John H. Carney & Assocs. v. Texas Prop. & Cas. Ins. Guar. Ass'n

• Court: Texas Court of Appeals
• Writing for the Court: J. WOODFIN JONES
• Citation: John H. Carney & Assocs. v. Texas Prop. & Cas. Ins. Guar. Ass'n, 354 S.W.3d 843 (Tex. App. 2011)
• Decision Date: 21 November 2011
• Docket Number: No. 03–10–00385–CV.,03–10–00385–CV.
• Parties: JOHN H. CARNEY & ASSOCIATES, Appellant, v. TEXAS PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Appellee.

354 S.W.3d 843

JOHN H. CARNEY & ASSOCIATES, Appellant,

v.TEXAS PROPERTY AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Appellee.

No. 03–10–00385–CV.

Court of Appeals of Texas, Austin.

Aug. 26, 2011.Rehearing Overruled Nov. 21, 2011.

John H. Carney, John H. Carney & Associates, Dallas, TX, for Appellant.

Joseph Loiacono II, Wilson Grosenheider Jacobs Basinger & Loiacono LLP, Austin, TX, for Appellee.

Before Chief Justice JONES, Justices HENSON and GOODWIN.

OPINION

J. WOODFIN JONES, Chief Justice.

John H. Carney & Associates (“Carney” or “the Carney law firm”) sued the Texas Property and Casualty Insurance Guaranty Association (“the Association”) to recover damages it was awarded in a judgment against an insolvent insurance company, Texas Select Lloyds Insurance Company (“Texas Select”). Carney contends that the judgment constitutes a “covered claim” under former article 21.28–C, section 5(8) of the Texas Property and Casualty Insurance Guaranty Act (“the Guaranty Act”) ¹ because the judgment was based on an assigned interest in the proceeds of a first-party claim under a homeowners policy that Texas Select issued. The Association moved for summary judgment on a number of grounds, including that the Carney law firm is not entitled to seek compensation under the Guaranty Act as an assignee of the insured. The trial court granted the motion without specifying the grounds on which summary judgment was based. We will affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

The Association is a statutorily created entity whose purpose is to pay “covered claims” of impaired insurance companies doing business within the state.² By assessing contributions from solvent member insurers, the Association maintains a guaranty fund that assumes insolvent insurers' obligations with respect to statutorily defined “covered claims.” ³ Because the Association was established for the purpose of providing a limited form of protection for policyholders and third-party claimants in the event of insurer insolvency, some claims that might otherwise be compensable if presented to a solvent insurer are excluded from coverage under the Guaranty Act.⁴

This action against the Association has its origins in a dispute over attorney's fees between the Carney law firm, a Dallas-based firm, and its former client, Joy Lincoln. Lincoln hired the firm to represent her in a claim for residential mold damage against her homeowners insurer, Texas Select. In the attorney-client agreement, Lincoln agreed to pay Carney “forty percent (40%) of all money received and property collected, or debt from which [Lincoln] is relieved, including any sums paid for property damage, remediation, and alternative living expenses.” The fee agreement was secured by an assignment of an interest in Lincoln's claim against Texas Select, but not an assignment of the insurance policy itself:

To secure the performance of Client's obligations to Attorney, the Client hereby transfers and assigns to the Attorney an undivided interest in the Client's claim, such interest being equivalent to the amount of percentage that the Client, by this Agreement, promises to pay for the services of the Attorney. Attorney is authorized to execute a UCC–1 security agreement to evidence this lien.

Lincoln also agreed not to settle the lawsuit without the Carney law firm's approval:

No settlement of any nature shall be made for any of the aforesaid claims of the Client without the complete approval of the Client, and all offers of settlement shall be communicated to the Client; the Client shall not obtain any settlement on the aforesaid claims without the complete approval of the Attorney.

Less than a year after Carney prepared and filed Lincoln's lawsuit against Texas Select, Lincoln discharged the Carney law firm and retained David Gibson, a former associate at the firm. One day later, Lincoln executed a partial settlement agreement with Texas Select. Before Texas Select made payment on the partial settlement, Carney sent a letter to Texas Select and its attorney advising them of the change in Lincoln's legal representation and notifying them of Carney's assigned interest. Carney also requested that “all payments, ALE,⁵ settlements [sic] distributions or otherwise” be made jointly payable to the Carney law firm. In accordance with Carney's request, the partial settlement payment was made payable to Lincoln, Gibson, and the Carney law firm. To further protect its interests in the assigned matter, the Carney law firm intervened in the pending lawsuit against Texas Select. The intervention was subsequently severed into a separate cause, and when Texas Select settled Lincoln's remaining claims in the mold case for $200,000.00, the payment was made only to Lincoln and Gibson, without the Carney law firm's consent.

