Opinion · Txlaw Texas
ROCOR INT'L v. NAT'L UNION FIRE, 966 S.W.2d 559 (Tex.App.-San Antiono 1997)
ROCOR Int’l, INC., f/k/a, Donco Carriers, Inc., Appellant, v.NATIONAL UNION FIRE Ins. Co. OF PITTSBURGH, PA, Appellee., 966 S.W.2d 559 (Court of Appeals of Texas, San Antonio. 1998)
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ROCOR INT'L v. NAT'L UNION FIRE, 966 S.W.2d 559 (Tex.App.-San Antiono 1997) ROCOR INTERNATIONAL, INC., f/k/a, Donco Carriers, Inc., Appellant, v.NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Appellee. No. 04-96-00536-CV.Court of Appeals of Texas, San Antonio. January 14, 1998.Dissenting Opinion of Justice Green, February 11, 1998.Rehearing Overruled May 13, 1998.Case Number: 04-96-00536-CV 07/09/2002 Created for Data Conversion -- an event inserted to correspond to the mandate date of a process 07/09/2002 Created for Data Conversion -- an event inserted to correspond to the mandate date of a process 07/09/2002 Mandate issued 07/09/2002 Case stored in record room 07/03/2002 Motion for Rehearing - Disposed proceeding denied 06/07/2002 Motion for Rehearing - Filed 06/07/2002 Motion for Rehearing forwarded 05/23/2002 Opinion issued judgment of ca affirmed/reversed in part/rendered 05/23/2002 Opinion issued judgment of ca affirmed/reversed in part/rendered 05/23/2002 Opinion issued judgment of ca affirmed/reversed in part/rendered 05/23/2002 Court approved judgment sent to attys of record 05/23/2002 Opinion issued judgment of ca affirmed/reversed in part/rendered 06/02/2000 Document received (See Remarks) 03/01/2000 Oral argument 03/01/2000 Created for Data Conversion -- an event inserted to correspond to the submitted date of a process 03/01/2000 Created for Data Conversion -- an event inserted to correspond to the submission date of a process 03/01/2000 Created for Da…
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ROCOR INT'L v. NAT'L UNION FIRE,966 S.W.2d 559(Tex.App.-San Antiono 1997)
ROCOR INTERNATIONAL, INC., f/k/a, Donco Carriers, Inc., Appellant, v.
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Appellee.
No. 04-96-00536-CV.
Court of Appeals of Texas, San Antonio.
January 14, 1998.
Dissenting Opinion of Justice Green, February 11, 1998.
Rehearing Overruled May 13, 1998.
From the 131st District Court of Bexar County, Texas Trial Court No. 92-CI-07445 Honorable Martha Tanner, Judge Presiding.1Page 561
Gerald D. McFarley, Brin Brin, P.C., San Antonio, Thomas F. Nye, Brin Brin, P.C., Corpus Christi, for Appellee.
Before HARDBERGER, C.J., and STONE and GREEN, JJ.
OPINION ON APPELLANT'S MOTIONFOR REHEARING
This suit arises from a drunk driving accident. In 1989, a truck driver employed by appellant, Rocor, struck and killed two highway patrol officers. Early in the investigation of the incident, it became apparent that the Rocor driver was drunk at the wheel. The families of the officers brought suit against Rocor. Recognizing its liability, Rocor put its primary and excess insurers on notice and anticipated an early settlement of the claims. Rocor's excess carrier, appellee National Union, took over settlement negotiations, but a settlement was not reached until March 1991, nearly two years after the accident occurred. Rocor sued National Union for expenses it incurred preparing a trial defense during the settlement negotiations, claiming that National Union had engaged in unfair insurance practices under article21.21of the Texas Insurance Code and under the Texas Deceptive Trade Practices Act (DTPA), and had made material misrepresentations to Rocor regarding the settlement. After the trial court granted National Union's motion for a directed verdict on the DTPA claim, the jury found that National Union had settled in bad faith and negligently, and it awarded Rocor $123,000 in damages, plus interest and attorney's fees. The trial court then granted National Union's motion for a judgment non obstante verdicto, or judgment n.o.v.
Rocor appeals, claiming in three points of error that 1) Rocor had standing under the Texas Insurance Code to sue for failure to act in good faith to settle a claim once liability became reasonably clear; 2) evidence at trial showed that National Union had made misrepresentations to Rocor; and 3) National Union had been negligent in failing to promptly negotiate a settlement. National Union brings three cross-points: 1) that the trial court improperly submitted a general question on negligence to the jury; 2) that the trial court erred, in its order granting judgment n.o.v., by interpreting the jury's verdict on damages; and 3) that there is no evidence, or insufficient evidence, to support the jury's assessment of attorney's fees.
We reverse the judgment n.o.v. and affirm the jury's verdict in its entirety.
SUMMARY OF FACTS
Rocor is a trucking company. In May 1989, a Rocor driver left a San Antonio bar after consuming four or five scotch and waters.Page 563A few hours later, the driver struck and killed two highway patrol officers who had stopped another drunk driver by the side of the road. Both officers were killed, and their families filed suit against Rocor.
