Aetna Cas. & Sur. Co. v. Garza

• Decision Date: 31 July 1995
• Docket Number: No. 04-93-00237-CV,04-93-00237-CV
• Citation: 906 S.W.2d 543
• Parties: AETNA CASUALTY & SURETY CO. and Larry Hendrick, Appellants, v. Carmela GARZA, Appellee.
• Court: Texas Court of Appeals

Page 543

906 S.W.2d 543

AETNA CASUALTY & SURETY CO. and Larry Hendrick, Appellants, v. Carmela GARZA, Appellee.

No. 04-93-00237-CV.

Court of Appeals of Texas San Antonio.

July 31, 1995.

Rehearing Overruled Aug. 31, 1995.

Charles W. Hurd, III, Steve Pate, Fulbright & Jaworski, Houston, Ben Taylor, Fulbright & Jaworski, Dallas, Arnulfo Guerra, Sr., Guerra, Duvall, Ramirez & Guerra, Roma, Frank E. Weathered, Dunn & Weathered, P.C., Corpus Christi, Roberto L. Ramirez, Garcia & Ramirez, McAllen, Frank R. Nye, Jr., Law Offices of Frank R. Nye, Jr., Rio Grande City, for appellant.

Craig R. Zobel, J.A. Canales, Nancy M. Simonson, Canales & Simonson, P.C., Corpus Christi, for appellee.

Before RICKHOFF, LOPEZ and STONE, JJ.

STONE, Justice.

On August 19, 1990, a fire set by an arsonist destroyed the home and possessions of Carmela Garza. ¹ At the time of the fire the home was the community property of Garza and her husband Raul Garza, although the two were separated and Raul Garza lived elsewhere. Garza brought this suit against her insurer, Aetna Casualty & Surety Company, and Larry Hendrick, an Aetna adjuster. Garza alleged causes of action for breach of contract, breach of the duty of good faith and fair dealing with malice, and knowing violations of the Deceptive Trade Practices Act (DTPA) and the Insurance Code. Aetna and Hendrick bring this appeal from a judgment on a jury verdict in Garza's favor.

Appellants raise legal errors only, seeking rendition or modification of the judgment. Appellants' primary contention is that there is no evidence that Aetna's resolution of the claim was anything other than reasonable. Appellants also challenge the damage findings made by the jury, and the award of damages as calculated by the trial court. We find the evidence legally sufficient to support the judgment pursuant to Lyons v. Millers Casualty Ins. Co. ² and its progeny. We also find the pleadings and the evidence sufficient to support the award of damages under the Deceptive Trade Practices Act. For the reasons set forth below, however, we determine there is no evidence to support the award of punitive damages for malice. We also reverse and render the judgment as to appellant Hendrick, Aetna's adjuster.

I. Standard of Review

In reviewing a "no evidence" or legal insufficiency point of error, we traditionally consider only the evidence and inferences that support the challenged finding, and we disregard all evidence and inferences to the contrary. Davis v. City of San Antonio, 752 S.W.2d 518, 522 (Tex.1988); Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965). The point of error must be sustained when the record discloses any one of the following: (1) a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a vital fact is no more than a mere scintilla; or (4) the evidence establishes conclusively the opposite of a vital fact. Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660, 666 n. 9 (Tex.1990). If there is any evidence of probative force to support the finding, the point must be overruled and the finding upheld. In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951).

The Texas Supreme Court has written extensively in recent times in an effort to define more clearly the method by which courts should conduct legal sufficiency review of fact findings in bad faith suits against insurers. "A cause of action for breach of the duty of good faith and fair dealing is stated when it is alleged that there is no reasonable basis for denial of a claim or delay in payment or a failure on the part of the insurer to determine whether there is any reasonable basis for the denial or delay." Arnold v. National County Mutual Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1987), modified on other grounds, Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 829-30 (Tex.1990) (emphasis added). To establish an insurer's liability for the tort of bad faith the insured must prove: "(1) the absence of a reasonable basis for denying or delaying payment of the benefits of the policy and (2) that the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim." Aranda v. Insurance Co. of North America, 748 S.W.2d 210, 213 (Tex.1988) (worker's compensation case).

