Brainard v. Trinity Universal Insurance Co.Brainard v. Trinity Universal Insurance Co.
- Reporters:
- , , ,
- Before:
- Wallace B. Jefferson, O’Neill, Johnson
Chief Justice Jefferson delivered the opinion of the Court.
Justice O‘Neill and Justice Johnson did not participate in the decision.
I
Background
On July 1, 1999, Edward H. Brainard II was killed when his vehicle was involved in a head-on collision with a rig owned by Premier Well Service, Inc. His widow, Lilith Brainard, and their five children (collectively, Brainard) brought a wrongful death action against Premier and sought UIM benefits from Trinity Universal Insurance Company under a policy issued to the family business, Brainard Cattle Company. Trinity paid Brainard $5,000 under the policy‘s PIP provision but requested further information supporting the UIM claim. Brainard alleges she submitted the information and performed all conditions precedent to receiving the benefits, but Trinity never paid. Eventually, Brainard joined Trinity as a defendant, alleging breach of contract, breach of the common law duty of good faith, violations of the Deceptive Trade Practices-Consumer Protection Act, and violations of Insurance Code articles 21.21 and 21.55.
On December 7, 2000, Brainard and Premier settled Brainard‘s claims for $1,000,000, Premier‘s policy limit, and Premier was subsequently dismissed from the suit. When Brainard demanded that Trinity also tender the $1,000,000 UIM policy limit, Trinity countered with an offer of $50,000. The trial court severed Brainard‘s extra-contractual claims, which remain pending, and the parties proceeded to trial on the UIM contract. A jury found that Premier‘s negligence caused the accident and awarded Brainard $1,010,000 for pecuniary loss, funeral expenses, loss of companionship and society, and mental anguish. The jury also awarded $100,000 for attorney‘s fees.
II
Recovery of Prejudgment Interest
The Insurance Code requires insurers to offer Texas motorists UIM coverage and mandates that such coverage:
provide for payment to the insured of all sums which he shall be legally entitled to recover as damages from owners or operators of underinsured motor vehicles because of bodily injury or property damage in an amount up to the limit specified in the policy, reduced by the amount recovered or recoverable from the insurer of the underinsured motor vehicle.
Prejudgment interest is awarded to fully compensate the injured party, not to punish the defendant. Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549, 552 (Tex. 1985), superseded in part by statute, Act of June 3, 1987, 70th Leg., 1st C.S., ch. 3, _ 1, 1987 Tex. Gen. Laws 51, 51-52, as recognized in Johnson & Higgins of Tex., Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507 (Tex. 1998) and C & H Nationwide, Inc. v. Thompson, 903 S.W.2d 315, 327 (Tex. 1994). It is “‘compensation allowed by law as additional damages for lost use of the money due as damages during the lapse of time between the accrual of the claim and the date of judgment.‘” Johnson & Higgins, 962 S.W.2d at 528 (quoting Cavnar, 696 S.W.2d at 552). By statute, “[a] judgment in a wrongful death, personal injury, or property damage case earns prejudgment interest.”
In language closely tracking article 5.06-1(5), Brainard‘s policy states that Trinity will pay “damages which [Brainard] is legally entitled to recover from” Premier. We have consistently viewed prejudgment interest as falling within the common law meaning of damages, and Trinity does not argue that the Legislature
Trinity‘s primary argument to the contrary, upon which the court of appeals relied, emphasizes that the UIM policy, like article 5.06-1(5), requires Trinity to pay only those damages which the insured is legally entitled to recover “because of bodily injury or property damage.” 153 S.W.3d at 512; see also
Trinity‘s argument fails for several reasons. First, although several courts of appeals have held that UIM insurance does not cover punitive damages assessed against the underinsured motorist, none reached this result by adopting Trinity‘s narrow interpretation of damages “because of bodily injury.” In fact, their reasoning effectively supports UIM coverage for prejudgment interest. In Shaffer, the court concluded that the phrase “because of bodily injury” was ambiguous because it could mean that the damages must (a) literally derive from a bodily injury or (b) arise as a result of bodily injury. Shaffer, 888 S.W.2d at 148-49. If this language were ambiguous and had been drafted by the insurance company, precedent would require that it be interpreted to favor the insured. Nat‘l Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex. 1991). Most UIM provisions, however, recite nearly the exact text of article 5.06-1(5). For that reason, the Shaffer court inquired into the statute‘s legislative intent, which it found addressed in one of this Court‘s opinions. In Stracener, we concluded that the Legislature sought to protect “conscientious motorists from ‘financial loss caused by negligent financially irresponsible motorists.‘” Stracener, 777 S.W.2d at 382 (quoting Act of Oct. 1, 1967, 60th Leg., R.S., ch. 202, § 3, 1967 Tex. Gen. Laws 448, 449). Accordingly, the court of appeals observed that a primary purpose of UIM insurance is compensatory; it protects against financial loss. Shaffer, 888 S.W.2d at 149. Other courts of appeals have added that neither deterring wrongful conduct nor punishing the defendant is accomplished when the UIM insurer pays punitive damages assessed against the underinsured motorist. Milligan, 940 S.W.2d at 231; Vanderlinden, 885 S.W.2d at 240-42. Thus, they have held that neither the language of article 5.06-1(5)
We have already noted that prejudgment interest serves to compensate the injured party, not to punish the defendant. Johnson & Higgins, 962 S.W.2d at 528; Cavnar, 696 S.W.2d at 552. This distinction is apparent in the rule that “[p]rejudgment interest may not be assessed or recovered on an award of exemplary damages.”
