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Reversed and Rendered, in Part; Reversed and = Remanded, in=20 Part; and Opinion filed August 23, 2007.

 

In The

 

Fourteenth=20 Court of Appeals

_______________

 

NO. 14-06-00028-CV

_______________

 

LONE STAR HEAT TREATING CO., LTD.,=20 Appellant

 

V.

 

LIBERTY MUTUAL = FIRE INSURANCE=20 COMPANY, Appellee

           &= nbsp;           &n= bsp;           &nb= sp;           &nbs= p;            = ;            =             &= nbsp;           &n= bsp;           &nb= sp;           &nbs= p;            = ;          =20

On Appeal from the 165th District=20 Court

Harris County,=20 Texas

Trial Court Cause No.=20 04-68598

           &= nbsp;           &n= bsp;           &nb= sp;           &nbs= p;            = ;            =             &= nbsp;           &n= bsp;           &nb= sp;           &nbs= p;            = ;          =20

 

O P I N I O = N

In this insurance = coverage=20 dispute, appellant, Lone Star Heat Treating Co., Ltd. = (ALone Star@) appeals from an = order=20 granting summary judgment in favor of appellee, Liberty Mutual = Fire=20 Insurance Company (ALiberty = Mutual@) and denying Lone=20 Star=3Ds motion for summary=20 judgment.  In three issues, Lone Star contends it is entitled = to=20 damages for breach of contract, a statutory penalty, and=20 attorney=3Ds fees because  = the=20 exclusion upon which Liberty Mutual relied to deny coverage is not = applicable.  We reverse and render in part and reverse = and=20 remand in part.

I. =20 Background

Lone Star is a Texas = limited=20 partnership engaged in the business of heat treating metals.  = Typically, customers ship products to Lone Star for treatments and = retrieve them after the work is completed. Lone Star usually = operates=20 three shifts per day: 7:00 a.m. to 3:00 p.m.; 3:00 p.m. to 11:00 = p.m.; and=20 11:00 p.m. to 7:00 a.m.  During the relevant time period, = most=20 customers retrieved their materials during the first = shiftCwhen Lone = Star=3Ds administrative = staff was=20 present.  However, customers sometimes retrieved materials = during the=20 second shift.  Only a few employees worked the second = shift. =20 Lanis Roberts was the senior employee during the second = shift.

When a customer = retrieved=20 materials after 5:00 p.m., it usually made advance arrangements = and the=20 documentation was left for Roberts. However, without advance = notice,=20 customers occasionally sent a truck driver to retrieve products = after 5:00=20 p.m.  In that situation, Roberts was required to call the = shipping=20 and receiving manager, Danny Bierman, or Bierman=3Ds supervisor, Dexter = Wilson, to=20 determine whether materials should be released to the Apick-up = person.@  If Roberts = received=20 instructions to release the material, he was required to obtain=20 appropriate documents from the Apick-up = person.@

On September 28, = 2004, a man=20 who identified himself as ARobert = Smith@ appeared at Lone=20 Star=3Ds loading dock.  = Smith=20 pointed out two pallets of steel he was purportedly sent to=20 retrieve.  Smith told Roberts that Danny Bierman knew about = the=20 matter.  Roberts stated that he could not release the = materials=20 without proper documentation.  Smith offered to write and = sign a=20 ticket.  When Roberts requested the identity of = Smith=3Ds customer, he = replied=20 ABaker.@  After Smith = signed the=20 ticket, Roberts permitted Smith to take the two pallets of = steel. =20 This steel was not owned by ABaker.@  It was owned = by two=20 different Lone Star customers. Lone Star never identified = ARobert = Smith,@ and the steel = was  not=20 recovered.  Therefore, Lone Star paid both customers the = value of=20 their steel.

