*1 AMERICAN PHYSICIANS INSURANCE Physicians
EXCHANGE and American Inc., Petitioners, Group, Service GARCIA, M.D., Respondent. Ramon A. D-1239.
No. Supreme of Texas. Court
March Rehearing Overruled June *2 duty to
duty or its Stowers2 to defend Garcia that the evidence conclusive- settle. We hold duty discharged its ly that APIE establishes Garcia, and that because to defend a settlement demand within never received limits, its policy its it did not breach Stowers to settle. We therefore reverse appeals render of the court of judgment in favor of APIE.
I Cardenas, Araminta
On March individually the Estate of and as Guardian of Cardenas, Vasquez Norma Cardenas Gustavo (“the Cardenases”) and Carmen Cardenas malpractice filed a medical lawsuit Original In their Peti- Garcia and others. tion, alleged the Cardenases that Garcia was guilty malpractice in his treatment of Gus- 3, 1980, ap- tavo Cardenas October proximately April malpractice 1982. The Winters, Barry Bishop, Jay J. Sam A. prescription claim arose out of Garcia’s Austin, Hunt, Thompson, Donald M. Lub- Navane, alleg- drugs, two Haldol and which bock, Antonio, George Spencer, peti- San for edly develop dys- tardive caused Cardenas tioners. kinesia, debilitating brain disease. The initially alleged Cardenases that “on or about Nicholson, Antonio, Charles San David A. 12, 1982, placed April Gustavo was Cardenas Krist, Houston, Slaughter, Ronald D. Pat physician.” the care of another At all Sr., Antonio, Maloney, respondent. San Petition, alleged Original Garcia times medical was insured CORNYN, Justice, opinion delivered the by Corpo- claims three consecutive Insurance Court, PHILLIPS, Chief (“ICA”) policies. ration of America Justice, GONZALEZ, HECHT and ENOCH, Justices, join. was covered an ICA Garcia grant Physicians malpractice insur-
We
American
Insurance
“claims-made”3 medical
(“APIE’s”)
$100,000.
Exchange’s
rehearing,
policy
limits of
In 1981
motion for
ance
with
prior opinion
judgment,
withdraw our
was covered under two con-
Garcia
following
place.1
one-year
policies,
and substitute the
We
secutive
ICA “occurrence”
$500,000
providing him
in cover-
malprac-
decide whether Dr. Ramon Garcia’s
each
with
carrier, APIE,
age.4
purchased
tice insurance
breached its
not,
case,
coverage period
disposition
extend-
we
within a
Given our
of this
need
occurrences
not,
pretrial
and do
decide whether the
non-
back to a recited retroactive date. See Hart-
-
-,
agreement
execution
between Garcia and the
California,
U.S.
Fire Ins. Co.
ford
-,
negated
2891, 2896,
all
un-
Cardenases
of Garcia’s
L.Ed.2d 612
113 S.Ct.
(Insurance
der the facts of this case.
Litigation). Because
Antitrust
brought
a claims-made
this claim
ordinary care
2. The
of an insurer to exercise
terminating
provide
policy
would not
protect
in the settlement of claims to
its insureds
coverage.
against judgments
limits is
generically referred to in Texas as the Stowers
policy,
to a claims-made
an occur
4.In
contrast
duty.
Co. v.
Stowers Furniture
American Indem.
"long-tail” coverage.
policy provides
rence
(Tex.Comm'n
App.1929,
The
also found that ICA’s failure to
II
September
prior
settle the
Cardenas
to
insuring
profes
In the
of the
clause
negligent,
in
and reck-
heedless
liability
Garcia,
sional
to
it
issued
disregard of
rights,
less
and an un-
perform
APIE contracted to
two related obli
practice
fair
in the business of insurance.
gations:
any
against
to defend
claim
Gar
jury
The
concluded that ICA’s acts and omis-
scope
coverage,
cia
the
if “any
within
of
even
done,
knowingly
sions were
were unconscio-
false,
allegations
of
...
groundless,
the
are
nable,
proximate
the
and were
cause of dam-
fraudulent,”
indemnify
and
to
Garcia
age to Garcia.
damages
him
any
against
for
awarded
within
jury
further found
APIE’s
acts
scope
coverage up
the
of
the
to
limits.
percent,
and
caused 16
omissions
and ICA’s
Policy
§
APIE
contractual
I. These
obli
percent,
damages
84
in
awarded
gations, along
in
language
insuring
the
Damages against
Cardenas v.
Garcia.
granting control over the
clause
insured’s
$2,235,000.00 compensa-
were
assessed
(“The
insurer, see, e.g.,
to
defense
an
id.
(the
tory damages
judgment in
amount of the
Exchange
right
duty
shall
have the
to
suit), $250,000.00
exempla-
seeking
suit
insured
defend
$250,000.00
ry damages, and
“additional”
third,
damages”),
give
general
such
rise to
DTPA. The court also ly
duty
recognized, implied
insur
$820,500.00.
attorneys’
totalling
awarded
fees
duty
accept
ers —the
to
reasonable settle
within
limits.
settlement,
ment demands
Stowers
Because
ICA’s
the court
Furniture Co. v. American Indem.
15
only against
judgment
rendered
APIE and
(Tex.Comm’n
App.1929,
547-48
APSG. The Cardenases elected
have
approved);
holding
Syver
Kent D.
solely
jury
see also
rendered
on the
find-
ud,
Settle,
ings
Duty to
that APIE and APSG had
violated
Va.L.Rev.
(1990);
II,
Jerry,
Insurance
The trial court rendered
1117-26
Robert H.
Code.
Under
standing
(1987) (“all
judgment against
jointly
APIE and
Law APSG
Insurance
settle);
$1,331,574.00,
severally
recognize duty
Kelly
amount of
courts”
H.
21.21,
Code,
Deceptive
§
8. The
Texas Insurance
art.
is a
Trade Practices-Consumer Protec-
practices,
laundry
deceptive
incorporates
list
tion Act
21.21,
Texas Insurance Code art.
insurance
17.50(a)(4)
§
duty
none of which involves the
under a
settle
see
& Com Code
Tex.Bus.
Ann.
(Vernon 1987),
liability
Watson,
policy.
third-party
Co. v.
but
Allstate Ins.
does not address
(Tex.1994). Likewise,
practices.
Every witness who testified at the Stowers sponding poli- within to settlement demands trial, including attorney the and Cardenases’ Stowers, 547; cy limits. at S.W.2d see personal attorney, testified that also American Centennial Ins. Co. v. Canal vigorously represented Ross Gar- Crossland Co., (Tex.1992) Ins. 843 S.W.2d 485-86 during cia the trial. It is true (Hecht, J., concurring, joined by Phillips, that the disputed evidence was as to whether Cook, C.J., Gonzalez, JJ.); Cornyn, and APIE or entered “reentered” the once Ranger County Mut. Ins. 723 S.W.2d at petition the sixth amended was filed and its (Tex.1987); County Foremost Mut. Ins. was invoked under well-established Crossland, legal Co. v. Home Indem. 897 F.2d principles. But who was (5th Cir.1990). Generally, a by jointly retained the Stowers settle- insurers to defend Garcia, propose at no time abandoned Garcia’s de- ment demand must to release the testimony undisputed fully exchange fense. that is also insured in for a stated sum of defense, paid money, APIE in- share of Garcia’s but “the limits” substitute fleets, Although initially pled January estoppel an the- Garcia APIE notified APIE, ory against theory by not he waived this that his under the APIE was requesting included in that issue be the only one visit limited because office occurred charge. conclusively is estab- Nor this issue during policy period. the APIE because, re- lished as this record insurer. duty support is not for a sum certain. Stowers at 660. Id. by unless activated a settlement demand (1) met: the claim prerequisites three are negotia recognize that settlement We scope of against the is within the insured ne and that reasonable tions are adversarial coverage, the demand is within the bargaining hard gotiation often involves limits, are the terms of the demand duty describing the Stowers both sides. ordinarily prudent that insurer such an attempts to duty to make “reasonable as a it, accept considering likelihood
would settle,” Ranger not alter an insurer’s does expo- degree potential the insured’s within duty accept demands reasonable Keeton, judgment. to an Ranger sure excess impose policy limits. Nor does (discussing supra applicable accept at stan- duty settlement on an insurer care). limits, A limits to make dard of demand above in excess of or demand reasonable, proposals.14 In the con though trigger solicit settlement even does not or lawsuit, Stowers, of a evidence concern text Stowers Stowers to settle.13 S.W.2d defense, and investigation, trial Centennial, claims 547; at at American 843 S.W.2d negotiations conduct (plurality opinion). necessarily subsidiary to the issue of ultimate Ranger, stated that have a we insurers the claimant’s demand was reason whether ordinary care that includes “investi- circumstances, an under the such that able lawsuit, preparation gation, defense of ordinarily prudent accept it. insurer would attempts trial of the case and reasonable Although language relies on dissent 659; at Ameri- settle.” S.W.2d see also dictum, Ranger given that is that the Centennial, (plu- can 843 S.W.2d at negligence presented Ranger claim was rality Rang- concurring opinions) (citing claim, Ranger, 723 at Stowers see S.W.2d in “investi- er for standard of reasonableness quarrel we have notion defend, gating, preparing set- trying prereq demand not “an absolute a formal action”). tling party At the same uisite,” third holding at 876 S.W.2d time, however, the court noted that “there is liable for caused its mis insurer Ranger negligent no contention that other How conduct than Stowers breach. investigation ever, Fitch/Eagle remedy shifting trial of the law- risk the Stowers support suit.” 723 at 659. In of an excess onto insurer is S.W.2d insurer, inappropriate proof that judgment against absent the insurer the court cited presented opportunity with a reasonable accept evidence the insurer failed to judgment by settling prevent $19,500 personal settlement demand of applicable policy within the limits. $19,500 injury damages property dam- ages, or ... limits are otherwise “[i]f Here, opportunity to settle had limits settle within such less $500.00.” coverage only limit if it of Garcia’s within Ranger, 723 The evi- 659-660. multi- was mistaken its contention also had dence indicated the insurer policies not be In re- ple could stacked. *8 together multiple demand, linked the settlements of sponse to a million Crossland $1.1 though attorney, Maloney, insureds even the demand was sever- the Cardenases’ advised able, inform its and that the insurer failed to [ICA APIE] on “these the policies aggregated insureds of the terms of demand. We cannot totaled or be any to to in an legally held this sufficient evidence manner establish was Keeton, requires policy limits. liability policy com- within the See 13. A an insurance remain up pany indemnify only to the to an insured supra we the Stow- at 1148-50. Nor do address company. limits insured's contractual with that requires funding duty a from ers when settlement Thus, duty accept have no to over-the- insurers single multiple insurers and no insurer can fond question of limit demands. We do not reach the when, apply the limits that the settlement within ever, duty may triggered if if a Stowers particular policy. its willing- provides an insured notice of his or her accept above the ness to policy a reasonable demand accompanying settlement, See notes 17 & 18 limits, fond the such and to infra the would that the share of settlement text. insurer’s 850 $500,000.” Thus, Am., amount excess of 124 N.J.Super. Malo- A.2d 77 306 of
ney
curiam),
position
(Ct.App.Div.1973)(per
part,
was
informed
insurers’
aff'd
(1974).
