Lexington Insu. Co. v. Buckingham Gate

• Decision Date: 25 March 1999
• Docket Number: No. 13-97-813-CV,13-97-813-CV
• Citation: 993 S.W.2d 185
• Parties: (Tex.App.-Corpus Christi 1999) LEXINGTON INSURANCE COMPANY, Appellant, v. BUCKINGHAM GATE, LTD., INC., Appellee.
• Court: Texas Court of Appeals

Page 185

993 S.W.2d 185 (Tex.App.-Corpus Christi 1999)

LEXINGTON INSURANCE COMPANY, Appellant, v. BUCKINGHAM GATE, LTD., INC., Appellee.

No. 13-97-813-CV.

Court of Appeals of Texas, Corpus Christi.

March 25, 1999.

Rehearing Overruled July 1, 1999.

[Copyrighted Material Omitted]

Thomas C. Wright, John L. Dagley, Campbell Harrison & Wright, William L. Burnett, Thornton & Burnett, Houston, for Appellant.

E. John Gorman, Attorney at Law, Bradford W. Irelan, Irelan & Associates, Houston, for Appellee.

Before Justices DORSEY, HINOJOSA, and RODRIGUEZ.

OPINION

Opinion by Justice DORSEY.

Buckingham Gate, Ltd., Inc. sued its insurer, Lexington Insurance Company, for violations of the DTPA and article 21.21 of the Texas insurance Code after it refused to pay a claim under an "all-risks" insurance policy. The jury answered special questions favorable to Buckingham, and the trial court rendered a judgment against Lexington for $1,703,825, plus $318,255 in prejudgment interest. Lexington brings eight issues for our consideration, and Buckingham brings three issues. We reverse and render.

Ferromet Resources, Inc. was a company that bought surplus-and-used stainless steel and sold it to steel mills in Europe and Far East, shipping by sea. This required warehouse and a dock on the Houston ship Channel. Larry Whyte, the head of Ferromet, formed Buckingham Gate, Ltd., inc. for the purpose of buying the need property. On December 31, 1987, Buckingham paid $2.6 million for approximately fourteen acres of land, which included two docks on the Houston Ship Channel, Buckingham leased on of the docks for Ferromet at $25,00 per month for five years and the other dock to Schroeder Marine, This suit centers solely on the Ferromet dock.

In the fall of 1988, several insurance brokers, including Adams & Porter, contacted Ferromet to sell it insurance. Scott Breimeister, Ferromet's vice-president and chief financial officer, asked these brokers to evaluate Ferromet's current insurance coverage and make a proposal. Adams & Porter advised Breimeister that they were experts in marine insurance and that they would evaluate his insurance needs. Breimeister explained to John Hilliard, an Adams & Porter insurance agent, the importance of the docks and that he wanted complete coverage for both docks.

Adams & Porter submitted Buckingham's insurance risk to the market. Lexington, through its underwriting arm, Southern Risk Specialists, Inc., (Southern Risk) sold an "all-risks" Property insurance policy to Buckingham and Ferromet, the named insureds. Southern Risk sent the policy to Hilliard for him to review. John Lewis, a senior vice-president at Adams & Porter, also reviewed the policy at Hilliard's request. Hilliard sent it to Breimeister, after he and Lewis had reviewed the policy.

The original policy as issued excluded coverage of the docks, but Southern Risk corrected the problem by issuing a policy endorsement covering them. While the policy was in effect, Ferromet employees noticed a depression in the soil behind the dock. Sonny Flores, a civil engineer, inspected the dock had failed, the concrete beams and slabs between the abutment wall were damaged, and the dock on the downstream side had moved substantially. He encouraged Buckingham to replace the dock.

Buckingham gave Lexington its initial notice of the loss of February 7, 1990. The cause of the loss was state as "freeze." However the policy did not cover the docks against loss caused by freezing or thawing.

After Buckingham gave its notice of the loss, Jim Wiethorn, an engineer, also inspected the Ferromet dock at Lexington's request. Flores advised him that the cause of the loss was an extremely low tide which acted to reduce the resisting capacity of the dock's retaining wall thereby contributing with other factors to allow wall movement.

By letter dated April 30, 1990, Lexington's counsel advised Buckingham's counsel that Lexington had made a preliminary determination that the policy did not provide coverage for the damages claimed. In July 1990 Ferromet sued Lexington in moved the case to federal court claming jurisdiction based upon diversity of citizenship. In early 1992 Buckingham submitted its proof of loss, and on March 11, lawsuit against Lexington and Adams & Porter, alleging coverage and, if not, violations of the DTPA and article 21.21 by misrepresenting coverage under the policy. Ferromet dismissed its suit in federal court against Lexington.