At the time of this = incident,=20 Liberty Mutual insured Lone Star under a ACommercial = Policy.@  Under the = BASIC COVERAGE=20 FORM, the policy covers, among other interests, APersonal Property of = Others for=20 which you are liable when in your actual or constructive=20 custody.@  Lone Star made = a claim=20 against Liberty Mutual for its loss of $78,723.85, representing = the value=20 of the steel less the policy deductible.  Liberty Mutual = denied the=20 claim based on a Adishonesty=20 exclusion.@

Lone Star sued = Liberty Mutual,=20 alleging it breached the policy and violated former article 21.55 = of the=20 Texas Insurance Code by failing or refusing to timely pay the = claim. =20 Lone Star and Liberty Mutual each filed a motion for summary=20 judgment.

On December 9, 2005, = the trial=20 court signed a final judgment, granting Liberty Mutual=3Ds motion for summary = judgment,=20 denying Lone Star=3Ds motion for summary = judgment,=20 and ordering that Lone Star take nothing relative to its claims = against=20 Liberty Mutual.

 =20 II.   Standard of Review=20

Under = well-established=20 standards governing a traditional motion for summary judgment, the = movant=20 must show that there is no genuine issue as to any material fact = and it is=20 entitled to judgment as a matter of law.  Tex. R. Civ. P. = 166a(c); Nixon=20 v. Mr. Prop.  Mgmt. Co., 690 S.W.2d 546, 548 (Tex. = 1985). =20 We review a summary judgment de novo.  Valence Operating = Co. v.=20 Dorsett, 164 S.W.3d 656, 661 (Tex. 2005).  We take as = true all=20 evidence favorable to the nonmovant, and we indulge every = reasonable=20 inference and resolve any doubts in the nonmovant=3Ds favor.  = Id. =20 When, as here, both parties move for partial summary judgment on = the same=20 issues and the trial court grants one motion and denies the other, = we=20 consider the summary judgment evidence presented by both sides, = determine=20 all questions presented, and render the judgment the trial court = should=20 have entered.  Id.

Although the insured = bears the=20 initial burden to prove its claim falls within the scope of = coverage=20 afforded by the policy, the insurer bears the burden to prove an = exclusion=20 precludes coverage.  Lennar Corp. v. Great Am. Ins. = Co., 200=20 S.W.3d 651, 663 (Tex. App.CHouston [14th Dist.] = 2006, pet.=20 filed) (citing former statute replaced by current version); = Comsys=20 Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 = S.W.3d 181,=20 193 (Tex. App.CHouston [14th Dist.] = 2003, pet.=20 denied); Evergreen Nat=3Dl Indem. Co. v. Tan = It All,=20 Inc., 111=20 S.W.3d 669, 675 (Tex. App.CAustin 2003, no = pet.); see=20 Tex. Ins. Code  = Ann. ' 554.002 (Vernon = Supp. 2006).=20

The traditional rules = for=20 construction of contracts are applicable when we interpret an = insurance=20 contract.  Trinity Universal Ins. Co. v. Cowan, 945 = S.W.2d=20 819, 823 (Tex. 1997); Forbau v. Aetna Life Ins. Co., 876 = S.W.2d=20 132, 133 (Tex. 1994).  When construing a contract, our = primary=20 concern is to give effect to the written expression of the=20 parties=3D intent. = Forbau, 876=20 S.W.2d at 133.  We are bound to read all parts of a contract = together=20 to ascertain the agreement of the parties. Id.  When = terms are=20 defined, those definitions control interpretation of the policy.=20 Trinity Universal Ins. Co., 945 S.W.2d at 823.  If we = can give=20 a contract only one reasonable meaning, the contract is not = ambiguous and=20 we will enforce it as written.  See State Farm Fire & = Casualty=20 Co. v. Vaughan, 968 S.W.2d 931, 933 ( Tex. 1998).  Any = ambiguity=20 must be evident from the policy under scrutiny, and we may not = consider=20 extrinsic evidence unless the language is ambiguous.  = Fiess v.=20 State Farm Lloyds, 202 S.W.3d 744, 747 (Tex. 2006).=20          

   =20 III.   The ADishonesty=20 Exclusion@

The Liberty Mutual = BASIC=20 COVERAGE FORM has the following exclusionary language:

We will not pay for Aloss@ caused directly or indirectly by any of = the=20 following:

Such Aloss@ is excluded regardless of any other = cause or=20 event that contributes concurrently or in any sequence to the = Aloss.@

D. Dishonesty:

Dishonesty or criminal acts by you, any = of your=20 partners, employees, directors, trustees, authorized = representative or=20 anyone to whom you entrust the property for any = purposes:

(1)       = Acting=20 alone or with others; or

(2)       = Whether or=20 not occurring during the hours of employment;

This exclusion does = not apply=20 to acts of vandalism by your employees; however, theft by = employees is not=20 covered.