Moreover, Trinity‘s rigid reading proves too much, for it would entail splitting hairs even among purely compensatory damages, such as those for mental anguish and loss of society. Article 5.06-1(5) states that the insurer will pay the insured “all sums which he shall be legally entitled to recover as damages from owners or operators of underinsured motor vehicles because of bodily injury or property damage.”
Trinity‘s alternative argument against coverage for prejudgment interest is based on the contractual aspect of a UIM claim. Franco v. Allstate Ins. Co., 505 S.W.2d 789, 791-92 (Tex. 1974) (noting that, “although ultimate recovery in this type of action depends upon proof of damages due to the tort of an uninsured third party, the cause of action against the insurer arises by reason of the written contract“). If the claim is purely contractual, as Trinity contends, then Finance Code section 304.102, which authorizes prejudgment interest in wrongful death, personal injury, and property damage cases, would have no application in this case.
The reference to Henson deserves further discussion because our reasoning in that case clarifies the issues presented here. Henson was a passenger in a truck driven by Millican, which collided with a vehicle driven by Contreras. Henson, 17 S.W.3d at 652. Henson sued Millican and Contreras for negligence and, before establishing liability, settled with Contreras for $20,000—her liability insurance limit. Id. at 652-53. A jury attributed one hundred percent of the negligence to Contreras and assessed Henson‘s damages at $133,842. Id. at 653. Within thirty days of the judgment, Henson and Millican‘s
The issue in Henson was whether prejudgment interest accrued on the insured‘s contractual claim for UIM benefits. The prejudgment interest which Henson could recover from Contreras in tort liability was not at issue, as the damages assessed by the jury already exceeded the UIM policy limit. We examined the insurer‘s obligation to pay damages which the insured is “legally entitled to recover” from the underinsured motorist and concluded that there is no contractual duty to pay benefits until the liability of the other motorist and the amount of damages suffered by the insured are determined. Id. at 653-64. Thus, we held that a UIM claim does not earn prejudgment interest until the insurer breaches the contract by withholding benefits after the insured has obtained a judgment establishing the liability and underinsured status of the other motorist. Id. at 654. The jury could have found that Contreras was not negligent or that Henson‘s damages did not exceed Contreras‘s liability insurance limit, precluding any recovery of UIM benefits. Id. Because the insurers tendered the benefits promptly after the jury made its findings, no contractual duty was breached, and Henson was not entitled to receive the benefits earlier than he did. Id. The question we answer today—whether UIM insurance covers the prejudgment interest an underinsured motorist would owe the insured—was not before us in Henson.
Under section 304.102, Premier would be liable for prejudgment interest on $1,010,000.
Accordingly, we hold that UIM insurance covers prejudgment interest that the underinsured motorist would owe the insured. The court of appeals erred in affirming the trial court‘s judgment denying Brainard this recovery.
III
Calculation of Prejudgment Interest
The parties do not challenge the calculation of actual damages; they agree that the trial court properly deducted Brainard‘s $1,000,000 settlement and $5,000 PIP recovery from the jury‘s $1,010,000 verdict, resulting in Trinity‘s liability for $5,000. Mid-Century Ins. Co., 997 S.W.2d at 271; Stracener, 777 S.W.2d at 380. Instead, the issue concerns how to apply these credits when calculating prejudgment interest. Based on the jury‘s verdict, Premier would have been liable for $1,010,000 in actual damages, plus prejudgment interest on this amount. Having concluded that UIM insurance covers this interest, we turn now to its calculation.
Brainard‘s suit against Premier was for wrongful death. In a wrongful death case, prejudgment interest accrues beginning on the 180th day after the defendant receives
Brainard contends that prejudgment interest is calculated on the entire $1,010,000 before applying credits. Accordingly, she seeks $263,430 in prejudgment interest—ten percent interest on $1,010,000 from January 19, 2000, until August 29, 2002, the date the parties moved to enter judgment.1 In Brainard‘s view, the interest is added to the jury‘s verdict before deducting settlement and PIP credits, so that the credits do not affect the prejudgment interest calculation. Trinity objects, arguing that Brainard should not continue to earn interest on $1,010,000 in damages despite having already received $1,005,000 in compensation. We agree.
