Gulf Atlantic Life Ins. Co. v. Hurlbut

Citation696 S.W.2d 83
Decision Date14 June 1985
Docket NumberNo. 05-81-01363-CV,05-81-01363-CV
PartiesGULF ATLANTIC LIFE INSURANCE COMPANY, et al., Appellants, v. C. Daniel HURLBUT and A.C. Hovater, Appellees.
CourtCourt of Appeals of Texas

R. Vernon Coe, R.B. Cousins, Thompson, Coe, Cousins & Irons, Royal H. Brin, Jr., Strasburger & Price, Dallas, David Maynard, Wagner, Schmidt, McCutchan, Hank & Birkhimer, Columbus, Ohio, for appellants.

G.H. Kelsoe, Jr., Kelsoe & Kelsoe, R. Jack Ayres, Jr., Dallas, for appellees.


GUITTARD, Chief Justice.

Insurance agents C. Daniel Hurlbut and A.C. Hovater sued their former employer, Gulf Atlantic Life Insurance Company, its parent corporation, and several corporate officers for fraud, business disparagement, and tortious interference with contract rights. The trial court rendered judgment for actual and exemplary damages against all defendants. On this appeal defendants contend that all claims asserted are barred by limitation as a matter of law. We

agree. We also hold that no action lies for defendants' alleged false statements to an assistant Texas attorney general and the Texas Board of Insurance Commissioners (hereinafter referred to as the Insurance Board) in response to an investigation into possible violations of the insurance laws in the absence of a claim for malicious prosecution. Accordingly, we reverse and render judgment that plaintiffs take nothing.


Both plaintiffs had an insurance agent's license and a local recording agent's license from the Insurance Board. Also, both plaintiffs were agents for defendant Gulf Atlantic Life Insurance Company before the events leading to the present suit occurred. Plaintiff Hurlbut had been a regional manager for Gulf Atlantic in Houston. Plaintiff Hovater had been an independent insurance agent with experience in mass-marketing of individual cancer insurance, life insurance, and accidental death and disability policies to groups of employees. Hovater had a letter of introduction from the Southern Regional School District Association, which gave him access to groups of school employees. Hovater began representing Gulf Atlantic as an agent early in 1974.

In April 1974 a meeting was held in Gulf Atlantic's Dallas office between plaintiffs and the individual defendants. Those Gulf Atlantic employees present included defendant William Barnes, president; defendant Earl Smith, secretary; defendant Ralph Curtis, vice president for marketing; defendant Kenneth Thompson, agency vice president; and defendant Harold W. Watson, director of mass marketing. Also present was defendant Jack Warner, vice president for marketing of defendant Nationwide Corporation, the corporate parent of Gulf Atlantic. At this meeting it was proposed that Hurlbut and Hovater join their efforts in an association to be known as "Agency Associates" for promotion of mass marketing of Gulf Atlantic's insurance policies. According to defendants, the discussion was confined to mass marketing of individual cancer, life, and accidental death and disability insurance policies, chiefly to groups of school employees to whom Hovater had access by his letter of introduction from the Southern Regional School District Association. According to plaintiffs, there was also a discussion of group health insurance policies to be marketed on a trust plan by which several small groups of employees could combine to obtain one group health insurance policy. According to this arrangement, a bank would act as trustee, plaintiffs would act as administrators, and Gulf Atlantic would underwrite the plan and issue a group health insurance policy to cover all the employees of the participating groups. Plaintiffs would then sell this group health insurance program to various school districts and other agencies or groups. Plaintiffs would also collect the premiums, deposit them in the trust account, deduct commissions and expenses (including claims), and pay over any balance to Gulf Atlantic. Defendant Warner acknowledged that he was familiar with such arrangements, and he agreed to send sample trust documents to plaintiffs for their use. Defendant Barnes, president of Gulf Atlantic, instructed plaintiffs to work through defendant Thompson, Gulf Atlantic's agency vice president, to establish this program.