A.       =20 Lone Star=3Ds = Contentions

In its first two = issues, Lone=20 Star contends Exclusion D does not preclude coverage for its = property=20 theft claim. Lone Star contends that Ayou@ in Exclusion D = refers only to=20 Lone Star and does not include its employees.  Thus, Lone = Star argues=20 that the exclusion is inapplicable because Lone Star did = not=20 entrust the property to Smith.  In its motion for summary = judgment,=20 Lone Star asserted that the exclusion is unambiguous and must be = construed=20 in favor of Lone Star, or alternatively, if the exclusion is = ambiguous, it=20 must be construed in Lone Star=3Ds favor.=20 =             &= nbsp;           &n= bsp;           &nb= sp;          =20

Lone Star offers = several=20 reasons why Ayou@ in Exclusion D does = not=20 include its employees.  Lone Star compares the second phrase = which=20 begins after the Aor@ conjunction. The = first phrase=20 applies to dishonesty or criminal acts by Ayou, any of your = partners,=20 employees, directors, trustees, authorized = representative.@  In contrast, = the second=20 phrase pertaining to entrustment precludes coverage for dishonesty = and=20 criminal acts by Aanyone to whom you = entrust the property for any reason . . .@ 

Lone Star further = argues that=20 Ayou@ is specifically = defined as=20 ALONE STAR HEAT = TREATING CO.=20 LTD.@ Relative to the risk = associated with entrustment of insured property, Lone Star asserts = that=20 Liberty Mutual has expressly distinguished between the Named = Insured and=20 its Aemployees.@

In interpreting the = word=20 Ayou,@ Lone Star asks the = court to=20 distinguish third party negligence claims that involve vicarious=20 liability, from traditional insurance contract and agency law. = Lone Star=20 then refers the court to statutes governing conduct of business = for=20 limited partnerships and suggests that its president, who is the = general=20 partner, should be denominated as the only agent who can = represent=20 and bind Lone Star.  Consequently, Lone Star contends it did = not=20 entrust the property to Robert Smith because employee Roberts was = not=20 authorized to Ahand over@ customer material to = Robert=20 Smith.

B.=20        Liberty = Mutual=3Ds = Contentions

Liberty Mutual first = contends=20 the policy should be construed Ain light of = surrounding=20 circumstances@ and suggests that = the=20 disagreement between the parties is not about Awhat the policy = means, it is=20 about whether Lone Star entrusted the property to Robert=20 Smith.@   = Secondarily, and=20 converse to its first contention, Liberty Mutual contends = Exclusion D is=20 unambiguous and the rule of strict construction in favor of the = insured is=20 not applicable.  However, the major thrust of Liberty Mutual = argument=20 is that a corporation can only act through its employees; thus,=20 Ayou@ necessarily includes = Lone=20 Star=3Ds employees. = Accordingly, =20 Liberty Mutual asks this court to resolve the coverage question by = deciding whether a Lone Star employee=3Ds act, Ain the course and = scope of his=20 employment, was attributable to Lone Star.@

C.=20        = Analysis

Liberty Mutual = insured Lone=20 Star against Adirect physical=20 loss@ as defined in the = policy=20 unless such loss is excluded.  The BASIC COVERAGE FORM = provides first=20 party coverage and under, Part 1 AINTEREST AND PROPERTY = COVERED,@ subsection A (4), = Liberty=20 Mutual agreed to cover Ayour@ (the named = insured=3Ds) insurable interest = in=20 APersonal Property of = Others for=20 which you are liable when in your actual or constructive=20 custody.@ Under subsection = A(6)=20 APersonal Property in=20 transit@ is included under = INTEREST AND=20 PROPERTY COVERED. There is precatory language at the top of the = BASIC=20 COVERAGE FORM instructing the reader to refer to GENERAL POLICY = CONDITION=20 31 for definitions. Under general condition 31-O,  Personal = Property=20 in transit, AMeans coverage on = Personal=20 Property from the time it leaves the original point of shipment = until it=20 is delivered at destination.@ The period of time = when=20 coverage is applicable for property in transit includes: = A(1) While the = property is in=20 your care, custody or control; (2) While the property is in the = care,=20 custody or control of hired carriers***.@  Under the = stipulated=20 facts, the property in question was in the named = insured=3Ds care, custody or = control when=20 it was removed from the loading dock.