Plaintiffs in bad faith cases thus have the burden of proving a negative proposition, that the carrier knew or should have known it had no reasonable basis for denying the claim. National Union Fire Ins. Co. v. Dominguez, 873 S.W.2d 373, 376 (Tex.1994); State Farm Lloyds, Inc. v. Polasek, 847 S.W.2d 279, 284 (Tex.App.--San Antonio 1992, writ denied). The Supreme Court has announced a "particularized application" of the traditional no evidence standard of review to be employed in bad faith cases:

[W]hen a court is reviewing the legal sufficiency of the evidence supporting a bad faith finding, its focus should be on the relationship of the evidence arguably supporting the bad faith finding to the elements of bad faith. The evidence presented, viewed in the light most favorable to the prevailing party, must be such as to permit the logical inference that the insurer had no reasonable basis to delay or deny payment of the claim, and that it knew or should have known it had no reasonable basis for its actions. The evidence must relate to the tort issue of no reasonable basis for denial or delay in payment of a claim, not just to the contract issue of coverage.

Lyons v. Millers Casualty Ins. Co. of Texas, 866 S.W.2d 597, 600 (Tex.1993) (citation omitted). With these authorities as guidelines, a detailed review of the evidence is in order.

II. Facts

Neither Raul nor Carmela Garza was home the night of August 19, 1990, when their house burned to the ground. Raul Garza spent the evening with friends at another residence where he was then living. Carmela Garza was out of town on holiday with her daughter and grandchildren until she was called about the fire.

Garza made a claim under the policy the day after the fire, and Aetna began its investigation. This investigation ultimately spanned two years. Aetna's investigation involved taking multiple statements from the Garzas and employing a series of people to inspect the property and make evaluations of the loss. Following these numerous interviews and inspections, Aetna delayed payment until it received examinations under oath from the Garzas.

Two days after the fire an independent claims adjuster retained by Aetna took a recorded statement from Garza and inspected and photographed the property. The adjuster, Richard Brebner, sent a report one month later to the Aetna adjuster in charge of Garza's claim, Larry Hendrick. Although Brebner had no suspects, his report suggested that Aetna perform "considerable and lengthy" background checks on Garza and her husband. The report noted that Raul Garza had a criminal background involving drugs and "considerable financial holdings" with no readily explainable source of income. Brebner estimated the loss at $70,000, but stated that this amount might be insufficient.

Several days after the fire Aetna's origin and cause investigator, Joe Fenley, interviewed both Garzas and also inspected the fire scene. Fenley reported to Aetna on August 31 that the fire was definitely caused by arson. Fenley indicated that the Garzas might be involved, and recommended further investigation. Fenley testified that he had no specific information to implicate the Garzas, but he opined that Carmela Garza may have wanted the house destroyed so she could collect insurance proceeds, move to a new location, and thus no longer have to drive past the home where her estranged husband was living with a younger woman.

In September Garza called Aetna and was referred to Hendrick. Hendrick contended that he had been trying to reach Garza, but she contended that she had contacted Aetna because she had heard nothing from the company following the fire. When they spoke, Hendrick told Garza that a private investigator, Bob Park, would contact her to obtain a statement from her.

On October 1, 1990, Bob Park obtained recorded statements from each Garza, inspected the property, and secured written authorizations granting Aetna access to the property. He also provided them with a proof of loss form to complete. At the beginning of each interview Park explained that he was not an adjuster, and that the recorded statements were not equivalent to examinations under oath, which Aetna might request at a later date. Garza signed authorization forms giving Aetna access to the premises, and she permitted Park to inspect the premises. At trial Aetna asserted that it was unable to gain access to the property until March 19, 1991, when Hendrick visited the property.

On October 8, 1990, Hendrick sent Garza a "reservation of rights" letter based on the "cause of loss" and "correct scope of damages" clauses in Garza's policy. Aetna's attorney, Tim Herron, also sent the Garzas written notice that Aetna was exercising its right under the policy to take their examinations under oath. The letter stated the Garzas had a right to legal representation, and requested they contact Herron to schedule an appointment. Even at the time of trial Herron claimed he was unaware that the Garzas had submitted to prior interviews with Brebner.

Garza hired Margil Sanchez to represent her, believing that the reservation of rights letter was a denial of her claim. On October 16, 1990, Sanchez sent a letter to Aetna requesting copies of Garza's policy, statements made by the Garzas about the fire, the authorization forms, and other items. Garza had previously informed Aetna's representatives that her policy was destroyed in the fire. Sanchez never received the requested documents. Rather, Aetna's attorney Herron responded to Sanchez' ...