On May 4, 1992, Lexington's counsel sent Buckingham's counsel a letter denying coverage. The basis for this was that water below the surface of the ground exerting pressure on the dock's retaining wall was a contributing cause of the dock's failure. The policy unambiguously excluded this type of loss. Lexington accordingly rejected the proof of loss and denied the claim.

Trial of this lawsuit proceeded in two phases. In phase one the jury determined what caused the Ferromet dock to fail. Based on the jury's findings the trial court ruled that the policy excluded the loss as a matter of law. No coverage existed under the "concurrent cause" exclusion for "water below the surface of the ground," which the jury found caused the dock's loss in part. Buckingham does not contest the court's ruling on coverage. In phase two the jury found, by its answers to special questions one, two, and four, that the defendants breached an express warranty and violated the DTPA and article 21.21. By its answers to special questions three and five, the jury found the Lexington knowingly violated the DTPA and engaged in an unconscionable action or course of action. By its answer to special question six, the jury found that the defendants knowingly violated article 21.21.

The Jury awarded Buckingham $4,203, 825 in actual damages. Buckingham settled its suit against Adams & Porter. The trial court granted Lexington's motion to disregard the jury's finding that it knowingly committed deceptive trade practices. The court gave Lexington a settlement credit of $2.5 million, and rendered judgment for 1,703,825, plus prejudgment interest of $318,255. Both Lexington and Buckingham appeal, but Ferromet is not a party to this appeal.

I. Limitations

Lexington's first issue is whether the statute of limitations barred Buckingham's claims under the DTPA and article 21.21. An action under both of these statutes must be brought within two years of the accrual of the cause of action.

Buckingham filed suit against Lexington on March 11, 1992, but did not serve it until January 1993. Lexington argues that it first denied coverage of Buckingham's claim in its letter of April 30, 1990, and, therefore, Buckingham's DTPA and Insurance Code claims accrued, as a matter of law, at the time. Lexington points out that its denial of coverage became final on September 15, 1990.

The jury found that Buckingham used diligence after filing this suit to obtain service of citation on Lexington. It also found that Buckingham, in the exercise of reasonable diligence, should have discovered all of Lexington's false, misleading, or deceptive acts or practices by May 4, 1992.

Lexington's April 30 letter advised Buckingham that "Lexington has made a preliminary determination that coverage is not provided for the damages claimed under the policy. The insured should not consider this preliminary determination that coverage is not provided as a final determination, and Lexington will review any additional evidence which the insured believes supports its claim."

By a second letter dated August 9, 1990, Lexington's counsel advised Buckingam's counsel the Lexington:

will again review this matter on September 10, 1990. If no further information has been received from you by that time, the determination that coverage is not provided for the damages claimed under the policy shall become final. If additional information is provided by September 10, 1990, such additional information will be taken into consideration in reaching a final determination on this claim. However, unless you are otherwise advised in writing by Lexington Insurance Company, its attorneys or adjuster, prior to September 15, 1990, the preliminary determination as stated in my April 30, 1990 letter is final.

By letter dated September 5, 1990, Adams & Porter advised Lexington that the proximate cause of the loss was earth movement, which the policy covered. They urged Lexington to further investigate the claim and reconsider its position. However in its May 4, 1992, letter Lexington unequivocally and unconditionally rejected Buckingham's proof of loss.

A two-year limitations period governs cause of action under article 21.21 and the DTPA. TEX. INS.CODE ANN. art. 21.21, § 16(d) (Vernon Supp.1998); TEX. BUS. & COMM.CODE ANN. § 17.565 (Vernon 1987). The statute of limitations is an affirmative defense. TEX.R. CIV. P. 94. A defendant thus bears the initial burden to plead, prove, and secure findings to sustain the plea of limitations. Woods v. William m Mercer, Inc., 769 S.W.2d 515, 517 (Tex. 1988).

A. Due Diligence for Service

If Buckingham's claims accrued on April 30, 1990, it timely filed suit within the two-year limitations period on March 11, 1992. The issue is whether the evidence supported the jury's finding that Buckingham used due diligence in serving Lexington nearly nine months after limitations expired.

The mere filing of suit will not toll the running of limitations unless due diligence is exercised in the issuance and service of citation. Murray v. San Jacinto Agency, Inc, 800 S.W.2d 826, 830 (Tex. 1990); Rigo Mfg. Co. v. Thomas, 458 S.W.2d 180, 182 (Tex.1970). When a plaintiff files a petition within the limitations period, but does not serve the defendant until after the statutory period had expired, the date of service relates back to the date of filing if the plaintiff exercised diligence in effecting service. Gant v. DeLeon, 786 S.W.2d 259, 260 (Tex.1990) (per curiam); Zale Corp. v....