limits,
light
323
495
In
concerning
N.J.
A.2d
policy
the
advised
Maloney
the
that
fact
was informed of the
of the demand
would
to
he
have make to
position concerning
policy
insurers’
the
lim
trigger
duty. Maloney
the Stowers
elected
its,
duty
it
unclear
the
is
how
additional
the
proceed
disputed assumption
to
on the
impose
dissent would
differs
the
lower
aggregate
policies.
he could
the
Conversely,
court’s rule in
Rova Farms.
dissent
point
elected to bear the risk that its
proposes
step
tendering
concrete
short of
incorrect,
might
of view
have been
take,
policy
the
limits that an insurer could
liability
could result in
any
judg-
excess
potential
in which
an
the
excess
Maloney
ment. Because
his
raised
demand
exists,
preclude
a Stowers law
million,
opportunity
APIE had no
$1.6
suit.
Because the
“reasonableness”
policy
settle within its stated
limits.
offering
action
than
other
the
limits
The dissent contends that APIE breached would remain indeterminate until the conclu
its
duty despite
Stowers
receiving
never
a
trial,
parties
sion of the second
and both
$500,000 demand,
relying
Ranger,
while
on
a
any negotiation would take this
into ac-
fact
predicated
decision
on a demand within the
count,
approach
the dissent’s
would be indis
applicable policy
Although
limits.
the dis-
tinguishable
expressly
from a rule that
shift
interpretation
sent’s
of Ranger, “a formal
ed
principal
this burden. The
commentators
...
settlement
longer
demand
is no
an abso-
in this area have identified few cases that
prerequisite,”
(empha-
lute
at 863
876 S.W.2d
possibility
even
the
of a breach of
consider
added), appears
enough,
sis
innocuous
settle
within
absent
demand
application
Ranger
dissent’s
to the facts is
Geoege
policy limits.16 See 14
J.
Couctí &
problematic.
dissenting justices
assidu-
Cyclopedia
Anderson,
Ronald
of Insurance
ously
they
maintain that
do not mean
(2d
§
Supp.1993);
51:17
ed. 1982 &
7C
Law
argue
making
Appleman
that the
burden
Berdal,
&Walter F.
John Allen
offers
Only
should be shifted to the insurer.
(rev.
§
Law and
Insurance
Practice
jurisdiction
one
apparently supports a rule
Supp.1993);
ed.
Shipley,
1979 &
W.E.
Anno
impose
general
that would
such a
duty.15 tation, Duty
Liability Insurer
Settle or
(1955).17
Compromise,
Rova Farms Resort v. Investors Ins. Co.
851 Considering economy, negotiating the incen- standpoint judicial limits. From the the party, conclude that tives for each we question the of a rule that would we wisdom dispute favoring early resolu- public interest require the the insurer to bid itself to shift the supports our decision not tion a the claimant absence of commitment making offers under settlement burden policy case can be settled within the Keeton, supra See onto insurers.18 Stowers virtually 134-139; certain. supra are the rea- substantial excess at 592-93. For Jerry, 18, below, By requiring to an ineffective disagree insurers observe we sons see note infra limits, waiving policy pain Fulton any reading would on all the cases that ritual represents no-demand unwary. trap require for the make a insurers rather than claimants to Farms, at A.2d settlement offers. See Rova 323 Requiring make settlement the claimant to 505; Property Casualty v. Prudential & Powell encourage to earlier settlements. demands tends (cit- Co., 12, (Fla.Dist.Ct.App.1991) 14 584 So.2d insurer, the insured the the claimant owes Unlike Farms); Casualty ing Co., Spray v. Continental Rova additional and cannot face no Stowers (1987); 156, 40, Or.App. P.2d 44 86 739 a second or become a defendant in lawsuit risk Co., Co. v. Ins. Puritan Ins. Canadian Universal settle, refusal no matter how unreasonable. for to 84, (E.D.Pa.1984) F.Supp. (citing 87 Rova 586 However, the claimant stands to benefit substan- 188, Reed, Farms); Pa.Super. v. 428 Shearer 286 satisfy tially and increase the assets available 635, Farms); (citing A.2d 636-38 Rova judgment by committing settle a rea- for Co., Family v.Alt American Mut. Ins. 71 Wis.2d policy within limits if the insurer sonable amount 340, 709-10, 706, 237 N.W.2d 712-13 rejects the If claimant such demand. the makes (claimant Farms) (citing de made several Rova negotiations, early a demand in the settlement Holecek, mands); v. 542 536 Coleman F.2d accept either the demand or the insurer must (10th Cir.1976) ) (citing (duty n. 6 Rova Farms be able to do so assume the risk that will not case); Woodford, Ariz.App. Fulton defend v. 26 potential presenting real for an later. In cases a (1976) (criticizing P.2d Rova 545 983-84 strong judgment, excess insurers have a incentive imposing duty a Farms but nevertheless to offer acceptance accept. Early the to liability not settles high policy potential limits when "there is a possibility subse- case but obviates the recovery high potential [ex- claimant and a quent litigation altogether. Stowers Rowland, damages”); cess] State Auto. Ins. Co. v. Conversely, proposing if the burden of settle- (1968). 427 Tenn. S.W.2d 33-35 insurer, policy limits the then ment within is on Bohemia, Co., Both 506, Inc. Home Ins. 725 F.2d v. delayed in favor of settlement. the incentives shift (9th Cir.1984), Oregon v. Eastham First, the if the insurer offers less than Co., Auto. Ins. Or. 540 P.2d limits, reasonably anticipate the can claimant (1975), held for the rather the in- insurer than approaches, the increase as trial so that long offer will sured. presents genuine a risk of an case above, Many every of the cases other case judgment. a excess For insurer stand on cites, mis dissent involve either affirmative such circumstances is to below-limits offer under negotiations, conduct in insurer or an liability for its risk excess fore, recalcitrance. There- opportunity rejected settle within "play will have an incentive to claimant reasoning many limits. anticipation chicken” with the insurer in actually cases above is consistent with our hold equal offer the eve of trial will either the final on duty by that an insurer cannot breach price limits or the insurer’s reservation —(cid:127) tendering a settlement offer. also Commer the case could rea- the most the insurer thinks Liberty cial Co. Union Ins. Mut. Ins. purposes. sonably be for settlement worth (Mich. 1986) (citing Rova N.W.2d Second, limits if the insurer tenders proposition Farms for the that an "fail date, insurer’s earlier than the trial the claimant will not ure to solicit or initiate settlement [demands] necessarily accept the offer. One reason is be negotiations when circum warranted has now "floor” cause insurer established determining a factor stances” is to consider negotiations and must stand offer or for faith); insurer in bad Ameri whether the acted liability unreasonably with later risk excess for Centennial, (plurality at can S.W.2d drawing its the claimant bears offer. Because opinion). losing opportunity for little risk of settle inappropri- limits, particularly We think it would be the claimant has no incentive to retroactively impose liability ate until he or she determines whether settle formality. pretrial liability failure to observe new other than defendant’s assets months, predated Ranger by so Cardenas trial six worth collect would make an "attempts complicated by ing. have could not had notice This further fact is Rang- upon. satisfy dictum the relies assets available to settle” dissent evidence of the er, Moreover, liability estab the extent relevant before 723 S.W.2d is not lished, Ranger negotiation Prods. Wilmoth Limestone Stowers and process, formalize (Tex.Civ.App. capable writ perfectly we think claimants are - Waco insurance, n.r.e.), liability except transmitting demands ref'd suitable settlement Finally, after the undiscoverable until the other side. remains without assistance from finally See Tex.R.Civ.P. resolved. reject we the Fulton v. formulation Woodford 166b(2)(a), (f). unlikely particularly when settlement is because *10 1137-53, 1162-73; ever, Syverud, at supra stacking we consider issue. If correctly 1149-53,1160-72. right reject asserted generally RichaRD A. even reasonable demands POSNER, OF LAW ECONOMIC ANALYSIS limits, then it cannot be liable. (4th 1992). issues, then, remaining ed.