In determining = whether Liberty=20 Mutual was entitled to summary judgment, we must resolve the = following=20 issues: (1) whether AYou@ as defined in the = policy=20 includes employees of the Named Insured; and (2) whether=20 Roberts=3Ds unauthorized act of = entrustment, in furtherance of the business of Lone Star, is = attributable=20 or imputable to Lone Star.  Stated differently, Liberty = Mutual is=20 entitled to summary judgment if the policy definition of = AYou@ includes employees = while=20 acting in furtherance of Lone Star=3Ds business or, = if=20 Roberts=3Ds act of entrustment = is=20 attributable or imputable to Lone Star.

 Liberty=20 Mutual=3Ds Commercial Policy = has=20 multiple features and forms.  It is so voluminous that it = begins with=20 a five-page reference index.  After the index, there are two=20 introductory forms entitled SPECIAL POLICY CONDITIONS and GENERAL = POLICY=20 CONDITIONS. On the SPECIAL POLICY CONDITIONS form, we find the = following=20 language in paragraph 1:

WORDS WITH SPECIAL MEANING

Throughout this Policy:

A.  The words you, = your and=20 yourself refer to the NAMED

           &= nbsp;           &n= bsp;   =20 INSURED shown in ITEM 1 of the policy DECLARATIONS

B.  The words we, us = and=20 our refer to the Company providing

           &= nbsp;           &n= bsp;   =20 this insurance; and

C.  Other words and phrases that = appear=20 within quotations marks

           &= nbsp;           &n= bsp;   =20 have special meaning.  Refer to GENERAL POLICY

           &= nbsp;         =20       CONDITION 31 titled = DEFINITIONS or the=20 DEFINITIONS

           &= nbsp;           &n= bsp;   =20 section of any form or endorsement attached to the policy. =   =20

In the BASIC COVERAGE = FORM,=20 Liberty Mutual included Aemployees@ in the first phrase = of=20 Exclusion D and did not include employees in the entrustment=20 phrase.   A plain reading of the policy as a whole, = militates=20 the conclusion that Ayou@ does not include the = Named=20 Insured=3Ds employees. Liberty = Mutual=20 unambiguously defined Ayou@ as the Named = Insured,=20 ALONE STAR HEAT = TREATING CO.=20 LTD.,@ and we must duly = regard=20 defined terms as controlling when interpreting policy provisions.=20 Trinity Universal Ins., 945 S.W.2d at 823. We would violate = this=20 important rule of construction if we otherwise concluded that = Ayou@ includes employees.=20

To determine whether = coverage=20 is applicable under the BASIC COVERAGE FORM, we are bound to read = all=20 parts of the policy together to ascertain the agreement of the=20 parties.  See Forbau, 876 S.W.2d at 133. We note the = same=20 exclusionary language pertaining to dishonesty that  appears = under=20 Exclusion D in the BASIC COVERAGE FORM also appears in the = ACCOUNTS=20 RECEIVABLE COVERAGE FORM and the VALUABLE PAPERS AND RECORDS = COVERAGE=20 FORM.  Throughout the policy, Liberty Mutual consistently = included=20 Aemployees@ in the first phrase, = but=20 omitted Aemployees@ from the = Ato whom you = entrust@ phrase.

