Saenz v. Fidelity & Guar. Ins. Underwriters

• Decision Date: 16 August 1996
• Docket Number: No. D-4561,D-4561
• Citation: 925 S.W.2d 607
• Parties: 39 Tex. Sup. Ct. J. 743 Corina SAENZ and Felipe Saenz, Jr., Petitioners v. FIDELITY & GUARANTY INSURANCE UNDERWRITERS and Gisela Armstrong, Respondents.
• Court: Texas Supreme Court

Page 607

925 S.W.2d 607

39 Tex. Sup. Ct. J. 743

Corina SAENZ and Felipe Saenz, Jr., Petitioners v. FIDELITY & GUARANTY INSURANCE UNDERWRITERS and Gisela Armstrong, Respondents.

No. D-4561.

Supreme Court of Texas.

Argued Nov. 15, 1994.

Decided June 14, 1996.

Rehearing Overruled Aug. 16, 1996.

Ramon Garcia, Dalinda G. Quintana, Edinburg, Thomas Black, Boerne, James P. Wallace, Austin, W. Charles Campbell, San Antonio, for Petitioners.

W. Wendell Hall, San Antonio, Ben Taylor, Dallas, for Respondents.

HECHT, Justice, delivered the opinion of the Court in which GONZALEZ, ENOCH, BAKER and ABBOTT, Justices, joined.

Corina Saenz sued her employer's workers' compensation carrier and its adjuster for wrongfully inducing her to settle her claim and recovered actual damages for future medical costs and mental anguish, and punitive damages. We hold that Saenz' sole remedy for loss of medical benefits is rescission, that she did not adduce any evidence of mental anguish, and that because she is not entitled to actual damages, she is not entitled to punitive damages. Inasmuch as Saenz expressly disclaims rescission, we render judgment that she take nothing.

I

Saenz had been working as a secretary for about two months when she fell over backward in a chair and hit her head on the floor. Saenz, then thirty-three years old, was hospitalized for several days. After being released, she continued to see numerous physicians for chronic headaches, drowsiness, seizures, and other ailments resulting from her accident. She has been diagnosed as having post-concussion syndrome, for which she may require medical treatment indefinitely.

The workers' compensation carrier for Saenz' employer, Fidelity & Guaranty Insurance Underwriters, promptly began paying her weekly wage benefits as well as her medical bills. During the next year, Fidelity's adjuster, Gisela Armstrong, had many conversations with Saenz in an effort to settle her claim. Saenz repeatedly told Armstrong that her primary concern was that the medical expenses related to her injury be paid for the rest of her life. The Texas Workers' Compensation Act provides for this benefit. TEX. LAB.CODE § 408.021(a)(formerly TEX.REV.CIV. STAT. ANN. art. 8306, § 7 (Vernon Supp.1995)). Armstrong never told Saenz that she might be entitled to lifetime medical coverage for her injury. Saenz contends that Armstrong told her that workers' compensation would cover medical expenses for only five years. Armstrong denies that she ever said that.

Saenz did not have legal counsel. According to Saenz, Armstrong did not attempt to dissuade her from hiring a lawyer, but Armstrong did say that Saenz did not need a lawyer because she would not receive any more in settlement of her claim. Saenz had made two prior claims for workers' compensation. Each time she was represented by an attorney, and each time she settled for less than five years' medical benefits and a lump sum payment, of which her attorney was paid twenty-five percent. Saenz did not want to incur this legal expense again if it would make no difference in the size of a settlement, and she says Armstrong assured her it would not.

A lawyer for Fidelity wrote Armstrong that Saenz' claim was "a potentially dangerous case in the valley", where "juries tend to be very liberal". He believed Saenz' positive electroencephalogram indicated that her physical complaints were "legitimate", and he urged Armstrong to work out "a reasonable settlement ... without scaring the claimant off to an attorney." Armstrong, however, was unable to reach an agreement with Saenz.

Fidelity scheduled a prehearing conference before an Industrial Accident Board hearing examiner to attempt to resolve Saenz' claim. Present at the conference were Saenz and her husband, another lawyer for Fidelity, and the IAB hearing examiner. Fidelity's lawyer stated that he offered Saenz three alternative settlements: a lump sum payment of $45,000 and twenty years' medical coverage, $60,000 and ten years' coverage, or $65,000 and five years' coverage. Saenz recalls only the last offer, which she accepted. Fidelity's lawyer told Saenz that she had received "a pretty good settlement" and "probably couldn't do any better". Neither he nor the hearing examiner told Saenz that she might be entitled to lifetime medical benefits. The parties signed a compromise settlement agreement before they left the hearing.

