Rocor Intern. v. National Union Fire Ins.

• Decision Date: 23 May 2002
• Docket Number: No. 99-0673.,99-0673.
• Citation: 77 S.W.3d 253
• Parties: ROCOR INTERNATIONAL, INC. f/k/a Donco Carriers, Inc., Petitioner, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Respondent.
• Court: Texas Supreme Court

77 S.W.3d 253

ROCOR INTERNATIONAL, INC. f/k/a Donco Carriers, Inc., Petitioner, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Respondent.

No. 99-0673.

Supreme Court of Texas.

Argued March 1, 2000.

Decided May 23, 2002.

Rehearing Overruled July 3, 2002.

Jay Harvey, Winckler & Harvey, Mark L. Kincaid, Kincaid & Horton, Austin, for Petitioner.

Gerald D. McFarlen, San Antonio, Thomas F. Nye, Corpus Christi, Brin & Brin, Thomas C. Wright, The Wright Law Firm, Lydia S. Zinkhan, Campbell Harrison & Wright, Houston, William V. Dorsaneo, III, Dallas, for Respondent.

Justice O'NEILL delivered the opinion of the Court, in which Chief Justice PHILLIPS, Justice ENOCH, Justice JEFFERSON, and Justice RODRIGUEZ joined.

In this case, an insured sued its excess liability carrier for costs that it incurred in defending a lawsuit while the insurer delayed settling the claim. We must decide whether article 21.21 of the Texas Insurance Code affords the insured a cause of action for unfair claim settlement practices¹ and, if it does, we must define the action's legal elements. A divided court of appeals concluded that the insured could not assert a claim under the statute, and that the evidence did not support recovery on the insured's alternative misrepresentation theory. 995 S.W.2d 804, 806. But the court held that the insured could recover under a common-law negligence theory, and rendered judgment on the jury's negligence finding. Id.

We hold that the insured may assert a claim under article 21.21. To establish liability thereunder for the insurer's failure to reasonably attempt settlement of a claim against the insured, the insured must show that (1) the policy covers the claim, (2) the insured's liability is reasonably clear, (3) the claimant has made a proper settlement demand within policy limits, and (4) the demand's terms are such that an ordinarily prudent insurer would accept it. Applying this standard, we hold that the evidence in this case is legally insufficient to support liability under article 21.21 because there is no evidence that the claimant presented the insurer with a proper settlement demand within policy limits that an ordinarily prudent insurer would have accepted. And assuming that the insured has an alternative cause of action for common-law negligence under the facts presented, which we do not decide, this failure of proof is similarly fatal. Finally, we agree with the court of appeals that the evidence is legally insufficient to support recovery under a misrepresentation theory because there is no evidence that the insurer's alleged misrepresentations caused the insured's damages. Accordingly, we reverse the court of appeals' judgment and render judgment for the insurer.

I. Background

Ralph Mueller was a driver for Rocor International, Inc., a trucking company. One evening in May 1989, after consuming a considerable amount of alcohol at a bar, Mueller swerved his truck off the road and struck two highway patrol officers who had stopped another drunk driver by the side of the road. Both officers were killed. Mueller, whose blood alcohol concentration tested 0.16, was arrested and charged with two counts of involuntary manslaughter. Several months later, the officers' families sued Rocor.

Rocor carried a $1 million primary liability policy issued by Guaranty National Insurance Company, with a $1 million selfinsured retention endorsement. Rocor was also insured under an $8 million umbrella policy issued by National Union Fire Insurance Co. of Pittsburgh. Both policies placed the duty to defend on Rocor. The National Union policy also obligated Rocor to cooperate with National Union in settling claims.

Soon after suit was filed, Rocor's attorney, Terrence Martin, began investigating the accident. Martin quickly determined that Rocor would probably be found liable. Mueller claimed that he was not driving the truck when the accident occurred. He claimed that some unknown person had entered the truck and driven away while he was sleeping in the back. The alleged unknown person was never located, however, and Mueller had been apprehended fleeing the accident scene on foot; thus, Martin did not believe Mueller's story was credible.

Martin concluded that Rocor faced significant liability, especially if the case went to trial. Rocor's vice president for safety and risk management, Angel Arzaga, agreed, and directed Martin to begin settlement negotiations. As early as June 1989, the plaintiffs' attorney, Charles Soechting, informed Martin that he considered this a "policy limits" case ($10 million), but indicated that he might be receptive to some form of structured settlement. In January 1990, the case was set for mediation.