Significantly, = Liberty Mutual=20 included the following language in the  COMPREHENSIVE = ELECTRONIC=20 SYSTEMS COVERAGE FORM under Exclusion C:

           &= nbsp;          =20 Dishonest, fraudulent or criminal acts by:

           &= nbsp;=20            (1) = you, any=20 partner, director, officer, trustee, or agent;

(2) others who have an interest in the=20 property;

(3) others to whom you entrust the = property;=20 or

(4) employees of (1) (2), or (3) whether = or not=20 they are at work

 

This language is = consistent=20 with the Aspecial = meaning@ and definition of = AYou@ expressed on the = SPECIAL=20 POLICY CONDITIONS form.  Here, Liberty Mutual has clearly = delineated=20 between the Named Insured (Ayou@) and its = employees.  We=20 cannot ignore the above provisions because we are required to read = all=20 parts of the contract together to ascertain the agreement of the=20 parties.  Forbau, 876 S.W. 2d at 133.

We agree with Liberty = Mutual=3Ds second contention = that the=20 policy language in question is unambiguous.  However, we = disagree=20 with Liberty Mutual=3Ds contention that we = must=20 consider Asurrounding=20 circumstances@ in interpreting the=20 policy.  Implicitly, Liberty Mutual asks this court to find = latent=20 ambiguity in the exclusionary language.  See Nat. Union = Fire Ins.=20 Co. of Pittsburgh, Pa. v. CBI Indus. Inc., 907 S.W. 2d 517, = 520-21=20 (Tex. 1995) (explaining latent ambiguity arises when a contract = which is=20 unambiguous on its face is applied to a fact pattern and an = ambiguity=20 appears by reason of some collateral matter).  Liberty Mutual = refers=20 this court to Sun Oil Co. v. Madeley, 626 S.W. 2d 726, 731 = (Tex.=20 1981) to support its Asurrounding=20 circumstances@ argument.  = However, the=20 Madeley court acknowledged that the parol evidence rule = applies=20 even to the extent of prohibiting proof of surrounding = circumstances when,=20 by the terms of the contract, the intent of the parties is so = worded that=20 it is not fairly susceptible to more than one legal meaning or=20 construction.  Id. at 732. In the context of = unambiguous=20 insurance policy provisions, the rule excluding extrinsic evidence = was=20 recently followed by our supreme court.  Fiess, 202 = S.W.3d at=20 747.  Accordingly, we hold that Ayou@ is unambiguously = defined in=20 the policy and does not include the Named Insured=3Ds employees. =

Liberty Mutual refers = this=20 court to American Mfrs. Mut. Ins. Co. v. Schaefer, 124 S.W. = 3d 154,=20 157 (Tex. 2003), and suggests that the entrustment portion of the=20 dishonesty exclusion is rendered meaningless if we conclude that=20 AYou@ does not include the = named=20 insured=3Ds employees.  = However, our=20 interpretation of the policy does not foreclose applicability of = Exclusion=20 D when an employee is authorized by the named insured to entrust=20 property.  The entrustment portion of the exclusion is = applicable=20 when AYou,@ meaning the Named = Insured,=20 directs or authorizes employees to entrust the property.=20

Accordingly, we turn = to the=20 second part of this coverage question and determine whether=20 Roberts=3Ds act of entrustment = is=20 imputable to Lone Star.   It is undisputed that Lone = Star=20 entered into bailment agreements.  Lone Star=3Ds loss occurred = because of its=20 liability as a bailee of property.[1]  In=20 its brief, Liberty Mutual provides Areal = world@ scenarios and asks = the court=20 to employ the general rule that acts of a corporate agent on = behalf of the=20 corporation are deemed the corporations=3Ds acts.  See = Holloway=20 v. Skinner, 898 S.W. 2d 793, 795 (Tex. 1995).  However, = the cases=20 Liberty Mutual cites to support this argument generally pertain to = an=20 employer=3Ds liability for = damage or=20 injury to third parties when caused by the conduct of an employee = or=20 agent.  In Durand v. Moore, 879 S.W.2d 196 (Tex.=20 App.CHouston = [14th Dist.]=20 1994, no writ), the court discussed the respondeat superior = doctrine as it=20 pertained to an employer=3Ds liability for an = assault;=20 See also=20  Hedley=20 Feedlot, Inc. v. Weatherly Trust, 855 S.W. 2d 826 (Tex.=20 App.CAmarillo=20 1993, writ denied) (pertaining to imputation of liability from = agent to=20 principal because of alleged misrepresentations).  Courts employ = vicarious=20 liability and respondeat superior doctrines, when imputing = liability to an=20 employer for acts or omissions of employees.  These doctrines = are=20 applicable in determining an employer=3Ds liability to third = parties,=20 even if the employee=3Ds acts were = unauthorized.=20  See GTE Southwest Inc. v. Bruce, 998 S.W.2d 605, = 617-18 (Tex.=20 1999). 

