Gusma Props., L.P. v. Travelers Lloyds Ins. Co., 14–15–00892–CV

• Decision Date: 29 December 2016
• Docket Number: NO. 14–15–00892–CV,14–15–00892–CV
• Citation: 514 S.W.3d 319
• Parties: GUSMA PROPERTIES, L.P. and Gusma Investments, L.P., Appellants v. The TRAVELERS LLOYDS INSURANCE COMPANY, Appellee
• Court: Texas Court of Appeals

514 S.W.3d 319

GUSMA PROPERTIES, L.P. and Gusma Investments, L.P., Appellants

v.The TRAVELERS LLOYDS INSURANCE COMPANY, Appellee

NO. 14–15–00892–CV

Court of Appeals of Texas, Houston (14th Dist.).

Memorandum Opinion filed December 29, 2016

Vincent L. Marable, III, Wharton, TX, William Fred Hagans, Kendall C. Montgomery, Houston, TX, for Appellant.

Warren Wise, Greg Christopher Wilkins, Beaumont, TX, for Appellee.

Panel consists of Chief Justice Frost and Justices McCally and Brown.

OPINION

Sharon McCally, Justice

Appellants Gusma Properties, L.P. and Gusma Investments, L.P. (collectively, the Gusma parties)¹ challenge the trial court's (a) grant of summary judgment in favor of appellee the Travelers Lloyds Insurance Company on the Gusma parties' claim under the Texas Insurance Code's prompt payment provisions and (b) denial of the Gusma parties' amended motion for partial summary judgment. Because we determine that the trial court correctly granted Travelers' motion for summary judgment, we affirm.

I. BACKGROUND

The material, underlying facts are undisputed. Travelers insured five buildings owned by Gusma Properties, L.P. that were damaged by Hurricane Ike. After Gusma Properties filed a claim for damages, Travelers demanded appraisal. Gusma Properties retained attorney Ricardo A. Baca of the RAB Law Firm to assist in its claims against Travelers and to pursue the Gusma parties' insurance claims through the appraisal process. On October 6, 2014, the appraiser issued an appraisal award in the amount of $1,850,142.93. Eight days later, Travelers tendered a check in that amount jointly payable to the RAB Law Firm, P.C. and Gusma Properties. Attorney Baca negotiated the check without the indorsement of Gusma Properties and retained all of the funds.

When the Gusma parties learned of the converted appraisal funds, they filed suit against, inter alia , attorney Baca; Bank of America, and Citibank and Travelers to recover the appraisal-award funds. Specifically, with regard to Travelers, the Gusma parties sued for (a) breach of the insurance contract, (b) recovery on the check under Texas Business & Commerce Code section 3.309 ; and (c) delay damages under sections 542.051 through 542.061 of the Texas Insurance Code (the Prompt Payment provisions). The Gusma parties contend that Travelers is liable because it should have made the check payable to "RAB Law Firm, P.C., in trust as attorneys for Gusma Properties, L.P."

During the course of the litigation, the Gusma parties settled with Bank of America and Citibank (the Bank defendants) for $1,850,142.93, the amount of the check issued by Travelers for the appraisal award. Then Travelers sought summary judgment on all of the Gusma parties' claims against Travelers. The Gusma parties agreed that the settlement with the Bank defendants and the July 17, 2015 settlement payment "had the effect of satisfying Travelers' obligation to pay the $1,850,142.93 under the Insurance Policy and the UCC." As such, the trial court entered summary judgment for Travelers on the Gusma parties' breach of contract claim and its negotiable instrument claims; the Gusma parties do not ask this court to reverse the summary judgment on those claims.²

However, the Gusma parties continued to pursue delay damages under the Prompt Payment provisions of the Texas Insurance Code. In both their response to Travelers' summary judgment motion and their own motion for partial summary judgment, the Gusma parties sought delay damages for Travelers' alleged failure to timely "discharge its obligation" to pay the appraisal award through July 16, 2015. The Gusma parties' theory of the prompt-payment violation claim derives entirely from overlaying the negotiable-instrument provisions in Chapter 3 of the Texas Business and Commerce Code (the "Texas UCC") onto Travelers' prompt-payment obligations. Travelers responds that its tender of a check to the Gusma parties' attorney was payment to them; therefore, Travelers reasons that it complied with the Prompt–Payment provisions. On the Prompt–Payment provisions claim, the trial court denied the Gusma parties' amended motion for partial summary judgment, granted Travelers' motion for summary judgment, and rendered a take-nothing judgment against the Gusma parties. The Gusma parties timely appealed.

II. ANALYSIS

A. Standard of Review

On this record of undisputed facts, we review de novo the trial court's summary-judgment legal conclusions disposing of the Gusma parties' Prompt–Payment provisions claim. See, e.g. , Ferguson v. Bldg. Materials Corp. of Am. , 295 S.W.3d 642, 644 (Tex. 2009).

