Kenneco Energy, Inc. v. Johnson & Higgins of Texas, Inc.

• Decision Date: 11 May 1995
• Docket Number: No. 01-92-00768-CV,01-92-00768-CV
• Citation: 921 S.W.2d 254
• Parties: KENNECO ENERGY, INC. f/k/a Armada Supply, Inc., Appellant, v. JOHNSON & HIGGINS OF TEXAS, INC., Appellee. (1st Dist.)
• Court: Texas Court of Appeals

Page 254

921 S.W.2d 254

KENNECO ENERGY, INC. f/k/a Armada Supply, Inc., Appellant, v. JOHNSON & HIGGINS OF TEXAS, INC., Appellee.

No. 01-92-00768-CV.

Court of Appeals of Texas Houston (1st Dist.).

May 11, 1995.

Rehearing Overruled Jan. 25, 1996.

George E. Pletcher, Richard P. Hogan, Jr., Houston, for appellant.

Stephen G. Tipps, Houston, Bob E. Shannon, Austin, for appellee.

Before O'CONNOR, HEDGES and DUGGAN, JJ.

OPINION

LEE DUGGAN, Jr., Justice. ^*

We grant appellant's motion for rehearing and deny the appellee's motion for rehearing en banc. We withdraw our opinion of January 27, 1995, and substitute this opinion in its stead.

This appeal involves the preclusive effect of a prior New York federal court judgment upon a Texas district court action under the doctrines of res judicata and collateral estoppel. The appeal also raises issues regarding the statute of limitations and evidentiary sufficiency. We reverse the trial court's judgment n.o.v. and render judgment on the verdict with modifications of the amount of damages, the applicable interest rate, and the accrual date.

Johnson & Higgins of Texas, Inc. (J & H), appellee, filed for declaratory judgment in state court seeking a declaration of nonliability after Kenneco Energy, Inc. (Kenneco), appellant, tried and lost a case in New York federal court against its foreign insurance underwriters. J & H, as Kenneco's insurance broker, had procured the coverage from one of the underwriters. Kenneco counterclaimed on several liability theories and won a favorable jury verdict. Upon J & H's motion, the trial court rendered judgment notwithstanding the verdict.

Summary of Facts

A. The Oil Contracts

In 1982, Kenneco, an oil trading company, purchased a tanker cargo of fuel oil from Petrobras, the Brazilian national oil company, at a cost to be determined by the market price published on the day the cargo arrived in New York harbor. While the oil was in transit, Kenneco re-sold it to Sun Oil Trading Company (Sun) at a fixed price of $30.55 per barrel upon delivery. Through this arrangement, Kenneco risked making or losing money, depending on the market price when the cargo arrived in New York.

Kenneco's contract with Petrobras was on a "C.I.F. basis;" that is, Kenneco took title in Brazil, but Petrobras was obligated to bear the cost of shipment, insurance, and freight. Kenneco's sale to Sun was on a "delivered basis," which meant that Kenneco assumed the risk of loss until Sun took title in New York.

B. The Insurance Coverage

Pursuant to its obligations to Kenneco, Petrobras obtained insurance with Banorte Seguradora, S.A. (Banorte), a Brazilian underwriter, which insured the cargo in the amount of the purchase price, plus 10 percent. Kenneco was also insured under a second policy that it had previously obtained through J & H from a group of London underwriters.

The ship carrying the cargo sailed from Rio de Janeiro on November 16, 1982. Almost immediately, the market price of fuel oil began to decline. The size of Kenneco's potential profit grew as the market fell because the price Sun had agreed to pay Kenneco was fixed while Kenneco's purchase cost would be determined upon the cargo's arrival in New York harbor. At the same time, insurance coverage on the cargo under the Banorte policy declined because it was tied to the market price Kenneco would pay Petrobras.

Kenneco became concerned about the extent of its coverage under the Banorte policy and its ability to collect from a Brazilian company. As a result, Kenneco sent its employee, Carolyn Brown, to meet with Jim Anderson of J & H on November 30, 1982, to discuss coverage under Kenneco's London policy.

Brown told Anderson about Kenneco's desire to "protect its profits" on the transaction. They discussed "contingency coverage" and "increased value coverage," two provisions of Kenneco's London policy, but did not distinguish between insuring against the loss of the Sun contract and insuring against the loss of the increased value of the cargo.

"Contingency coverage" would make the London underwriters liable if Banorte failed to pay on the primary coverage, provided Kenneco both purchased the oil and contracted to sell it on a C.I.F. basis, in what is known as a "back-to-back C.I.F. sale." Although Kenneco's sale to Sun was on a delivered, not a C.I.F., basis, Anderson prepared a declaration under the contingency provision.

Anderson also made a declaration under the increased value provision, which did not require back-to-back C.I.F. sales. It would cover the difference between the $30.55 per barrel sales price under the Sun contract and the Banorte coverage of purchase price plus 10 percent, thereby insuring that portion of Kenneco's profit in the cargo that exceeded the Banorte coverage.

