May v. United Services Ass'n of America

Decision Date22 December 1992
Docket NumberNo. C-9989,C-9989
Citation844 S.W.2d 666
PartiesDaryl MAY and Wife, Faith May, Individually and as Next Friends for Jared Ryan May v. UNITED SERVICES ASSOCIATION OF AMERICA, the Preston Agency, Inc., et al.
CourtTexas Supreme Court
OPINION

PHILLIPS, Chief Justice.

This case involves the scope of an insurance agent's common-law duty to a customer in rendering advice about and procuring a policy for health insurance. The plaintiffs asserted only common-law causes of action, making no claim under the Texas Deceptive Trade Practices-Consumer Protection Act, Tex.Bus. & Com.Code §§ 17.41 et seq. or any other statute. While the jury found favorably for the plaintiffs on a claim of the agent's negligence, it failed to find for the plaintiffs as to misrepresentation. On this verdict, the trial court rendered judgment for the plaintiffs, but the court of appeals reversed. 788 S.W.2d 608. We affirm the judgment of the court of appeals because there is no evidence in the record before us that the agent breached the duty to use reasonable care, skill and diligence in procuring insurance in any way that proximately caused harm to the petitioners.

Facts

To reverse the judgment of the court of appeals, the petitioners, Daryl and Faith May, must demonstrate that some evidence in the record supports the verdict in their favor. The evidence most favorable to the Mays is that, because health insurance was not provided by Daryl's employer, they decided to take out a health insurance policy shortly after their marriage in December of 1982. Daryl's mother, Alice May, worked next door to Preston Insurance Agency, Inc. ("Preston"), from which Daryl had previously purchased automobile insurance. As a favor, Alice told Faith that she would find out what health insurance policies Preston offered. Alice visited Preston and spoke with one of the agents there, Rex Wiley. When she returned, she gave Faith a brochure describing the "Double Eagle" group policy.

The Double Eagle policy was underwritten by Continental Bankers of the South ("Continental") and could be purchased by members 1 of the United Services Association of America ("United"). 2 The Double Eagle policy featured relatively low premiums and deductibles, but its termination provision allowed the underwriter to cancel the entire group at any time. The policy also contained a deferral provision that permitted the underwriter to defer coverage on group members or covered dependents who were hospitalized or totally disabled at the time coverage began. 3

On March 16, 1983, Faith May visited the Preston Agency herself and spoke with Wiley about the Double Eagle policy. Wiley explained the basic provisions of the policy to her, though he did not tell her that Continental had only received a "C" rating from the A.M. Best Company, 4 nor that Preston sold other coverages, including an individual health policy from Reserve Life.

In a prior marriage, Faith May had lost an infant child. Because the Mays were planning to have children of their own, they were interested in maternity and dependent health coverage. They told Wiley that they were concerned about covering medical expenses associated with pregnancy and childbirth. Wiley added a handwritten maternity rider to the policy. The Mays then joined the United group for a fifteen dollar membership fee and purchased the Double Eagle policy. Their coverage began on April 1, 1983.

In mid-1984, the Mays received notice that Continental had terminated the entire United group, and that another underwriter, Hermitage Insurance Company ("Hermitage"), had agreed to underwrite a plan with identical Double Eagle plan benefits for all United members previously insured by Continental. Faith May was pregnant at the time. Upon learning of the change in underwriters, she telephoned Wiley to determine what effect the change would have on the Mays' coverage. Wiley told her that Hermitage would continue to cover them on the same terms as Continental. Jared May was born on August 1, 1984, with congenital heart and lung disorders that required immediate medical attention. Hermitage covered his medical expenses under the policy.

In July 1985, however, Hermitage also terminated the United group. Keystone Life Insurance Company ("Keystone") then voluntarily assumed the group. Keystone, however, classified Jared May as a totally disabled dependent and, asserting the deferral provision of the policy, refused to cover any of his medical expenses. Pursuant to the terms of the policy, Hermitage covered Jared May for ninety days after termination, until September 30, 1985. Thereafter, however, Jared May was without insurance coverage until he died in November of 1987.

