Date: 03-02-2017

Case Style: Eugene and Mary McClain v. State Farm Fire and Casualty Company

Case Number: 02-16-00316

Judge: Lee Gabriel

Court: Texas Court of Appeals, Second District on appeal from the County Court at Law No.2, Tarrant County

Plaintiff's Attorney: Ian Ghrist

Defendant's Attorney: Jack McKinley

Description: Appellants Eugene and Mary McClain (the McClains) appeal the trial court’s orders granting appellee State Farm Fire and Casualty Company (State Farm) judgment as a matter of law on the McClains’ claims that State Farm had a
1See Tex. R. App. P. 47.4.
2
duty to defend. Concluding that State Farm had no duty to defend the McClains
as a matter of law, we affirm the trial court’s summary-judgment orders.
I. FACTUAL BACKGROUND
A. THE UNDERLYING LAWSUIT AND REQUEST TO DEFEND
Jose Luis Ramirez and Ofelia Ramirez (the Ramirezes) bought a home
from the McClains (the property). The Ramirezes paid the McClains $7,500 and
signed a promissory note, agreeing to pay the McClains the remainder of the
purchase price—$60,500—in monthly installments for eighteen years. The
Ramirezes’ promissory note for the balance was secured by a deed of trust to the
property. After the Ramirezes paid on the note for eight years, the McClains
declared the note in default, accelerated the debt, and posted the property for
foreclosure. On April 1, 2014, the McClains bought the property at the
foreclosure sale for $42,000.
On August 15, 2014, the Ramirezes filed suit against the McClains,2
raising claims for wrongful foreclosure; for breach of contract, i.e., the promissory
note; for negligence per se based on their violations of the finance code, the
property code, and a federal administrative regulation; and seeking a declaration
2The Ramirezes also named the McClains’ attorney, Cecilia A. Thomas, as
a defendant for her 2013 and 2014 actions (1) in notifying the Ramirezes of the
past-due balances and the debt acceleration and (2) in conducting the
foreclosure sale. Thomas was not a party to the McClains’ duty-to-defend suit
against State Farm and, thus, is not a party to this appeal.
3
of rights under the foreclosure-sale deed. The Ramirezes sought actual and
exemplary damages.
The McClains requested that their insurer, State Farm, defend them
against the Ramirezes’ suit. State Farm had issued a commercial-liability,
umbrella-coverage policy to the McClains.3 As relevant to this case, the policy
provided that State Farm would have “the right and duty to defend” the McClains
against any “suit” seeking specified damages—“bodily injury,” “property damage,”
or “personal and advertising injury”—caused by an “occurrence.” An occurrence
was defined in the policy as “an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.” Each of the
resultant type of damages also was specifically defined in the policy:
● Bodily injury was defined as “bodily injury, sickness, or disease
sustained by a person,” which included “mental anguish or other mental
injury caused by the ‘bodily injury.’”
● Property damage was defined as “[p]hysical injury to tangible
property, including all resulting loss of use of that property.”
● Personal and advertising injury was defined as an “injury, including
consequential ‘bodily injury,’ arising out of . . . the wrongful eviction from,
wrongful entry into, or invasion of the right of private occupancy of a room,
dwelling[,] or premises that a person occupies, committed by or on behalf
of its owner, landlord or lessor.”
Within these specified damages, the policy contained exclusions from coverage.
First, the policy did not apply to bodily injury or property damage that was
3No party disputes that the policy was in effect at the time State Farm’s
alleged duty to defend arose.
4
“expected or intended to cause harm as would be expected by a reasonable
person” or was “the result of willful and malicious or criminal acts of the insured.”
Second, personal and advertising injuries were not covered if they were
(1) “caused by or at the direction of the insured with the knowledge that the act
would violate the rights of another and would inflict ‘personal and advertising
injury’” or (2) arose out of a breach of contract.
B. STATE FARM DENIES COVERAGE AND THE MCCLAINS’ SUIT
On February 19, 2015, State Farm notified the McClains that based on the
allegations in the Ramirezes’ petition, the policy did not trigger its duty to defend
the McClains. Specifically, State Farm believed that because the Ramirezes did
not allege a type of harm the policy covered and because any harm was not
caused by an “occurrence,” the policy did not require State Farm to defend the
McClains.
The McClains eventually were granted judgment as a matter of law on the
Ramirezes’ claims and incurred $35,858.76 in attorney’s fees. The McClains
then filed suit against State Farm on February 18, 2016, arguing that because
State Farm had the duty to defend the McClains based on the allegations in the
Ramirezes’ petition and on the terms of the policy, State Farm was liable for their
attorney’s fees. Both State Farm and the McClains moved for summary
judgment.
In their summary-judgment motion, the McClains argued that State Farm’s