We recently touched on this issue in Battaglia v. Alexander, 177 S.W.3d 893, 908-09 (Tex. 2005), in which we held that the trial court erred in calculating prejudgment interest on total damages before deducting payments that the plaintiff received from settling defendants. Although Battaglia involved health care liability claims subject to section 16.02 of former Revised Civil Statutes article 4590i, we established a framework that resolves the issue presented here. We reiterated that prejudgment interest is compensation “‘for lost use of the money due as damages during the lapse of time between the accrual of the claim and the date of judgment.‘” Id. at 907 (quoting Cavnar, 696 S.W.2d at 552). Therefore, compensation other than for lost use of money is not interest but a windfall for the claimant and a penalty to the defendant. Id. We concluded that, to satisfy the purpose of prejudgment interest, settlements must be credited periodically, according to the date they are received. Id. at 907-08. This approach, known as the “declining principal” formula, is the proper way to apply credits in the calculation of prejudgment interest. Id. at 909 (overruling in part C & H Nationwide, Inc. v. Thompson, 903 S.W.2d 315, 327 (Tex. 1994)).
In Battaglia, we concluded that “[a] settlement payment should be credited first to accrued prejudgment interest as of the date the settlement payment was made, then to ‘principal,’ thereby reducing or perhaps eliminating prejudgment interest from that point in time forward.” Id. at 908. Thus, as we explain below, each credit applies first to the accrued interest and then to the principal, with each credit establishing a new interval. At each new interval, interest continues to accrue only on the remaining principal because under the general prejudgment interest provisions, “interest is computed as simple interest and does not compound.”
Under the “declining principal” formula, the trial court is to consider the date on which the insured received each payment. Trinity paid Brainard $5,000 in PIP benefits shortly after the July 1, 1999 collision. Because there is no dispute that
A. 07/31/1999 Brainard receives $5,000 PIP payment
B. 01/19/2000 Prejudgment interest period begins when Brainard files suit
C. 12/07/2000 Brainard receives $1,000,000 settlement
D. 03/09/2001 Trinity offers Brainard $50,000
Brainard is entitled to recover prejudgment interest on the damages caused by Premier‘s negligence. The beginning principal is $1,010,000—the amount of damages determined by the jury. The $5,000 PIP credit reduced the principal before prejudgment interest began to accrue. Thus, during the period from B to C, interest accrued on $1,005,000. At point C, the $1,000,000 credit is applied first to accrued prejudgment interest and then to principal. During the period from C to D, interest accrued on the principal remaining after application of the $1,000,000 credit. At point D, Brainard could have accepted Trinity‘s settlement offer, and interest ceased to accrue on that date. Trinity is liable for the remaining sum, up to Brainard‘s UIM policy limit, of the uncredited principal plus the uncredited interest that accrued from point C to point D.
We remand this case to the trial court to modify the judgment in accordance with this opinion.
IV
Attorney‘s Fees
The final issue is whether Brainard may recover attorney‘s fees on her contract claim. The court of appeals reversed that portion of the trial court‘s judgment awarding Brainard $100,000 in attorney‘s fees. 153 S.W.3d at 510-11.
Attorney‘s fees are recoverable from an opposing party only as authorized by statute or by contract between the parties. Travelers Indem. Co. v. Mayfield, 923 S.W.2d 590, 593 (Tex. 1996). Chapter 38 of the Civil Practice & Remedies Code permits an insured to recover attorney‘s fees incurred in a successful breach of contract suit against the insurer unless the insurer is liable for the fees under a different statutory scheme.
Under section 38.002, Brainard must show that: (1) she was represented by counsel; (2) she presented the claim to Trinity; and (3) Trinity failed to pay the just amount owed within thirty days of presentment.
This issue turns on the language in Chapter 38 requiring that “payment for the just amount owed must not have been tendered before the expiration of the 30th day after the claim is presented.”
Of course, the insured is not required to obtain a judgment against the tortfeasor. State Farm Mut. Auto. Ins. Co. v. Matlock, 462 S.W.2d 277, 278 (Tex. 1970). The insured may settle with the tortfeasor, as Brainard did in this case, and then litigate UIM coverage with the insurer. But neither a settlement nor an admission of liability from the tortfeasor establishes UIM coverage, because a jury could find that the other motorist was not at fault or award damages that do not exceed the tortfeasor‘s liability insurance. See Henson, 17 S.W.3d at 654. Brainard‘s contention that a UIM policy is to be treated like other contracts, for which damages are liquidated in a judicial proceeding and attorney‘s fees incurred are recoverable, misinterprets the nature of UIM insurance. The UIM contract is unique because, according to its terms, benefits are conditioned upon the insured‘s legal entitlement to receive damages from a third party. Unlike many first-party insurance contracts, in which the policy alone dictates coverage, UIM insurance utilizes tort law to determine coverage. Consequently, the insurer‘s contractual obligation to pay benefits does not arise until liability and damages are determined. Id.
V
Conclusion
We reverse the portion of the court of appeals’ judgment that denied Brainard prejudgment interest, affirm the portion that denied attorney‘s fees, and remand this case to the trial court to calculate prejudgment interest consistent with this opinion.
Wallace B. Jefferson
Chief Justice
OPINION DELIVERED: December 22, 2006