are Maloney correctly whether APIE or identified the amount of insurance Ill available, correct, Maloney and if wheth- following table illustrates the relation- position er APIE’s was reasonable under the Maloney’s ship of settlement demands to the verdict, light circumstances. how- policies: limits of the available insurance
853
we need not determine
Despite
coverage
To decide this case
APIE’s insistence that
$500,000,
nev-
was limited to
the Cardenases
indemnity
policies provided
many
how
er made
demand
than
less
policies, covering
coverage. The consecutive
$600,000.19
if this demand were rea-
Even
periods,
could not be “stacked”
distinct
sonable,
triggered
it
unless
no Stowers
single
a
claim involv-
multiply coverage for
applicable policy
within the
limits.
assuming that
injury. Even
ing indivisible
satisfy
could
this
The Cardenases’ demands
“occur-
covered under all three
Garcia was
“policy
requirement only
things
if two
limits”
duty to settle
policies, APIE’s Stowers
rence”
continuing malprac-
were true:
triggered.
was never
multiple
triggered coverage
poli-
tice
cies,20
triggered
the limits of each
“Claim Occurr
Simply because
provide
could be “stacked” to
throughout
several
extends
aggregate limit.
ence”21
1987,
380,
technically
(Tex.App.
383
19. Because the Cardenases' claim
— Dallas
writ)
theory).
(explaining "pure
was not covered under the APIE
until
manifestation”
trial,
day
$1.6
among
of
million settlement
to select
We believe it would be unwise
potentially triggered
own,
tests,
could have
a Stow-
demand
when the out
these
or formulate our
duty.
ers
require
case does not
resolution of
come of this
Therefore,
present purposes,
we
issue.
require
20. This case does not
us to decide which
deciding
occur
assume without
that all three
triggered.
policies
parties
were
Nor have
policies
policy,
1982
rence
1981 ICA
—the
identify
appropriate
us
test
asked
to deter
policy,
policy. provided
ICA
and the 1983 APIE
—
policies
triggered by
which
mine
single "continuing”
of several
are
Garcia.
We
occurrence.
note
however,
passing,
that courts
the nation
across
Occurrence,”
de-
of art
21."Each Claim
term
considering
coverage trigger
con
issue for
adap-
appears
policy,
to be an
fined in the
tinuing
disagreed considerably
occurrences have
"occurrence,” a
art
stan-
tation
term of
from
of
See,
Indus.,
years.
e.g., Eagle-Picher
in recent
liability policies, to the
dard-form commercial
Co.,
110,
Liberty
F.Supp.
Mut.
Inc. v.
Ins.
523
unique
malpractice
of medical
characteristics
(D.Mass.1981) (applying "pure” or
118
“strict
language
policy.
in the APIE
risks and
other
triggers coverage
rule which
manifestation”
upon
typically
is
defined in the follow-
"Occurrence”
discovery
injury),
actual
of
'd modi
as
aff
ing manner:
12,
(1st
denied,
Cir.1982),
fied,
24
682 F.2d
cert.
1028,
1279,
460 U.S.
(1983);
103 S.Ct.
75
500
L.Ed.2d
accident, including
repeated
An
continuous or
Indus.,
Eagle-Picher
Liberty
Inc. v.
Mut.
general
exposure
substantially
con-
the same
Co.,
(1st
12,
Cir.1982) (applying
F.2d
24
Ins.
682
ditions,
bodily injury
prop-
which results
or
triggers
relaxed "manifestation rule” which
cov
damage
erty
expected nor
that is neither
in-
erage
policy period during
in first
which discov
standpoint
of the insured.
tended
denied,
ery
injury
possible),
cert.
460 U.S.
repeated exposure
or
to substan-
Continuous
1028,
1279,
(1983);
103 S.Ct.
75
500
L.Ed.2d
tially
general
con-
the same
conditions shall be
Forty-Eight
Insurance Co. N.
v.
Am.
Insula
arising out of one occurrence.
sidered as
tions, Inc.,
1212,
(6th Cir.1980)
F.2d
633
1223
See,
Michigan
Corp.
e.g.,
Chem.
v. American
(applying "exposure"
triggers
rule
cover
which
(6th
Co.,
Home
728 F.2d
378
Assurance
age
policy period
exposure
which
1984);
Corp.
Cir.
Keene
v. Insurance Co. N.
occurred),
injury
reh'g,
'd
F.2d
cause
657
aff
Am.,
(D.C.Cir.1981) (Ap
667 F.2d
1053-55
(6th
denied,
Cir.),
814
cert.
454 U.S.
102
A);
Forty-Eight
pendix
v.
Insurance Co. N. Am.
(1981);
S.Ct.
respondent nothing.25 takes mal- dispute originated This in a medical HIGHTOWER, Justice, joined by Cardenas, practice brought Araminta suit SPECTOR, DOGGETT, GAMMAGE and individually guardian estate as Justices, dissenting. (Cardenas), against Dr. Cardenas Gustavo 31,1992, had Garcia. Dr. Garcia treated Gustavo this an
On December court issued years, opinion period over a of several this cause held that Cardenas reformed, judgment. si- purchased temporally the trial court's Our has concurrent excess cov- supra erage); Syverud, (analyzing concerning any at 1193-1207 lence issues addressed in ex- in context of reinsurance and settle prior opinion he or the dissent should not our insurance). cess agreement as resolution of understood reasoning opinions. in those issue or 23, multiple policies we note 24. As observed at process Although allo- we have discussed the may provide aggregate limit under certain cating indemnity among costs mul- or settlement circumstances, purchased such as if insured insurers, tiple opinion not address what does excess concurrent insurance. duty imposes responsibilities when the Stowers companies, insur- two or insurance express opinion grounds more 25. We on the other ers, affirmed, appeals jointly fund a upon or reinsurers must settlement. which the court of during which purchased coverage time Dr. Garcia mal- which indicates in the amount of practice $500,000.00 $1,000,000.00 the Insurance Cor- each claim and (ICA) poration of America and APIE. aggregate. my understanding annual It is effective date of Dr. agree that we to share January 1983. On De- pro aon rata basis. 23, 1983, attorney cember for Cardenas legal expenses We will share a 50/50 sent Dr. Garcia asserting: a letter “This my It understanding basis. further claim arises out of the treatment Mr. filing ... [Ross firm] Crossland’s bewill September Cardenas from pres- 1980 to the an Answer on behalf Dr. Garcia.1 ent time and the treatment Mr. Cardenas copy Dr. Garcia was sent a of this letter. drugs with the Haldol and Navane inAlso March APIE retained its own period.” that time On December independent attorneys monitor devel- Dr. concerning Garcia contacted APIE opments in' keep the lawsuit order *14 attorney. letter from Cardenas’ At significant develop- APIE about advised time, APIE was notified or became aware ments. Between June and October by that Mr. Cardenas had been Dr. treated file following APIE’s contains the statements January Garcia on which was within by Chandler, physician Jack Dr. a who was fact, coverage period. represen- APIE’s In chairman of APIE’s board at that time: affirmatively tative of APIE stated Dr. 3,1984 January on Garcia that he had cover- tough be This will case to defend. age for the treatment of Mr. Cardenas on Both responsible Mittler and Garcia are January 1983: continuing for Haldol. Hard tell when symptoms dyskinesia developed of Tardive Notified Dr. coverage Garcia of his limited surely thought but if either doctor had with APIE for this incident. He took out diagnosis, they stopped have would his on API[E] 1-8-83. The incident drug. in question in began September 1980. Dr. it, Garcia last 1-18-93— but API[E] would cover this last vis- appears treated the Dr. Garcia’s pt. his office previous on Apparently [*] [*] Cardenas [*] [*] treated with the [*] [*] continuously drug January until [Haldol] insurance carrier has the lion’s share 18, 1983.... It very will be difficult to this incident. imagine Doctors Garcia Mittler not by medical suit was filed having pay something on this case. early Cardenas Dr. Garcia in March original petition Plaintiffs first amended filed plaintiffs’ original petition 1984. The did not January allege any 1985 did not treatment allege any treatment which during occurred coverage peri- which occurred APIE’s Crossland, period. Ross od. ICA, who by had been retained filed an - answer on behalf of Although ICA. Mr. April Dr. informed Garcia ICA, Crossland was retained APIE and plaintiffs original petition first amended agreed to defending ICA share the costs of request punitive included for an award following
Dr. Garcia indicated in the letter punitive damages damages and that were not from APIE to ICA: policy. APIE further in- covered his requested Dr. telephone plaintiff This will follow our formed Garcia that conversation 16,1984 $2,270,000 captioned damages March case. I award which ex- attaching copy coverage daily $500,000 am of our ceeded his and that limits of A coverage.” letter from Obviously, contrary ICA APIE also reflected the court’s agreement assertion, and stated: "This will confirm our language agreement in no agreement that will we divide the costs of de- way assignment over evidences an of control equally, any fense in this action and will share defense from APIE to ICA. porportionately rendered [sic] our (the purposes, loss for evaluation any date of personally he could liable be denied) the liability which is still herein $500,000. more Plaintiffs second and than pro rate elected to companies have original May petitions filed third amended on an verdict or adverse settlement allege any did treatment which oc- equal basis. coverage period. during APIE’s On curred Crossland, represent- Mr. who June arrangement understanding of this My APIE, Dr. on behalf of ICA and ed companies is that between the two Lyons, Mr. whom Dr. Garcia had
wrote Clem for settlement insurance available total informing expense, him retained at his own adverse satisfaction as follows: $600,000.00. therefore Dr. Our client Ramon Garcia has attorney made a On Cardenas’ separate companies two $600,000.00upon Mr. demand of applicable might to this claim. The response Apparently no Crossland. Company policy with Insurance of America fact, made settlement demand. to the $100,000. single has a claim limit of even con- never record indicates $500,- is a from Dallas API[E] settling the case. sidered 000.00 limit. I have been advised those inability companies that to the to es- due II. regard tablish an “date of occurrence” with original petition fourth amended Plaintiffs claim, arrangement has been *15 22, allege any July did not filed on made share to the risk. during APIE’s treatment which occurred companies will essence two share coverage period. Plaintiffs fifth amended any pro on settlement or verdict a rata 28,1985 July original petition on did not filed up aggregate basis to the total and limits during allege any which occurred treatment $600,000.00. policies of 24, 1985, July coverage period. On trial, Dr. days five APIE notified Gar- before copyA this letter was sent APIE’s own of to coverage no under his 10, cia there was that attorney. independent On June policy, stating representative Mr. of Crossland wrote a ICA stating “I have with that broached settlement just of the most We have been advised plaintiffs attorney. He indicates that he in the [sic] recent Ammended Petition get figure to me in the near will back with captioned lawsuit. above Crossland, July future.” On Mr. you allegations against arise from represented on of
