Bender Square Partners v. Factory Mutual Insurance Company et al

Filing 45

MEMORANDUM AND ORDER GRANTING 21 MOTION for Summary Judgment and Brief in Support.(Signed by Judge Keith P Ellison) Parties notified.(sloewe )

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
BENDER SQUARE PARTNERS

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V.
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Civ. No. 4:10-cv-4295
FACTORY MUTUAL INSURANCE
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COMPANY, d/b/a FM GLOBAL, and
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PNS STORES, Inc.
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________________________________________________________________________
MEMORANDUM AND ORDER
________________________________________________________________________
Before the Court is Factory Mutual Insurance Company D/B/A FM Global’s
Motion for Summary Judgment and Brief in Support (“Motion”). (Doc. No. 21.) After
considering the Motion, all responses and replies thereto, and the applicable law, the
Court concludes that the Motion should be GRANTED.
I.

BACKGROUND

Bender Square Partners (“Bender” or “Plaintiff”) seeks to recover for losses it
suffered as a result of Hurricane Ike in September 2008 to property (“the Property”) it
had leased to PNS Stores, Inc. (“PNS Stores”). (Doc. No. 30-1, 2nd Am. Compl. ¶ 7.)
According to Bender, the amounts it seeks to recover are covered under a Commercial
Property Insurance Policy (“the Policy”) that Factory Mutual Insurance Company, doing
business as FM Global (“FM Global”) issued to Big Lots, Inc. (“Big Lots”) and its
subsidiaries, one of which is PNS Stores (collectively, “Defendants”). (Id.) Bender
alleges that FM Global wrongfully refused to timely and fully pay and indemnify Bender
for all losses covered under the Policy. (Id. ¶ 8.) As a result, Bender seeks damages and
other relief for FM Global’s alleged breach of the Policy, breach of the implied covenant

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of good faith and fair dealing, and violations of the Texas Insurance Code. (Id. ¶ 9.) PNS
Stores also allegedly failed to obtain insurance coverage over the Property in accordance
with the terms of the lease agreement entered into between Bender and PNS Stores (“the
Lease”) over the Property. (Id. ¶ 10.) Therefore, Bender avers, PNS Stores is in default of
the Lease and has breached the Lease, entitling Bender to rescission of the Lease and
damages resulting from the breach. (Id.)
FM Global filed this Motion, arguing that Bender’s claims fail as a matter of law.
(Doc. No. 21, Mot. Sum. Jgmt 1.) Specifically, FM Global asserts that Bender is not an
insured or an additional insured under the Policy and thus has no contractual basis to
bring a claim for coverage. (Id.) Furthermore, FM Global avers, Bender is not entitled to
proceeds from the Policy as a holder of the Policy’s certificate of insurance (“the
Certificate”), as the Certificate does not confer policy rights under Texas law. (Id.)
Finally, FM Global argues that Bender is not, and was never, an intended third party
beneficiary as a matter of law. (Id.) Therefore, FM Global insists, it is entitled to
summary judgment as to all of Bender’s claims against it. (Id.)
II.

LEGAL STANDARD

To grant summary judgment, the Court must find that the pleadings and evidence
show that no genuine issue of material fact exists, and therefore the movant is entitled to
judgment as a matter of law. Fed. R. Civ. P. 56. The party moving for summary judgment
must demonstrate the absence of any genuine issue of material fact; however, the party
need not negate the elements of the nonmovant’s case. Little v. Liquid Air Corp., 37 F.3d
1069, 1075 (5th Cir. 1997). If the moving party meets this burden, the nonmoving party
must then go beyond the pleadings to find specific facts showing there is a genuine issue