Rocor's experienced attorney, Terrence Martin, conducted an initial investigation of the case to determine possible liability. This investigation included an interview with the truck driver, who claimed that he had not been driving the track when the accident occurred but that someone else had gotten behind the wheel while the driver was asleep in the back. The driver had no memory of who that person might have been, and no such person was ever located. The driver was apprehended fleeing on foot from the scene of the accident.
On the basis of this interview and his inability to confirm the driver's story, Martin concluded, within a month of the accident, that Rocor was liable and that its liability could amount to millions of dollars, especially if the case were to go to trial. Rocor's vice president, Angel Arzaga, agreed, and he directed Martin to contact the plaintiffs and begin immediate settlement negotiations. Martin did so. By January, the case was set for mediation.
Rocor approached negotiations with three sources of insurance protection: a $1-million deductible it carried on itself, a $1-million primary policy, under which Rocor retained the right to defend itself at trial; and an $8 million excess policy with National Union This policy did not include a duty on National Union's part to defend Rocor in the event of a lawsuit.
Before mediation could begin, National Union, advised that liability would likely reach the excess layer of coverage, took over all settlement negotiations and directed that mediation efforts be halted and that no offer be made to the plaintiffs. National Union's attorney, Stanley Renneker, assumed authority for resolution of the case, and Martin was relegated to acting at Renneker's direction.
In April 1990, National Union made its first offer to the plaintiffs: $2.8 million. This offer did not represent any National Union funds. Instead, it reflected Rocor's $1-million deductible, the $1-million National Guaranty policy, and the insurance policies of two other parties, the bar that had served the driver, and a "bobtail" policy that covered the driver when he was driving the rig out side the scope of his employment.2In short, National Union, in charge of negotiations, offered everyone's money but its own.
The attorney for the officers' families rejected the offer of $2.8 million, and in May 1990, the plaintiffs' attorney made a demand for a settlement that, including an offer to settle the children's estates separately, amounted to $6.3 million. This figure was harmonious with amounts Rocor and National Union had independently arrived at in evaluating the case. On May 10, there was agreement between Martin and Renneker that the value of the case was between $6 and $6.5 million. The upper end was more than the plaintiffs were demanding, so from that point on, all parties were essentially agreed on what the case should settle for. The attorneys estimated that were the case to go to trial, however, Rocor's liability, including possible punitive damages, could be assessed at up to $20 million. Almost another year would pass before the case settled.
The plaintiffs' attorney testified at trial that he believed almost from the beginning that the suit could be settled in the $6 million range. He acknowledged that sometime that spring, he sent what is known as a "Stowers" letter, demanding that the case be settled for the policy limits, or $10 million. This letter put National Union on notice that, if no settlement occurred, National Union could be liable, under Texas law, for any excess judgment against Rocor for failing to settle within the limits of the policy.See G.A. Stowers Furniture Co. v. American Indem.Co.,15 S.W.2d 544,548(Tex. Comm'n App. 1929, holding approved) (holding insurer to duty to settle in good faith claims made within policy limits);see also Trinity UniversalPage 564Ins. Co. v. Bleeker,944 S.W.2d 672,676(Tex.App. — Corpus Christi 1997, n.w.h.) (holding that letter demanding full policy limits and mentioningStowersDoctrine should be understood to propose settlement). According to trial testimony, the parties understood the import of this letter and understood that the plaintiffs' attorney would be willing to settle for less than $10 million. However, with no settlement in sight, Rocor's attorney, Martin, had no option other than continue to prepare for trial.
In a May 11, 1990, letter, Martin put National Union on notice that it should settle the case or assume Rocor's costs for preparing a trial defense. In this letter, Martin pointed out that the driver's version of events had not been substantiated and that Rocor faced serious liability if the case went to trial. National Union made no additional settlement offers.
In September 1990, Martin learned about the offer to settle the children's claims. The plaintiffs' attorney had made this offer five months earlier, in April, for $400,000 per child plus attorney's fees. Martin and Arzaga testified that they had no knowledge of it before September. The settlement was to come directly from Rocor's $1-million deductible and its primary coverage. Trial evidence shows that, following Martin's discovery of the offer, the children's case settled by October.
The entire case settled in March 1991. This was more than a year after National Union assumed responsibility for settlement. The case settled for $6.4 million, nearly exactly what both Martin and Renneker estimated it should have settled for in May 1990. Rocor brought suit to recover expenses it had used in preparing a trial defense after June 1, 1990.
STANDARD OF REVIEW
This case comes before us on a judgment n.o.v. In moving for this judgment, National Union raised both deficiency of proof claims and claims that Rocor had no legal cause of action. Because the trial judge did not indicate upon which of these claims she granted the motion, Rocor must address and refute each of them.Fort Bend County Drainage Dist. v. Sbrusch,818 S.W.2d 392,394(Tex. 1991).