who Dr. Garcia behalf ICA during plaintiff to the treatment rendered APIE, plaintiffs attorney, and wrote the 3,1980 through April of period October stating 14, 1982, by plaintiff was treated when the Garcia, I have been informed that Dr. no Dr. There have alle- Fernandez. been action, in styled above defendant gations the treatment rendered for by companies was two different insured January you visit on office with appli- during the time frame could policy cable this suit. The insurance Corporation America
with Insurance of $100,000.00, previously of had a limit as allegations against you stem from As the interrogatories. indicated answers prior inception rendered treatment Physicians policy your of insurance was with The second of with American 8, 1983) API[E], (January headquarters Exchange in Dallas. The with Insurance $500,- policy for coverage were no under this limits there is this claim. 000.00. lawsuit, investigation of this by companies Early in the
I have been informed both Creighton from Ms. difficulty you letter ascertaining received that due to APIE, of our coverage by office which she advised Mr. of denial I Kambic of ICA of dates longer and am representing no manner coverage your policy with American July began their interest.” After things Physicians. agreed pay She settle- 26, 1985, happen rapid pace. July at a On pro ment or coverage on rata attorney Cardenas’ discovered that there basis, and an effort to if determine our policies were not one two but ICA with cov- coverage applicable, agreed she $100,000.00 $500,000.00 erage and in- share the cost of defense with ICA to $1,100,000. creased its settlement demand to duplicity legal eliminate Through work. day, Later in- same Mr. Crossland discovery, this we have now reached the attorney that formed Cardenas’ there were point all allegations where made policies but coverage two three ICA with you prior your coverage occurred $100,000.00, $500,000.00 $500,000.00: Therefore, Physicians. American there Apparently confusion has arisen with re- your policy. afforded under gard to the extent of the letter, By copy advising we are Mr. conjunction available in I with this case. Lyons, Pressley Mr. Crossland and Mr. ICA, inquiry by made have further providing you ICA to continue with cover- way you, response of information to age and a defense in this matter. your July by way letter of addition, 24, 1985, APIE’s inde- supplementation further to In- to Answers pendent attorney notified Mr. Crossland that terrogatories, I would like to indicate the following: period January For
This will my also confirm discussions with through January 1981, Dr. Garcia was July 24, you on wherein I informed Policy covered Insurance No. ICA you that APIE believes that no $100,000.00. P332080 the amount exists held Therefore, period January through For the you this claim. are incorrect in January Dr. your previous covered assertions and understand- *16 $500,000.00 ing by Policy that ICA Insurance No. P332081 in an additional of cover- age know, $500,000.00. you period existed. As the the amount For the act, January 8, 7, 1983, covered errors or through January omissions by during made policy peri- Dr. Garcia the by Dr. Garcia was covered ICA Insurance inception od. The date the $500,- Policy No. in P332082 the amount of 8, January APIE was 1983. All of the 000.00. allegations Plaintiffs which have been Although by I been represen- have advised petitions made in the most recent relate to any of APIE that I not in man- tatives do allegedly acts omissions made dur- and/or interests, represent upon ner their based through 1981 and the date of belief, information and I believe that for Therefore, allega- there would no be January through period the Janu- relating any tions Dr. conduct of Garcia 7, 1984, by ary Dr. Garcia covered was by Any previous while insured APIE. ar- company in insurance with that the rangement concerning statements about $500,000.00. amount of possible sharing pro any in on a rata basis or dependent settlement my understanding policies It is that these finding coverage of actual for the alle- aggregated any or in cannot be totaled gations being which were made coverage in an manner to establish amount during pendency Plaintiff of this law- $500,000.00. contrary, in To the excess of allegations suit. no such Since relate to my present belief in the event is that any occurring during act omission and/or any liability that should find policy period, the APIE no there is cover- Garcia, against Dr. it will neces- that be age to Dr. afforded Garcia for this lawsuit. finding sary to have a further as to 24, 1985, appropriate injury date of determine July Also on Mr. Crossland notified my understanding Dr. Garcia that and limits involved. “[i]t occurring alleged petition treatment any may aris- regret I confusion that have during period. my statements APIE’s regard previous en with $100,000.00 concerning policy. At pleadings to his After Cardenas amended suit, filing of law time of the this poli- negligence APIE’s allege acts allega- company believed that [ICA] terms, independent attorney ver- cy commencing in tions arose from treatment “you’re that bally Mr. Crossland informed such, company September of 1980. As they’ll payroll because API[E] back on the $100,000.00 policy understood obligation now” to defend [APIE?] have an I applicable Again, claim. would independent its attor- neither APIE nor but any regret have arisen confusion that his ney informed Dr. Garcia from this assessment.2 July Also on had been “reinstated.” covenant not July attorney in- Cardenas executed a Cardenas’ On $1,600,000. exchange against Dr. Garcia demand to execute creased settlement assignment against all of claims response his Apparently no was made to either July APIE and ICA.3 At the medical settlement demand. Also on trial, Lyons Mr. original his sixth amended Dr. Garcia was defended Cardenas filed CARDENAS, However, assertions, contrary of ARAMINTA to the court’s rendered in favor July rep- Individually of the ESTATE letter and Guardian Mr. Crossland's did not limits, concerning position DR. RAY- resent APIE’s OF GUSTAVOCARDENAS because, actually authority anything A. of what is settlement else MOND GARCIA excess reasons, among longer carrier. other Mr. Crossland no collected from represented the interests APIE and was no n n n n « kt longer defending Dr. behalf Garcia on of APIE. Plaintiff, CARDENAS,Individually ARAMINTA July Mr. Dr. On Crossland notified OF GUSTAVO and as Guardian CARDENAS, ESTATE my understanding as of "[i]t agrees indemnify and further APIE, coverage by longer I am the denial of GARCIA, DR. A. his hold harmless RAYMOND representing manner their Fur- interest.” executors, assigns and and and and heirs thermore, Mr. Crossland not write did his firms, persons, professional all other associa- authority seeking 1985 letter after corporations privity him tions or from APIE. damages, against any all future claims arising expenses out of treatment costs assign- 3. The covenant not to execute and the provided A. GUS- of DR. RAYMOND GARCIA ment of Dr. Garcia's claims years during the Carde- TAVOCARDENAS Mr. were in one "As- ICA included document entitled professional his care. nas signment of Interest Cause of Action and foregoing For in consideration Agreement Designating Subject Execu- Assets proceeds promise to the look things, Among other the "document” stat- tion.” liability policies described above satisfaction *17 ed: may any judgment be these Plaintiffs entitled of GARCIA, against RAY- A. DR. DR. RAYMOND CARDENAS,Individually and as ARAMINTA sells, transfers, assigns, sets MOND A. GARCIA Guardian of the OF GUSTAVO ESTATE CARDENAS, and delivers to ARAMINTA over Individually and LAW OF PAT MA- CARDENAS OFFICES the ESTATE OF and as Guardian of LONEY, hereby agree P.C. and covenant OFFICES OF CARDENASand LAW GUSTAVO against judgment should DR. RAYMONDA. executors, P.C., MALONEY, adminis- PAT their GARCIAbe obtained in the above-referenced benefit, trators, assigns, and and for their use execution, cause, they levy or issue shall money any all now due or and or sums of sum including garnishment any process, or other GARCIA, all owing and DR. RAYMOND A. assets, any judgment against or abstract of claims, demands, and of action of whatso- causes any description, property, kind DR. of or of nature, Defendant, DR. kind which ever and exception RAYMONDA. GARCIAwith the sole GARCIA, has, had or now or A. has RAYMOND may policies the or of Attorneys against or have Defense or ICA Defendant, RAYMONDA. GAR- which DR. API[E], person persons, any and each or other or CIA, as have with ICA insured thereunder them, severally, jointly any or of whether and API[E]. and/or of, loss, damage arising injury or out or for him, by action or or causes of cause sustained of, to, relating arising, growing con- agreed out or or ARAMINTACARDE- It is further NAS, handling claims of ARA- Individually ES- with the and Guardian of the nected as CARDENAS, CARDENAS, Individually and as Guard- MINTA TATE OF GUSTAVO will indem- OF GUSTAVOCARDENAS nify extent ian of the ESTATE DR. RAYMONDA. GARCIA the against judgment might DR. RAYMONDA. GARCIA. of amount by 29,1985, However, Mr. appeals. ap and Crossland. court of On the court parties agreed jury try peals appeal to waive a refused to it to the mal and allow Cardenas, Throughout practice judgment. APIE case before the court. bench trial, independent attorney pres- (Tex.App. Antonio — San (“We n.r.e.) 1986, writ ref'd participate ent in the conclude that courtroom but did not APIE, rejected having right participate in the Apparently immediately trial. before court, Crossland, in the trial argument, right waived chal final Mr. on behalf of ICA, $100,000 lenge judgment in by v. Garcia offered Cardenas Cardenas to settle the error.”). May 1987, 2, writ of In Dr. rejected. August case. The Garcia offer was On $500,000 agreed payment and APIE in the trial court awarded Cardenas $2,235,000 exchange agreement Dr. not to malpractice against on the claim contest APIE’s motion for a six-month con Dr. Garcia.
