Embrey v. Royal Ins. Co.

• Decision Date: 20 April 2000
• Docket Number: No. 99-0411,99-0411
• Parties: (Tex. 2000) James Embrey, Guardian of Donald L. McNeilley, and the Estate of Donald L. McNeilley, Petitioners v. Royal Insurance Company of America and Royal Indemnity Company, Respondents
• Court: Texas Supreme Court

Page 414

22 S.W.3d 414 (Tex. 2000)

James Embrey, Guardian of Donald L. McNeilley, and the Estate of Donald L. McNeilley, Petitioners v. Royal Insurance Company of America and Royal Indemnity Company, Respondents

No. 99-0411

IN THE SUPREME COURT OF TEXAS

Argued January 26, 2000

Decided April 20, 2000

On Petition for Review from the Court of Appeals for the Fifth District of Texas

Justice Abbott delivered the opinion of the Court.

The issue in this case is whether Royal Indemnity Company¹ is obligated to pay prejudgment interest, in addition to the policy limits, on a claim by a third party against its insured. We conclude that the insurance policy does not require the payment of that prejudgment interest. Accordingly, we affirm the court of appeals' judgment.

I

Royal Indemnity Company issued a commercial automobile liability policy to R & D Harris Transportation, Inc. ("R & D"). The policy had aggregate limits of $1 million and was written on a standard form promulgated by the Texas State Board of Insurance (now called the Texas Department of Insurance). During the policy term, Donald McNeilly suffered brain damage and later died as a result of a collision involving McNeilly and a vehicle owned or operated by R & D. James Embrey, Donald McNeilly's guardian, the Estate of Donald McNeilly, and Nancy McNeilley (Eller), sued R & D, and Royal Indemnity provided a defense.

The trial court rendered an agreed judgment, to which Royal Indemnity consented, awarding $678,050 plus prejudgment interest to Embrey, as guardian, and to the Estate ("Embrey").² It is undisputed that the principal amount of the agreed judgment exhausted the limits of the policy issued by Royal Indemnity.³ Royal Indemnity paid the principal sum and court costs but refused to pay the prejudgment interest award.

Before the agreed judgment was signed and in conjunction with the settlement agreement, R & D assigned all causes of action for damages it might have against Royal Indemnity to Embrey in exchange for Embrey's covenant not to execute on the judgment, except as against R & D's insurance policies. The parties in the underlying suit agreed to reserve the issue of prejudgment interest for resolution in a subsequent suit.

Embrey then filed this case as both a third-party beneficiary of the policy⁴ and as R & D's assignee. As R & D's assignee, Embrey is standing in the insured's shoes for purposes of this lawsuit, basically suing for indemnification of the prejudgment interest award. Both parties moved for summary judgment. Embrey admitted that the policy does not contain any language specifically pertaining to prejudgment interest, but argued that the policy's Supplemental Payments provision, read in conjunction with a State Board of Insurance Order, obligates Royal Indemnity to pay prejudgment interest. On the other hand, Royal Indemnity argued that the policy language could not be construed to provide coverage for prejudgment interest in excess of the policy limits and that the Board Order did not apply. The trial court concluded that the policy does not provide coverage for prejudgment interest and that the Board Order does not apply, and therefore granted Royal Indemnity's summary judgment motion and denied Embrey's motion. The court of appeals affirmed. 986 S.W.2d 729.

When both sides move for summary judgment and the trial court grants one motion and denies the other, the reviewing court considers both sides' summary judgment evidence and determines all questions presented. See Bradley v. State ex rel White, 990 S.W.2d 245, 247 (Tex. 1999). In examining the evidence, the reviewing court should render the judgment the trial court should have rendered. See id. Therefore, we review all grounds asserted in both motions.

II

The policy provides:

The company [Royal Indemnity] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:

Coverage A. Bodily injury or

Coverage B. Property damage

to which this insurance applies . . . but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.

An endorsement to the policy also provides that: "The limit of liability stated in the schedule of this endorsement as applicable to 'each occurrence' is the total limit of the company's liability for all damages because of bodily injury . . . as a result of any one occurrence . . . ." Under these provisions, Royal Indemnity must indemnify the insured for liability assessed against the insured up to the amount of the policy limits for any one occurrence. Royal Indemnity argues that a prejudgment interest award is part of the damages the insured is legally obligated to pay because of bodily injury and is thus not recoverable in a situation where, as here, the policy limits have been exhausted.⁵ The stipulated facts of this case indicate that the policy limits were exhausted by the principal amount awarded in the settlement.

The policy the contract between the parties clearly provides that Royal Indemnity is obligated only for the amount of the policy limits. As such, it cannot be required to pay more than the contractual limit unless there has been a breach of contract, which has not been alleged here. See Henson v. Southern Farm Bureau Cas. Ins. Co. & Texas Farm Bureau Mut. Ins. Co., 17 S.W.3d 652, 653 (Tex. 2000). Because the principal sum of the settlement agreement represented Royal Indemnity's entire contractual obligation, the explicit policy language precludes Embrey from recovering prejudgment interest in this case.

Embrey argues, however, that the policy's "Supplementary Payments Provision" provides a basis to recover prejudgment interest. That provision states that Royal Indemnity will pay,...