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for trial. Id. “A fact is material if its resolution in favor of one party might affect the
outcome of the lawsuit under governing law.” Sossamon v. Lone Star State of Texas, 560
F.3d 316, 326 (5th Cir. 2009) (quotations and footnote omitted).
Factual controversies should be resolved in favor of the nonmoving party. Liquid
Air Corp., 37 F.3d at 1075. However, “summary judgment is appropriate in any case
where critical evidence is so weak or tenuous on an essential fact that it could not support
a judgment in favor of the nonmovant.” Id. at 1076 (internal quotations omitted).
Importantly, “[t]he nonmovant cannot satisfy his summary judgment burden with
conclusional allegations, unsubstantiated assertions, or only a scintilla of evidence.” Diaz
v. Superior Energy Services, LLC, 341 Fed.Appx. 26, 28 (5th Cir. 2009) (citation
omitted). The Court should not, in the absence of proof, assume that the nonmoving party
could or would provide the necessary facts. Liquid Air Corp., 37 F.3d at 1075. As the
Supreme Court has noted, “[w]hen opposing parties tell two different stories, one of
which is blatantly contradicted by the record, so that no reasonable jury could believe it, a
court should not adopt that version of the facts for purposes of ruling on a motion for
summary judgment.” Scott v. Harris, 550 U.S. 372, 380 (2007).
III.

ANALYSIS

PNS Stores obtained the Policy from FM Global in order to comply with section
12.2 of the Lease:

12.2 Tenant shall during the lease term at its sole expense maintain in full
force a policy or policies of standard form fire insurance with standard
extended coverage endorsement issued by one or more insurance carriers
licensed to do business in the state in which the Premises are located
covering the buildings and improvements on the Premises to the extent of
their full replacement value exclusive of foundation and excavation costs.

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(Ex. B to Mot. Summ. J., “Lease” 5.) The Policy does not identify Bender as an insured
or as an additional insured:
1. NAMED INSURED AND MAILING ADDRESS
Big Lots, Inc. and any subsidiary, associated or allied company,
corporation, firm, organization and Big Lots, Inc. interest in any
partnership or joint venture in which Big Lots, Inc. has management
control or ownership as now constituted or hereafter is acquired, as the
respective interest of each may appear; all hereafter referred to as the
“Insured”.
300 Phillipi Road
Columbus, Ohio 43228
***
1. ADDITIONAL INSURABLE INTERESTS/CERTIFICATES OF
INSURNACE
Additional insured interests are automatically added to this Policy as their
interest may appear when named as additional named insured, lender,
mortgagee, and/or loss payee in the Certificates of Insurance on a schedule
on file with the Company. Such interests become effective on the date
shown in the Certificate of Insurance and will not amend, extend, or alter
the terms, conditions, provisions, and limits of this Policy.

(Ex. A-1 to Mot. Summ. Jgmt, “Policy” 1, 59.) Bender admits that it is not a named
insured under the Policy: “With respect to the Commercial Property Insurance Policy at
issue in this suit, PNS STORES, INC. failed to obtain a policy that either named Plaintiff
as a named insured, or fully complied with the terms of the Lease, thereby breaching the
Lease, and damaging Plaintiff in an amount in excess of the minimum jurisdictional
limits of this Court, to be proven at trial.” (2nd Am. Compl. ¶ 29.) Furthermore, Bender
is not named as an additional insured in the Certificate. (Ex. C. to Mot. Summ. J.,
“Certificate” 1.) Bender also admits that it is not an additional insured or loss payee on

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the Policy. (Resp. to Mot. Summ. J. 8.) Bender does claim, however, that it is a named
holder of the Certificate, and is an intended or implied third-party beneficiary of the
Policy. (Id. ¶ 7; Doc. No. 24, Resp. to Mot. Summ. J. 9.)
A. Holder of a Certificate of Insurance
Although Bender is the named holder of the Certificate, this status does not confer
any rights to Bender under the Policy. The Certificate explicitly states:

THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION
ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE
HOLDER OTHER THAN THOSE PROVIDED IN THE POLICY. THIS
CERTIFICATE DOES NOT AMEND, EXDTEND OR ALTER THE
COVERAGE AFFORDED BY THE POLICIES DESCRIBED HEREIN.