On January 27, 1987, the Mays filed suit against Preston, United, Keystone, and Hermitage seeking actual damages for unpaid medical bills and mental anguish, punitive damages and interest. Their causes of action against Keystone and Hermitage were severed because both companies were involved in receivership proceedings. Against United and Preston, the Mays alleged a number of common law causes of action, including misrepresentation and negligence. 5 Although the jury failed to find misrepresentation, 6 it did find that the negligence of both United and Preston proximately caused the Mays' injuries, 7 assessing their percentages of causation at 60% and 40%, respectively. The jury awarded $140,000 in damages for unpaid medical expenses and $40,000 in exemplary damages against Preston and United each. The jury awarded no damages for mental anguish. As the jury failed to find gross negligence against either defendant, the trial court rendered judgment against Preston and United jointly and severally for $140,000 plus interest and costs.

Only Preston appealed. The court of appeals, holding that there was no evidence of a negligent act by Preston that was a proximate cause of the loss of the Mays' coverage, reversed the trial court's judgment as to Preston's liability and rendered judgment that the Mays take nothing.

The questions submitted to the jury in this case did not require the jury to specify a particular negligent act by Preston. See note 7, supra. Therefore, we must reverse the judgment of the court of appeals and render judgment on the jury verdict if there is any evidence that any of Preston's alleged failures constituted negligence and proximately caused the Mays' loss.

The Mays went to trial on a pleading alleging negligence in three particulars: (1) Preston was "negligent in placing the coverage of the Mays with [Hermitage and/or Keystone] in that it exposed them to the possibility of having no coverage on their minor child," as Preston "knew or should have known, of the danger of placing Plaintiffs in such a plan where the shifting of the insurance coverage could subject them to just exactly this type of catastrophic event;" (2) Preston was negligent "in placing the coverage of the Mays with [Hermitage and/or Keystone] in that [Preston] failed to investigate the financial solvency of the other Defendants to insure that the Plaintiffs would have insurance with a solvent company;" and (3) Preston was "negligent in placing the coverage with a near insolvent or potentially insolvent insurance company." We will address the first theory separately from the latter two.

Negligence in Selecting the Double Eagle Policy

The first theory charges that Preston was negligent in failing to procure for the Mays the type of policy that they requested or that would insure them against the risk they identified as important in their conversation with Wiley. It is established in Texas that an insurance agent 8 who undertakes to procure insurance for another owes a duty to a client to use reasonable diligence in attempting to place the requested insurance and to inform the client promptly if unable to do so. In Burroughs v. Bunch, 210 S.W.2d 211 (Tex.Civ.App.--El Paso 1948, writ ref'd), an agent was held liable for fire damage to a house being built by his customer when the agent, after agreeing to have a builder's risk policy issued on the house, failed to notify the customer that he had not procured such a policy. Id. at 214. Similarly, in Scott v. Conner, 403 S.W.2d 453 (Tex.Civ.App.--Beaumont 1966, no writ), an agent was held liable for fire damage after his customer requested a new policy to replace one cancelled by the insurer, and the agent neither procured such a replacement policy nor alerted the customer to this failure by returning the unearned portion of the premium from the original policy. Id. at 458.

Liability was imposed in the Burroughs and Scott cases because the agent induced the plaintiff to rely on his performance of the undertaking to procure insurance, and the plaintiff reasonably, but to his detriment, assumed that he was insured against the risk that caused his loss. See Burroughs, 210 S.W.2d at 213-14; Scott, 403 S.W.2d at 458. 9 Unlike the plaintiffs in the Burroughs and Scott cases, however, the Mays were not misled into believing that a policy in their name existed. Moreover, they were not led wrongly to believe that their policy provided protection against a particular risk that was in fact excluded from the policy's coverage. See Rainey-Mapes v. Queen Charters, Inc., 729 S.W.2d 907, 913-14 (Tex.App.--San Antonio 1987, writ dism'd by agr.) (agent gave assurances that shipowner's contemplated trip from the Virgin Islands to Houston would be covered, when in fact policy contained a territorial exclusion clause encompassing points along that route); see also Pete's Satire, Inc. v. Commercial Insurance Co., 698 P.2d 1388, 1389-90 (Colo.App.1985) (agent misrepresented that policy covered bar...

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