tinuance, $500,000 payment an offset of the against any future and a total lia III. bility cap Along way, million. Dr. $2.5 August On Dr. Garcia4 suit filed pleadings neg Garcia amended his to include against alleging ICA APIE in negligence and contracts, ligence, breach of the insurance handling defending his claim and him the (false, misleading violations of DTPA and malpractice medical In suit. November acts, deceptive practices unfair in the busi findings the trial court filed its fact ness insurance and unconscionable and of law the malpractice conclusions action), course of violations of articles 21.21 Among suit. things, other the trial court and 21.21-2 (including Insurance Code continuing found Dr. “committed regulations the rules and of the State Board negligence acts of in his treatment and care by or applicable of Insurance made issued September of Gustavo Cardenas from 21.21), During article and bad faith.5 February 1980 to 1983.” The trial suit of the “bad faith” Dr. appealed Garcia was ICA on “Assignment in November of Inter Apparently behalf of Dr. Garcia. APIE was Agreement Desig est Cause Action and longer participating directly nating Subject Assets Execution” —the —either indirectly May Dr. Garcia’s In defense. covenant not to execute —was admitted into —in 1986, Dr. Garcia and ICA settled the mal- evidence. case was submitted practice $2,000,000. faith” “bad suits negligence, gross negligence, on DTPA appeal suit was dis- (including and Insurance Code violations joint parties. false, deceptive missed motion of the Sub- misleading prac acts tices, sequently sought appeal practices the mal- of in unfair business practice judgment by writ error surance and an unconscionable course of ac- breaching 4. The suit filed Cardenas Dr. Garcia's their contract of insurance to assignees. provide under the him defense; provide a breaching fiduciary duty to act their original petition, In his seventh amended Dr. good provide coverage faith under the *18 alleged, among things, Garcia other that APIE GARCIA; policy a and defense to DR. following particulars: was liable in the (8) coverage providing a In not and defense (1) bargain, negotiate failing In to and settle amended; petition after Plaintiff Cardenas’ limits; applicable policy case the (9) settle; the within failing negotiations carry In to on to (2) failing In (10) to advise DR. GARCIA failing investigate the of In to facts the potential judgment exposure of and an case filed Cardenas to determine that cover- beyond policy; existed; the limits of the age policy the under (3) failing (11) $500,000.00 In advise settle- failing to DR. GARCIAof the In to tender as and on if the provided policy ment offers made the effect him of to Plaintiff accepted; applied judgment offers were not to and con- toward the (4) bargain, failing good tinuing pay In act in faith to to refuse under of to to settlement; insurance; negotiate and and effectuate (5) (12) withdrawing coverage abandoning In DR. GAR- DR. GARCIA the defense of defense; failing provide prior with a CIA the trial of case him. and him (ii) tion). (1) it the insured that will defend negli- advise jury The found prior gently subject Dr. a reservation of its failed to settle Garcia’s insured (2) 30, 1985, September sixth Cardenas’ one more right deny coverage on or petition alleged separate and dis- amended specified grounds; by Dr. negligence tinct acts of committed (iii) coverage grounds deny on during policy period, APIE’s Garcia either not covered under the claim is Garcia, (4) coverage APIE denied to Dr. has that the insured breached or APIE failed to Dr. at the trial defend Garcia condition; or case, and APIE’s actions Cardenas provide failing coverage and defend (iv) appears if rescind false, misleading, deceptive or acts or were fraud, procured through policy was practices. jury further The found each fact, the insured’s mutual mistake or negligent, acts in heedless these mate- misrepresentation or concealment of disregard rights, reckless of Dr. Garcia’s an application. rial in the facts business, practice unfair in the insurance an R. BARRY R. & THOMAS action, OSTRAGER unconscionable action or course NEWMAN, proximate damages, ON Dr. HANDBOOK INSUR- cause of knowingly. § and done awarded Dr. ANCE 2.01 COVERAGE DISPUTES $2,235,000 (6th 1993). damages, apportioning However, Garcia undisputed it is ed. percent to ICA perform of these that APIE failed percent to APIE. Dr. Garcia elected re- concerning coverage. duties under 21.21. cover article The trial court period, rec- During the sixteen month judgment rendered for Dr. Garcia totally take ord indicates that APIE failed to $1,331,574.00plus post-judgment amount of Dr. action to determine whether Garcia Among things, interest. other the court of policy. had no coverage under his There was trial appeals modified the court’s allegations investigation con- facts to increase the amount of the cerning no coverage. There was reservation Dr. Garcia and otherwise affirmed trial agreement. rights or non-waiver letter judgment. court’s sought independent coverage
APIE never denying opinion. explanation APIE’s TV. 24,1985 coverage July was that Plaintiffs on the malpractice After suit was filed in July original petition fifth amended filed on March APIE sat back for almost six- allege any not treatment which did providing teen months Dr. with un- during coverage period. occurred APIE’s coverage policy. conditional his However, plaintiffs origi- beginning with the fact, representative affirmatively of APIE petition nal filed in 1984 and continu- March January Dr. stated to Garcia on 1984 that pe- plaintiffs original first amended he had for the of Mr. treatment January 1985,plaintiffs tition filed in second However, January on Cardenas on petitions original amended filed third July days malprac- five before the original May plaintiffs amended trial, fourth unexpectedly tice without July ending petition 1985 and filed notice informed Dr. Garcia that “there original petition plaintiffs under this for this claim.” with fifth amended concerning coverage an insurer filed on Cardenas did has been described follows: allege any occurred treatment which coverage period. APIE knew as notice When insurer first receives insured, allegations in the pleadings much about the a claim suit *19 July promptly one of the in as it on insurer must take March 1984 did following Furthermore, April actions: in APIE informed orig- plaintiffs Dr. Garcia that first amended receipt
(i)acknowledge of the notice and petition request for an award inal included a provide the that it advise insured will cov- punitive damages that dam- punitive erage; ages were not covered in policy. ary his APIE January 1983 and Dr. Garcia also Dr. plaintiff informed Garcia that covered an in policy re- was APIE insurance quested $2,270,000 $500,000.00, an award of the amount of that Dr. damages in Garcia $500,000 which Mr. in his policy during his treated Cardenas office the exceeded limits of period policy January on personally and that he and that could liable for January the was $500,000. 1983 visit covered under damages However, more than fact, policy. APIE allegations In gave every Dr. Garcia indication that pleadings did not allege he coverage had unconditional poli- under his —which during treatment which occurred APIE’s cy for sixteen months unexpectedly and then coverage period only factor APIE coverage “withdrew” days his five before tri- —were coverage in denying July considered on fact, al. In vice-president APIE’s of claims Contrary assertion, court’s Dr. admitted at trial that allegations in the coverage Garcia’s his APIE under was pleadings only were the factor considered in conclusively established. denying coverage 1985. I find this treatment of Dr. Garcia and APIE’s
handling of Dr.
coverage
Garcia’s
under
V.
his
policy reprehensible; however, apparently
doctrine,
Under
Stowers6
an insurer
approves
handling
court
of APIE’s
of Dr.
duty
owes
its insured the
to exercise rea-
coverage
policy.
under his
determining
sonable care
whether to settle
claim
the insured within the
Furthermore,
the court asserts that Dr.
Ranger County
limits.