The course of the ensuing litigation among the relevant parties is less than clear from the record and the parties' briefs. It appears that the intervention proceeding continued after Lincoln's claims were settled, and Lincoln filed a counterclaim of an unknown nature against Carney. According to Carney's brief, Carney and Lincoln later executed a partial settlement and limited release of unspecified claims in the severed intervention proceeding. The terms of the settlement agreement have not been disclosed in this proceeding. Aside from the partial settlement and release, it is unclear how, when, or if the intervention case was ultimately resolved and what role, if any, Texas Select and Gibson played in that proceeding.

While the intervention proceeding was pending, however, Carney sued Texas Select in a separate lawsuit in the County Court at Law for Dallas County, and it is that proceeding that plays a central role in the Carney law firm's claim against the Association. In the lawsuit against Texas Select, the Carney law firm claimed it was entitled to attorney's fees pursuant to the contingency fee agreement with Lincoln and alleged that Lincoln and Texas Select knowingly and improperly circumvented Carney's assigned interest when they settled the mold case. The Carney law firm brought suit in its own name pursuant to the assignment from Lincoln and asserted both first-party claims under Lincoln's insurance policy and extra-contractual claims, including claims for deceptive trade practices under former article 21.21 of the Texas Insurance Code, unfair claims practices under former article 21.55 of the insurance code, breach of the duty of good faith and fair dealing, negligence, negligence per se, negligent misrepresentation, and intentional infliction of emotional distress. Alternatively, and in lieu of recovering actual and exemplary damages on the foregoing claims, Carney sought to ratify the disputed settlement agreement and take 40% of the $200,000.00 settlement that Lincoln executed with Texas Select.

Following a bench trial, the county court at law awarded Carney $80,000.00, plus pre-judgment interest, post-judgment interest, and court costs.⁶ Texas Select perfected an appeal, but while the appeal was pending, Texas Select was designated an impaired insurer and placed into receivership. When the appeal was abated pursuant to the automatic stay provisions of former article 21A.008(d) of the insurance code,⁷ Carney presented the judgment to the Association for payment under the Guaranty Act, but the Association denied the claim.⁸

The Carney law firm then filed the underlying lawsuit, alleging that the Association erroneously denied its claim on the basis of a provision in the Guaranty Act that excludes attorney's fees from the definition of a “covered claim.” ⁹ The firm did not dispute that attorney's fees are not compensable under the Act; rather, it asserted that, in characterizing its claim as one for attorney's fees, the Association improperly focused on the reason for the assignment—to secure payment of attorney's fees—rather than the nature of the claim, which was an assigned undivided interest in a first-party claim against the insurer. Carney alleged that, as an assignee of an interest in the insured's post-loss claims under the insurance policy, the law firm was entitled to compensation under the Act to the same extent as if it were a named insured.

The Association moved for summary judgment, challenging both the compensability of Carney's claim under the Guaranty Act and the validity of the assignment. Specifically, the Association alleged that, as a matter of law, Carney did not have a covered claim because (1) Carney was neither an insured nor a loss payee at the time of the insured events, and the assignment was ineffective to confer standing as an insured under the Guaranty Act; (2) the assignment was invalid because Texas Select did not consent in writing to the assignment, as required by the policy; (3) claims for attorney's fees are not compensable under the Act; and (4) relevant policy limits had already been exhausted. The Association also asserted that there was no evidence that Carney had an insurable interest in the premises at the time of the insured events and no evidence that Carney's claim was within the limits and coverage of Lincoln's policy, considering the exhaustion of relevant policy limits and the policy's exclusion for loss caused by mold.

In response, the Carney law firm argued that its liquidated claim against Texas Select must be honored under the Guaranty Act because the claim meets the statutory definition of a “covered claim” and no exception applies. Carney further asserted that the Association was bound by the judgment against Texas Select and could not contest the validity of the assignment or coverage under the Texas Select policy, including the applicability of any policy exclusions. Carney also maintained that the assignment of Lincoln's post-loss claims under the policy was valid even without Texas Select's consent and conferred standing to make a claim under the Guaranty Act in the absence of any express statutory...