The pivotal question = is whether=20 Lone Star entrusted the property.  In determining whether=20 Roberts=3Ds unauthorized act of = entrustment is imputable to Lone Star, our focus is not on the = three-party=20 relationship between bailors of the steel material, Roberts and = Lone=20 Star.  Considering the policy distinction between the Named = Insured=20 and its employees, we cannot charge the named insured with conduct = that=20 negates or obviates coverage unless the Named Insured engaged in = the=20 conduct.  Accordingly, our focus is on common law doctrines = that=20 pertain to the two- party relationship between employee and=20 employer.  Here, the parties have stipulated that Roberts was = acting=20 as an employee of Lone Star when he released the materials to = Smith. =20 Consistent with the policy distinction between the Named Insured = and its=20 employees, we must determine whether the Named Insured actually = entrusted=20 the property. Therefore, imputation of Roberts=3Ds act of entrustment = is=20 contingent on whether Roberts had actual authority to entrust the = property=20 to ARobert = Smith.@  Actual = authority=20 includes both express and implied authority and usually denotes = the=20 authority a principal (1) intentionally confers upon an agent, (2) = intentionally allows the agent to believe he possesses, or (3) by = want of=20 due care, allows the agent to believe he possesses.  2616 = South=20 Loop L.L.C. v. Health Source Home Care, Inc., 201 S.W. 3d 349, = 356=20 (Tex. App. CHouston = [14th Dist.]=20 2006, no pet.). 

Therefore, we = consider whether=20 the record contains any summary judgment evidence of Lone = Star=3Ds representations, = acts, or=20 omissions that amount to actual authority for Roberts to entrust = the=20 property.  In Roberts=3Ds affidavit, which = was attached=20 to Lone Star=3Ds Response to Liberty = Mutual=3Ds motion for summary = judgment,=20 he averred in paragraph 7 as follows: ANo one had or has = ever told me=20 that I was authorized to hand over customer materials to a trucker = without=20 either the paperwork  from Danny Bierman or approval by = telephone=20 from Danny or Dexter, or from Mike Van Dorfy Jr.@  = Roberts=3Ds averment is not = controverted=20 in Liberty Mutual=3Ds response to Lone=20 Star=3Ds motion for summary=20 judgment.

The parties = stipulated, inter=20 alia, as follows:

(1) At the time this incident occurred, = Roberts=20 was the only Lone Star employee on site who had any authority to = release=20 customer loads after 5 p.m., and his authority was limited to = those=20 situations in which he had proper documents from Danny Bierman, = Lone=20 Star=3Ds shipping and receiving manager, or = actual verbal=20 authority from Bierman or his supervisor, Dexter Wilson, (2) Smith = also=20 told Roberts that Danny Bierman, Lone Star=3Ds Shipping and receiving manager, knew = about this=20 matter, (3) Roberts was acting in his capacity as an employee of = Lone Star=20 when he released the materials to Smith, (4) Roberts entrusted the = material in question to Smith, and (5) Prior to September 28, = 2004, Lone=20 Star=3Ds management acted with a lack of due = care in=20 ensuring that Mr. Lanis Roberts clearly understood that customer = products=20 should not leave Lone Star=3Ds facility without clear authorization = and=20 completion of proper paperwork in that Lone Star=3Ds management was not as careful in = setting up and=20 reviewing procedures, related administrative forms, and training = for=20 handling after-hours pick-up as they should have been.  =

 