A judgment n.o.v. based on deficiency of proof is appropriate only when there is no evidence upon which the jury could have made its findings.Dowling v. N.A.D.W. Marketing, Inc.,631 S.W.2d 726,728(Tex. 1982). In reviewing such a judgment, we must view all facts and draw all inferences in a light most favorable to the nonmovant, and ignore all evidence and inferences to the contrary.Bray v. McNeely,682 S.W.2d 615,617(Tex.App. — Houston [1st Dist.] 1984, n.w.h.). A judgment n.o.v. based on a legal argument is proper only when the trial court can determine as a matter of law that the claim or defense is not viable.See FortBend,818 S.W.2d at 397(affirming judgment n.o.v. where court found defendant owed no legal duty to plaintiff).
National Union based its motion for judgment n.o.v. on nine grounds. Although National Union claims that Rocor's three points of error fail to address each of these grounds, we find that they accurately encompass the judgment n.o.v. motion. The issues on appeal, presented here for clarity in different order from Rocor's brief, are: 1) does Rocor have a cause of action under the Texas Insurance Code for unfair business practices based on failure to settle in good faith; 2) does Rocor have a negligence cause of action against National Union; and 3) was there sufficient evidence of material misrepresentations to Rocor by National Union that resulted in damages to Rocor?3
BAD FAITH SETTLEMENT PRACTICES
Rocor alleged in its pleadings that National Union had violated article21.21of the Texas Insurance Code by not attemptingPage 565in good faith to effectuate a fair settlement once liability was reasonably clear.SeeTEX.REV.STAT. ANN. art. 21.21 (Vernon 1981) (listing unfair practices under Insurance Code). National Union argues that Rocor has no private cause of action under article 21.21. We disagree.
Article21.21of the Texas Insurance Code enumerates unfair practices under the Code and the consequences of those acts.Id, Section 16 of article 21.21 creates a private cause of action for any person who has been injured by another's engaging in:
1) any of the practices declared to be unfair or deceptive by Section 4 of 21.21;
2) conduct defined in rules or regulations lawfully adopted by the Board under article 21.21 as unfair methods of competition and unfair or deceptive acts or practices in the business of insurance; or
3) any practice defined by Section17.46of the Business Commerce Code, as amended, as an unlawful trade practice.Id. at § 16.
The Texas Supreme Court has held that an insured may bring a private action based on unfair settlement practices against its insurer under this provision.Vail v. Mutual Ins. Co.,754 S.W.2d 129,134(Tex. 1988). This is so under two alternate theories. First, section 16 creates a private cause of action for practices declared to be unfair or deceptive by a rule or regulation of the State Board of Insurance. The Texas Administrative Code, which codifies Insurance Board Orders, lists as unfair practices those that "are prohibited by Article 21.20 and Article 21.21 or by other provisions of the Insurance Code of Texas and by the rules and regulations of the State Board of Insurance." 28 TEX. ADMIN. CODE § 21.3(a) (West 1997). The Insurance Code does list among unfair practices the failure to settle in good faith. Article 21, 21-2 of the Codedefinesas an unfair practice "not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear."Id. at art. 21.21-2.
As National Union points out, article 21.21-2 specifically precludes a private cause of action. However, the supreme court inVailheld that thedefinitionof unfair practices provided by article 21.21-2 can be incorporated into section 21.3 and thus, into article 21.20.Vail,754 S.W.2d at 134. In addition, although claims brought directly under article 21.21-2 not be pursued unless the claimant can show that the complained of practice occurred with frequency, this frequency requirement does not exist when article 21.21-2 is being used todefineunfair practices.Id.
Alternatively, Texas Administrative Code 21.3(b) prohibits practices that have been determinedby lawto be unfair or deceptive. 28 TEX. ADMIN. CODE § 21.3(b). InVail, the Texas Supreme Court determined that the failure to conduct reasonable settlement negotiations was an unfair trade or practice. Vail,754 S.W.2d at 135. In that case, the petitioners, the Vails, lost their home to fire during a period in which they were covered by a homeowner's policy. When their insurance company failed to pay their claim, the Vails sued for the full amount of the policy, plus damages under the DTPA. The supreme court held that an insurer owes a duty to its insured to deal fairly and in good faith in the processing of claims.Id. at 135
We find the situation before us analogous to Vail. Like the Vails, Rocor purchased insurance for financial protection. While Rocor had no right to expect that its insurer would settle blindly, it certainly had a right to expect that, once all parties agreed on liability and damages, settlement would follow with reasonable promptness, and thus Rocor's financial interests would be protected. This is especially true in this case, because National Union took over settlement negotiations and negotiated with Rocor's funds and those of Rocor's primary carrier.
