Brainard v. Trinity Universal Ins. Co.

Decision Date22 December 2006
Docket NumberNo. 04-0537.,04-0537.
Citation216 S.W.3d 809
PartiesLilith BRAINARD, et al., Petitioners, v. TRINITY UNIVERSAL INSURANCE COMPANY, Respondent.
CourtTexas Supreme Court

Bryan W. Scott, Katy, for Petitioner.

Gregory R. Ave, Walters, Balido & Crain, L.L.P., Dallas, for Respondent.

Chief Justice JEFFERSON delivered the opinion of the Court.

This case presents the following issues: (1) whether uninsured/underinsured motorist (UIM) insurance covers prejudgment interest that the underinsured motorist would owe the insured in tort liability; (2) if so, how to apply settlement and personal injury protection (PIP) credits to the interest calculation; and (3) the circumstances under which an insured may recover attorney's fees from the UIM insurer under Chapter 38 of the Civil Practice and Remedies Code. We hold that: (1) UIM insurance covers this prejudgment interest; (2) under the "declining principal" formula, each credit is applied according to the date on which it was received; and (3) the insured may recover attorney's fees under Chapter 38 only if the insurer does not tender UIM benefits within thirty days after the trial court signs a judgment establishing the liability and underinsured status of the other motorist. We reverse the court of appeals' judgment in part, affirm in part, and remand this case to the trial court to calculate prejudgment interest consistent with this opinion.

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.

The trial court applied a $1,005,000 credit for Brainard's settlement and PIP benefits, and signed a judgment against Trinity for the remaining $5,000 in damages plus $100,000 in attorney's fees. On appeal, Trinity challenged the attorney's fees award, and Brainard, by cross appeal, alleged the trial court erred in refusing to award prejudgment interest on the $1,010,000 in actual damages. The court of appeals reversed that portion of the trial court's judgment awarding attorney's fees and affirmed the denial of prejudgment interest. 153 S.W.3d 508, 513. Because both points have engendered disagreement among the courts of appeals, we granted Brainard's petition for review. 48 Tex. Sup.Ct. J. 439 (Mar. 11, 2005).

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.

TEX. INS.CODE art. 5.06-1(5). A motorist is underinsured if his or her liability insurance is insufficient to pay for the injured party's actual damages. Stracener v. United Servs. Auto. Ass'n, 777 S.W.2d 378, 380 (Tex.1989). Because the jury valued Brainard's damages at $1,010,000, and Premier's liability policy limit was $1,000,000, Premier was underinsured. The trial court correctly applied the sum of Premier's $1,000,000 liability limit and Brainard's $5,000 PIP recovery as an offset to actual damages. Mid-Century Ins. Co. of Tex. v. Kidd, 997 S.W.2d 265, 271 (Tex.1999); Stracener, 777 S.W.2d at 380. Thus, Trinity does not dispute that the $5,000 difference is covered under Brainard's UIM policy. The issue is whether, in addition to this amount, UIM insurance covers prejudgment interest that Premier would owe on the $1,010,000 in actual damages. We conclude that it does.

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." TEX. FIN.CODE § 304.102. Thus, if Brainard obtained a judgment against Premier for past damages resulting from the collision, Premier would be liable for prejudgment interest. Whether Brainard may recover this interest from Trinity is governed by their UIM insurance contract.

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 or the parties intended the term to convey a narrower meaning. TEX. INS.CODE art. 5.06-1(5); see, e.g., Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 898 (Tex.2000) (citing Cavnar, 696 S.W.2d at 552-54). Two courts of appeals have held that prejudgment interest constitutes damages that the insured is "legally entitled to recover" from the underinsured motorist. Norris v. State Farm Mut. Auto. Ins. Co., 217 S.W.3d 1, 7 (Tex.App.-Waco 2004, pet. granted); Menix v. Allstate Indem. Co., 83 S.W.3d 877, 880 (Tex.App.-Eastland 2002, pet. denied); Allstate Indem. Co. v. Collier, 983 S.W.2d 342, 343 (Tex.App.-Waco 1998, pet. dism'd by agr.).

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 TEX. INS.CODE art. 5.06-1(5). Trinity contends that this qualification negates coverage for prejudgment interest because the essence of prejudgment interest is compensation for lost use of money, not damages from bodily injury. Further, Trinity suggests that Brainard's interpretation of the UIM endorsement would require the insurer to cover all damages assessed against the underinsured motorist, yet the courts of appeals have held that UIM insurance does not cover punitive damages. See, e.g., Milligan v. State Farm Mut. Auto. Ins. Co., 940 S.W.2d 228, 232 (Tex.App.-Houston [14th Dist.] 1997, writ denied); State Farm Mut. Auto. Ins. Co. v. Shaffer, 888 S.W.2d 146, 148 (Tex.App.-Houston [1st Dist.] 1994, writ denied); Vanderlinden v. United Servs. Auto. Ass'n Prop. & Cas. Ins. Co., 885 S.W.2d 239, 242 (Tex.App.-Texarkana 1994, writ denied).

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...

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