B. Governing Law

The case presents a question of first impression: Does an insurer delay payment, within the meaning of the Prompt Payment provisions, when it tenders payment to the insured's authorized counsel in the form of a negotiable instrument that is made jointly payable to both the insured and its counsel? We agree with the trial court that the answer to this question is "no" as a matter of law. We first outline the competing principles of law.

1. Under the Prompt Payment provisions, an insurer is penalized for its delay of payment.

The Prompt Payment provisions were formerly codified as Article 21.55 of the Insurance Code ; in 2003, Article 21.55 was recodified "without substantial change." See Lamar Homes, Inc. v. Mid–Continent Cas. Co. , 242 S.W.3d 1, 16 (Tex. 2007). We begin with the language of the provisions to determine legislative intent from the words and then, if necessary, consider the statute as a whole to harmonize all provisions. See id. at 16. To prevail on a claim for penalty interest under the Prompt Payment provisions, the insured bears the burden to prove "(1) a claim was made under an insurance policy; (2) the insurer is liable for the claim; and (3) the insurer failed to follow one or more sections of the prompt-payment statute with respect to the claim." United Nat'l Ins. Co. v. AMJ Invs. LLC , 447 S.W.3d 1, 13 (Tex. App.–Houston [14th Dist.] 2014, pet dism'd). Travelers did not and does not challenge the first two elements.

The Prompt Payment provisions establish a series of deadlines³ for insurers in the claims-handling process. Tex. Ins. Code §§ 542.051 –061. These deadlines serve the same policy: "[T]o promote the prompt payment of insurance claims." Id. § 542.054. The provisions afford "additional damages when an insurer wrongfully refuses or delays payment of a claim." Lamar Homes, Inc. , 242 S.W.3d at 16 ; see Tex. Ins. Code § 542.060. As is relevant here, section 542.058 provides that if an insurer "delays payment of the claim for a period exceeding the period specified by other applicable statutes or, if other statutes do not specify a period, for more than 60 days, the insurer shall pay damages and other items as provided by Section 542.060." Tex. Ins. Code § 542.058. Section 542.060 establishes damages, in addition to the amount of the claim, of 18% interest and reasonable attorney's fees for failure of an insurer to be "in compliance." Id. § 542.060.

2. Under common law agency principles, the principal bears the risk of the agent's wrongdoing.

Texas courts hold that where "an agent misappropriates payments intended for its principal, it is the principal that bears the loss because, after the payment has been made to the agent, the payment is deemed to have been made to the principal." See Metro. Ins. & Annuity Co. v. Peachtree Settlement Funding, LLC , 500 S.W.3d 5, 19 (Tex. App.–Houston [1st Dist.] 2016, no pet.) (citing Jarvis v. K & E Re One, LLC , 390 S.W.3d 631, 640 (Tex. App.–Dallas 2012, no pet.) ); see also Cash v. Lebowitz , 734 S.W.2d 396, 399 (Tex. App.–Dallas 1987, writ ref'd n.r.e.). The policy underlying the principle is clear: As between the two, the party who placed trust in the wrongdoer was in the best position to avoid the loss and, therefore, should suffer the loss. See Cash , 734 S.W.2d at 399 (noting that "[i]f Brown is Lebowitz'[s] agent, then between Cash and Lebowitz, any damage resulting from Brown's faithlessness and chicanery must be borne by Lebowitz, Brown's principal").

An attorney-client relationship is generally an agency relationship. Gavenda v. Strata Energy, Inc. , 705 S.W.2d 690, 693 (Tex. 1986) (holding that "the attorney's acts and omissions within the scope of his or her authority are regarded as the client's acts"). It is undisputed that Baca was the Gusma parties' attorney for the transactions in question. The Gusma parties' uncontroverted summary judgment evidence establishes that Gusma Properties "retained Mr. Ricardo A. Baca and his firm [the] RAB Law Firm, P.C. to represent [Gusma Properties] in its claims against Travelers" and to "pursue [Gusma Properties'] insurance claims through the appraisal process under the policy of insurance with Travelers."⁴

The Gusma parties suggests that the agency relationship between them and Baca is irrelevant once Travelers made the check payable jointly and non-alternatively because "there is nothing within the UCC statutory provisions or the case law and nothing is cited by Travelers which made any type of distinction based on the nature of the relationship of the payees." The Gusma parties are incorrect, as we outline below.

3. Under the Texas UCC, constructive delivery of an instrument jointly payable to co-payees who are not in an agency relationship does not discharge the drawer's obligation on either the underlying obligation or the negotiable instrument.

The Gusma parties' theory of Travelers' prompt-payment violation derives entirely from the application of the Texas UCC to the negotiable-instrument circumstances of this case. More particularly, the Gusma parties argue that the Texas Supreme Court case McAllen Hospitals, L.P. v. State Farm County Mutual Insurance Co. of Texas , 433 S.W.3d 535, 540 (Tex. 2014), stands for the proposition that the drawer of a negotiable instrument made jointly payable, non-alternatively to co-payees does not discharge the underlying...