Taking into account what Fidelity had already paid Saenz in weekly benefits, the lump sum it agreed to pay Saenz was some $10,000 more than the discounted value of all the weekly benefits Saenz would have been paid if she were totally and permanently disabled. Fidelity's lawyer testified that this was the largest settlement offer he had ever made to a workers' compensation claimant. The hearing examiner, who had started with the IAB nearly twenty years earlier; who had, in his words, "probably held from 75 to 100 prehearings per week for decades", totaling "tens of thousands of hearings"; and who had worked as an investigator and paralegal in a law firm well known in the State for its representation of plaintiffs in workers' compensation and personal injury cases, testified that he "had never seen a compromise settlement agreement that high", and that he had "never seen one that high since." All in all, he thought the "case was settled fairly and in the best interest" of Saenz. The Executive Director of the IAB testified that when he later reviewed and approved Saenz' settlement he believed her "claim was overpaid."

Following the hearing, Fidelity's lawyer reported to Armstrong that he had settled the claim, which he regarded as "very serious" and "very dangerous". While the cash payment was high, he stated that "the limitation of five years' of medical on this case will be very important." He added that "by settling the case at this time, we avoid the possibility that this lady's condition could deteriorate and eventually result in a condition of imbecility which would cause us to pay statutory lifetime compensation benefits in addition to lifetime medical benefits."

Several months after the settlement was concluded, Saenz called Fidelity's office and asked for copies of her medical records. The records Fidelity sent included the two letters from Fidelity's lawyers, from which we have quoted. Saenz contends that in reading those letters she learned for the first time that she had been entitled to medical treatment for her injury for the rest of her life.

Two years later, Saenz sued Fidelity in Hidalgo County for damages for bad faith and for violations of the Deceptive Trade Practices--Consumer Protection Act, TEX. BUS. & COM.CODE §§ 17.41-.63, and Article 21.21 of the Insurance Code. Saenz later amended her pleadings to name Armstrong as a defendant, to add a claim for fraud, and to request rescission of the settlement agreement. At trial, Saenz stressed her claim for fraud but did not pursue a claim for rescission. The jury found that Armstrong's fraud, which was ratified by Fidelity, and Fidelity's own bad faith caused Saenz to suffer damages of $50,000 for past mental anguish, $200,000 for future mental anguish, and $500,000 for future medical costs. The jury also found that Fidelity and Armstrong had been consciously indifferent to Saenz' rights, and that exemplary damages of $4 million should be assessed against Fidelity, and $250,000 against Armstrong. The district court rendered judgment on the verdict for all damages found by the jury.

The court of appeals en banc, with two justices dissenting, affirmed the award of mental anguish damages for fraud and punitive damages against Armstrong. The court reversed the award of punitive damages against Fidelity because it found no evidence that Fidelity had ratified Armstrong's actions. The court also reversed the award for future medical expenses because the evidence showed that those expenses would be attributable to Saenz' injury and not to the fraud. However, the court remanded the case to the district court to consider rescission of the settlement agreement in light of the finding of future medical expenses. 865 S.W.2d 103, 114. The court did not address the finding of bad faith.

All parties have applied to this Court for writ of error.

II

Fidelity and Armstrong contend that they did not wrong Saenz in any way. We focus on their arguments concerning the damages awarded Saenz, but before we do so, we must address Saenz' contention that the court of appeals' decision is invalid because it was not agreed to by a majority of the justices who participated in it.

This case was argued before a panel of three justices of the Thirteenth Court of Appeals. While the case was under submission, the court decided to consider it en banc without re-argument. The Thirteenth Court of Appeals consists of a chief justice and five justices. TEX. GOV'T CODE § 22.216(m). When the opinion and judgment in this case issued, however, Chief Justice Paul Nye had retired and one of the justices, Justice Robert R. Seerden, had been appointed chief justice, leaving a vacancy on the court that had not been filled. The opinion of the court does not indicate who participated in the decision, other than its author and the two dissenting justices, and specifically whether former Chief Justice Nye participated. Neither does the judgment. The division of the court may have been 3-2 or 4-2. Eight days later the vacancy on the court was filled by appointment of a new justice, Justice Linda Reyna Yanez.

All parties moved for rehearing. On November 30, 1993, the clerk of the court of appeals sent counsel a letter which stated in substance:

The appellants' motions for rehearing ... were this day OVERRULED with Justice Yanez dissenting. Justice Yanez' dissenting opinion will follow. In addition, the appellees' motion for oral argument en banc was denied by this Court on this date.

The next day the clerk sent counsel another letter which stated in...