Mutual
Insur-
not assert
that APIE was es-
Guin,
(Tex.1987),
ance
this
topped
deny
that Dr.
coverage
Garcia had
expanded
obligation
court
an insurer’s
to in-
request
his
because he did not
investigation,
clude
the insured of
this issue be
included
the court’s
case,
preparation
defense,
and trial of the
charge. APIE further
asserts that
issue
attempts
as well as reasonable
to settle:
conclusively
established because
“APIE
January
[Dr.]
notified
Garcia on
An insurer’s
its
insured is not
poli-
that his
under the APIE
limited to the narrow boundaries contend-
cy
Ranger
because
[that
limited
one office
ed
a “Stower’s
visit
Doctrine”
only upon
period.”
occurred
the APIE
case can be
based
insurer’s
mistakenly equates
failure to settle a claim
following
insured
January
statement
to Dr.
when
claimant offers
settle within
Garcia on
limits],
rather
extends to the
“limiting
coverage:”
his
range
agency relationship.
full
Notified Dr. Garcia of his limited
case,
investigation,
that includes
prep-
with APIE for this
took
incident. He
out
lawsuit,
aration
defense of
trial of
his
policy on
API[E]
1-8-83. The incident
attempts
the case and reasonable
to settle.
question began
September
1980. Dr.
this incident.
insurance carrier has the lion’s share in
it, but
Garcia last treated the
1-18-93—
it appears
API[E] would cover this last vis-
Dr. Garcia’s
pt.
in his office on
previous
for an award of
negligent
breached
Ranger
[*]
contends
breach
n
contract and there is no basis
of an
exemplary damages.
n
agency
at most it
[*]
relationship
n
merely
[*]
A
Apparently
court mistakenly
believes
independent
tort for
constitutes
of Dr.
notification
Garcia’s “limited cov-
point
an action for
will lie. This
erage with APIE for this incident” was the
of law has been well-settled since this
legal equivalent
rights.
O’Daniels,
of a
holding
reservation
Court’s
Williams
However,
(1871).
undisputed
it is
Janu-
between
affirmative
222 Kan.
567
1365-
pos-
to
settlement
P.2d
(1977).
generally
66
sibilities.
See
Commercial Union
Liberty
Co.,
Ins.
426
Co. v.
Mutual
Ins.
(citations omitted);
Id.
Inc. v. Home Ins. F.2d 511-12 settle as reasonable limits, every opportu- APIE had geous within statement! settlement demands $500,000.00,but attempt to settle for degree nity of care and to exercise *22 any facilitate set- diligence attempts made to ordinarily prudent person which an it never faith good APIE never a his own made management would exercise of tlement. value responding de- to evaluate settlement business to settlement effort (3) case, pos- limits, duty investigated explored the policy a of never mands within and settlement, discussed settle- ordinary sibility care that at- never includes reasonable en- coverage opposing party and never tempts to within the settle insured’s ment with negotiations they gaged after receive a formal de- in reasonable settlement settlement policy opposing party. The court asserts within limits. The court further with the mand settle duty” opportunity an insurer’s APIE never had an asserts that “Stowers $500,000.00 by received activated a unless because APIE never settlement demand (1) policy within three conditions the claim a formal settlement demand exist — coverage, fixated on the scope is within the limits. The court remains insured (2) limits, a within policy requirement the demand is within the and settlement demand (3) policy that an the terms demand are such limits. ordinarily prudent accept insurer it. would Ranger following The court asserts that require- The court seems to be fixated on the making the burden of settlement would shift a ment of formal settlement demand within apparently the insurer. The court offers to policy limits and is unable make the con- rigid process as a envisions the settlement ceptual rigid shift from the and formalized procedure plain- in which the and formalized requirement of a Stowers formal settlement “legal the first tiff has the burden” to make policy Ranger demand within limits to the demand the insurer has settlement and person an ordinarily prudent to act as respond the settlement de- “burden” management in business to make reasonable However, attorney who has mand.9 attempts analy- Under to settle. the court’s knows, negotiated and a lawsuit ever settled sis, an insurer has no to act as an process rigid and the settlement is not person ordinarily prudent in business man- fact, procedure. everyday, formalized agement attempts make reasonable to set- plaintiffs, to fa- defendants and insurers act good tle to act in or even faith until by attempts to cilitate reasonable settle — receives a formal settlement within demand making good faith effort to evaluate plaintiff. policy from the limits other case, by investigating settlement value of
words, exactly an insurer can do what settlement, exploring possibility and did in case—since it never received opposing by discussing settlement with the formal settlement demand within party by engaging in settle- and reasonable limits, justified doing absolutely APIE was opposing party— negotiations ment with the nothing. APIE never even considered requirement the mechanical of a for- without possibility or af- either before policy limits. mal settlement demand within malpractice responded ter trial and never Furthermore, mistakenly inex- the court and to any of settlement demands. Cardenas’ requiring an plicably seems to believe that per- attempts justify ordinarily prudent fail- as an
The court insurer to act management making by stating ure action rea- to take son business opportunity attempts require never had an settle for its sonable settle would (1) $500,000.00. of- an outra- to make unilateral settlement This is insurer limits — $100,000.00 $500,000.00 light The court also states fact with "[i]n $500,000.00 Maloney posi- was informed of the insurers' Mr. and APIE’s limit discovered However, [concerning policy limits]....” tion July policies Maloney on 1985? ICA’sthree “position” concerning policy limits is the $100,000.00, $500,000.00 $100,000.00 referring ICA’s limit and court to? $500,000.00 $500,000.00 com- and APIE’s limit $500,000.00 limit Mr. communicated to APIE’s Maloney July Maloney 1985? to Mr. on municated July policies 1985? two ICA’s (2) fers, literally plaintiffs offer the limits in until when filed the every potential which the for an petition alleging sixth for the amended first exists, to bid time acts of within APIE’s itself in the absence of a commitment period. Since the covenant not to execute claimant that the case can be settled within signed and the trial commenced the limits, to make the first settle- day, same APIE contends that it could not opposing party. ment offer to the The court any duty have breached to settle the case. I mistakenly inexplicably also seems to disagree. plaintiff prohibited believe that the *23 First, duty I APIE believe that created making a settlement demand within prior July to settle 29—when none other- addition, In limits. the court asserts that by providing wise would have Dr. requiring ordinarily an insurer to act as an existed — coverage Garcia with unconditional under his prudent person management in business policy for sixteen months from March 1984 making attempts reasonable to settle would July by totally failing until reduce to take negotiate the incentive to a settle- encourage early any ment and action to settlement. In determine whether Dr. Garcia fact, requiring insurers to act to coverage policy, facilitate had under his actual- attempts reasonable encourage to settle will ly assuming control of the defense ICA. early litigation settlements and reduce and APIE that after admits suit was filed plaintiffs, settlement costs which will benefit March APIE and into a ICA entered insureds, insurers, purchasers liability in- agreement agreeing letter to divide costs of taxpayers surance and who subsidize much of any defense and settlement or verdict on a justice system. cost the civil pro expressly rata basis. It did not disavow coverage days until five before trial. Furthermore, the court has mischaracter- fact, error, application in its for writ of solely ized this case as a Stowers Al- case. APIE admitted that though parties appeals and the court of terminology, use that this case is not a suit pro- APIE evidence showed that had brought solely under the Stowers doctrine. coverage vided defense and to Dr. Garcia Dr. alleged negligence handling Garcia his prior filing to the of the Fifth Amended defending claim and him in the medical mal- During Petition. period the one-week be- suit, practice breach of the insurance con- tween the Fifth and Sixth Amended Peti- tracts, (false, violations of the DTPA mislead- tions, assigned Dr. his interest acts, ing deceptive practices unfair in the policy. assignment This terminated business insurance and unconscionable obligation part further on APIE action), course of violations of 21.21 articles protect Dr. Garcia from an “excess” (including and 21.21-2 of the Insurance Code place. that could not take Nonethe- regulations the rules and of the State Board less, provide APIE continue to did a de- applicable by of Insurance made or issued coverage fense and to Dr. con- Garcia and 21.21), under article and bad faith. The ease pay tinued defense costs. Evidence of negligence, was submitted to the prior actions to the Amended Sixth gross negligence, DTPA and Insurance Code Petition, however, is irrelevant and had no false, (including misleading violations and de- probative duty value since there was no ceptive practices, practices acts or unfair provide coverage until the Sixth Amended the business of insurance and an unconscio- undisputed Petition filed. The evi- action). nable course of Dr. Garcia elected to APIE provide dence discloses that did cov- Obviously recover under article 21.21. erage filing and a after the defense solely brought case is not a suit under the Sixth Amended Petition. Stowers doctrine. application further stated in its for
VII. writ error that of its attor- “[statements ney] clearly that APIE had re- responsibili- established contends it had ty duty coverage provide a thus no to settle— sumed its and did de- —and fact, added). demands. settlement Apparently Cardenas’ (Emphasis fense.” independent that neither the indicates provided record position APIE’s is that pos- APIE ever considered filing attorney of the sixth nor to Dr. Garcia before the or after before legally sibility either petition but since it was not of settlement amended Furthermore, there is obligated coverage, malpractice it had no trial. provide APIE’s failure to attempt to settle. at least some evidence after efforts attempt reasonable plaintiffs offered to There is evidence that petition dur- amended filing of the sixth for the total amount of cover settle the case assignment trial. The age represented by Mr. to be Crossland did not and the Cardenas Dr. Garcia between available, policy lim APIE’s which included arising duty to Dr. Garcia terminate its. APIE’s involvement raised the stakes thus did not terminate policy, settlement, creating any potential duty. More- opportunity to breach coverage. responsible if settle as it were occurs, over, faith regardless of when the bad Robertson, Ranger Ins. Co. v. damages from the bad faith —the (Tex.App. writ ref'd — Austin *24 typically against the insured —will (insurer n.r.e.) deny cover estopped was this until after in cases such as not accrue age undertaking the defense uncondi after and release. assignment months). Fur tionally period for a of seven thermore, clearly pursue APIE had a have settled argues APIE that it could not plaintiffs settlement efforts after reasonable is, ICA; independently the case petition, amended but filed their sixth the combined at all times demanded plaintiffs and, fact, attempts made no settlement There is no of the two insurers. policy limits possibility of set never considered evidence, however, that APIE ever offered logical why There Dr. tlement. is reason addition, In two policy limits. its individual assignment of his tort claims should jointly responsible insurers 29, 1985, duty. July terminate this On to avoid their should not be allowed try parties agreed jury to waive a argu- attempts to settle make reasonable in- Although the court. APIE’s case before independently have ing that neither could dependent attorney believed that as soon as the case within their individual settled waived, finding was particularly un- argument limits. foregone conclusion and that ICA should agreed to divide persuasive since it with ICA settle, independent attorney nor neither pro on a rata basis. costs of possibility APIE ever considered the of set- Apparently tlement. APIE was confident VIII. negligence
that no or causation would be Dr. Garcia APIE’s cov- found issue, considered The next which was addition, 31, 1985, erage period. 31, opinion, concerns 1992 our December attorneys into judge the trial called the assignee injured plaintiff, as the whether an and told them that he wanted the chambers insured, recovering precluded from that he case settled because he was afraid insurer the existence damages from the might punitive damages against Dr. Gar- find in- plaintiff and the a covenant between attorneys reported cia. The that Cardenas the insurer. sured to seek relief $1,600,000.00 demanding and ICA and inappro- companies will at times Insurance judge was offering The trial were $0. case, thereby ex- to settle priately refuse attorneys to talk to their furious and told the liability in excess of insureds to posing their attempt to settle. ICA decided clients and Syverud, Duty Kent policy limits. See spite offer. make no settlement 1113, Settle, n. 15 & 1120 76 VA.L.REV. comments, judge’s the record indicates trial Roberts, (1990). Agree- also Bob 1126 attorney independent nor that neither the and Insureds Between Claimants ments possibility of set- APIE ever considered Af- Insurers, BAR By STATE any of ter Misconduct responded never tlement and 868 SUING, YMCA, OF 504-05; DEFENDING AND See 552 S.W.2d at Foremost TEXAS— Co., County
NEGOTIATING WITH INSURANCE
Mut. Ins.
