Hernandez v. Great Am. Ins. Co. of New York

• Court: Texas Civil Court of Appeals
• Writing for the Court: NYE; SHARPE
• Citation: Hernandez v. Great Am. Ins. Co. of New York, 456 S.W.2d 729 (Tex. Ct. App. 1970)
• Decision Date: 30 June 1970
• Docket Number: No. 488,488
• Parties: Jesus R. HERNANDEZ, Appellant, v. GREAT AMERICAN INSURANCE COMPANY OF NEW YORK et al., Appellees.

Page 729

456 S.W.2d 729

Jesus R. HERNANDEZ, Appellant, v. GREAT AMERICAN INSURANCE COMPANY OF NEW YORK et al., Appellees.

No. 488.

Court of Civil Appeals of Texas Corpus Christi.

June 30, 1970.

Rehearing Denied July 23, 1970.

McCullough, Murray & McCullough, Carter, Stiernberg, Skaggs & Koppel, Adams, Graham, Lewis, Jenkins & Briscoe, Harlingen, for appellant.

Cox, Wilson, Duncan & Black, Brownsville, for appellees.

OPINION

NYE, Justice.

Jesus R. Hernandez brought suit against the appellee insurance companies to establish liability under the doctrine announced in the Stowers case. ¹ Plaintiff's case was dismissed based upon defendants' plea of limitation.

Hernandez plead in the suit that the appellee insurance companies were negligent in failing to settle a prior law suit within the limits of his policy of liability insurance. The basis for his complaint came about in the following manner. Hernandez plead that the appellee insurance companies were in the business of insuring casualty risks in Texas, and had issued and delivered to him a standard combined automobile policy. He alleged that one of his employees, on a certain occasion while operating a vehicle belonging to him, collided into the rear of a vehicle operated by A. T. Baucum . Baucum sustained severe personal injuries. Baucum then instituted a suit against Hernandez for damages alleging that Hernandez' employee negligently damaged him in excess of $155,000.00 . In March 1960 the Baucum v. Hernandez case came on to trial. The insurance companies furnished their attorneys to represent Hernandez in his defense. Based upon a jury verdict in that case a final judgment was entered awarding Baucum the sum of $81,686.00. That case was affirmed by the San Antonio Court of Civil Appeals in March 1961. Thereafter, on May 24, 1961, the Supreme Court of Texas refused an application for writ of error. ²

Hernandez alleges that his liability insurance policy limited his coverage to $25.000.00 for each person receiving bodily injuries; that on several occasions prior to and during the trial of the Baucum case, the attorneys representing Baucum offered to settle their cause of action for a sum within the policy limits of liability. The offer of settlement of $24,000.00, was rejected by the insurance companies. Hernandez alleges that the refusal of the insurance companies to settle the Baucum claim constituted negligence and that such negligence was a proximate cause of the excess judgment which was entered against him.

Following the action of the Supreme Court, the insurance companies paid Baucum the sum of $25,000.00. This was in partial satisifaction of Baucum's judgment against Hernandez.

On June 10, 1967, the Sheriff of Cameron County in obedience to an order of sale, levied exeuction upon the right, title and interest of Hernandez in a certain parcel of land. This property, belonging to Hernandez, was sold on August 1, 1967 by the Sheriff at public auction on the steps of the courthouse in Brownsville, Texas, for the sum of $10,500.00. This amount was paid to Baucum and credited by him on the excess judgment he held against Hernandez. Hernandez contended in this suit, that by reason of the negligence of the insurance companies in failing to settle and compromise Baucum's cause of action against him, he was damaged in the amount which he involuntarily paid on the excess portion of the judgment (i.e. $10,500.00).

The defendant insurance companies (appellees here) answered and asserted, among other things, that plaintiff's cause of action, if any he has, occurred more than two years prior to the commencement of this present suit, and that the same is clearly barred by the two and/or four-year statute of limitations.

Hernandez' cause of action (a Stowers doctrine case) against his insurance company for excess liability, is one sounding in tort, to which the two-year statute of limitations is applicable. Linkenhoger v. American Fidelity & Casualty Co., 152 Tex. 534, 260 S .W.2d 884 (1953); Art. 5526 Vernon's Ann.Civ.St. It is also clear that Hernandez' cause of action for excess liability did not commence to run on the occasion of the insurer's rejection of the last offer of settlement, as that question was also settled in Linkenhoger. It is Hernandez' contention, however, that his cause of action for the $10,500.00 against the insurance companies did not occur until August 1, 1967, when he made the involuntary payment on the excess judgment. Therefore, he argues that the two-year limitation did not commence to run against him on his cause of action until such date. The insurance companies contend on the other hand, that Hernandez' cause of action against them accrued on May 24, 1961, when the judgment against Hernandez became final in the Supreme Court of Texas.