(Certificate 1.) “It is well-established under Texas law that when a certificate of insurance
contains language stating that the certificate does not amend, extend, or alter the terms of
any insurance policy mentioned in the certificate, the terms of the certificate are
subordinate to the terms of the insurance policy.” TIG Ins. Co. v. Sedgwick James of
Washington, 184 F.Supp.2d 591, 596 (S.D. Tex. 2001), aff’d, 276 F.3d 754 (5th Cir.
2002). Thus, “[t]he certificate of insurance will not suffice to create insurance coverage if
such coverage is precluded by the terms of the policy.” Id. (citing Wann v. Metropolitan
Life Ins. Co., 41 S.W.2d 50, 52 (Tex.Civ.App.-Houston [14th Dist.] 1967, writ ref’d
n.r.e.); Granite Construction Co., Inc. v. Bituminous Ins. Co., 832 S.W.2d 427 (Tex.App.Amarillo 1992, n.w.h.)). See also Lexington Ins. Co. v. Autobuses Lucano Inc., 256
Fed.Appx. 682, 683 (5th Cir. 2007) (unpublished) (“Texas law provides that the
certificate of insurance does not supersede the plain language of the insurance policy.”);
RNA Investments Inc. v. Employers Ins. of Wausau, No. 05-99-01704-CV, 2000 WL

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1708918, at *4 (Tex.App.-Dallas Nov. 16, 2000, n.w.h.) (noting that insurance
certificates do not create insurance coverage where none existed); C & W Well Service,
Inc. v. Sebasta, No. B14-92-01010-CV, 1994 WL 95680, at *7 (Tex.App.-Houston [14th
Dist.] March 24, 1994, n.w.h.) (“Here, the certificate of insurance itself did not manifest
the insurance coverage afforded appellant as an insured. Rather, the certificate merely
evidenced appellant’s status as an insured and, by its very language, specified that the
insurance coverage was that provided by, but subject to the terms, exclusions and
conditions of, the named insurance policy. Thus, appellant’s insurance coverage is that
provided by the insurance policy itself.”). Therefore, the Certificate does not confer any
rights to Bender under the Policy.
B. Intended Third Party Beneficiary
To qualify as a third-party beneficiary of the Policy, Bender must prove: (1) that it
was not privy to the Policy; (2) that the Policy was actually made for its benefit; and (3)
that the PNS Stores and FM Global intended for Bender to benefit by the Policy. Talman
Home Federal Savings & Loan Association of Illinois v. Am. Bankers Insurance, 924
F.2d 1347, 1350-51 (5th Cir. 1991) (citing Hellenic Invest., Inc. v. Kroger Co., 766
S.W.2d 861, 864 (Tex.App. 1989)). “In determining intent under Texas law, this Court
must begin with the presumption that parties contract for themselves; thus, it follows that
a contract will not be construed as having been made for the benefit of a third person
unless it clearly appears that this was the intention of the contracting parties.” Id. (citing
Republic Nat’l Bank, 427 S.W.2d 76, 79 (Tex.Civ.App. 1968, writ ref’d n.r.e.); Hellenic,
766 S.W.2d at 865; Corpus Christi Bank & Trust v. Smith, 525 S.W.2d 501, 503-04 (Tex.
1975); Cunningham v. Healthco, Inc., 824 F.2d 1448, 1455 (5th Cir. 1987)). “The