Indem. 897 F.2d 759-60 Cir. underlying amount of judgment despite 1990); Young Men’s Christian Ass’n the existence of a covenant not to execute. (YMCA) v. Standard Ins. 552 S.W.2d The court stated: (Tex.Civ.App Worth . —Fort repudiated “[W]here the insurer has 1977), curiam, writ per n.r.e. ref'd obligation defend[,] defendant (Tex.1978); Brown, S.W.2d 246 Reagan M. may, of fraud without absence forfeiture of Defending Against Deal, the Sweetheart right indemnity, his settle with the TEXAS—SUING, STATE BAR OF EN DEF plaintiff upon possible, the best terms tak DING AND NEGOTIATING WITH (Zander ing a covenant not to execute.” v. INSURANCE COMPANIES 1-18 Texaco, Cal.App.2d Inc. (hereinafter Brown); Ranger Superior 561; accord, Johansen, Cal.Rptr. Arizona, Coach Sales and Service [v. State Auto. Ass’n Inter-In California (1974); Ariz. Ivy P.2d supra, surance Bureau] 15 Cal.3d Cal.App.2d Automobile Ins. Pacific 744; Cal.Rptr. fn. 538 P.2d (1958). *25 320 P.2d 147 Comunale, [v. Traders and General Ins. supra, 654, 661-662, Co.] 50 Cal.2d 328 The use of a pro- covenant not to execute 198). “exposes P.2d the insurer When its vides strong insurers with a give incentive to policyholder sharp person to the thrust due consideration-to the interests of its in- liability” by breaching obligations, al YMCA, 504-05; sureds. See 552 S.W.2d at indulge insured “need not in financial Rawlings Apodaca, 151 Ariz. 726 P.2d ” (Critz masochism.... v. Farmers Ins. (1986). The necessity of such (1963) Group, Cal.App.2d particularly apparent covenants is when an 401). Cal.Rptr. insurer provide has refused to a defense: In such a situation, the YMCA rule is [******] protect adequately.
needed to
“[B]y
insured
executing
assignment,
he at-
tempt[ed] only
Where the insurer
refuses to tender a
to shield himself from the
defense,
protect
danger
company....
exposed
the insured often can
him-
to which the
(Id.
401).
only
p.
Cal.Rptr.
self
with a
him.”
at
covenant not to execute.
self-interest,
covenant,
He acted in his own
Without such a
after
the insured ei-
coverage,
Transamerican’s denial of
as he
pay
ther would
plaintiffs
have to
every right
Any resulting
had
to do.
dam-
enough to settle their claim or would have
age
by
to Transamerican was not caused
himself,
to incur
though
defense costs
even
Yagel’s supposed
by
misconduct but
Trans-
contractually responsible
the insurer is
for
intransigence.
american’s own
payment of such costs. Were a covenant
not to execute to
absolve
insurer of
Cal.Rptr.
Id. 178
[t]he agree arrangement potential damages. See Bak sured’s Rainbo incentive (Tex. personal protect the insured’s assets Stafford, would Co. v. 787 S.W.2d execution, agreement 1990). Furthermore, such “[pjublic permit from extinguish potentially would the insured’s ting proscribing weapons tactical devel assets, most valuable his cause action oped by should be claimants insurers Third-party against the insurer. claimants in shaped by public influences: two proceed have no choice but to would settlements, encouraging terest judgment against the insured. This would fairness, is, equalization of the contend- judicial result a waste of resources strategic advantages.” Farmers ers’ Critz v. purpose preserve no other than to Group, Cal.App.2d 41 Cal. Ins. failing cause of inchoate action for to set- (1964). Rptr. When Dr. as tle. signed exchange his claim execute, for a not to he was able covenant Ashley, Stephen Physi- American Garcia v. his the Cardenas turn dispute settle Exchange: Insurance cians More the wrongful ing his insurer’s conduct into Merrier, Report 7 Bad Faith Law bargaining strength dealing with the (Sept.1991). claimant. considerations are Public allowing recovery Another behind injured by allowing an better served claimant judgment despite for the existence party engaged to collect who from not of a covenant to execute is deterrence: false, misleading deceptive acts damages com caused those important The final we fact which extract —the pany the victim of acts— than those the cases is that of deterrence. —rather the insured.10 relationships par- contractual in which one
ty primarily sought protection has or secu- rity profit advantage, rather than con- X. provide tract fail to ade- addressing We are of no Texas aware quate compensation provide fail to but also pretrial to exe the effect of a covenant not a substantial deterrence breach *26 stemming damages cute on from the insur party who a derives commercial benefit negligence Whatley City er’s or bad faith. v. relationship. place, from the In the first Dallas, (Tex.App. 758 S.W.2d they offer motivation whatsoever for — Dallas denied) County writ and Foremost Mu the insurer not breach. to v. Home tual Insurance Co. Indem. (em- Rawlings Apodaca, v. at 575 726 P.2d (5th Cir.1990) directly appli F.2d 754 are not phasis original). in were no If there recov- expressed cable—in both cases courts ery judgment, for the excess there would be a opinion “no to whether credi of an for breach of the con- more incentive damages may against an tor recover insurer performance. tract than its against poli in awarded its insured excess person cy limits for the insured is not Pretrial covenants not to execute should be encouraged public policy ally negligently a fa- liable insurer has acted as matter of if Morris, Although many Ariz. 741 P.2d this is different from Ass'n case ("To involving personal pretrial relieve himself of covenants not execute cases (such may persuaded judgments) exposure, enter insured be as settlement or consent be agreement stipulation any type in into almost cause the issues were by er_”). hopes vigorously adversary proceeding, the insur- contested which the claimant bind in an type involving pretrial in of case real concern we are aware cases cove "The judgment] may always energeti between the [or execute be is that nants not to not may actually repre adversary proceeding. not cally in claimant and the insured contested length worth Consequently, permitting sent an determination of the the insured "settle” arm’s Physi sign plaintiff's injured a claim." Steil Florida with the claimant before trial and (Fla. Reciprocal, may present Ins. 448 So.2d a con cians' covenant not execute real Dist.Ct.App.1984). Services cern for the insurer. See United Auto. Whatley, damages12
or in
bad
871
Reciprocal,
Physicians’ Ins.
Florida
Dr.
Steil v.
The fact that
to the Cardenases.
(Fla.Dist.Ct.App.1984); Shook
872 coupled assignment
In Greer v.
National Insur-
with an
Northwestern
and settlement
Co.,
agreement,
an insurer
liable to an
Supreme
Washington
ance
the
Court
not);
injured claimant even if
the insured
stated:
Crowther,
Bishop v.
