Seguros Tepeyac, SA, Compania Mexicana v. Bostrom

• Citation: 347 F.2d 168
• Decision Date: 16 June 1965
• Docket Number: No. 21167.,21167.
• Parties: SEGUROS TEPEYAC, S. A., COMPANIA MEXICANA de SEGUROS GENERALES, Appellant, v. Maynard BOSTROM and James L. Jernigan, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

347 F.2d 168 (1965)

SEGUROS TEPEYAC, S. A., COMPANIA MEXICANA de SEGUROS GENERALES, Appellant, v. Maynard BOSTROM and James L. Jernigan, Appellees.

No. 21167.

United States Court of Appeals Fifth Circuit.

June 16, 1965.

COPYRIGHT MATERIAL OMITTED

William M. Brown, Brown, Herman, Scott & Young, Fort Worth, Tex., for appellant, Cantey, Hanger, Gooch, Cravens & Scarborough, Fort Worth, Tex., of counsel.

John Alan Appleman, Urbana, Ill., Albert H. Manus, Jr., Freeport, Ill., Joe Spurlock, Fort Worth, Tex., Stanley S. Crooks, Dallas, Tex., Jean Appleman, Urbana, Ill., for appellees.

Jerome Sneed, Jr., Austin, Tex., for American Mut. Ins. Alliance, amicus curiae.

Keith F. Kelly, Kelly, Morris, Walker & Maynard, Fort Worth, Tex., for the National Association of Independent Insurers, amicus curiae.

Julietta Jarvis, Chilton Bryan, Houston, Tex., for Aseguradora Reforma, S. A., Cia. General De Seguros, and others, amici curiae, Bryan & Patton, Houston, Tex., of counsel.

Before BROWN and WISDOM, Circuit Judges, and ESTES, District Judge.

WISDOM, Circuit Judge:

This case presents a new twist in the Texas Stowers doctrine. When an injured person claims damages against an insured tort-feasor for an injury covered under a liability policy, the Texas Stowers doctrine requires the insurer to exercise ordinary care to protect the insured to the amount of the policy limits.¹ If the insurer breaches that duty, the insured has a cause of action against the insurer for the total amount of the claimant's judgment against him, including the amount in excess of the policy limit. Here, the policy was for $5,000; allegedly, the claim might have been settled for that amount; instead, the injured claimant recovered a judgment against the insured for $270,000. The insured is insolvent, has paid nothing on the judgment, and did not sue the insurer. The question this case presents is whether the injured claimant has standing to sue the liability insurer for the amount of the judgment in excess of the policy limit. The district court allowed the claimant to sue the insurer for the full $270,000 and, after a jury finding that the insurer was negligent, granted judgment in favor of the plaintiff for $270,000. 225 F.Supp. 222. We reverse the judgment as to the excess over the policy limit.

I.

In November 1958 three young men, Bostrom (plaintiff-appellee), Sullivan, and Jernigan (intervenor) went on a pleasure trip to Mexico in Jernigan's car. After they crossed into Mexico, Jernigan took out public liability insurance with Seguros Tepeyac, S.A., Compania Mexicana de Seguros Generales (defendant-appellant), a Mexican corporation licensed to do business in Texas. The policy was a three-day "Special Automobile Policy for Tourists" covering risks within the Republic of Mexico only. The maximum coverage was five thousand dollars for each person injured, with ten thousand dollars the total coverage for one accident. The second day of their Mexican holiday, Jernigan's car collided with a bus. Sullivan was driving with Jernigan's permission, and Bostrom was asleep in the back seat. Bostrom "sustained about as serious injuries as a person could endure and live"; he is now a permanent quadriplegic. 225 F.Supp. at 227.

The insured notified the insurer of the accident on the day it occurred. The insurer made an investigation and, within eight days, settled with the bus company for damages to the bus and with Jernigan for damages to his automobile. At that time the company had no knowledge that Bostrom intended to assert a claim against Jernigan, and no reason to negotiate with Bostrom if, as the company contends, the policy does not cover the claim of a guest-passenger. Seguros Tepeyac states that no one was ever aware that Bostrom had asserted a claim until June of 1960, nineteen months after the accident, when Bostrom's attorney informed Jernigan that Bostrom was about to file suit against Jernigan. August 26, 1959, Bostrom's father wrote the Company for a photo-copy of the "insurance file" relating to Jernigan. He wrote again September 20 and December 1 asking for a copy of the insurance policy. The Company replied to these letters, wanting to know his interest in the matter, and sent copies of documents from its file but did not send a copy of the policy until Bostrom's attorney wrote June 30, 1960, asking for a copy.

The copy of the policy forwarded to Bostrom's attorney is the one-page policy sued on in this case. The district court found that there was no evidence to substantiate the insurer's contention that the policy delivered to Jernigan had an additional page excluding liability for injuries to third persons riding as guest passengers.

