Southern Life & Health Ins. Co. v. Alfaro

Decision Date27 April 1994
Docket NumberNo. 04-91-00470-CV,04-91-00470-CV
Citation875 S.W.2d 740
PartiesSOUTHERN LIFE & HEALTH INSURANCE CO., Appellant, v. Antonio G. ALFARO, Appellee.
CourtTexas Court of Appeals

C.G. House, House & House, Thomas H. Crofts, Jr., Wallace B. Jefferson, Crofts, Callaway & Jefferson, San Antonio, for appellant.

Allen F. Cazier, and Catherine M. Stone, Law Offices of Catherine M. Stone, San Antonio, for appellee.

Before CHAPA, C.J., and REEVES 1 and CARR, 2 JJ.

OPINION ON APPELLANT'S MOTION FOR REHEARING

REEVES, Justice (Retired).

Appellant's motion for rehearing is granted. The original opinion issued by this court on February 26, 1993 is withdrawn and substituted by the opinion issued herein.

This appeal questions a trial court's decision holding an insurance company liable for violations of the Texas Insurance Code.

FACTS

On May 14, 1988, Tony Alfaro was shot and killed by Armando Castillo in Poth. Tony Alfaro was the named insured in a $10,000.00 term life insurance policy issued by Southern Life & Health Insurance Company (Southern Life). The policy provides a $10,000.00 accidental indemnity rider. Antonio Alfaro, Tony's uncle, was named as primary beneficiary. Antonio submitted a claim on the policy. Southern Life paid Antonio the $10,000.00 face-amount but denied the accidental double-indemnity claim because, according to Southern Life, Tony's death resulted either directly or indirectly from the commission of, or attempted commission of, an assault or felony.

Antonio sued Southern Life claiming violations of the Texas Insurance Code. The case was tried to a jury. The court awarded appellee the double-indemnity accidental death benefit, attorney fees, and additional damages because the jury found Southern Life acted knowingly.

STANDARD OF REVIEW

Appellant asserts factual and legal sufficiency points of error.

In conducting legal sufficiency review of factfindings of bad faith against an insurer, we apply the substantive test adopted in Aranda v. Insurance Co. of North America, 748 S.W.2d 210 (Tex.1988). See Lyons v. Millers Casualty Ins. Co., 866 S.W.2d 597, 598 (Tex.1993). To establish an insurer's liability for the tort of bad faith, the insured must prove: "(1) the absence of a reasonable basis for denying or delaying payment of the benefits of the policy [and ] (2) that the carrier knew or should have known that there was not a reasonable basis for denying the claim or delaying payment of the claim." Aranda, 748 S.W.2d at 213; see also Lyons, 866 S.W.2d at 600.

The first element of this test requires an objective determination of whether a reasonable insurer under similar circumstances would have delayed or denied the claimant's benefits. The second element balances the right on an insurer to reject an invalid claim and the duty of the carrier to investigate or pay compensable claims. This element will be met by establishing that the carrier actually knew there was no reasonable basis to deny the claim or delay payment, or by establishing that the carrier, based on its duty to investigate, should have known that there was no reasonable basis for denial or delay.

Aranda, 748 S.W.2d at 213.

In reconciling the insurer's substantive rights under the Aranda test and the traditional statement of the no evidence standard of review, the Texas Supreme Court has instructed that:

when a court is reviewing the legal sufficiency of the evidence supporting a bad faith finding, its focus should be on the relationship of the evidence arguably supporting the bad faith finding to the elements of bad faith. The evidence presented, viewed in the light most favorable to the prevailing party, must be such as to permit the logical inference that the insurer had no reasonable basis to delay or deny payment of the claim, and that it knew or should have known it had no reasonable basis for its actions. The evidence must relate to the tort issue of no reasonable basis for denial or delay in payment of a claim, not just to the contract issue of coverage. This is nothing more than a particularized application of our traditional no evidence review.

Lyons, 866 S.W.2d at 600 (citation omitted). The court continued that "the issue of bad In determining the factual sufficiency of the evidence, the court will consider and weigh all evidence. The finding will be set aside only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Plas-Tex, Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex.1989); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951).

faith focuses not on whether the claim was valid, but on the reasonableness of the insurer's conduct in rejecting the claim." Lyons, 866 S.W.2d at 600.