After this meeting, plaintiffs set up an agency office in Houston with funds advanced by Gulf Atlantic. They employed as bookkeeper and office manager Roy Bengel, who had experience in this type of business. With Bengel, plaintiffs formulated a schedule of rates and benefits and prepared various forms to be used in presenting this group health insurance program. Defendant Warner sent plaintiffs copies of one or more trust agreements used in similar group insurance programs. Plaintiff Hovater inquired of defendant Thompson concerning an attorney to prepare the proposed trust document and Thompson referred him to Ira Allen, a Dallas lawyer. Accordingly, plaintiffs sent Bengel to Dallas and to meet with Allen in June 1974. Bengel gave Allen a proposed typewritten trust document designated It is clear from the record that all of the parties knew that before Agency Associates could begin selling this group health insurance that: (1) a master policy had to be approved by the Insurance Board; (2) an insurance trust had to actually be established by Agency Associates; and (3) a licensed insurance company had to agree to underwrite the insurance program and actually issue the approved master policy to Agency Associates and the trustee. However, according to Hovater, Gulf Atlantic was anxious to start selling this program to school districts before school started in September 1974. In June or July of 1974 Thompson urged plaintiffs to "get some business going." Hovater testified that he assured Thompson they would do so "as soon as you give me the word," and Thompson then told him, "You have the word. Start selling." This is the statement that plaintiffs say they took as authorizing them to sell group health insurance for Gulf Atlantic through the Nation-Wide Health Insurance Trust.

"National Health Group Insurance Trust," naming Franklin Bank of Houston as trustee. This was the bank with which defendants did business. Allen redrafted the document, making a number of changes, including a change of the name to "Nation-Wide Health Insurance Trust" and the addition of an individual trustee. There is no evidence in the record that this document was ever completed and delivered to Franklin Bank, the "named" trustee, to establish a trust account or to Gulf Atlantic as the basis for a master group policy, although plaintiffs testified that they signed it and relied on Allen to take care of it.

When plaintiffs started selling, they knew that no master policy had been issued. Plaintiffs assert that they relied on Gulf Atlantic to file the master policy and obtain its approval by the Insurance Board. Hovater testified that when he inquired about Board approval, defendant Smith, secretary of Gulf Atlantic, whose duty it was to obtain the necessary approval of policy forms, gave him a copy of a proposed policy to be issued to the "West Texas Pipe Trades Health Insurance Trust" and stated that Agency Associates' policy would be "virtually identical." According to Hurlbut, Smith assured him and Hovater that they need not worry about the master policy because getting it approved and issued was just a matter of "paperwork" as it was identical to a policy that Gulf Atlantic was already using for other trusts with no problems. Both plaintiffs testified that they made weekly inquiries to Thompson concerning the status of the master policy and that he assured them that everything was in order. Furthermore, according to Bengel, plaintiffs' bookkeeper, all promotional materials, including a schedule of rates and benefits, were examined and approved by Thompson before printing. Relying on these assurances and approvals, plaintiffs began selling group health insurance under the Nation-Wide Health Insurance Trust in August 1974 and continued to do so until January 1975. Plaintiffs sold this insurance even though they had not even established a Nation-Wide Health Insurance Trust bank account. In addition, plaintiffs collected premiums, but they did not deposit them in a trust account, as none had been established; they deposited them in Agency Associates' checking account. Bengel prepared monthly statements of the premiums collected which, he testified, he sent regularly to Thompson in Dallas. When plaintiffs contacted school representatives and others in their sales program, they responded to any inquiry concerning their authority to sell the program by suggesting that such inquiries be directed to defendant Barnes in Dallas.

The program proceeded in this manner through December 1974. Despite Thompson's repeated assurances, no master policy was ever furnished. In late December Wayne Holder, city attorney of Freeport, Texas, made a telephone call to Barnes inquiring about the master policy. Holder testified that both Barnes and Thompson told him that Gulf Atlantic was not underwriting the Nation-Wide Health Insurance program. Holder reported this information to Hurlbut and also to Texas Attorney General At Flanary's request, plaintiffs accompanied him to a local office of the Attorney General in Dallas and cooperated in the investigation. Flanary immediately filed suit in the district court of Brazoria County for a temporary injunction restraining plaintiffs from selling group health insurance under the Nation-Wide Health Insurance Trust and for a receivership of Agency Associates. Plaintiffs signed an agreed order granting the injunction and authorizing the receiver to take over their assets. Also, a proceeding was begun before the Board of Insurance Commissioners, which issued an order revoking their licenses on the ground of their selling...

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