Shortly before filing suit on July 12, 1960, Bostrom made an oral offer to Sullivan and Jernigan to settle his claim against them for $5,000. They rejected it for lack of funds. Both the insured and the claimant refrained from mentioning the offer of settlement to the insurer, and the Company asserts that it had no knowledge of the existence of the offer until after Bostrom recovered judgment for 54 times the amount of the offered settlement.

August 2, 1960, Jernigan advised Seguros Tepeyac of Bostrom's suit and called upon it to defend the action. A number of letters passed between Jernigan and Seguros Tepeyac before the suit was tried, the insurer consistently denying liability to a guest passenger and refusing to defend the case. February 12, 1962, the plaintiff recovered a judgment for $270,000 against Jernigan and Sullivan after a trial, without a jury, before Judge Sarah T. Hughes in the Dallas Division of the Northern District of Texas.

Execution on the judgment was returned nulla bona. Bostrom then brought this action against Seguros Tepeyac. On submission of special issues, the jury found that the insurer was negligent "in not initiating and attempting to bring about a settlement" of Bostrom's claim "within the $5,000 limit of the public liability policy in question".² February 12, 1962, the district court granted judgment for $270,000, and overruled the defendant's motions for judgment and for judgment n. o. v.

June 24, 1964, while this case was on appeal, Jernigan assigned to Bostrom his claim against Seguros Tepeyac. He then filed with this Court a petition asking that he be permitted to intervene. We allowed the petition preliminarily. The intervention asks that the insurer discharge Bostrom's judgment against Jernigan. Bostrom, however, does not rely on the assignment. In the district court he sued in his own right as a third party beneficiary of the insurance contract. On appeal, his attorney now contends that Bostrom, as a judgment creditor, is entitled to reach funds of the insurer to the amount of his judgment.

II.

In a Stowers situation the "petition asserts, in effect, two causes of action, one for the sums contracted to be paid and one (in tort) for the excess of the judgment above those sums." Highway Ins. Underwriters v. Lufkin-Beaumont Motor Coaches, Inc., Tex.Civ.App.1948, 215 S.W.2d 904. Here, for example, Bostrom has a $5,000 suit, sounding in contract as a third party beneficiary, and a $265,000 suit, sounding in tort, based on the defendant's negligence. We shall discuss, first, the plaintiff's standing to sue in contract.

This Court held in Ohio Casualty Ins. Co. v. Beckwith, 5 Cir. 1934, 74 F.2d 75, that a liability insurance policy is a contract for the benefit of a third person, entitling an injured claimant to sue the insurer to enforce payment of his judgment. Similarly, in Seaton v. Pickens, 1935, 126 Tex. 271, 87 S.W.2d 709, 711, 106 A.L.R. 512, the Texas Supreme Court declared that "the policy * * * inures to the benefit of such injured persons, as well as to the benefit of the assured"; accordingly, "the injured person, after obtaining final judgment against the insured, may sue the insurer to enforce payment of the judgment without causing execution to be issued against the insured." This strong dictum in Seaton v. Pickens is supported by other Texas cases. See Womack v. Allstate Ins. Co., 1956, 156 Tex. 467, 296 S.W.2d 233; Commercial Standard Ins. Co. v. Ebner, 1950, 149 Tex. 28, 228 S.W.2d 507.

Here the contract was executed in Mexico; the insurer was a Mexican company; the parties anticipated public liability coverage for accidents taking place in Mexico. In these circumstances, the trial judge properly found that Mexican law controls the meaning of the contract. Article 147 of the Mexican law governing insurance therefore must be read into the policy. This article, consistent with the civil law generally, specifically recognizes that the injured party is a third party beneficiary of the insurance contract.

"Art. 147. Liability insurance grants the right to the indemnity directly to the damaged third person, who shall be considered as beneficiary of the insurance from the moment of the loss.

"In case of death of the latter, his right to the insurance amount shall be transmitted by way of succession, unless the law or the contract which establish for the assured the obligation to indemnity, specifies the family members of the deceased to whom the indemnity must be paid directly without the need of estate proceedings." (Emphasis supplied.)

In the second paragraph of Article 147, the reference to "the insurance amount" seems to indicate, as well as it should, that the quasi-contract with the claimant is limited to the policy limit.

The only significant clause in the one-page policy provides: "The Company agrees that within the terms, exceptions and General Conditions hereof, the indemnities payable to the insured shall be effected once the damage suffered or caused by the vehicle has been proved and adjusted." Although this clause describes the payment as "indemnities", the clause states that the insurer must pay as soon as the "damage caused by the vehicle" has been proved and adjusted. The amount of damage to third persons is established at...