We are aware that the supreme court's more recent case,Allstate Ins. Co. v. Watson,876 S.W.2d 145(Tex. 1994), holds that a third-party claimant has no cause of action as a third-party beneficiary of an insurance policy for unfair settlement practices. Watson,876 S.W.2d at 150. However, while Rocor's suit incidentally arises from the settlement of a third-party claim, Rocor is not a third-party claimant. Rocor paid the premiums, and its claim is against the company it paidPage 566them to. Nor does Rocor seek to recover any portion of a settlement or policy proceeds it would have received but for the negligence of another's insurance company. Rocor has proceeded directly against its own insurance company for damages it received as a result of unnecessary delay.Watsondoes not stand for the principle that an insured may not sue for damages it directly sustains due to its insurer's failure to timely settle. As Arzaga stated during his trial testimony:
Why am I complaining? I am complaining because they [National Union] had an opportunity to settle the case prior to June 1. And whether it is procrastination or whether it is by instructions, Mr. Renneker did not act in either of our best interests. I am the client. I am the person that they are supposed to come in and help when I need the help. That is why you get insurance. And these people did not.
National Union argues that the distinction between third- and first-party claimants is meaningless, because third-party claimants, who are not consumers under the DTPA, will never be able to sue under the DTPA. Thus, National Union argues,Watsonmust apply toallparties suing under the Insurance Code, whether or not they are third-party claimants. We are unable to find grounds for a principled distinction between bringing suit under the DTPA by incorporating the Insurance Code, as did the plaintiffs inVail, and bringing suit directly under the Insurance Code, and we do not believe thatVailprovides those grounds. It is true that third parties, as non-consumers, are precluded from bringing this cause of action. However, we believe thatVailandWatson, taken together, allow first-party claimants who qualify as consumers to bring causes of action based on the DTPA, as it incorporates provisions of the Insurance Code, and first party plaintiffs who do not qualify as consumers under the DTPA to bring suit under the Insurance Code and the reasoning supplied inVail.See Webb v.International Trucking Co., Inc.,909 S.W.2d 220,226(Tex.App.-San Antonio 1995, n.w.h.) (stating that both Insurance Code and DTPA grant relief for unfair practices). The supreme court, inWatson, stated, "Vailremains the law as to claims for alleged unfair claim settlement practices brought by insureds against their insurers." Watson,876 S.W.2d at 149.
The DTPA is not available to Rocor. Rocor does not qualify as a "consumer" under the act. This is not because Rocor is a third-party claimant, but because it has as sets of more than $25 million.SeeTEX. Bus. COM. CODE §17.45(4) (Vernon 1987) (defining "consumer" as "individual, partnership, corporation, this state, or a subdivision or agency of the state who seeks or acquires by purchase or lease any goods or services, except that the term does not include a business consumer that assets of $25 million or more"). Less wealthy consumers, often at a disadvantage in the bargaining for goods and services, are afforded extra protection in the DTPA, which, unlike the Insurance Code, prohibits unconscionable conduct,id. at § 17.50(a)(3), and prohibits breach of warranties,id. at § 17.50(a)(2). Litigants such as Rocor, a large and financially healthy company, do not need such protections. However, this cannot mean that such litigants could not obtain relief for genuine injury inflicted by their insurance companies. The wealthy, as well as the poor, deserve the protection of the law.
National Union claims that the duty found under Vail does not apply to the insurer's handling of third-party claims.SeeMaryland Insurance Co. v. Head Industrial Coatings Serv., Inc.,938 S.W.2d 27,28(Tex. 1996). In Head, the Texas Supreme Court held that an insurer bears no duty of good faith and fair dealing in the settlement of third-party claims against its insured.Id. The court reasoned that insureds were already protected from "refusal or mishandling of a third-party claim by his contractual andStowers rights."Id. at 28-9
We believe this case is distinguished fromHead. InHead, the insured had assigned its rights to sue his insurer to the third-party claimant, who then sued for the amount it had won against the insured in a non-jury trial based on an agreement between the parties.Id. at 26-27. Thus, the insured and the third-party claimant were attempting an end-run around the general principle thatPage 567third parties do not have standing to sue under the DTPA and Insurance Code.See Watson,876 S.W.2d at 149;see also Nguyenv. State Farm Lloyds, Inc.,947 S.W.2d 320(Tex.Ct.App. — Beaumont 1997, n.w.h.) (applyingHeadto case where insured had assigned rights to third-party claimant);Bleeker,944 S.W.2d at 681(applying holding inHeadwhere insured assigned his claim to third-parties).
In this case, on the other hand, the third-party claimant has already been paid, and Rocor is suing for its own damages, incurred as a result of the conduct of its insurer. The Insurance Code exists to protect individuals and businesses like Rocor from the misconduct of Texas insurers. When an insured seeks his own direct damages, incurred as the result of an insurance company's mishandling of a third-party claim, he or she is entitled to the protections of the Insurance Code.