duty to defend arose based on the Ramirezes’ allegations of unlawful entry and
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invasion of their private-occupancy rights, their assertions that they suffered
mental anguish, and their claims that their emotional distress allegedly arose
from an occurrence as defined in the policy.4 State Farm based its summaryjudgment
motion on its arguments that no duty to defend arose under the policy
because the Ramirezes did not plead for any covered damages, there was no
occurrence as defined in the policy, the McClains’ actions as alleged caused
expected harm, the McClains’ actions as alleged were knowing violations of the
Ramirezes’ rights, and the harm arose out of a breach of contract.
The trial court held a hearing on the competing summary-judgment
motions, but no reporter’s record was made of the hearing. The trial court
granted State Farm’s motion because there was “no genuine issue of material
fact regarding at least one essential element of [the McClains’] claims.” See Tex.
R. Civ. P. 166a(c). The trial court entered a separate order denying the
McClains’ motion for the same reason—the McClains failed to raise a genuine
issue of material fact on at least one essential element of their claims. See id.
II. APPLICABLE LAW
A. SUMMARY JUDGMENT STANDARD AND SCOPE OF REVIEW
In a sole issue on appeal, the McClains argue that the trial court’s
summary-judgment rulings were in error because State Farm’s duty to defend
arose as a matter of law based on the Ramirezes’ allegations and the terms of
4The McClains urged other grounds on summary judgment but do not raise
them on appeal.
6
the policy. We review a summary judgment de novo. Nall v. Plunkett,
404 S.W.3d 552, 555 (Tex. 2013). Here, the parties filed cross-motions for
summary judgment; therefore, we consider the entire record and determine
whether there is more than a scintilla of probative evidence raising genuine
issues of material fact on each element of the challenged claim and on all
questions presented by the parties. See Tex. R. Civ. P. 166a(c); Neely v.
Wilson, 418 S.W.3d 52, 59 (Tex. 2013); Buck v. Palmer, 381 S.W.3d 525, 527 &
n.2 (Tex. 2012). In short, our “ultimate question is simply whether a fact issue
exists.” Buck, 381 S.W.3d at 527 n.2. When, as here, a trial court’s order
granting summary judgment does not specify the ground or grounds relied on for
its ruling, we will affirm the summary judgment if any of the theories presented to
the trial court and preserved for appellate review are meritorious. See Provident
Life & Accident Ins. Co. v. Knott, 128 S.W.3d 211, 216 (Tex. 2003).
B. AN INSURER’S DUTY TO DEFEND
An insurer’s duty to defend is purely a creature of contract; thus, its
parameters depend solely “on the language of the policy setting out the
contractual agreement between insurer and insured.” See Pine Oak Builders,
Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 655 (Tex. 2009). In
determining whether the insurer has a duty to defend, we look to the facts
alleged in the petition, not to the causes of action or legal theories asserted.
See Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Merchs. Fast Motor Lines, Inc.,
939 S.W.2d 139, 141 (Tex. 1997). We give those allegations a “liberal
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interpretation,” resolving any doubts against the insurer. Id. Facts outside the
pleadings, even if easily ascertainable, are not material in determining whether
there is a duty to defend under the policy; thus, we may not imagine factual
scenarios that might trigger coverage. See GuideOne Elite Ins. Co. v. Fielder
Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006); 4 J. Hadley Edgar Jr. &
James B. Sales, Texas Torts and Remedies § 71.07[2][b] (2015). These
principles are routinely referred to as the eight-corners rule: An insurer’s duty to
defend is determined on the basis of the four corners of the policy plus the four
corners of the factual allegations in the suit. See Nat’l Union, 939 S.W.2d at 141;
see also GuideOne Specialty Mut. Ins. Co. v. Missionary Church of Disciples of
Jesus Christ, 687 F.3d 676, 682–84 (5th Cir. 2012).
III. STATE FARM’S DUTY TO DEFEND
A. THE FOUR CORNERS OF THE RAMIREZES’ PETITION
In their suit, the Ramirezes alleged detailed facts in support of their claims
against the McClains. As State Farm contends, these facts included a “welldefined
chronology.” As alleged, the Ramirezes and the McClains entered into a
contract for the purchase of the property, secured by a deed of trust on the
property in March 2005. The McClains recorded a warranty deed on the
property, showing that it had been sold and conveyed to the Ramirezes, subject
to their vendor’s lien. The Ramirezes paid the McClains $7,500, and the
remaining balance reflected in the promissory note was $60,500 to be paid in
monthly installments of approximately $547 until March 15, 2023. Between June
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2005 and October 2013, the Ramirezes made payments on the note, totaling
$62,713. They also made improvements to the property. During this time, the