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intention to contract or confer a benefit to a third party must be clearly and fully spelled
out in order to show the contracting parties entered into the contract directly for the third
party’s benefit.” First Union Nat. Bank v. Richmont Capital Partner, 168 S.W.3d 917,
929 (Tex.App.-Dallas 2005, no pet.) (citing MCI Telecommunications Corp. v. Texas
Utilities Elec. Co., 995 S.W.2d 641, 651 (Tex. 1999)). “Furthermore, any intent of the
contracting parties to benefit a third-party is to be derived solely from the language of the
contract.” Talman, 924 F.2d at 1350-51. “The fact that a third party might receive an
incidental benefit from a contract does not give that third party a right to enforce the
contract.” First Union Nat. Bank, 168 S.W.3d at 929 (citing MCI, 995 S.W.2d at 651). “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.” Id. (citing
Dallas Firefighters Ass’n v. Booth Research Group, Inc., 156 S.W.3d 188, 192-93
(Tex.App.-Dallas 2005, pet. denied); Whitten v. Vehicle Removal Corp., 56 S.W.3d 293,
312 (Tex.App.-Dallas 2001, no pet.)). In sum, “‘[u]nder Texas law, a non-party to a
contract has a heavy burden when it claims third-party beneficiary status.’” Staton
Holdings, Inc. v. First Data Corp., No. Civ.A. 3:04-CV-2321P, 2006 WL 1343631, at *8
(N.D. Tex. May 16, 2006) (quoting Missouri Pac. R.R. Co. v. Harbison-Fischer Mfg.
Co., 26 F.3d 531, 540 (5th Cir. 1994)).
Bender does not proffer any evidence to support the inference that it is an
intended third-party beneficiary to the Policy. Instead, Bender states that FM Global “has
not met its burden in showing that the first-party property insurance policy at issue was
not for the benefit of Plaintiff—the property owner.” (Doc. No. 38, Sur-Reply to Reply to
Mot. Summ. J. 2.) Yet Bender bears the burden of showing why it is an intended third-

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party beneficiary. At most, Bender offers the following: “FM Global simply relies on the
general maintenance provision of the Lease Agreement to attempt to avoid the underlying
question—for whose benefit is a first-party property insurance policy if not the property
owner?” (Id. (emphasis in original).) Bender simply does not meet its heavy burden of
showing that it is an intended third-party beneficiary. Nor does the Court find, in the
record, any evidence to support such an assumption.
C. Implied Third Party Beneficiary
Bender also argues that it is an implied third-party beneficiary. It asserts that “the
owner-lessor of a commercial property has standing as an intended/implied third-party
beneficiary to sue the insurer directly under a first-party property insurance contract,
where the lessee was required to procure and maintain said insurance pursuant to a lease
agreement even though the owner-lessor is not a named or additional insured under the
policy.” (Resp. to Mot. Summ. J. 2.) Bender is correct that Texas courts have recognized
this exception to the general rule that strangers to a policy cannot maintain a suit on that
policy. Cable Communications Network, Inc. v. Aetna Cas. & Surety Co., 838 S.W.2d
947, 950 (Tex.App.-Hous. [14th Dist.] 1992, no writ) (“For example, if a lessee promised
the lessor that the leased property would be insured for the lessor’s benefit and failed to
do so, the benefits of the insurance policy taken out by the lessee on the leased property
would be subject to the lien in favor of the lessor, and the lessor may then proceed
directly against the insurance company to recover its share of any funds payable under
the policy.”); State Farm Fire & Cas. Co. v. Leasing Enterprises, 716 S.W.2d 553, 554
(Tex.App.-Hous. [14th Dist.] 1986, writ ref’d n.r.e.) (“Leasing Enterprises had an
equitable right to be covered by the insurance policy because the lease required that