Having determined that Rocor does have a cause of action under the Insurance Code, we also hold that Rocor's evidence was sufficient to prove that National Union engaged in unfair settlement practices. A cause of action for failure to settle in good faith is stated when it is alleged that coverage should have been "reasonably clear."Universe Life Ins. v. Giles,950 S.W.2d 48,54-6(Tex. 1997). Viewing, as we must, the evidence in a light most favorable to Rocor, and ignoring all contrary facts and inferences, we find that Rocor presented sufficient evidence to defeat a judgment n.o.v. Rocor demonstrated that all parties involved in the settlement understood that liability was obvious and that the potential for a high damages award against Rocor was great. Rocor presented testimony that, nearly one year before settlement, National Union's attorney had assessed liability at nearly exactly what it would eventually settle for. In addition, Rocor offered evidence that all the parties involved had arrived at a similar figure at about the same time. Rocor also presented evidence that National Union had been less than honest with Rocor during negotiations, even when National Union was negotiating with Rocor's funds. Finally, Rocor demonstrated that the unnecessary delay caused damages: Rocor was forced to continue preparing a trial defense, even after its evidence shows that all parties could have settled.
NEGLIGENCE
In its third point of error, Rocor claims that the trial court erred in granting National Union's motion for a judgment n.o.v. because Rocor had offered sufficient evidence that National Union had acted negligently in the settlement of these claims. While Rocor did not specifically plead common law negligence, its pleadings fairly raised the issue, there is ample evidence at trial to support the claim, and a question was presented to the jury on the issue without objection from National Union4In addition, negligence was fairly debated at trial. Evidence on duty was presented; in fact, Renneker conceded that National Union had a duty to Rocor. Whether duty was breached was debated through evidence on what constitutes conduct. Finally, whether Rocor was damaged by National Union's conduct was debated through witness testimony. The issue of negligence was tried by consent.SeeTEX.R. Civ. P. 67 (when issues not raised by pleadings are tried by express or implied consent, they shall be treated as raised by the pleadings);Sage Street Assoc., v. NorthdaleConstruction Co.,863 S.W.2d 438,445(Tex. 1993) (finding issues had been tried by consent where both sides advanced their positions at trial).
There was sufficient evidence to show that National Union has breached a common law duty of ordinary care. In the event thatHeaddoes prevent Rocor from recovering its own damages against its insurer under the Insurance Code, we hold that a negligence claim, based on the duty established inStowers, is sufficient to overrule the judgment n.o.v.
Insurers owe a duty to their insureds to exercise ordinary care in attempting to settle a claim.Texas Farmers Ins.Page 568Co. v. Soriano,881 S.W.2d 312,314(Tex. 1994);Stowers,15 S.W.2d at 547.Stowersis the case establishing this duty. In Stowers, the court held that an insurer may be liable for negligently failing to settle within policy limits claims made against its insured.Stowers,15 S.W.2d at 547. Since Stowers, the supreme court has held that the duty of an insurer to its insured includes "investigation, preparation for defense of the lawsuit, trial of the case, and reasonable attempts to settle."American Physicians Insurance Exchange v. Garcia,876 S.W.2d 842,849(Tex. 1994);American Centennial Insurance Co. v. CanalInsurance Co.,843 S.W.2d 480,482(Tex. 1992).
National Union raises two principal objections to the negligence claim: 1) that it owed no duty to defend Rocor; and 2) that no duty is owed to insureds by excess carriers who have no duty to defend. We reject each of these arguments.
Whether duty exists is a question of law.Greater HoustonTransp. Co. v. Phillips,801 S.W.2d 523,525(Tex. 1990). InStowers, the Supreme Court of Texas held that an insurer has a "duty to exercise that degree of care that a person of ordinary care and prudence would exercise under the same or similar circumstances, and a failure to exercise such care and prudence would be negligence."Stowers,15 S.W.2d at 547. The Court based this broad principle on the insurer's nearly exclusive control of the suit against its insured:
[T]he indemnity company had the right to take complete and exclusive control of the suit against the assured, and the assured was absolutely prohibited from making any settlement, except at his own expense, or to interfere in any negotiations for settlement or legal proceeding without the consent of the company. . . . Certainly, where an insurance company makes such a contract; it, by the very terms of the contract, assumed the responsibility to act as the exclusive and absolute agent of the assured . . . and, as such agent, it ought to be heldto that degree of care and diligence whichan ordinarily prudent person would exercisein the management of his own business.Id. (emphasis added).
We recognize that National Union had no duty to defend Rocor under the express terms of the agreement between the parties. However, National Union assumed the duty to fairly settle the claims against Rocor when it took over negotiations, including negotiations involving funds that it did not control. National Union may not have it both ways: it may not take exclusive control of the handling of claims against its insured and then claim in court that it cannot be held liable for mishandling those claims because it had no contractual duty to defend. The assumption of the exclusive right to negotiate a settlement gave rise to the "special relationship" upon which theStowersduty rests.Cf. Keightley v. Republic Ins. Co.,946 S.W.2d 124,129(Tex.App.-Austin 1997) (finding reinsurer had duty of ordinary care to insured where, absent contractual duty, reinsurer took over insurer's claims handling),rev'd on jointmotion in view of settlement. National Union has not refuted testimony that it assumed control. In fact, Renneker admitted at trial that National Union recognized it owed Rocor a duty, especially when National Union was negotiating with Rocor's money.
