
Opinion issued May13, 2004     









In The
Court of Appeals
For The
First District of Texas




NO. 01-03-00361-CV




TERRY HAMBY, Appellant

V.

STATE FARM MUTUAL AUTO INSURANCE COMPANY, Appellee




On Appeal from the 239th District Court
Brazoria County, Texas
Trial Court Cause No. 21479*JG02




O P I N I O N

          This is an appeal of the trial court’s judgment sustaining defendant/appellee
State Farm Mutual Auto Insurance Company’s second special exceptions to
plaintiff/appellant Terry Hamby’s pleadings, rendering a take-nothing judgment for
Hamby, and dismissing the cause.  In his sole issue, Hamby contends that the trial
court erred in dismissing his case because an insurer cannot force an insured to
transfer title to a “totaled” vehicle as a condition of paying the insured the actual cash
value of the vehicle.  We affirm.
Factual & Procedural Background
          In September 2002, a truck collided with Hamby’s car, causing extensive
damage.  Because the cost to repair Hamby’s car exceeded its actual cash value, State
Farm elected to total the car rather than repair it; the parties agreed the actual cash
value of the car was $25,970.75, minus a $500 deductible.  The salvage value of the
unrepaired car was $7,000.  
          State Farm instructed Hamby to assign title to the company, which he did not
wish to do.  The company would not issue a check for the actual cash value until it
obtained the car’s title.  Following a series of letters exchanged between Hamby and
State Farm, Hamby eventually accepted the check and assigned the title to State Farm
“under protest.”  
          On behalf of himself and other similarly situated persons, Hamby sued State
Farm challenging State Farm’s right to require him to assign it title to the car in order
to receive payment for the car’s actual cash value.  State Farm filed special exceptions
to Hamby’s pleadings, which the trial court granted.  Hamby filed an amended
petition, which State Farm challenged a second time with special exceptions.  The
trial court granted the special exceptions a second time and dismissed the cause, and
this appeal ensued.
Analysis
          In his sole issue, Hamby contends that State Farm was not entitled to require
him to assign it title to the car before paying him the car’s actual cash value.  In other
words, he asserts that he should have been allowed to accept the cash value payment
and keep the car. 
          Standard of Review
          The trial court has broad discretion to sustain special exceptions.  Nichols v.
Jack Eckerd Corp, 908 S.W.2d 5, 8 (Tex. App.—Houston [1st Dist.] 1995, no writ).
The test for abuse of discretion is whether the trial court acted arbitrarily or
unreasonably without reference to any guiding rules and principles.  Id.  If the trial
court sustains a defendant’s special exceptions, it must give the plaintiff an
opportunity to amend.  Id.  If the plaintiff amends, but does not cure the defect, or
refuses to amend, the trial court may dismiss the case and the plaintiff may test the
trial court’s ruling on appeal.  Id.
          When we review a trial court’s dismissal of a cause of action on special
exceptions, we must accept as true all of the factual allegations set out in the
challenged pleading.  Id.  The legal conclusions of the trial court as to whether the
plaintiff’s petition adequately established a cause of action are subject to de novo
review in this Court.  Id.
          Hamby’s Pleadings
          Here, after Hamby amended his pleadings, the trial court reached the
conclusion that, accepting as true all of Hamby’s factual allegations, his petition did
not sufficiently allege a cause of action.  It is this legal conclusion that we must now
review.
          Hamby argues that his pleadings clearly state a claim for breach of contract. 
While we agree that the pleadings indicate that breach of contract is the cause of
action, that is not the focus of our inquiry.  The focus is whether the factual
allegations comprise a claim for breach of contract.  We conclude that they do not.
          Hamby’s auto insurance policy with State Farm contained the following
pertinent provision:
          LIMIT OF LIABILITY

          Our limit of liability for loss will be the lesser of the:
 
                    1.       Actual cash value of the stolen or damaged property;
                    2.       Amount necessary to repair or replace the property with other of
like kind and quality; or
                    3.       Amount stated in the Declarations of the policy.
 
State Farm offered, and Hamby accepted, payment of the car’s actual cash value, in
accordance with the terms of the contract.  
          Hamby’s primary contention is that the plain language of the Limit of Liability
clause “does not require [him] to forfeit title” to [his] car to State Farm if State Farm
chooses to pay actual cash value for the car.  Thus, he argues that State Farm
breached the contract by forcing him to forfeit title to the car as a condition of its
paying him the actual cash value of the car, whereas the “Limit of Liability” provision
does not require forfeiture of title.  Hamby thus asks us to look solely to the “Limit
of Liability” provision to resolve this issue.  However, the Limit of Liability clause
does not resolve the matter because this provision does not address the issue.  
          What Hamby is actually challenging is State Farm’s right to keep the car.  To
determine whether State Farm could impose such a condition, we must look to a
different provision of the insurance contract:
          PAYMENT OF LOSS
 
We may pay for loss in money or repair or replace the damaged or stolen
property.  We may, at our expense, return any stolen property to:
 
                    1.       You; or
                    2.       The address shown in this policy
 
If we return stolen property we will pay for any damage resulting from the
theft.  We may keep all or part of the property at an agreed or appraised value.

(Emphasis added).  Hamby contends that this clause applies only if the car has been
stolen.  Based on the plain language of this contract provision, however, it is not
reasonable to conclude that, because the next-to-last sentence mentions only stolen
cars, the last sentence only applies to stolen cars.  As a matter of law, we hold that
this provision as a whole and the last sentence in particular apply to both stolen and
damaged cars. 
          We are not alone is reaching this conclusion.  In construing a policy with limit
of liability and payment of loss clauses identical to the clauses here, the Rhode Island
Supreme Court held that the insurer possessed the absolute right to elect either to
repair its insured’s damaged vehicle or to pay cash for the damaged vehicle’s 
replacement value and keep the car.  Pawtucket Mut. Ins. Co. v. Gay, 786 A.2d 383,
384-85 (R.I. 2001).  As a practical and legal matter, it is necessary to obtain title to
a car to “keep” it.  Moreover, although Hamby asserts that he was coerced into
accepting the actual cash value and assigning the title to State Farm, the record
reflects that he was  offered the opportunity to accept $18,470.75 (actual cash value
minus $7000 salvage value) and keep the car himself.  He chose to accept the higher
payment; thus he was required to turn the car and its title over to State Farm at its
request.  Accordingly, Hamby’s pleadings, taken as true, do not show a breach of
contract.
          The trial court did not abuse its discretion in sustaining the special exceptions,
rendering a take-nothing judgment, and dismissing the cause.
          We affirm the judgment of the trial court.
 
 
                                                             Evelyn V. Keyes
                                                             Justice
 
 
Panel consists of Justices Nuchia, Jennings, and Keyes.
