Sisters of Charity of Incarnate Word v. Dunsmoor

• Decision Date: 27 May 1992
• Docket Number: No. 3-91-173-CV,3-91-173-CV
• Citation: 832 S.W.2d 112
• Parties: SISTERS OF CHARITY OF THE INCARNATE WORD d/b/a St. Edward Hospital, Appellant, v. Orlia Charles DUNSMOOR and Janice Dunsmoor, Appellees.
• Court: Texas Court of Appeals

Page 112

832 S.W.2d 112

SISTERS OF CHARITY OF THE INCARNATE WORD d/b/a St. Edward Hospital, Appellant, v. Orlia Charles DUNSMOOR and Janice Dunsmoor, Appellees.

No. 3-91-173-CV.

Court of Appeals of Texas Austin.

May 27, 1992.

Rehearing Overruled June 17, 1992.

Scott R. Kidd and Elizabeth Zeck, Brown Maroney & Oaks Hartline, Austin, for appellant.

Alan J. Winters, Houston, for appellees.

Before CARROLL, C.J., and ABOUSSIE and KIDD, JJ.

KIDD, Justice.

Orlia Charles Dunsmoor and Janice Dunsmoor (the "Dunsmoors") brought suit against the Sisters of Charity of the Incarnate Word d/b/a St. Edward Hospital ("Hospital") and three doctor-defendants to recover for injuries Mr. Dunsmoor received as a result of medical treatment at St. Edward Hospital. The doctor-defendants settled before trial, leaving the Hospital as the sole defendant. After a two-week trial, the jury returned a verdict in favor of the Dunsmoors, and the district court rendered a final judgment. The Hospital now files this limited appeal complaining that the district court erred in its calculation of the final judgment award.

FACTUAL AND PROCEDURAL BACKGROUND

The Dunsmoors, husband and wife, filed their original petition in this cause on October 14, 1988. In the petition, Mr. Dunsmoor claimed that he was injured as a result of medical treatment he received from the three doctor-defendants while a patient at St. Edward Hospital.

Nearly a year later, on October 20, 1989, the Dunsmoors settled all claims against the doctor-defendants. The doctors agreed to pay the Dunsmoors $302,000.00 in cash and purchase an annuity which would pay Mr. Dunsmoor $850.00 per month for life, increasing by three percent compounded annually, with a guaranteed term of at least thirty years. At trial, the annuity was evaluated at $170,816.00.

In order to reduce the amount of damages recoverable at trial, the Hospital elected a dollar-for-dollar credit for the Dunsmoors' settlement agreement with the doctor-defendants. See Tex.Civ.Prac. & Rem.Code §§ 33.012(b)(1), .014 (Supp.1992). This election was timely made in writing before the case was submitted to the jury. After approximately two weeks of trial, the jury returned a verdict against the Hospital in the amount of $703,800.00.

The district court used the verdict amount as a starting point from which to calculate the final judgment. Prejudgment interest on the entire jury verdict of $703,800.00 was calculated at ten percent simple interest per annum from October 14, 1988, (date suit filed) to October 20, 1989, (date of settlement agreement). This amount was added to the jury verdict for a total sum of $774,758.47. Then a credit of $472,000.00 (value of the total settlement agreement) was subtracted from $774,758.47 as of the settlement date October 20, 1989, and simple interest of ten percent per annum on the balance of $302,758.47 accrued until March 14, 1991 (date of final judgment). On March 14, 1991, the district court rendered the final judgment in favor of the Dunsmoors for a total of $345,144.66. Postjudgment interest was to accrue on this final judgment amount at the rate of ten percent per annum, compounded annually, from the date of final judgment until the date actually paid.

On March 26, 1991, the Hospital filed this appeal and, on April 12, 1991, paid the Dunsmoors $278,768.52 in partial satisfaction of the judgment. This appeal is limited to the amount of credit given for the settlement with the doctor-defendants, the amount of prejudgment interest awarded, and the amount of postjudgment interest awarded.

PREJUDGMENT INTEREST

Interest has been defined in Texas as "the compensation allowed by law for the use or forbearance or detention of money." Tex.Rev.Civ.Stat.Ann. art. 5069-1.01(a) (1987 & Supp.1992). The Texas Supreme Court has defined prejudgment interest as "that interest calculated on the sum payable to the plaintiff from the time of his loss or injury to the time of judgment." Republic Nat'l Bank v. Northwest Nat'l Bank, 578 S.W.2d 109, 116 (Tex.1979).

1. Prejudgment Interest at Common Law

Texas courts have long held that prejudgment interest "is recoverable as a matter of right where an ascertainable sum of money is determined to have been due and payable at a date certain prior to judgment." Id. at 116. The law establishing this "right" to recover prejudgment interest originated in the 1897 Texas Supreme Court decision of Watkins v. Junker, 40 S.W. 11, 12 (Tex.1897), which held that "if interest be properly an element of damages in any case, then it be so as a matter of law."

