American Centennial Ins. Co. v. Canal Ins. Co.

• Decision Date: 09 May 1991
• Docket Number: No. 01-89-01138-CV,01-89-01138-CV
• Citation: 810 S.W.2d 246
• Parties: AMERICAN CENTENNIAL INSURANCE COMPANY and First State Insurance Company, Appellants, v. CANAL INSURANCE COMPANY; Talbert, Giessel, Stone and Lyman; Giessel, Stone, Barker and Lyman; Henry P. Giessel; and Richard S. Joseph, Appellees. (1st Dist.)
• Court: Texas Court of Appeals

Page 246

810 S.W.2d 246

AMERICAN CENTENNIAL INSURANCE COMPANY and First State Insurance Company, Appellants, v. CANAL INSURANCE COMPANY; Talbert, Giessel, Stone and Lyman Giessel, Stone, Barker and Lyman; Henry P Giessel; and Richard S. Joseph, Appellees.

No. 01-89-01138-CV.

Court of Appeals of Texas Houston (1st Dist.).

May 9, 1991.

Rehearing Overruled May 30, 1991.

OPINION ON MOTION FOR REHEARING

DUNN, Justice.

We deny the motion for rehearing of the appellee, Canal Insurance Company ("Canal"). We withdraw our opinion of April 4, 1991, and we substitute the following opinion.

The appellants, First State Insurance Company ("First State") and American Centennial Insurance Company ("American"), appeal the take-nothing summary judgment entered in favor of the appellees, Canal; Talbert, Giessel, Stone and Lyman; Giessel, Stone, Barker and Lyman (collectively referred to as "law firm"); Henry P. Giessel; and Richard S. Joseph.

On May 15, 1982, Glenda Ray Russell rented a car from General Rent-A-Car International, Inc. ("General"). On May 20, 1982, Russell, her sister, Linda McDonald, and McDonald's son, Matthew, were riding in the car when they were involved in an accident. Russell and Linda McDonald died as a result of the injuries they received in the accident.

At the time of the accident, General was covered by three insurance policies. Canal insured General to $100,000; First State insured from $100,000 to $1 million, and American insured from $1 million to $4 million. Canal had the right and obligation to defend General in any lawsuit.

As a result of the accident, suit was filed against General seeking damages for personal injury, wrongful death, and survivorship (the "McDonald case"). Canal investigated and defended the suit, hiring the law firm to represent General. The law firm assigned Joseph as lead counsel on the case.

In September 1984, a request for admissions asked General to admit that a tire on the car had blown out because it was defective and that the blow out caused the accident. On October 9, 1984, Joseph, on behalf of General, admitted the fact. Furthermore, Joseph admitted that the defective tire was unreasonably dangerous and created an unreasonable risk of harm to its user. At that time, no depositions had been taken.

Fifteen depositions were taken from October 1984, to January 20, 1986, and Joseph spoke to two new experts on behalf of General. As a result, Joseph's opinion of the cause of the accident changed; he no longer believed it was caused by a blowout; instead, he believed it was caused by a rear-end collision.

In July 1985, Joseph filed a motion to withdraw General's answers to requests for admissions. The record contains no order reflecting a ruling on the motion, but Joseph's secretary told Clifford A. Lawrence, Jr., First State's attorney, that the trial court denied the motion because no evidence supported a withdrawal.

The plaintiffs in the McDonald case nonsuited all defendants except General and filed a motion for summary judgment based on General's answers to the requests for admissions. After the motion for summary judgment was filed, Joseph filed another motion to withdraw General's answers to requests for admissions. Joseph's motion was set for hearing on January 27, 1986; the motion for summary judgment was also set for hearing on January 27, 1986. Trial on the case was set for February 4, 1986.

On December 17, 1985, American hired Kyle Wheelus, Jr. to investigate the handling of the McDonald case. On January 8, 1986, First State retained Lawrence to investigate the handling of the case.

Lawrence and Wheelus jointly prepared a memorandum on January 17, 1986; the memorandum was titled "Negligent Handling Problems." The memorandum outlined six problems Canal had in handling the McDonald case, including delay in tendering policy limits and inadequately advising American and First State; in addition, the memorandum outlined ten problems the law firm, Giessel, and Joseph had in handling the case, including answering requests for admissions in a way that admitted liability. Lawrence testified, during his deposition, that when the memorandum was prepared, he had determined that the McDonald case could not be successfully defended at trial. Similarly, Wheelus testified, during his deposition, that by January 17, 1986, he had formed the opinion that the law firm had negligently handled the McDonald case.