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Moore obtain insurance on the bulldozer with loss payable to Leasing Enterprises. Where
a mortgagor or lessee is charged with the duty of obtaining insurance on property with
loss payable to the mortgagee or lessor, but the policy does not contain such a provision,
equity will treat the policy as having contained the loss payable provision and entitle the
mortgagee or lessor to recover under the policy.”).
Yet “[t]he equitable insured status is a remedy fashioned to protect a lessor where
the lessee fails to comply with its obligations under the lease to obtain insurance coverage
for the leased property.” Mt. Hawley Insurance Co. v. Lexington Insurance Co., 110
Fed.Appx. 371, 375 (5th Cir. 2004) (unpublished). Therefore, the equitable remedy does
not apply when there is no provision in the lease requiring the lessee to procure insurance
on the lessor’s behalf, or requiring the insurance to name the lessor as an insured,
additional insured, or loss payee. Id. Section 12.2 of the Lease does not require PNS
Stores to procure insurance naming Bender as a co-insured. An interlineation below
section 12.1, however, does state that “[s]uch policies of insurance shall be issued in the
name of tenant and landlord and for the mutual and joint benefit and protection of said
parties; and such policies of insurance or copies thereof, shall be delivered to the
landlord.” (Lease 5.) Bender insists that the interlineation applies to both section 12.1 and
section 12.2. (Doc. No. 31, Resp. to PNS’s Mot. Summ. J. 11-12.1)
“When construing contracts and other written instruments, our primary concern is
to ascertain the true intent of the parties as expressed in the instrument.” Fort Worth
Transp. Authority v. Thomas, 303 S.W.3d 850, 857 (Tex.App.-Fort Worth 2009, pet.
denied) (citing NP Anderson Cotton Exch., L.P. v. Potter, 230 S.W.3d 457, 463

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Bender incorporated its Response to PNS’s Motion for Summary Judgment in its Sur-Reply. (Sur-Reply
to Reply to Mot. Summ. J. 2.)

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(Tex.App.-Fort Worth 2007, no pet.)). “‘We construe contracts from a utilitarian
standpoint bearing in mind the particular business activity sought to be served’ and ‘will
avoid when possible and proper a construction which is unreasonable, inequitable, and
oppressive.’” Id. (quoting Frost Nat’l Bank v. L & F Dist., Ltd., 165 S.W.3d 310, 312
(Tex. 2005)). “Under Texas law ‘[i]f the written instrument is so worded that it can be
given a certain or definite meaning or interpretation, then it is not ambiguous and the
court will construe the contract as a matter of law.’” Square D Co. v. House of Power
Elec., L.C., No. H-09-3917, 2011 WL 6091805, at *3 (S.D. Tex. Dec. 7, 2011) (quoting
Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983)). “A contract is ambiguous if, after
applying established rules of construction, its meaning is uncertain and doubtful or the
writing is reasonably susceptible to more than one meaning.” Pitts & Collard, L.L.P. v.
Schechter, --- S.W.3d ---, 2011 WL 69328515, at *5 (Tex.App.-Houston 2011) (citing
Dewitt County Elec. Coop., 1 S.W.3d 96, 100 (Tex. 1999)). The construction of an
ambiguous contract is a question of fact. Reilly v. Rangers Management, Inc., 727
S.W.2d 527, 529 (Tex. 1987).
“In determining whether a contract is ambiguous, courts construe and harmonize
all provisions of the contract to discern the parties’ intent.” Pitts & Collard, L.L.P., 2011
WL 69328515, at *5 (citing Coker, 650 S.W.2d at 393-94). “A contract is not ambiguous
merely because of a simple lack of clarity, or because the parties proffer conflicting
interpretations of a term.” Square D Co., 2011 WL 6091805, at *3 (citing DeWitt County
Electric Co-op, 1 S.W.3d at 100). This is because “‘[t]he parties’ interpretation of a
contract is parol evidence, and parol evidence is not admissible to create an ambiguity.’”
Pitts & Collard, L.L.P., 2011 WL 6938515, at *5 (quoting Zurich Am. Ins. Co. v. Hunt