First, it is clear = from the=20 undisputed summary judgment evidence and stipulations of the = parties that=20 Lone Star did not intentionally confer authority on Roberts to = entrust the=20 property to ARobert = Smith.@  Second, we = acknowledge=20 Roberts=3Ds uncontroverted = averment =20 that he knew he was not authorized to entrust the property under = the=20 circumstances presented.  Accordingly, we cannot conclude = that Lone=20 Star intentionally allowed Roberts to believe he had the = authority.=20

Our third and final=20 determination relative to actual authority is whether Lone Star=20 Aallowed@ Roberts to believe = he had=20 authority to release the material through its want of due = care. =20 Here, we must consider summary judgment evidence and stipulations = that=20 appear, at first blush, to be inconsistent.  The parties = stipulated=20 that Smith deceived Roberts into believing that Danny Bierman knew = about=20 his request to take possession of the material. The parties also=20 stipulated that Lone Star=3Ds management acted = with lack of=20 due care in ensuring that Roberts clearly understood the procedure = for=20 after-hours pick-up.  However, relative to actual authority, = the=20 question is whether  Lone Star=3Ds lack of due care = and failure=20 to ensure Roberts clearly understood that customer products should = not=20 leave its facility allowed or caused Roberts to believe he had = authority=20 to entrust the material.  According to Roberts=3Ds uncontroverted = affidavit, he=20 was fully aware of the conditions that must be fulfilled before he = had=20 permission to entrust material to a third party.  = Consequently, the=20 stipulation that Roberts was deceived by Smith into believing = Bierman had=20 granted permission for Smith to take the material militates the = legal=20 conclusion that Lone Star did not give actual (implied) authority = for=20 Roberts to entrust the material to Smith.  Accordingly, we = hold the=20 dishonesty exclusion does not preclude coverage, because Lone Star = did not=20 entrust the property to Smith.

Lone Star=3Ds first and second = issues are=20 sustained.

        =20 IV. Damages, Penalties and=20 Attorney=3Ds=20 Fees

In its third issue, = Lone Star=20 asserts that it is entitled to recover actual damages,=20 attorney=3Ds fees, and a = statutory penalty=20 under former Texas Insurance Code Article 21.55.   Act = of May=20 27, 1991, 72nd Leg., R.S., Ch. 242, ' 11.03(a), Tex. Gen. = Laws 1043=20 (repealed and recodified 2003) (current version at Tex. Ins. Code Ann. = ' 542.058-060 (Vernon = Supp.=20 2006)).

Because we have = sustained Lone=20 Star=3Ds first and second = issues, we=20 hold Liberty Mutual breached its contract by failing to timely = remit=20 damages claimed by Lone Star.  Accordingly, the trial court = erred by=20 granting Liberty Mutual=3Ds motion for summary = judgment=20 and denying Lone Star=3Ds motion for summary = judgment=20 with respect to the breach of contract claim. 

Liberty Mutual did = not contest=20 Lone Star=3Ds calculation of = actual damages=20 in the amount of $78,723.85.  Therefore, we reverse the = judgment in=20 favor of Liberty Mutual, and render judgment for Lone Star Heat = Treating=20 Co., Ltd., in the amount of  $78,723.85.  We remand with = instructions for the trial court to determine the amount of the = statutory=20 penalty and reasonable attorney=3Ds fees prescribed = under former=20 Texas Insurance Code Article 21.55.

 

 

 

/s/       =20 Charles W. Seymore

Justice

 

Judgment rendered and = Opinion=20 filed August 23, 2007.

Panel consists of = Chief Justice=20 Hedges and Justices Yates and Seymore.

 


[1]  The basic elements of a bailment = are: (1)=20 delivery of personal property by one person to another in trust = for a=20 specific purpose; (2) acceptance of such delivery; (3) an express = or=20 implied contract that the trust will be carried out; and (4) an=20 understanding under the terms of the contract that the property = will be=20 returned to the transferor or dealt with as the transferor = directs. =20 Yoakum Grain Inc. v. Energy Indus., Inc., 511 S.W.2d 95, 98 = (Tex.=20 App.CCorpus Christi 1974); 8A Tex. Jur. 3d, = Bailments=20 ' 3 (2007).=20

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