On January 22, 1986, a meeting was held at the office of Robert Becker, corporate counsel for General. Joseph, Wheelus, Lawrence, and executives of American, First State, and Canal also attended the meeting. Becker demanded Canal, American, and First State tender their policy limits to settle the McDonald case; he felt that a verdict in excess of the $4 million insurance coverage would force General into bankruptcy. First State and American demanded Canal settle the case with its own funds; Canal refused.

On January 23, 1986, First State and American reached a tentative agreement with the plaintiffs in the McDonald suit; the suit was to be settled for $3.7 million. The agreement was formalized, and a judgment was signed on February 3, 1986.

On January 21, 1988, First State and American filed suit against Canal, the law firm, Giessel, and Joseph. First State and American alleged that in handling the McDonald case, Canal, the law firm, Giessel, and Joseph:

(1) breached their duties of good faith and fair dealing;

(2) were negligent;

(3) were grossly negligent;

(4) violated the Deceptive Trade Practices-Consumer Protection Act, TEX.BUS. & COM.CODE ANN. § 17.41 (Vernon 1987), ("DTPA"); and

(5) violated TEX.INS.CODE ANN. art. 21.21 (Vernon 1981).

The law firm, Giessel, Joseph, and Canal filed motions for summary judgment claiming that all causes of action were barred by the two-year statute of limitations. They claimed First State and American had actual knowledge of the actions that formed the basis of the causes of action on January 17, 1986, but did not file suit until January 21, 1988, more than two years after the cause of action accrued. In addition, the law firm, Giessel, Joseph, and Canal claimed First State and American had no cause of action for breach of the duties of good faith and fair dealing and to act as a reasonable and prudent defense attorney because neither Canal, the law firm, Giessel, nor Joseph owed any such duties to First State or American.

The trial court granted the motions for summary judgment. The court ordered First State and American take nothing from Canal, the law firm, Giessel, and Joseph.

In reviewing the grant of a motion for summary judgment, this Court will take all evidence favorable to the nonmovant as true. MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex.1986); Goldberg v. United States Shoe Corp., 775 S.W.2d 751, 752 (Tex.App.--Houston [1st Dist.] 1989, writ denied). Every reasonable inference will be indulged in favor of the nonmovant, and any reasonable doubt will be resolved in its favor. Continental Casing Corp. v. Samedan Oil Corp., 751 S.W.2d 499, 501 (Tex.1988); Goldberg, 775 S.W.2d at 752. Summary judgment is proper for a defendant if its summary judgment proof establishes, as a matter of law, that there exists no genuine issue of material fact concerning one or more of the essential elements of the plaintiff's cause of action. Goldberg, 775 S.W.2d at 752. Summary judgment is also proper for a defendant if it conclusively establishes all elements of its affirmative defense as a matter of law. Munoz v. Gulf Oil Co., 693 S.W.2d 372, 373 (Tex.1984) (quoting City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671 (Tex.1979)). The movant has the burden of showing there are no genuine issues of material fact and it is entitled to judgment as a matter of law. MMP, 710 S.W.2d at 60; Goldberg, 775 S.W.2d at 752.

EQUITABLE SUBROGATION

The primary question presented by this case is whether, under Texas law, an excess carrier can maintain a cause of action against a primary carrier for tortious conduct in handling a claim.

In their first point of error, First State and American contend that the trial court erred in holding that an excess insurance carrier has no remedy against a primary carrier and its agents for tortious conduct in the handling of a claim. In their second point of error, they contend that the trial court erred in granting summary judgment because an issue of fact existed concerning whether Canal and its agents committed tortious conduct in the investigation and defense of the McDonald case.

Texas law recognizes that an insurer has a duty to the insured to settle a lawsuit, if a prudent person in the exercise of ordinary care would do so. G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544, 547 (Tex.Comm'n App.1929, holding approved). Under the Stowers doctrine, an insurer is under a duty to No court in Texas has addressed whether an excess carrier can sue a primary carrier for breach of the Stowers duty. ¹ However, courts in other jurisdictions have allowed an excess carrier to pursue such a cause of action. The courts have allowed a cause of action under three theories: the theory of direct duty, ² the doctrine of triangular reciprocity, ³ and the doctrine of equitable subrogation. ⁴

act, in the handling of the lawsuit against the insured, as an ordinarily prudent person would act in the management of his own business. Id. If an ordinarily prudent person would have settled the lawsuit, and the insurer failed or refused to do so, it is liable to the insured for the amount of damages eventually recovered in excess of policy limits. Id. The duty of an insurer extends to investigation of the claim, preparation for defense of the lawsuit, trial of the case, and reasonable attempts to settle. Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656, 659 (Tex.1987). Therefore, under the Stowers doctrine, an insurer can be liable for tortious conduct in handling a claim.

We find the cases that...