In dicta, however, the Watkins court stated that "interest, ... cannot be allowed upon damages arising from assault and battery, libel and slander, seduction, false imprisonment, nor for personal injuries and the like." Id. at 12 (emphasis added). The court's justification for excluding those cases from prejudgment interest accrual was twofold. First, the measure of damages in personal injury cases was not fixed at any time before trial, and second, the jury had a wide discretion in determining damages, making such awards too uncertain to serve as a basis for interest recovery. Id. at 12. Therefore, under Watkins, prejudgment interest was not recoverable in personal injury cases.

For eighty-eight years, Texas courts followed the Watkins dicta concerning prejudgment interest. Then, in Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549 (Tex.1985), the Texas Supreme Court overturned Watkins and held that prejudgment interest is recoverable in personal injury, wrongful death and survival action cases. See generally Don W. Cloud, Jr., Note, Cavnar v. Quality Control Parking, Inc.: Prejudgment Interest Is Now Recoverable In Personal Injury, Wrongful Death and Survival Action Cases, 38 Baylor L.Rev. 385 (1986). The Cavnar court stated that "[p]laintiffs have been permitted to recover prejudgment interest on both liquidated and unliquidated claims in both contract and tort disputes," making "the distinction between claims in which the damages are or are not fixed and ascertainable ... forced and artificial." Cavnar at 553. Furthermore, stated the Cavnar court, "the measure of recovery for damages in a personal injury action is no more uncertain and unliquidated than that in many other tort and contractual disputes where prejudgment interest has been allowed." Id.

Since no statute controlled the award of prejudgment interest in personal injury cases, the Cavnar court followed the holding in Phillips Petroleum Co. v. Stahl Petroleum Co., 569 S.W.2d 480 (Tex.1978). In Phillips Petroleum, the Texas Supreme Court abandoned the distinction between interest eo nomine and interest as damages, stating that prejudgment interest could be awarded based on equitable principles as an exception to the "interest eo nomine " rule. Id. at 486-87. The Cavnar court followed these equitable principles and reasoned that a judgment award without prejudgment interest would not fully compensate a plaintiff since the opportunity to invest and earn interest on the amount of damages between the time of the occurrence and the time of the judgment would be lost. Cavnar, 696 S.W.2d at 552.

The Cavnar court held that "a prevailing plaintiff may recover prejudgment interest compounded daily (based on a 365-day year) on damages that have accrued by the time of judgment." Id. at 554. The interest rate on those damages accrued at the prevailing rate that existed on the date judgment was rendered, and the starting date for accrual was "six months after the occurrence of the incident giving rise to the cause of action." Id. at 554-55. However, the Cavnar court did not extend prejudgment interest to future damages since they were unaccrued before trial, or to punitive damages since they were intended to punish instead of compensate. Id. at 555-56. If a plaintiff failed to segregate past and future damages, the Cavnar court held that prejudgment interest was not recoverable on either element of damages. Id. at 556.

2. Statutory Prejudgment Interest

Since 1985, Texas courts have often cited to Cavnar with few limitations or distinctions. The most comprehensive change to the Cavnar decision came not through case law but through legislative reform. In 1987, the Texas Legislature passed a comprehensive package of legislation, commonly known as "tort reform." Joseph Sanders and Craig Joyce, " Off to the Races": The 1980s Tort Crisis and the Law Reform Process, 27 Hous.L.Rev. 207, 213 (1990). One part of this legislation added section 6 to article 5069-1.05, which had previously focused primarily on postjudgment interest. Tex.Rev.Civ.Stat.Ann. art. 5069-1.05, § 6 (Supp.1992). Section 6 codified, modified, and overturned portions of Cavnar.

The Texas Legislature codified Cavnar by mandating recovery of prejudgment interest in personal injury, wrongful death, and property damage cases. Tex.Rev.Civ.Stat.Ann. art. 5069-1.05, § 6(a) (Supp.1992). However, the amended statute ¹ shortened the time period for which prejudgment interest could accrue. Instead of six months after the incident, as established by the Cavnar court, the commencement date for the accrual of prejudgment interest was changed to the 180th day after receipt of written notice of a claim by the defendant or the filing date of the suit, whichever occurs earlier. Id., Cavnar, 696 S.W.2d at 554-54. The prejudgment interest statute changed from daily-compound to annual-simple interest, tolled accrual for settlement offers made in writing, and allowed the trial court discretion as to accrual or nonaccrual of prejudgment interest during periods of trial delay. John T. Montford & Will G. Barber, 1987 Texas Tort Reform: The Quest for a Fairer and More Predictable Texas Civil Justice System (pt. 1), 25 Hous.L.Rev. 59, 105 (1988). Further, the scope of prejudgment interest was expanded beyond past damages, as set out in Cavnar, to include those future damages awarded in the judgment. Montford &...