KNOWING CONDUCT

In three points of error, appellant contends: (1) it was error to award additional damages because there is no pleading or insufficient evidence to support the jury finding that appellant knowingly engaged in certain unfair or deceptive acts or practices; (2) there is no evidence supporting the jury's finding that appellant failed to process the claim in good faith nor that this failure was done knowingly; and (3) alternatively, a new trial should have been ordered because the evidence is factually insufficient to support the findings in Jury Questions 3 and 4. These points of error will be considered together.

Appellant contends that Jury Question 4 cannot support the additional damage award because it does not inquire about knowing conduct. Jury Question 4 which was affirmatively answered was submitted as follows: "Did Southern Life and Health Insurance Company fail to process the claim in good faith?"

In a jury trial based upon the DTPA, a plaintiff who seeks exemplary damages (additional damages) must request a jury question on such damages or the plaintiff will waive recovery of those damages. Martin v. McKee Realtors, Inc., 663 S.W.2d 446, 448 (Tex.1984). Exemplary damages constitute an independent ground of recovery and as such, the trial court cannot make findings of fact when the issue has been omitted. Martin, 663 S.W.2d at 448. Because knowing conduct was not submitted in Jury Question 4, Jury Question 4 does not support the judgment for additional damages. The additional damage award, however, may be supported by the jury's answer to Question 3.

Jury Charge Question 3 was submitted and answered as follows:

Did Southern Life and Health Insurance Company knowingly engage in any unfair or deceptive act or practice?

(a) misrepresenting to claimants pertinent facts or policy provisions relating to coverages at issue;

(b) failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies;

(c) failing to adopt and implement reasonable standards for prompt investigation of claims arising under its policies;

(d) not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims submitted in which liability has become reasonably clear.

ANSWER: Yes.

Appellant claims that the trial court erred in awarding additional damages because of pleading deficits: knowingly was not pleaded in regards to Jury Question 3(b)(c)(d), and the substance of Jury Question 3(b)(c) was not pleaded. We disagree.

An original pleading must contain "a short statement of the cause of action sufficient to give fair notice of the claim involved." TEX.R.CIV.P. 47. It has been held that pleadings are sufficient if they give notice of what issues are to be tried or if they give the adversary notice of what proof will be introduced at trial. Ransopher v. Deer Trails, Ltd., 647 S.W.2d 106, 110 (Tex.App.--Houston [1st Dist.] 1983, no writ).

We find that knowingly was pleaded in regards to Jury Question 3(a)(c)(d) through paragraph VI of Plaintiff's Second Amended Original Petition: The facts and statutory citations that were pleaded gave appellant fair notice of the issues to be tried and notice of what proof would be introduced at trial.

Appellant contends there is no evidence, or in the alternative insufficient evidence, to support the affirmative jury findings regarding In his brief, appellant admits that it has "waived complaint about the form of the definition" of knowingly but asserts that its "insufficiency points must be considered in light of the true elements required by the liability theory."

Question 3(d) or Question 4: there is no evidence that appellant did not attempt a good faith settlement after liability had become reasonably clear. This is so, appellant claims, because a bona fide controversy is a sufficient reason for an insurer not to make a voluntary payment of a loss claim.

Under TEX.INS.CODE ANN. art. 21.21, § 16 (Vernon Supp.1993) appellee is entitled to two times the amount of actual damages (additional damages) if the trier of fact finds that the defendant knowingly committed the acts complained of. "Knowingly" is defined as "actual awareness of the falsity, unfairness, or deception of the act or practice." TEX.INS.CODE ANN. art. 21.21, § 2(c) (Vernon Supp.1994). According to the jury charge, however, "knowingly" was defined "to act voluntarily and purposefully, not because of mistake or inadvertence or other innocent reason." The statutory definition of "knowingly" requires a higher burden of proof than that submitted to the jury. Consequently, if appellant's sufficiency points of error are judged according to the statutory definition, a reversal is more likely.

To embrace appellant's position would abrogate the waiver rule of TEX.R.CIV.P. 274, whereby any complaint regarding the jury charge is waived absent the proper objection; the jury would make its finding by the charge given but the verdict would be subject to reversal on appeal because a different standard of proof would be used. Consequently, appellant's insufficiency points will be considered in light of the "knowingly" definition submitted to the jury.

Appellant is not disputing the $10,000.00 jury...

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