Shook Ins. 498 So.2d (“While Shugart, Miller v. at 732 N.W.2d XII. pay any true that not defendants need argues had since Dr. Garcia thing, judgment it is also true that the effec received million settlements ICA $2.5 liquidates tively personal defendants’ liabili APIE, damages his I were satisfied. hold, therefore, ty. plaintiff may We disagree. garnish seek collect on that insurer.”); proceeding against ment Ka First, erroneously that the assumes gele v. Aetna & Cas. P.2d underly- applied should be settlements Life (in the context of a not to covenant execute rather than as a dollar-for- defendant, Although pretrial right this case is cove- but to execute limited reserved the execute, arguments nants not to relating against assets to his insurance. —that pretrial necessarily covenant not to ne- execute that a [the defendant/insured] Crowther asserts gates damages apply equally post- all legal consequence of is that no —would this covenant words, trial covenants not to In other execute. against damages are individu- enforceable him APIE, reasoning employed by if Carde- ally. plaintiff failed He further maintains that executed a covenant execute nas not to action: an element of his cause of establish assignment exchange Dr. Garcia in of his damages. disagree. proof of We Defendant’s underlying APIE and ICA claims after distinguish argument such fails to between trial, medical Dr. Garcia would still liability, damages, judgment and concepts as compensable suffer a harm because liability and the execution. Defendant's alleged "protective effects” of the covenant not amount were both established to execute. judgment. The execution determines used to suit, defendant’s assets will be appeal injury underlying limiting satisfy judgment. agreement An there was no asserted that defendant/insured negate specific damages: proof execution assets does not damages. and defendant into a covenant Plaintiff entered Crowther, Bishop v. 47 Ill.Dec. at plaintiff providing that not seek to exe- would *29 any judgment against personal assets N.E.2d 605. cute 21.21), The case pro and faith. credit or of dam- under article bad dollar rata reduction Second, in November and submitted was tried ages in the bad faith Texas case. negligence, negligence, jury gross to the following four contribution has distinct (includ- DTPA Code violations and Insurance based on and one schemes—three statute false, misleading deceptive acts or ing and law: at common created practices, practices unfair in the business (Tex. original The 1. contribution statute course of and an unconscionable seq.); § & Rem.Code 32.001 et Civ.Prac. (1) action). jury negli- APIE found that The prior Dr. gently settle comparative failed to Garcia’s negligence 2. The statute 1985, (2) (former sixth September Cardenas’ § 33.- Tex.Civ.Prac. & Rem.Code alleged separate and dis- petition amended seq.) only pure which applies 001 et by Dr. negligence committed tinct acts of September eases filed negligence before (3) period, Garcia 1987; Garcia, APIE denied to Dr. by The common law com- contribution trial APIE to defend Dr. at the failed Garcia (Duncan Air- parative causation v. Cessna case, and APIE’s actions of the Cardenas (Tex.1984)) 665 S.W.2d craft failing provide to defend and only applies in- products which cases false, misleading, deceptive acts or were liability, warranty, volving strict breach of practices. jury each further found that liability and mixed theories of strict and negligent, and acts was in heedless these 13, 1983; negligence tried after and disregard rights, of Dr. reckless Garcia’s business, an practice unfair in the insurance comparative responsibility 4. The statute action, action or unconscionable course of (Tex.Civ.Prac. § & et Rem.Code 33.001 proximate damages, Dr. cause of seq.) applies which filed on or to cases Dr. knowingly. jury awarded and done September after $2,235,000 apportioning in damages, Garcia Guaranty Sterling, Stewart Title Co. and 16 percent to ICA (Tex.1991). percent APIE.16 Dr. elected to Garcia article recover under 21.21. Dr. filed suit ICA August alleging negligence result, comparative negligence As a handling defending claim and him in the his applies negligence pure statute which Later, medical Dr. Garcia suit. (former September 2, 1987 cases filed before pleadings allegations amended his to include seq.), § & 33.001 et Tex.Civ.Prac. Rem.Code con- negligence, breach the insurance by comparative the common law contribution (false, tracts, violations DTPA mislead- (Duncan causation Cessna Aircraft acts, deceptive practices in the unfair (Tex.1984)), and the 665 S.W.2d of insurance an unconscionable business ap- comparative responsibility statute action), 21.21 course of violations of articles plies after September to cases filed (Tex.Civ.Prac. (including 21.21-2 of the seq.) § Insurance Code et & Rem.Code 33.001 regulations original Board apply. Consequently, the rules and of the State do not (Tex.Civ.Prac. applicable by & Rem. made or issued contribution statute of Insurance questions related to ICA 16. The was asked 2 84% Special “apportionment.” No. 33 asked: Issue percentage, any, if What 16% Court in were found Cardenas v. Garcia proximately caused the acts or omissions 100% Garcia on or after Dr. 1/8/83? special and 36 were Apparently, issue nos. 33 by stating percentage found. Answer We, Jury, by APIE. Answer: submitted 16% Special No. 36 Issue asked: party by you caused each found to have For percentage damage Dr. Garcia find by: caused *30 § seq.) applies. may Code 32.001 et through Stewart Title credit be determined either the Guaranty pro at dollar-for-dollar method or the rata re- S.W.2d method,
duction whichever results 10; greatest reduction. at n. See id. Pales- XIII. Contractors, Perkins, tine Inc. v. 386 S.W.2d (Tex.1964) (citing Hodg- Gus M. Baylor University, Bradshaw v. 126 Tex. es, Indemnity Among Contribution and 84 S.W.2d and the “one (1947)). Tortfeasors, 26 Tex.L.Rev. apparently satisfaction apply rule” in this case, applied either the credit is after the Guaranty case. See Stewart Title Co. v. (or trebling doubling) damages of actual un- Sterling, 822 S.W.2d 5-8. Under Brad- Code, der article 21.21 of the Insurance Baylor University shaw v. and the “one sat- Title, 8-9, Stewart 822 S.W.2d at and the rule,” joint nonsettling isfaction tortfeasors percentages responsibility found are entitled to receive a credit jury inapplicable. are See Tex.Civ.Prac. & judgment based on the settlements reached (Vernon 1986). § seq. 32.001 et Rem.Code plaintiff joint between the and other tortfea- sors. Guaranty Stewart Title If the dollar-for-dollar credit method is jury at 8. applied, When the has fixed the damages Dr. Garcia’s cal- would be defendant, nonsettling culated as follows: Damages $2,235,483.30 Actual Damages $4,470,966.60 Additional $2,235,483.30 damages actual x2 under amended art. 21.21 x2
$4,470,966.60 -$2,500,000.00 Settlement credit $500,000.00 APIE offset $2,000,000.00 ICA settlement $2,500,000.00 $820,500.00 Attorney’s fees $5,026,949.90 TOTAL TOTAL RECOVERY $2,000,000.00 APIE, “partial by dividing Under the settlement” with credit is “determined number agreed Dr. Garcia and APIE that Dr. Gar- of all into liable defendants the total amount $2,000,- damages cia’s would be limited to 32.003(a). judgment.” § Id. Consequently, 000.00. the total award case, determined that ICA and using any method of calculat- damages. APIE were liable for Dr. Garcia’s $2,000,- damages would be limited to Therefore, pro rata reduction is deter- 000.00. by dividing mined the total amount of dam- (or .5). ages by multiplying by pro If the method, pro rata Under reduction provided by rata reduction Palestine Con- solely amount of on the contribution is based tractors, Perkins, Inc. v. 386 S.W.2d number of defendants found liable for the (Tex.1964) damages applied, Dr. Garcia’s plaintiffs damages. See Tex.Civ.PRac. & (Vernon 1986). § 32.003 The would be calculated as follows: Rem.Code $2,235,483.30 Damages Actual $4,470,966.60 Damages Additional $2,235,483.30 actual x 2 under art. 21.21 _x2 amended
$4,470,966.60 figure when deter-
17. This does not include amounts ment interest should be considered prejudgment mining pro rata reduc- be recoverable as inter- dollar for dollar credit or express opinion prejudg- est. We whether tion. *31 -$3,353.224.95 pro rata reduction APIE’S $6,706,449.90 _x,50 rata reduction Pro $3,353,224.95 $820,500.00 Attorney’s fees $4,173,724.95 TOTAL $2,000,000.00 TOTAL RECOVERY result, regardless As a which method (dollar-for-dol- JOINER, calculating damages was Appellant. used parte Cecil Ex Orien reduction), pro lar rata result credit or No. 25981-01. $2,000,- was the same —APIE’s 000. Texas, Appeals of Criminal Court En Banc.
XIV. argues agree- the settlement Feb. (1) Cardenas, Dr. ments between $2,000,000 ICA for Dr. Garcia $500,000
APIE for should admit- have been disagree. ted I into evidence. “The traditional Texas rule is that settle- ment agreements plaintiff between and a
co-defendant should excluded from the jury. contrary A rule would frustrate
policy favoring the settlement of lawsuits.” Simmons, Corp. v.
General Motors (Tex.1977); City Houston S.W.2d v. Sam P. Wallace and 585 S.W.2d (Tex.1979); v. McGuire Commercial Un- (Tex.1968). ion Ins. 431 S.W.2d Smithwick, Oil Co. v. 12A Scurlock (Tex.1986).18 1, 4 S.W.2d The settlement Title agreements in cases such as Stewart (Tex. Sterling, Guaranty Co. v. S.W.2d 1991) Company Title v. and First Waco Garrett, (Tex.1993) 860 S.W.2d were jury admitted into evidence to consid- However, they er. were considered Bay- v. Bradshaw applying trial when court University and the lor “one satisfaction rule.” herein, explained
For I would the reasons appeals. affirm the court Welch, Austin, appellant.
Mandy Simmons, 4; However, Corp. settling General Motors "when defendant retained argue plaintiff's recovery at 858-59. APIE does not [such a financial stake in a 558 S.W.2d agreement], excluding in Dr. Mary of evi- ICA retained "financial stake” Carter it or recovery. Consequently, this case fact from the was harmful Garcia's dence of that Smithwick, Maty Co. from a Carter case. Scurlock Oil different error.”