National Union states that there is noStowersrelationship between an insured and its excess carrier where the carrier has no duty to defend the insured. CitingEmscor Manuf., Inc. v.Alliance Ins. Group, 879 SM.2d 894, 909 (Tex.App.-Houston [14th Dist] 1994, writ denied), National Union argues that no excess carrier, let alone an excess carrier with no duty to defend, has a special relationship giving rise to a duty to its insured.Emscordoes not support this position. InEmscor, the insured never met the contractual requirements needed to trigger coverage from its excess carrier. What the appellate court reaffirmed, then, was that the limits of the primary insurance policy must be exhausted before the primary carrier"has a right to"require the excess carrier to contribute to a settlement.Id. at 903 (citingUnion Indem. Ins. Co. of New York v. CertainUnderwriters at Lloyd's,Page 569614 F. Supp. 1015,1017(S.D.Tex. 1985) (emphasis added)). While the Emscor court did note that it had never been asked to apply aStowersduty to an excess carrier before, it went on to address the issue, Furthermore, we do not hold here that all excess carriers with no duty to defend have settlement duties. Our negligence holding is based on National Union's assumption of negotiations.
As a result of the decision inStowers, a rule of law in Texas, appropriately called the Stowers Doctrine, has developed. This rule holds that when an offer to settle within policy limits is made to an insurer, the insurer has a duty to settle if an ordinary person would do so.See Ranger County Mut. Ins. Co. v.Guin,723 S.W.2d 656,659(Tex. 1987) (defining duties underStowersDoctrine). If the insurer breaches this duty, the insured may sue for any excess liability it incurs as the result of trial.
Rocor's claim does not fall neatly into theStowersparadigm. National Union did settle, and there is no excess liability charged against Rocor. However, under the broad negligence principle outlined inStowersand elsewhere, National Union owed Rocor a duty to handle claims against it in such a way as to minimize Rocor's liability and damage to its finances. The supreme court has recognized that negligence in settling claims does not necessarily have to fall withinStowersto be actionable. InGarcia, the court stated, "[T]he court has expanded an insurer's duty to include acting as an ordinarily prudent person in business judgment —whether under theStowersdoctrine or not— to include making unreasonable attempts to settle."Garcia,876 S.W.2d at 863. The supreme court has also recognized that damages might be available for delays in settlement.See Arnold,725 S.W.2d at 167(stating that, without such a cause of action, insurers can arbitrarily deny coverage anddelay paymentof a claim with no more penalty than interest on the amount owed).
A recent Texas court of appeals decision has declined to extend theStowersduty beyond the duty to protect insureds from liability in excess of coverage.Dear v. Scottsdale Ins. Co.,947 S.W.2d 908,915(Tex.App.-Dallas 1997, n.w.h.). To the extent thatDearsuggests that an insured may not recover damages for an insurer's negligent settlement practices, we disagree with this holding. However, we do not believe the decision inDearnecessarily conflicts with our decision here. InDear, the insured sued his insurer for settling claims brought against him rather than defending them in court. The court held that, under the contract between the parties, the insurer had an absolute right to settle the case without consulting with the insured. The court explained that the policy reasons behind Stowers did not militate expanding the doctrine under these circumstances:
Courts fashioned theStowersduty to avoid the effects of a conflict of interest between the insurer and its insured. This conflict arises because the insurer has sole control of settlement, but limited liability. When the insured faces exposure near or above the policy's liability limits, its exposure remains limited by the policy terms,Id. at 915. We find that these same concerns are at play here, where National Union's exposure was limited to the policy limits and, because it had no duty to defend, it could drag out settlement for as long as it pleased while Rocor continued to pay what were essentially unnecessary fees in the preparation for a trial that everyone knew would never take place.
Rocor has offered evidence that National Union breached its duty by mishandling settlement negotiations. We do not hold that there is an "ideal" time period in which settlements must be reached. We realize that whether because of recalcitrance of plaintiffs or complexity of issues, some cases take longer than others to settle. Under some circumstances, a year may be a reasonable settlement period. But here, Rocor's evidence shows that settlement was possible in June 1990, at around $6.3 million. The original defendants agreed among themselves that this was a reasonable figure. Yet, a settlement was not reached for almost a year. Rocor's evidence further shows that National Union, through its attorney, was responsible for this delay and that this delay caused Rocor to incur damages.Page 570
Thus, Rocor has sustained a negligence action, and we affirm this point of error.
MISREPRESENTATIONS
In its second point of error, Rocor challenges the judgment n.o.v. because evidence at trial supported a jury finding that National Union had made misrepresentations to Rocor during the settlement process. These misrepresentations include: Renneker's statement in May 1990 that he believed the case would settle by the end of the month, which he did not then follow up with an offer to the plaintiffs; Renneker's failure to disclose the offer he received in April or May 1990 to settle the children's claims; and Renneker's statement in December 1990 that the case had been settled for $3.8 million. We overrule this point of error.