Ramirezes paid the McClains “additional money . . . for random and arbitrary
fees that were not specified in their contract.”
On October 18, 2013, a few days after the Ramirezes’ October payment,
the Ramirezes received a demand letter from Thomas, stating that their October
payment was delinquent in the amount of $488.28, that they owed $15,580.47 in
interest and $150 in attorney’s fees, and that the remaining principal balance and
accrued interest would be accelerated. The Ramirezes sent an additional $600
to the McClains, but the McClains returned it. In November 2013, the Ramirezes
sent their usual monthly payment to the McClains, which was also returned.
Thomas sent a second acceleration notice to the Ramirezes on November 19,
2013, demanding payment of $59,827.05 in principal plus an additional,
indeterminate amount in accrued interest. On November 21, 2013, Thomas sent
the Ramirezes a notice of foreclosure. After further notices, the property was
posted for foreclosure sale with a balance owed of $60,606.95. The McClains
bought the property at the April 1, 2014 foreclosure sale for $42,000. The
foreclosure-sale deed, showing the McClains as the owners of the property, was
recorded on April 2, 2014. At the time the Ramirezes filed their petition against
the McClains—four months after the foreclosure sale—the Ramirezes continued
to live on the property.
9
In their suit, the Ramirezes complained of the McClains’ “verbal demands
for money, unannounced and uninvited visits to the Property with prospective
buyers or workmen, and written letters returning [the Ramirezes’] monthly
payments,” all of which allegedly occurred “[d]uring . . . Thomas’[s] mailed
correspondence with [the Ramirezes].” They also alleged that Eugene McClain,
while acting as a debt collector, “frequently visited the Property to intimidate and
threaten [the Ramirezes] and their grandchildren and on such visits demanded
increasing amounts of money and made threats towards [the Ramirezes] and the
Property.” The Ramirezes also alleged that the McClains would “slur” them and
demand unauthorized, additional payments all while acting as debt collectors. In
response, the Ramirezes claimed they would “frantically go out and obtain
additional money orders and send registered mailings to [the] McClain[s] in an
attempt to reduce their debt.”
B. COVERAGE FOR OWNER, LANDLORD, OR LESSOR UNDER THE POLICY
The McClains argue that these allegations potentially could have occurred
after the foreclosure sale—after the McClains had title to the property—and, thus,
were covered under the policy as injuries “arising out of . . . the wrongful eviction
from, wrongful entry into, or invasion of the right of private occupancy of a room,
dwelling[,] or premises that a person occupies, committed by or on behalf of its
owner, landlord[,] or lessor.” [Emphasis added.]
First, the McClains contend that their alleged actions in bringing
prospective buyers and workmen to the property “[a]ssumedly” occurred after
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they had title to the property, “otherwise [they] would have been wasting [their]
time and money on remodeling quotes and marketing on a property that [they]
did not own.” But this assumption goes too far. The four corners of the
Ramirezes’ petition clearly allege that these allegations occurred “during . . .
Thomas’[s] mailed correspondence with [the Ramirezes].” All of Thomas’s
correspondence to the Ramirezes referenced in the petition was alleged to have
occurred before the foreclosure sale. The Ramirezes did not allege that any of
the complained-of correspondence occurred after the foreclosure sale. The last
alleged correspondence from Thomas mentioned in the petition was the notice of
foreclosure sale that Thomas sent to the Ramirezes on February 25, 2014—
approximately one month before the foreclosure sale.
Second, the McClains urge that the allegation that Eugene McClain
“frequently visited” the property to “intimidate,” “threaten,” and “demand[]
increasing amounts of money” could have occurred after the foreclosure sale
because the petition does not specify exactly when the visits occurred. However,
the Ramirezes asserted that these actions occurred while Eugene McClain was
acting as a debt collector, i.e., before the foreclosure sale at which the McClains
became the owner of the property. Further, the Ramirezes’ allegations regarding
the McClains’ actions were chronological and focused on conduct after the
promissory note was executed but before the foreclosure sale; the chronological
timeline ended with the foreclosure sale.
11
Although an insurer must defend its insured if the complaint potentially
alleges a case within coverage, this potential for liability arises only “[w]here the
complaint does not state facts sufficient to clearly bring the case within or without
the coverage.” Heyden Newport Chem. Corp. v. S. Gen. Ins. Co., 387 S.W.2d
22, 26 (Tex. 1965). The Ramirezes’ alleged facts are detailed and sufficiently
specify when the alleged conduct occurred. The McClains’ attempts to imply or