Meanwhile, National Union was advised that liability would likely reach the excess coverage layer. National Union decided to take charge of the settlement efforts, as its policy allowed, and canceled the scheduled mediation. It also directed that no offer was to be made to the plaintiffs at that time. From that point on, National Union's attorney, Stanley Renneker, assumed control of the settlement negotiations.

Over the next fourteen months, the parties exchanged a number of settlement propositions for widely varying amounts. In April 1990, Renneker met with Soechting to discuss settlement. After that meeting, Martin wrote to Arzaga and Guaranty National:

Concerning settlement, I am pleased to announce that there has finally been some progress in this area. Stanley Renneker, attorney for National Union Fire Insurance Company, met with Mr. Soechting on Wednesday, April 11, 1990. Mr. Soechting requested a structured settlement worth 4.5 million dollars which in my opinion is fairly reasonable and amounts to an 8 million dollar reduction in his initial demand. Mr. Renneker responded to this demand on the following Friday offering a structured settlement worth $2,848,267.00 and is awaiting Mr. Soechting's response.... [G]iven the "relative" closeness of the parties (2.8 v. 4.5), and Mr. Soechting's strong desire to settle this case, Mr. Renneker believes this case, if it is going to settle, will settle by the end of the month.

Soechting's $4.5 million offer was orally communicated, and he later testified that it was intended to settle only the adults' claims, not the children's. Soechting testified that he was then willing to settle the children's claims for $1.8 million and all of the claims for $6.3 million, and that he believed he communicated this to Renneker. However, Martin testified that he understood from Renneker that Soechting's $4.5 million offer was for the entire case, and he was not aware of any offer to settle the children's claims separately until several months later in September.

Soechting's only written settlement offer was made in a May 4, 1990 letter to Martin and Renneker, which stated: "[W]e will settle this case now for the sum of $10,000,000.00. The plaintiffs will consider a structured settlement having a present value of $10,000,000.00." Martin and Soechting testified that they did not consider $10 million to be a serious offer but merely an attempt by Soechting to "Stower-ize" Renneker and pressure him to respond with an offer within total policy limits. See G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex. Comm'n App.1929, holding approved). A few days later, Arzaga sent a letter to National Union that referred to a $7.5 million settlement demand by Soechting. He also referred to a June 4th letter from Martin to Arzaga that mentioned a $3.8 million settlement offer by National Union. Over the summer, though, the distance between the parties' respective settlement offers appears to have widened. On August 20th, Martin wrote to Arzaga, with copies to Guaranty National, National Union, and Renneker, reporting that the plaintiffs' settlement demand was $9 million and that Renneker had offered $3.2 million.

In December 1990, the children's claims settled for $1.8 million. The remaining claims went to mediation at least twice, and Soechting's demand for those claims was $5 million. Renneker offered $3.8 million. The adults' claims finally settled in March 1991 for $4.6 million.

Rocor filed this suit against National Union to recover attorney's fees and costs that it incurred as a result of National Union's alleged failure to promptly effectuate settlement. Rocor claimed that National Union was negligent, and that it violated article 21.21 of the Insurance Code.² The jury found that National Union's negligence proximately caused Rocor damages, and that National Union knowingly engaged in unfair or deceptive acts or practices in the business of insurance. National Union moved for judgment n.o.v., arguing that Rocor could not maintain common-law negligence or article 21.21 causes of action. Alternatively, National Union claimed there was no evidence to support the jury's findings. The trial court granted judgment n.o.v., and Rocor appealed.

The court of appeals, sitting en banc, reversed the trial court's judgment. Three justices believed that Rocor could assert causes of action for both commonlaw negligence and for unfair claim settlement practices under article 21.21. 995 S.W.2d at 811. Two justices concluded that Rocor could recover for common-law negligence, but not for article 21.21 violations. Id. at 816. And two dissenting justices believed that Rocor could not recover under either theory. Id. at 816-17. Accordingly, the court of appeals rendered judgment for Rocor on its common-law negligence claim. Id. at 806.

Both Rocor and National Union filed petitions for review. Rocor, having elected to recover under article 21.21, contends that the court of appeals' conclusion that it has no statutory cause of action is contrary to article 21.21's terms and purposes, and to our decision in Vail v. Texas Farm Bureau Mutual Insurance Co., 754 S.W.2d 129 (Tex.1988). On the other hand, National Union argues that the...