Article21.21of the Insurance Code prohibits misrepresentations by insurers about the benefits or advantages of the policy and prohibits making any statement with respect to the business of insurance that is untrue, deceptive, or misleading. TEX. INS. CODE ANN. art.21.21, § 4. In addition, the Texas Administrative Code contains a provision against misrepresentation.See28 TEX. ADMIN. CODE § 21.3 (prohibiting misrepresentations);id. at § 21.4 (defining misrepresentation).
We do not believe these provisions provide grounds for relief here. Article 21.21 clearly applies to advertising and unfair competition between insurers and so is inapplicable.SeeTEX. INS. CODE ANN. art.21.21, § 4(1)(2) (defining as unfair practices misrepresentations and false advertising and listing array of practices applying directly to insurance advertising). Section 21.4 of the Administrative Code has broader application, prohibiting untrue statements of material fact, omission of material facts, misleading information on material facts, material misstatements of the law; and failure to disclose any matter required by law to be disclosed. TEX. ADMIN. CODE § 21.4. Even if we were to find that this provision is applicable to National Union's statements, we could not grant relief under this theory, because Rocor has not demonstrated any damages based on these statements. To recover for misrepresentation, a plaintiff must show that the misrepresentation was a producing cause of its injury.See Bleeker,944 S.W.2d at 679(without proof that failure to disclose settlement offer was producing cause of damages, it is not actionable as misrepresentation);State Farm Fire Cas. Co. v. Miller,713 S.W.2d 700(Tex.App.-Dallas 1986, writ ref'd n.r.e.). Rocor's attorney expressly stated at trial that any misrepresentations about settlement did not affect his continued trial preparation., In addition, as National Union points out, Rocor testified that it had no control over the settlement negotiations. Any misstatement made to Rocor could not have affected the settlement process. Full disclosure of the offer to settle the children's claims would not have affected the adults' claims, and thus Rocor would have had to continue incurring expenses preparing for trial. We overrule this point of error.
NATIONAL UNION'S CROSS POINTS
National Union brings three cross points: 1) that the trial court erred in submitting a general negligence question to the jury; 2) that the trial court erred by including in its judgment an advisory opinion on damages; and 3) that there was no evidence or insufficient evidence to support the jury's answer to a question on attorney's fees.
National Union charges in its first cross point that, because Rocor's negligence seems to be based onStowers, aStowerscharge was required. CitingGarcia,876 S.W.2d at 848, National Union claims that this charge would require the jury to determine whether National Union behaved as an ordinarily prudentinsurerrather than, as the jury here was charged, as an ordinarily prudentperson.Garcia, however, did not address the question of whether insurer is more appropriate thanperson. In fact, the court inGarciaquotedStowers, which usesperson,, and, in the same paragraph, used the phrase "ordinarily prudentinsurer,"with no comment on which was more appropriate.Garcia,876 S.W.2d at 848. We note, also, that another state court has recognized a jury charge onStowersnegligence that used the phrase "ordinarily prudentperson." SeePage 571Bleeker,944 S.W.2d at 680. Since Stowers remains good law, find no error and overrule this point.
In its second point on cross-appeal, National Union complains that the trial judge erroneously gave an "advisory opinion" in his judgment n.o.v. by calculating the award amount Rocor would have received if the jury verdict had been allowed to stand.
In its third point, National Union claims that the jury's assessment that National Union should pay attorney's fees at a rate of 40 percent of the award was not supported by legally or, alternatively, factually sufficient evidence. Rocor claims that National Union waived these complaints by accepting, without objection, the judgment n.o.v. and by not objecting to the jury's findings.
We agree with Rocor. Although the rules of civil procedure allow an appellee who has secured a judgment n.o.v. at trial to raise objections by cross points on appeal, this rule does not eliminate the basic requirement that a trial court be given the opportunity to cure any error before appeal is sought. TEX.R. Civ. P. 324 (c);see alsoTEX.R.App. P. 33.1 (a) (requiring timely objection or motion to preserve most error);WesternConst. Co. v. Valero,655 S.W.2d 251,256(Tex.App. — Corpus Christi 1983, no writ). We are aware that a case supporting National Union's third cross point was issuedafterthe judgment in this case, thus making preservation impossible.See ArthurAndersen Co. v. Perry Equip. Corp.,945 S.W.2d 812,818-19(Tex. 1997). However, the finality of judicial decisions would be seriously undermined if litigants were allowed to raise unpreserved error on appeal on the basis of new case law. Therefore, we will not consider National Union's cross points.
CONCLUSION
We hold that Rocor, a first-party insured, had a legal cause of action against its excess carrier, National Union, under either of two theories. First, Rocor had standing to sue for failure to settle in good faith under the Texas Insurance Code §21.21, as explained by the Supreme Court inVail. Second, Rocor had a common law negligence cause of action against National Union, based on the duty National Union assumed when it took over settlement negotiations in the third-party claim against Rocor. We do not agree with National Union that both causes of action are closed to Rocor; otherwise, insureds in Rocor's financial condition, attempting to effect fair and efficient settlements, could never recover damages when their insurers act contraray to those goals.
