Hernandez v. Great Am. Ins. Co. of New York, B--2343

CourtSupreme Court of Texas
Citation464 S.W.2d 91
Docket NumberNo. B--2343,B--2343
PartiesJesus R. HERNANDEZ, Petitioner, v. GREAT AMERICAN INSURANCE COMPANY OF NEW YORK et al., Respondents.
Decision Date24 February 1971

McCullough, Murray & McCullough, Carter, Stiernberg, Skaggs & Koppel, Jack Skaggs, Adams, Graham, Lewis, Jenkins and Briscoe, Gordon L. Briscoe, Harlingen, for petitioner.

Cox, Wilson, Duncan & Black, Bascom Cox and John William Black, Brownsville, for respondents.

REAVLEY, Justice.

The question here is the time of the accrual of a Stowers type cause of action. We recognize that the Texas law to date has required the insured to pay some portion of the judgment against him before bringing suit for reimbursement from the insurer. Our reconsideration brings us to eliminate the requirement of prepayment and to allow the suit from the time liability is fixed by final judgment.

In 1958 one A. T. Baucum was injured in an automobile accident. He sued Jesus R. Hernandez, the employer of the driver of the other vehicle, for damages alleged to total $155,000. Hernandez was insured and defended in that suit by Great American Insurance Company of New York, Great American Indemnity Company, and Massachusetts Fire and Marine Insurance Company, under one policy (and we will refer to the insurer as Great American). Baucum won a judgment against Hernandez in the amount of $81,686 in 1961, 344 S.W.2d 498.

Great American paid the full amount of its policy limit, $25,000, which left Hernandez owing $56,636 on the Baucum judgment. Nothing further was paid until 1967, when Baucum obtained a writ of execution, and land belonging to Hernandez was sold thereunder for $10,500.

This suit was filed by Hernandez against Great American in 1968. He alleged that Great American, in defending him in the former suit, had negligently rejected several reasonable settlement offers which were within its policy limits. He alleged an actionable tort under the authority of Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 545 (Tex.Comm.App.1929). Hernandez sought relief in two respects. First, he sued to recover the $10,500 which he was forced to pay upon the judgment in 1967. Secondly, Hernandez sought a declaratory judgment declaring that all future payments on the judgment shall be immediately reimbursable by Great American upon being presented with a duly executed receipt from Baucum.

The trial court sustained Great American's plea of limitations and dismissed Hernandez' suit. The court of civil appeals affirmed, holding that any cause of action had accrued at the time of the former judgment in 1961 and had therefore been barred by the two year statute of limitations prior to the filing of this suit in 1968. 456 S.W.2d 729.


The lower courts are in error in holding that Hernandez could have sued Great American for the $56,636 at any time after the date of the judgment in 1961. Under the law as declared by this court in Universal Automobile Ins. Co. v. Culberson, 126 Tex. 282, 86 S.W.2d 727 (1935), no cause of action arose until 1967 when the first payment was made by Hernandez. The insurer's contention then that Culberson could not maintain a suit against it, until and unless he paid the judgment rendered against him in favor of the holder of the first judgment, was overruled by the court of civil appeals (54 S.W.2d 1061) but sustained by this court. In the opinion cited and on rehearing (87 S.W.2d 475) it was made very clear that the insured could not assert a Stowers type cause of action against the insurer until the insured had paid some sum on the former judgment 'and then only to the extent of his payment.' (86 S.W.2d 731).

In 1953 this court had before it the case of Linkenhoger v. American Fidelity and Casualty Co., 152 Tex. 534, 260 S.W.2d 884. The question there was whether the two year statute of limitations began to run on the date of the negligence of the insurer or at a time as late as the final judgment in the first suit. Linkenhoger paid the judgment and brought his suit against the insurer within two years after the final judgment but more than two years after the negligent failure to settle. The court of civil appeals rendered judgment for the insurer on the ground that the suit was barred by limitations (257 S.W.2d 718) but this court held that Linkenhoger was entitled to his judgment because limitations had not begun to run 'in any event' until the judgment in the first case became final. The Culberson case was cited as authority for the proposition that the insured 'could maintain no action against the insurer until he had paid some portion thereof' without a word of criticism or limitation of that holding.

The Court of Appeals for the Fifth Circuit has discussed the Texas law on this point at some length, and it correctly concluded that as of the time of the writings Texas was firmly in the prepayment camp. Seguros Tepeyac, S.A., Compania Mexicana de Seguros Generales v. Jernigan, 410 F.2d 718 (1969); Seguros Tepeyac, S.A., Compania Mexicana de Sequros Generales v. Bostrom, 347 F.2d 168, 176 (5th Cir. 1965).

Since no suit could have been brought by Hernandez prior to the payment on the judgment in 1967, the statute of limitations could not now be held to have started to run until that date, and the present suit was not barred at the time it was filed.


Since the case is being remanded to the trial court and the plaintiff Hernandez is seeking a declaratory judgment with respect to the liability of Great American on that portion of the judgment against Hernandez which has not been paid, we think it proper to consider whether the prepayment rule prohibits that relief. Since we consider the tort complete when liability is fixed and find no justification for continuing the loss indemnity limitation on suits under Stowers, the holding of Universal Automobile Ins. Co. v. Culberson, supra, is overruled. We need make no decision as to whether a declaratory judgment would be available to Hernandez if other relief were unavailable.

The particular terms of the insurance policy which Universal Automobile Ins. Co. issued to Culberson were held by the court to create an indemnity rather than a liability contract. 86 S.W.2d 730. It followed that as to the amount of the Witt judgment within the policy limits, the insured Culberson could not sue Universal On the policy without first paying the Witt judgment. This may bear on the explanation of why the court applied the same prepayment rule when it came to the tort liability of Universal to Culberson.

The traditional rule of strict indemnity requires the indemnitor to reimburse only actual loss and not to discharge the liability of the indemnitee. 41 Am.Jur.2d Indemnity §§ 28 et seq. Chief Justice Hemphill criticized this rule in 1857 in Pope v. Hays, 19 Tex. 375, but it is a firmly established part of the law of indemnity contracts. It is consistent with the favoritism of the law for guarantors and indemnitors. McKnight v. Virginia Mirror Co., 463 S.W.2d 428 (Tex.1971). It has been said to follow the maxim: 'As a man binds himself, so shall he be bound;' and thus one who agrees to indemnify against loss should not be required to pay more than what is actually lost. Russell v. Lemons, 205 S.W.2d 629, 631 (Tex.Civ.App.1947, writ ref'd, n.r.e.).

This strict indemnity limitation is inconsistent with the law of tort liability where the injured party is entitled to recover, as nearly as possible, compensation for the damages he suffers. This includes his expenses, past and future, paid or unpaid, to which he has been or will be put as a consequence of the...

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