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Petroleum (AEC), Inc., 157 S.W.3d 462, 465 (Tex.App.-Houston [14th Dist.] 2004, no
pet.)). Thus, “[f]or parol evidence of the parties’ intent to be admissible, the contract must
first be ambiguous as a matter of law.” Id. (citing Estes v. Rep. Nat’l Bank, 462 S.W.2d
273, 275 (Tex. 1970)). “When a court determines that a contract is ambiguous, a court
may admit extraneous evidence to determine the true meaning of the instrument and may
consider the parties’ interpretations of the contract.” EMC Mortg. Corp. v. Davis, 167
S.W.3d 406, 413 (Tex.App.-Austin 2005, pet. denied).
The Court concludes that the Policy is not ambiguous. The interlineation, initiated
by an asterisk, starts from the end of the last sentence of section 12.1. If the parties
intended for section 12.2 to also require insurance to be issued in the name of the tenant
and landlord, the section would have an asterisk referring to the interlineation above, or
another interlineation altogether. Were the Court to construe the interlineation as
applying to section 12.2, it could also by extension apply to the sections below it, where
such a provision would be inappropriate. The Policy is simply not reasonably susceptible
to more than one meaning. Therefore, the Court concludes that section 12.2 did not
require PNS Stores to procure a policy issued in Bender’s name. As a consequence,
Bender cannot be an implied third-party beneficiary.
D. Bender’s Claims
As Bender is not an insured, additional insured, or third-party beneficiary to the
Policy, Bender cannot bring claims against FM Global for breach of contract. Similarly,
Bender cannot bring claims against FM Global for breach of the duty of good faith and
fair dealing because that duty concerns the relationship of insurers to their insured
pursuant to an insurance contract between them. Republic Ins. Co. v. Stoker, 903 S.W.2d

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338, 340 (Tex. 1995) (“An insurer has a duty to deal fairly and in good faith with its
insured in the processing and payment of claims.”); Natividad v. Alexsis, Inc., 875
S.W.2d 695 (Tex. 1994) (“The duty of good faith and fair dealing emanates from the
special relationship between the parties and not form the terms of the contract, therefore
its breach gives rise to tort damages and not simply to contractual liability. However, the
‘special relationship’ exists only because the insured and the insurer are parties to a
contract that is the result of unequal bargaining power, and by its nature allows
unscrupulous insurers to take advantage of their insureds. Without such a contract there
would be no ‘special relationship’ and hence, no duty of good faith and fair dealing.”
(internal citations and footnote omitted)); see also McCord v. Prudential Ins. Co. of Am.,
No. 1:10–CV–413, 2011 WL 32430486, at *9 (E.D. Tex. July 1, 2011) (“The elements of
a cause of action for the breach of duty of good faith and fair dealing thus necessarily
require the existence of an insurance contract between the plaintiff and the defendant
insurer.”).
FM Global is also entitled to summary judgment as to Bender’s claim under
Chapter 542 of the Texas Insurance Code. Bender asserts that FM Global violated the
Texas Insurance Code because it (a) failed to provide notice in writing of the acceptance
or rejection of its claim within the applicable time constraints; and (b) delayed payment
of the claims on the Property following receipt of all items, statements, and forms
reasonably requested and required longer than the applicable time period. (2nd Am.
Compl. ¶ 25.) Texas Insurance Code § 542.058(a) provides: “[I]f an insurer, after
receiving all items, statements, and forms reasonably requested and required under
Section 542.055, delays payment of the claim for a period exceeding the period specified

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by other applicable statutes or, if other statutes do not specify a period, for more than 60
days, the insurer shall pay damages and other items as provided by Section 542.060.” In
turn, § 542.060 only requires the insurer to pay the holder of the policy or the policy’s
beneficiary. Id. § 542.060(a) (“If an insurer that is liable for a claim under an insurance
policy is not in compliance with this subchapter, the insurer is liable to pay the holder of
the policy or the beneficiary making the claim under the policy, in addition to the amount
of the claim, the interest on the amount of the claim at the rate of 18 percent a year as
damages, together with reasonable attorney’s fees.”). As a consequence, Bender cannot
bring its claims under Chapter 542 of the Texas Insurance Code against FM Global.
Therefore, FM Global is entitled to summary judgment as to all of Bender’s claims
against it.
IV.

CONCLUSION

For the reasons explained above, FM Global’s Motion (Doc. No. 21) is
GRANTED.
IT IS SO ORDERED.
SIGNED at Houston, Texas on this the 24th day of January, 2012.

KEITH P. ELLISON
UNITED STATES DISTRICT COURT JUDGE

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