We also hold that Rocor presented sufficient evidence on these claims to defeat a motion for judgment n.o.v. However, we overrule Rocor's point of error based on National Union's misrepresentations.
National Union's cross points are overruled.
Bad Faith Settlement Practices
It is well settled that an insured has a cause of action against its insurer for unfair claim settlement practices under article21.21, section 16 of the Texas Insurance Code,seeVail v. Texas Farm Bureau Mut. Ins. Co.,754 S.W.2d 129,133(Tex. 1988), as well as for negligent failure to settle a claim within its policy limits,see Stowers Furniture Co. v. American Indem. Co.,15 S.W.2d 544,547(Tex. Comm'n App. 1929, holding approved). But we also know that a third-party claimant generally may not recoverPage 572against an insurer on "bad faith" claims.See Allstate Ins. Co.v. Watson,876 S.W.2d 145,146(Tex. 1994);but see Webb v.International Trucking Co.,909 S.W.2d 220,228(Tex.App. — San Antonio 1995, no writ). This case falls somewhere in between. Rocor, the insured, is suing National Union, its insurer, for negligence and unfair claim settlement practices in failing to promptly settle a claim made against the insured by a third party. At first blush, the claim sounds likeVail, but unlikeVail, the suit is not grounded on the failure of the insurer to pay policy benefits to its insured. It is instead grounded on the failure of the insurer to timely pay a third-party claim, which hasWatsonovertones. And, in spite of the majority's contrary suggestion, it cannot be aStowersclaim because Rocor's suit came after National Union settled with the third-party claimant within its policy limits.
Rocor nonetheless claims this case is controlled byVailbecause it involves a bad faith claim by an insured against its insurer.Vailhowever is distinguished by the fact that it was decided in the context of the special insured-insurer relationship and the common law duty of good faith and fair dealing recognized inArnold v. National County Mutual Ins. Co.,725 S.W.2d 165,167(Tex. 1987). The special relationship giving rise to the Arnold duty is not implicated in this case involving a third-party liability claimant.Arnoldand its progeny recognize that an extra-contractual duty of good faith and fair dealing exists because of the unequal bargaining power that can be unfairly exerted against the insured upon his misfortune.SeeArnold,725 S.W.2d at 167(claim by insured on uninsured motorist provision);Vail,754 S.W.2d at 129(claim on fire insurance policy);Aranda, v. Insurance Co. of North America,748 S.W.2d 210,211(Tex. 1988) (worker's compensation claim). But the same unequal bargaining power does not exist in the context of the liability insurer's actions in settling claims with third-parties.
The insured is already fully protected against the actions of his insurer in the mishandling of a third-party claim by his contractual andStowersrights.See Head Indus.,938 S.W.2d at 28-29(notingStowersduty is the only tort duty recognized by Texas law in handling of third-party insurance claims). It is this holding that the majority refuses to confront. No attempt is made to explain why Rocor was not fully protected by its contractual orStowersrights. That is undoubtedly because the majority recognizes that Rocor would then be left without a recovery-Rocor understandably did not assert a breach of contract orStowersclaim because neither theory is sustainable under these facts. National Union fully performed its obligations under its contract and, as noted, the third-party claim was settled within policy limits. Rocor is not entitled to a recovery for bad faith settlement practices.
Negligence
The insurance policy between Rocor and National Union was an excess indemnity policy that promised to pay up to its limit any judgment in excess of the primary insurance coverage. The policy specifically excluded any duty to defend. Notwithstanding, the majority permits Rocor to recover its defense costs from National Union. This holding is apparently based on an insurer's duty to "fairly settle" claims against its insured when it takes control of the settlement negotiations.Seemajority op. at 568. But even recognizing that an insurer may owe extra-contractual duties to its insured arising out of the agency relationship that develops in its conduct in defending and settling claims on behalf of the insured,see Ranger County Mut. Ins. Co. v. Guin,723 S.W.2d 656,659-60(Tex. 1987), those duties do not exist where there is no duty to defend. National Union did not owe Rocor a defense under its policy, and neither did National Union assume any extra-contractual duties to Rocor by conducting settlement negotiations with the third-party claimant.
The trial court's judgment was correct and it should have been affirmed.Page 573
- The Honorable Juan Gallardo presided over the trial. ↩
- In the end, neither the bar's insurance nor the bobtail policy was used toward settlement of the claims. ↩
- National Union also based its motion on two grounds stemming from Rocor's original pleading that National Union had violated the Texas DTPA. However, the trial court granted a directed verdict to National Union on the DTPA claims and, as we read Rocor's appeal, Rocor does not complain of that ruling. Therefore, we do not address National Union's DTPA grounds and assume that the trial judge disposed of them in the directed verdict. ↩
- National Union objected to the legal standard for negligence given in the jury charge, but not to the charge itself We discuss the standard used later in this opinion. ↩