The sole question before us then, is: When does the two-year statute of limitation commence to run on a Stowers type suit where the policy was a liability rather than an indemnity insurance policy? Is it on the date the judgment against the insured becomes final, (the Judgment Rule) or is it when the insured makes (some) payment on the excess portion of the judgment? (Prepayment Rule)

Hernandez submits that this precise question was resolved in his favor by Universal Automobile Insurance Co. v. Culberson, 126 Tex. 282, 86 S.W.2d 727 (Tex.Comm'n App.1935) which holding was expressly approved by the Supreme Court in Linkenhoger v. American Fidelity & Casualty Co., supra.

In the Culberson case the insurance company withdrew from the case before final judgment. An uncollectible judgment in excess of the policy limits was entered against the insured. Both parties then sued the insurer for the amount of the judgment. Culberson's policy was limited to $5,000.00 and contained a contractual 'direct action clause' giving the injured person the right to bring suit against the insurer to enforce payment of the judgment up to the amount of the limits specified in the policy. The Texas Supreme Court held under this indemnity type policy that the provisions of the Culberson policy did not give Culberson the right to prosecute a suit in his own behalf against the company before paying the judgment; nor did his policy give him the right to sue the company for damages because it failed to make a settlement of the claimant's cause of action until Culberson had paid some sum on the judgment in excess of the policy limits, and then only to the extent of such excess payment. See Culberson 86 S.W.2d at page 731.

Appellant contends that this holding in Culberson, when coupled with the express approval of Culberson by the Supreme Court in Linkenhoger, compels the conclusion that under the present Texas Stowers Doctrine the two-year statute of limitation does not begin to run against an insured until he has made some payment on the excess judgment, and then only as to the amount of such excess payment. Appellant argues that payment on the excess judgment is a prerequisite to a Stowers cause of action, citing Seguros Tepeyac, S .A., Compania Mexicana v. Bostrom, 347 F.2d 168. ³ Quoting from Bostrom, the 5th Circuit Court of Appeals said:

'We summarize our holding. The Texas Stowers doctrine encompasses the principle that an injured claimant has standing to sue the insurer as a third party beneficiary of the insurance contract, but may sue only up to the amount of the policy limits. The Culberson limitation on the doctrine deprives the insured of standing to sue the insurer for the excess, except as to any amounts paid on the judgment in favor of the injured claimant. The claimant's rights in an action against the insurer can rise no higher than the insured's rights. When, as in this case, the insured has no standing to sue because of not having paid all or part of the judgment for the excess, the injured claimant has no standing to sue the insurer for the excess over the policy limits. * * * ' 347 F.2d 168, 182.

It is correct that the Supreme Court in Linkenhoger expressly recognized the Culberson holding. Actually, what the Supreme Court said in Linkenhoger about the Culberson case was:

'The opinion in the case of Universal Automobile Insurance Co. v. Culberson, 126 Tex. 282, 86 S.W.2d 727, clearly supports petitioner's contention.'

Just exactly what 'petitioner's contention' was, the Supreme Court said:

'Petitioner contends that limitation did not begin to run until the judgment became final against him and that this suit having been filed within two years of that date, the same is not barred.'

The petitioner in Linkenhoger was not contending that the limitation period did not begin to run until some payment had been made on the judgment in the former suit. The insurer contended that a Stowers type suit arose at the time that the negligent rejection of a prudent settlement offer was made. The insured contended that the invasion of his rights had not taken place until the injured claimant's judgment for an excess amount had become final. The limitation problem turned, on when the insured could have commenced a suit to recover damages against his insurer, since no mention was made of the date on which the excess judgment was paid by Linkenhoger. This undoubtedly occurred at a later time. The Supreme Court in Linkenhoger determined the limitation question at the earliest date on which suit could have been filed. The Court said:

'The petitioner, Linkenhoger, could not have maintained this present suit until such time as his liability and the extent thereof had been determined by a final judgment in the former case. Until then his rights had not been invaded by respondent's (insurer) failure to accept the terms of settlement offered and the tort was not complete.

We sustain the petitioner's point and hold that limitation did not begin to run in any event until the judgment in the former case became final and, therefore, that this cause of action is not barred by the two-year statute of limitation.'

In order to...