flagstar and Lexington. 
See MCITelecomms., 995 S.W.2d
at 651 (stating that if performance will come to third party in satisfaction of
legal duty owed to him by promisee, including “contractual obligation or other
legally enforceable commitment,” he is creditor beneficiary of contract).
          Lexington
argues, however, that the type of policy at issue in this case does not confer
third-party-beneficiary status on Alvarado. 
It refers us to a recent opinion from the United States District Court
for the Southern District of Texas in a diversity case brought under Texas law,
which addressed the effect of a “Special Broad Form Homeowners Coverage”
endorsement on the homeowner-borrower’s status as a third-party beneficiary in
a case similar to the present one.  See Trevino v. Evanston Ins. Co., Civil
Action No. M-11-18, 2011 WL 2709063, at *3 (S.D. Tex. July 12, 2011).  In that case, the homeowner made the same
argument Alvarado makes here:  because
the endorsement provides coverage that is irrelevant to the mortgagee and that
“could only inure to the benefit of [the homeowner],” the endorsement
demonstrates the contracting parties’ intent to confer a direct benefit on the
homeowner.  Id.
The federal district court noted
that the insurance company, Evanston, “counters that these coverages [for personal
liability, medical pay to others, personal property loss, and loss of use
coverage] only become available when a mortgagee complies with the reporting
provisions of the Mortgage Guard Policy, which require the mortgagee to notify
Evanston of ‘any change of ownership or occupancy or increase of hazard,’ i.e., foreclosure, and to pay additional
risk premiums.”  Id.  The court concluded,
without analysis of the language in the endorsement or the factual
circumstances of the case, other than the plaintiff had “made a claim under the
policy seeking coverage for roof and water damage sustained by the property as
a result of Hurricane Dolly on July 23, 2008,” that “the Policy language
unambiguously manifests the intent to provide hazard coverage to [the mortgagee]
to the extent of its interest in the property, and any benefit conferred to
[the homeowner] as a result is incidental,” and that the homeowner “has pointed
to no provision that makes clearly apparent the contracting parties’ intent to
confer a direct benefit on Plaintiff.”  Id. 
The court ultimately held that the homeowner-borrower was not a
third-party beneficiary under the insurance policy at issue and had no standing
to pursue his claims.  Id. at *1, *3.
          In
the instant case, by contrast, the Policy language does unambiguously manifest
the contracting parties’ intent to provide coverage directly to the owners of
the properties described by Flagstar on Lexington’s reporting forms for
property damage, including coverage for personal property damage and personal
liability, when Special Broad Form Homeowners Coverage is added to the Policy
by an endorsement, as spelled out in the Policy.  See
Basic Capital Mgmt., 348 S.W.3d at 900; MCITelecomms.,
995 S.W.2d at 651.  Alvarado, unlike
Trevino, did point to the provisions in the Policy, Endorsement #12, that makes
clearly apparent the contracting parties’ intent to confer a direct benefit on
him.  Thus, we find Trevino to be distinguishable and its legal conclusions to be
inapplicable to this case.
The dissent, however, finds Trevino persuasive.  It reasons that this case is more closely
analogous to the Texas Supreme Court’s decision in MCI Telecommunications, in which the court found no third-party-beneficiary
status, than to its decision in Basic
Capital Management.  We
disagree.  In MCI Telecommunications, Texas Utilities contracted with the
Missouri Pacific Railroad (“MoPac”) to obtain a license to install an electric
transmission line on MoPac’s right-of-way. 
995 S.W.2d at 648–49.  Twelve
years later, MCI contracted with MoPac to use the right-of-way to install a
fiber optic cable.  Id. at 649.  MCI’s contract
with MoPac contained a provision requiring MCI to exercise its contract rights
“in such a manner as not to interfere in any way with any existing prior
rights,” such as the rights of existing licensees.  Id.  The contract also included a provision
explicitly stating that no provision of the contract “shall be construed as
being for the benefit of any party not in signatory hereto.”  Id.
at 649–50.  The Texas Supreme Court
reversed both the trial court and the Fort Worth Court of Appeals and held that
Texas Utilities was not a third-party beneficiary of MCI’s contract with MoPac.  Id.
at 651.  The court reasoned that,
although the contract included a provision protecting Texas Utilities’ rights
as an earlier licensee, the contract did not provide a direct benefit to Texas
Utilities and no contractual language indicated that MCI and MoPac contracted
for Texas Utilities’ benefit.  Id. at 651–52.  At best, Texas Utilities was an “incidental
beneficiary” of the contract.  Id. at 652.  The court also noted that the contract
explicitly stated that it “is not to be interpreted as conferring any benefits
on nonsignatory parties” and that it “reflects the intention of the parties
that there be no third-party beneficiary to the contract.”  Id.
Unlike the contract at issue in MCI Telecommunications, the Policy at
issue here includes provisions directly benefitting Alvarado—specifically,
those set out in Endorsement #12—and it does not include a comparable explicit
provision restricting construction of the Policy to benefit only the
signatories to the Policy.  In fact, the
Mortgage Guard Property Policy contains language contemplating that the
homeowner-mortgagor may have a dual interest and may potentially claim coverage
or a monetary benefit under the Policy.  And
Endorsement #12 expressly states that it provides additional coverage to that
provided by the rest of the Policy, spells out the protections that the
additional coverage provides, and states where this coverage differs from the
coverage in the Common Policy in terms that can apply only to the homeowner of
a residential property reported to Lexington by Flagstar as having Special
Broad Form Homeowners Coverage.  It also
defines such a residential homeowner as the “insured” for purposes of
homeowners’ coverage.  Finally,
Endorsement #12 expressly distinguishes the insured residential mortgagor from
the mortgagee as a person having covered interests under the Policy and
recognizes that they may have dual interests.
As the Texas Supreme Court noted in
MCI Telecommunications, when
interpreting a contract, “we examine the entire agreement in an effort to
harmonize and give effect to all provisions of the contract so that none will
be meaningless.”  Id. at 652.  We conclude, as
in Basic Capital Management, that the
additional coverage in Endorsement #12 for which the homeowner is forced to pay
additional premiums “ha[s] no purpose whatever” and is meaningless unless the
“Special Broad Form Homeowners Coverage” was intended by Lexington, the insurer
of the property, and Flagstar, the mortgagee, to directly benefit the
mortgagors and homeowners of the properties specifically described by Flagstar
on Lexington’s reporting forms, including Alvarado.  See Basic
Capital Mgmt., 348 S.W.3d at 900.
          It
was Lexington’s burden, as movant for summary judgment, to prove its
entitlement to summary judgment against Alvarado as a matter of law.  We hold that Lexington failed to carry its
burden of conclusively negating Alvarado’s status as a third-party beneficiary
to the Policy.  Thus, we hold that the
trial court erred in rendering summary judgment in favor of Lexington.
          We
sustain Alvarado’s sole issue.
Conclusion
          We
reverse the judgment of the trial court in appellate cause number
01-10-00740-CV and remand that case for further proceedings consistent with
this opinion.  We dismiss appellate cause
number 01-10-01150-CV.
 
