Aetna Cas. & Sur. Co. v. Martin Surgical Supply Co.

• Decision Date: 14 March 1985
• Docket Number: No. 01-84-00297-CV,01-84-00297-CV
• Citation: 689 S.W.2d 263
• Parties: The AETNA CASUALTY & SURETY COMPANY, Appellant, v. MARTIN SURGICAL SUPPLY COMPANY, Appellee. Houston (1st Dist.)
• Court: Texas Court of Appeals

Page 263

689 S.W.2d 263

The AETNA CASUALTY & SURETY COMPANY, Appellant, v. MARTIN SURGICAL SUPPLY COMPANY, Appellee.

No. 01-84-00297-CV.

Court of Appeals of Texas,

Houston (1st Dist.).

March 14, 1985.

Rehearing Denied April 26, 1985.

Reagan M. Brown, Fulbright & Jaworski, Houston, for appellant.

Charity M. O'Connell, Edmund L. Cogburn Dow, Cogburn & Friedman, Houston, for appellee.

Before DUGGAN, SMITH and KEITH (Retired, sitting by assignment), JJ.

OPINION

DUGGAN, Justice.

This is an appeal from a judgment awarding treble damages and attorney's fees as indemnity for expenses of litigation. Appellee incurred the expenses by providing its own defense when a defense as an additional insured was available from appellant under a policy of insurance. Appellee's judgment was based on causes of actions under the Deceptive Trade Practices--Consumer Protection Act ("the DTPA"), Tex.Bus. & Com.Code Ann. sec. 17.41, et seq. (Vernon Supp.1985), and the Texas Insurance Code, Tex.Ins.Code Ann. art. 21.21 (Vernon 1981).

In an earlier suit filed in 1972, Gibson v. Henley, et al, ("the Gibson suit"), the appellee, Martin Surgical Supply Company, was one of four defendants charged with manufacturing and/or selling an allegedly defective drug, Gomenol, to the defendant physician, Dr. Henley. In its answer filed in the Gibson suit, Martin claimed it purchased the drug from Myers-Carter Lab, Inc., a subsidiary of Chromalloy American Corporation. Unknown to Martin, Chromalloy and Myers-Carter were insured by the appellant, Aetna Casualty & Surety Company, under a policy of insurance containing a broad form vendor's endorsement which covered as an additional insured any company that distributed or sold Myers-Carter products.

In the Gibson suit, Aetna provided a defense under Chromalloy's policy to Myers-Carter only, and Martin hired its own legal counsel. Although Aetna knew that Martin was a customer of Myers-Carter, Myers-Carter informed Aetna that Martin purchased Gomenol from various companies. In early 1975, Martin filed a cross-action in the Gibson suit against Myers-Carter for indemnity for any liability and expenses incurred from Martin's sale of Gomenol purchased from Myers-Carter. In June and in November of 1975, Myers-Carter's attorney requested Martin's attorney to produce any invoices showing that Myers-Carter manufactured the Gomenol sold by Martin to Dr. Henley. Martin's attorney did not respond until June 11, 1976, one day after the conclusion of the Gibson suit.

Martin's attorney thereafter made a written demand on Aetna for reimbursement of Martin's legal expenses under the Aetna policy's vendor's endorsement. Aetna denied Martin's claim on the grounds that Martin did not timely request coverage and voluntarily incurred its legal expense. On a non-waiver agreement, Aetna thereafter represented Martin and Myers-Carter in the appeal of the case.

Martin filed the present suit against Aetna in July of 1978, alleging a cause of action for breach of the Aetna-Chromalloy insurance contract. By an amended petition filed in August of 1983, some five years later, Martin added causes of action asserting (1) violation of the DTPA, (2) violation of art. 21.21 of the Texas Insurance Code, and (3) fraudulent misrepresentation.

Upon jury trial, the special issues based on Martin's theories of fraud, DTPA, and art. 21.21 causes of action were answered in Martin's favor. The issues submitting Martin's initial theory of breach of contract were answered in Aetna's favor, but were disregarded by the trial court when it entered judgment following the hearing on both parties' motions for judgment. The jury answered the fraudulent concealment issue in Martin's favor, but found that the concealment was not made willfully, such that no exemplary damages were awarded. Based on the DTPA and the Insurance Code art. 21.21 causes of action, the court entered judgment for Martin for actual damages of $9,190.41, which was trebled, and for attorney's fees.

Aetna urges nineteen points of error on appeal, and Martin urges two conditional cross-points.

Aetna's first point of error asserts that the trial court erred in rendering judgment based on jury answers to special issues asserting Martin's DTPA cause of action. In four sub-points, Aetna urges as a matter of law (1) that Martin is not a "consumer" under the DTPA; (2) that if Martin is a "consumer," it is not a consumer of goods, but of services for business or commercial use, an area specifically excluded from the applicable 1973 and 1975 versions of the DTPA; (3) that Aetna's failure to provide insurance coverage is not actionable under the DTPA; and, (4) that Aetna's failure to disclose the possibility of insurance coverage to Martin is not actionable under the DTPA.