On December 9, 1982, the cargo arrived in New York harbor both short and contaminated. ¹ Sun rejected the cargo and canceled the contract. Kenneco then reconditioned the cargo and sold it in the existing depressed market.

Kenneco made claims under both the Banorte and the London insurance policies, seeking to recover the full amount of the profit it lost when Sun canceled the contract. The London underwriters acknowledged coverage under the increased value provision and offered to pay their share of the shortage losses and contamination damage. Neither they nor Banorte, however, would pay for lost profits because the cargo was only partially damaged. In addition, in March 1983, the London underwriters declined Kenneco's contingency coverage because the transaction had not been back-to-back C.I.F.

C. The Federal Lawsuit

In April 1983, Kenneco sued both the London underwriters and Banorte in New York federal district court. Armada Supply, Inc. v. Wright, 665 F.Supp. 1047 (S.D.N.Y.1987), aff'd in part, rev'd in part, 858 F.2d 842 (2d Cir.1988). Kenneco did not name J & H as a defendant in the federal action, although Kenneco offered evidence concerning representations made by J & H as to the extent of the coverage. Armada Supply, Inc., 665 F.Supp. at 1057-61. The court concluded that Kenneco was not entitled to contingency coverage because the transaction was not back-to-back C.I.F. Id. at 1051. The court further found that the increased value provision covered physical loss and damage, but not the loss of the Sun contract and its profits. Id. These findings were affirmed on appeal. Armada Supply, Inc., 858 F.2d at 851 (reversing part of the judgment for sue and labor expenses).

D. The Texas Lawsuit

In June 1988, some five years after Kenneco filed the New York suit, J & H filed the present action for declaratory judgment against Kenneco in state court, seeking a declaration that Kenneco was barred from filing suit against it based on the doctrines of res judicata and collateral estoppel. Kenneco counterclaimed, seeking damages for (1) breach of the duty of good faith and fair dealing; (2) breach of the Texas Deceptive Trade Practices and Consumer Protection Act (DTPA); (3) breach of the Texas Insurance Code; (4) breach of warranty; (5) common-law fraud; (6) breach of contract; (7) negligent misrepresentation; and (8) negligence.

In the state proceeding, Kenneco presented evidence concerning the meeting on November 30, 1982, between Brown and Anderson, and of J & H's alleged misrepresentations concerning the extent of Kenneco's coverage under the London policy. Carolyn Brown and Jim Anderson both testified as witnesses to the November 30, 1982 meeting, just as they had done in the federal proceeding.

The jury found against J & H on each of the claims submitted, including (1) fraud; (2) unfair or deceptive insurance practices; (3) breach of contract; and (4) negligence. The jury also determined, however, that Kenneco discovered or should have discovered the basis for its claim by March 1983, when the London underwriters denied coverage. Kenneco moved for entry of judgment. J & H moved for judgment notwithstanding the verdict on the following grounds: (1) all claims were barred by collateral estoppel and res judicata; (2) the DTPA-insurance code and negligence claims were barred by the statute of limitations; and (3) no evidence supported the jury's findings of breach of contract and fraud. Without stating its reasons, the trial court granted J & H's motion for judgment n.o.v.

Kenneco asserts 11 points of error, all involving the trial court's grant of judgment n.o.v. J & H brings six cross-points regarding sufficiency of the evidence plus error in the calculation of damages and prejudgment interest.

Judgment Notwithstanding the Verdict

A trial court has authority to grant a judgment n.o.v. when a directed verdict would have been proper. Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex.1991); TEX.R.CIV.P. 301. Directed verdict is proper when: (1) a defect in an opponent's pleadings makes them insufficient to support a judgment; (2) the evidence conclusively proves a fact that establishes a party's right to judgment as a matter of law; or (3) the evidence is insufficient to raise an issue of fact. City of San Benito v. Cantu, 831 S.W.2d 416, 422 (Tex.App.--Corpus Christi 1992, no writ) (citing Navarette v. Temple Indep. Sch. Dist., 706 S.W.2d 308, 309 (Tex.1986)). Judgment n.o.v. is proper under the same circumstances. Cantu, 831 S.W.2d at 423. The Court reviews claims under the first two reasons de novo as matters of law and reviews claims under the third reason as evidentiary complaints under a legal sufficiency standard. Id.

If the trial court does not state its grounds for granting a motion for judgment n.o.v., as is the case here, the ruling will be upheld if any of the stated grounds in the motion will uphold the judgment. Sbrusch, 818 S.W.2d at 394. It is the appellant's burden to discredit each ground in the appellee's motion. Id.; Friedman v. Houston Sports Ass'n, 731 S.W.2d 572, 573 (Tex.App.--Houston [1st Dist.] 1987, writ ref'd n.r.e.).

Accordingly, Kenneco has...