assume facts to argue potential liability go beyond the four corners of the
Ramirezes’ petition. Because the Ramirezes did not allege a personal or
advertising injury as defined in the policy, this portion of the policy cannot invoke
State Farm’s duty to defend.
C. COVERAGE FOR BODILY INJURY UNDER THE POLICY
The McClains next argue that their policy provided coverage because the
Ramirezes sought recovery for mental anguish, which is a form of bodily-injury
damages as defined in the policy. The Ramirezes alleged that the McClains’
actions caused them and their grandchildren “extreme emotional distress.”
Covered bodily-injury damages were specifically defined in the policy: “‘Bodily
injury’ means bodily injury, sickness, or disease sustained by a person, including
death resulting from any of these at any time. ‘Bodily injury’ includes mental
anguish or other mental injury caused by the ‘bodily injury.’” State Farm
contends that this definition mandates that claims for mental injury are not
covered under the policy unless they are accompanied by and caused by the
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physical injury; “bodily injury” under the policy does not include “stand-alone
mental anguish.”
The McClains assert, on the other hand, that the Ramirezes’ allegations of
emotional distress are sufficient to constitute bodily injury because the phrase
“caused by the ‘bodily injury’” modifies only mental injury, not mental anguish.
Therefore, mental anguish does not have to be a result of a physical injury to be
covered under the policy. To support their argument, the McClains rely on the
rule of the last antecedent to interpret this alleged ambiguity in the contract.5 But
a reading of the plain text of the bodily-injury definition in the policy reveals that
only if the bodily injury—“bodily injury, sickness, or disease”—causes the alleged
mental anguish or other mental injury will State Farm’s duty to defend against
mental anguish or other mental injury arise. See, e.g., Paroline v. United States,
134 S. Ct. 1710, 1721 (2014) (interpreting statute and noting that a clause
following several terms is as applicable to the first as it is to the last). The
5The Ramirezes alleged “extreme emotional distress,” which could be
categorized as a mental injury as opposed to mental anguish. See, e.g.,
Travelers Indem. Co. of R.I. v. Holloway, 17 F.3d 113, 115 (5th Cir. 1994);
Am. States Ins. Co. v. Hanson Indus., 873 F. Supp. 17, 26–27 (S.D. Tex. 1995);
cf. In re Transwestern Publ’g Co., 96 S.W.3d 501, 505 (Tex. App.—Fort Worth
2002, orig. proceeding) (“A mental injury that warrants a psychological evaluation
[under rule 204.1] is distinguishable from emotional distress that accompanies a
personal injury action.”); Sw. Tex. Coors, Inc. v. Morales, 948 S.W.2d 948, 954
(Tex. App.—San Antonio 1997, no pet.) (“Although physical injuries may lead to
emotional distress, . . . a recovery for mental injuries requires more than a
showing of the usual and ordinary emotional consequences of physical injury.”).
Thus, even under the McClains’ desired reading using the rule of the last
antecedent, the Ramirezes’ alleged mental injury would have to be accompanied
by a bodily injury.
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McClains’ desired reading is tortured and relies too heavily on the absence of a
comma between “injury” and “caused.” See generally Barnhart v. Thomas,
540 U.S. 20, 26, 124 S. Ct. 376, 380 (2003) (noting that although rule of the last
antecedent is grammatically sensible, it is “not an absolute and can assuredly be
overcome by other indicia of meaning”). Indeed, this clearly written provision
means exactly what it says: Stand-alone claims for the recovery of damages for
mental anguish or other mental injury are not covered by the policy.6 Cf. Trinity
Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 823–24 (Tex. 1997) (interpreting
similar definition of bodily injury to exclude “purely emotional injuries”). See
generally TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 439 (Tex.
2011) (“It is a fundamental principle of statutory construction and indeed of
language itself that words’ meanings cannot be determined in isolation but must
be drawn from the context in which they are used.”).

* * *

6Because we conclude that the Ramirezes’ allegations of extreme
emotional distress were not bodily injuries as defined in the policy, we need not
address the McClains’ alternative argument that the bodily-injury coverage was
triggered because the Ramirezes’ injuries were based on an “occurrence” as
defined in the policy.

Outcome: We recognize that we are to liberally construe the Ramirezes’ factual
allegations in favor of coverage in determining State Farm’s duty to defend the
McClains. But even under this standard, the Ramirezes’ factual allegations do
not fall within the contractual coverage as a matter of law. Therefore, the trial
court did not err by granting State Farm judgment as a matter of law on the
McClains’ duty-to-defend suit. We overrule the McClains’ sole issue and affirm
the trial court’s summary-judgment orders.

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