In order to maintain a cause of action under the DTPA, a plaintiff must be a "consumer", defined in sec. 17.45(4) of the Act as "an individual who seeks or acquires by purchase or lease, any goods or services." Riverside Nat'l Bank v. Lewis, 603 S.W.2d 169, 172 (Tex.1980). To qualify as a consumer, at least two requirements must be met: (1) the party seeking relief must have sought or acquired goods or services by purchase or lease; and, (2) the goods or services purchased or leased must form the basis of the complaint. Flenniken v. Longview Bank and Trust Co., 661 S.W.2d 705, 707 (Tex.1983); Cameron v. Terrell & Garrett, Inc., 618 S.W.2d 535, 539 (Tex.1981).

Aetna contends that Martin cannot be a "consumer" because it was not a party to Aetna's original contract of insurance with Chromalloy; that any rights Martin may have under that policy are those of a third-party beneficiary; and that a third-party beneficiary to an insurance contract is not a "consumer" under the DTPA as a matter of law. The language Aetna cites as authority for this contention, from Hi-Line Electric Company v. Travelers Insurance Companies, 587 S.W.2d 488 (Tex.Civ.App.--Dallas), writ ref'd n.r.e. per curiam, 593 S.W.2d 953 (Tex.1980), was specifically disapproved by the Texas Supreme Court's 1981 opinion in Cameron v. Terrell & Garrett, Inc., supra, which held that "a person need not seek or acquire goods or services furnished by the [defendant] to be a consumer as defined in the DTPA." Id. at 541.

A plaintiff is not required to prove a contractual relationship with the defendant to establish his standing as a consumer. Flenniken at 707. A third-party beneficiary of an insurance contract can be a consumer under the DTPA, provided he shows he purchased goods (Gomenol, the Myers-Carter manufactured drug, here) or services which were the basis of his complaint. Cameron at 541. We therefore conclude that appellee was a "consumer" in the transaction by virtue of its purchase of the drug.

Aetna next argues that even if Martin is a consumer under the DTPA, it is not a consumer of "goods" when it seeks the benefits of appellant's insurance coverage. Rather, Aetna argues, Martin is a consumer of services for business or commercial use, an area specifically excluded from the applicable version of the Act. Aetna urges that all of Martin's claims concern acts or omissions allegedly committed by Aetna before June of 1976, such that the 1973 and 1975 versions of the DTPA thereby apply. Pennington v. Singleton, 606 S.W.2d 682, 685 n.1 (Tex.1980). Section 17.45(2) of the Act, under both the 1973 and 1975 versions, reads:

"Services" means work, labor, or service purchased or leased for use, for other than business or commercial use, including services furnished in connection with the sale or repair of goods. (Emphasis added).

Thus, Aetna argues, one who seeks to acquire services for business or commercial use, such as the insurance protection here available to Martin from Aetna, is not a "consumer" under either the 1973 or 1975 versions of the Act.

Aetna points out that an insurance policy is covered by the definition of "services" in sec. 17.45(2) of the DTPA, Dairyland County Mutual Ins. Co. v. Harrison, 578 S.W.2d 186, 190 (Tex.Civ.App.--Houston [14th Dist.] 1979, no writ), and that an insurance policy that insures a business is a commercial service and was expressly excluded under the 1973 and 1975 versions of the DTPA. Bennett v. Imperial Insurance Co., 606 S.W.2d 7, 12 (Tex.Civ.App.--Dallas 1980, writ ref'd n.r.e.).

We disagree with this analysis. Martin's relationship to Aetna occurred in the context of Martin's purchase of goods from Myers-Carter. Martin's purchase of the drugs established its status as a consumer to the entire transaction wherein Martin became a covered insured under Aetna's policy protecting Myers-Carter and the vendors of its products. As one involved in a transaction in goods, Martin was a "consumer" under the Act as to all persons who sought to enjoy the benefits of that transaction, and is entitled to relief under the DTPA against anyone who

... in the context of a transaction in goods, ... engages in an unconscionable course of action which adversely affects a consumer....

Flenniken, 661 S.W.2d at 707. As in Flenniken, the DTPA applies here although there is no contractual relationship between Martin and Aetna, and the conduct complained of occurred after Myers-Carter's sale of goods to Martin.

By its post-submission brief, Aetna additionally urges that Martin's purchase of the Gomenol in question was not a purchase of "goods" under the 1973 or 1975 versions of the DTPA. Under Sec. 17.45(1) of the 1973 Act, "goods" was defined to mean "tangible chattels bought for use." By a 1975 amendment, "goods" was expanded to mean "tangible chattels or real property purchased or leased for use." No statutory language of restriction or limitation on the word "use" has ever appeared in any version of the Act's definition of "goods."

Aetna urges that Ratcliff v. Trenholm, 596 S.W.2d 645 (Tex.Civ.App.--Tyler 1980, writ ref'd n.r.e.), is authority that the purchase of tangible chattels or real estate for resale is not a purchase...