 
 
                                                                   Evelyn
V. Keyes
                                                                   Justice

 
Panel
consists of Justices Keyes, Bland, and Sharp.
Justice
Bland, dissenting.
 




[1]           A “force-placed,” or “lender-placed,” mortgage
protection insurance policy “insures the lender’s collateral when the borrower
fails to maintain a specific type of insurance” and “allows the lender to
protect its exposure on a property up to the amount of the mortgage on the date
of issuance.”  Williams v. Certain Underwriters at Lloyd’s of London, 398
Fed.App’x 44, 45 (5th Cir. 2010) (not designated for publication).
 


[2]           Alvarado also sued Michael Bower, the
insurance adjuster who handled Alvarado’s claim.  Bower is not a party to this appeal.


[3]           After Lexington moved for summary judgment, Alvarado amended his petition
to add claims against Flagstar and Proctor Financial, Inc., the insurance agent
responsible for procuring the Policy.Alvarado subsequently non-suited
his claims against Flagstar with prejudice. 
Neither Flagstar nor Proctor Financial is a party to this appeal.


[4]           Pursuant to Texas Rule of Appellate
Procedure 27.1, Alvarado’s first prematurely filed notice of appeal was
effective and was deemed filed on the day of, but after, the event that began
the period for perfecting the appeal: 
November 19, 2010, the day the trial court granted Alvarado’s motion to
sever and rendered a final judgment in favor of Lexington.  SeeTex. R. App. P. 27.1(a); Ganesan v. Reeves, 236 S.W.3d 816, 817
(Tex. App.—Waco 2007, pet. denied) (“[Rule 27.1] is designed to make it clear
that a notice of appeal filed before the final appealable judgment is rendered
is nevertheless effective to invoke our appellate jurisdiction of such a
judgment.”); Espalin v. Children’s Med.
Ctr. of Dallas, 27 S.W.3d 675, 681 (Tex. App.—Dallas 2000, no pet.) (“[A]
document filed in an attempt to appeal an interlocutory order that later
becomes final serves to appeal the final judgment.”).  In a factually similar scenario, the El Paso
Court of Appeals noted that the second notice of appeal, filed after the trial
court rendered a final judgment, “was unnecessary to perfect appeal.”  Lerma
v. Forbes, 144 S.W.3d 18, 20 (Tex. App.—El Paso 2004, no pet.).  The El Paso court dismissed the later cause
number on its own motion and consolidated the record with the first cause
number.  Id.  We follow the El Paso
Court of Appeals’ decision in Lerma
and hold that Alvarado’s first notice of appeal invoked our appellate
jurisdiction, and, thus, the second notice of appeal was unnecessary to perfect
his appeal and is now moot.  We therefore
dismiss appellate cause number 01-10-01150-CV, which resulted from his second
notice of appeal.


