St. Paul Guardian Ins. Co. v. Luker

• Decision Date: 27 December 1990
• Docket Number: No. 6-90-0023-CV,6-90-0023-CV
• Citation: 801 S.W.2d 614
• Parties: The ST. PAUL GUARDIAN INSURANCE COMPANY, Appellant, v. Teri Lynn LUKER and Paul Kimbel Luker, Appellees.
• Court: Texas Court of Appeals

Page 614

801 S.W.2d 614

The ST. PAUL GUARDIAN INSURANCE COMPANY, Appellant, v. Teri Lynn LUKER and Paul Kimbel Luker, Appellees.

No. 6-90-0023-CV.

Court of Appeals of Texas Texarkana.

Dec. 27, 1990.

Second Rehearing Overruled Jan. 23, 1991.

Judith H. Winston, Cowles & Thompson, Dallas, for appellant.

Terry D. Bailey, Carthage, for appellees.

Before CORNELIUS, C.J., and BLEIL and GRANT, JJ.

OPINION

GRANT, Justice.

This appeal arises from a suit by Paul Kimbel Luker (Kim) and his wife, Teri Lynn Luker (Teri) to recover for loss of household goods in a fire under a homeowner's policy. The policy was issued to Emmett Luker, Kim's father, by the St. Paul Guardian Insurance Company, which paid the structural damage claim but denied the claim for loss of the Lukers' household goods. Kim and Teri Luker also brought a bad faith action against St. Paul for its denial of the claim. The jury found both contractual damages in the amount of $17,000 and tort damages in the amount of $50,000 ¹ for mental anguish and $15,000 for exemplary damages.

St. Paul contends that the trial court erred in overruling its motion for judgment non obstante veredicto because there was no evidence or insufficient evidence that it acted in bad faith; in overruling its motion for new trial because the evidence was factually insufficient to support the jury findings that its acts were the producing cause of any damage to Kim and Teri Luker or that they suffered mental anguish in the past; in overruling its motion for new trial about the amount of damages for past mental anguish awarded by the jury because the amount was excessive; in denying its motion for judgment n.o.v. because it owed no duty of good faith and fair dealing to Kim and Teri Luker; in holding that as a matter of law a stipulation precluded St. Paul from asserting that Kim and Teri Luker were not the insured parties under the policy and that it therefore owed them no duty to act in good faith; and in overruling its motion for new trial because the jury's answer to the arson issue was against the great weight and preponderance of the evidence.

At approximately 12:15 a.m. on the morning of June 12, 1985, a fire caused structural damage to the house in which Kim and Teri Luker were residing and also damaged or destroyed their household belongings. Although Emmett Luker owned the house, he was not living in it; rather, it was occupied by Emmett's son and daughter-in-law, Kim and Teri Luker.

The house was originally owned by Kim and his previous wife, Kathleen. In the divorce proceeding between Kim and Kathleen, the court had ordered the house sold and the mortgage and certain bank loans paid off. Emmett Luker had advanced Kim $17,000 towards construction of the house, but he did not place a lien against it. The house was offered for sale but no offers were received at asking prices of approximately $99,500 and, later, $89,500. Ultimately, Emmett Luker bought the house at a foreclosure sale. He agreed to let Kim and his new wife, Teri, live in the house and make the payments on the new mortgage until he sold the house. This action increased Kim's house payments from approximately $650 per month to $900 per month.

After the foreclosure sale, Kim met with a local insurance agent, Lynn Joffrion, and had the insurance policy rewritten to reflect that Emmett was the new owner of the house and to reduce the contents coverage from $40,000 to $27,000. Kim told Joffrion that he and Teri would continue to live in the house. He personally paid the full insurance premium on it before and after the fire until St. Paul settled Emmett's insurance claim for damage to the structure. Kim testified that Joffrion assured him that he was covered by the revised policy as if he were the policy holder.

For the seven days prior to the fire, Kim had been working on an oil rig in the Gulf of Mexico, and Teri had been visiting with Kim's mother in Houston. On the night of the fire, both Kim and Teri had arrived back in the Carthage area and spent that night at the home of Teri's mother, approximately 14 miles from Carthage where the fire occurred. Kim testified that he and Teri were asleep there when they were notified that their home had been destroyed by a fire.

Emmett Luker, the named insured, filed a claim with St. Paul for the policy limits of $90,000 for the house and $27,000 for damages to the personal property owned by Kim and Teri. The policy gave Emmett an option to extend coverage to the personal property of others.

St. Paul negotiated a settlement with Emmett in the amount of $76,865.04 for damage to the house, but it denied Emmett's claim for personal property losses on three grounds: that the fire was caused by arson by Kim and Teri or by someone instructed by them; that Kim and Teri misrepresented their losses by concealing their personal involvement in the fire and by failing to report truthfully the extent and valuation of the destroyed personal property; and that the policy issued to Emmett insured only Emmett's interest in any personal property on the premises and not that of Kim and Teri.

Teri, later joined by Kim, sued St. Paul and the insurance agent who issued the policy, Joffrion Insurance Agency, alleging that the agent misrepresented that the personal property of Teri and Kim would be covered under the policy issued to Emmett. On May 8, 1987, to secure a dismissal of the Joffrion agency from the lawsuit and avoid a Deceptive Trade Practices Act action, St. Paul filed a stipulation with the court in which it agreed to drop its claim that the personal effects of Kim and Teri were not covered because they were not "insureds" under the policy at the time of loss. In relevant part, the stipulation stated:

ST. PAUL GUARDIAN INSURANCE AGENCY agrees to drop as a defense to the Plaintiffs' claims, ST. PAUL'S previously made denial based upon interpretation that the policy, as written, would not legally cover the personal effects of the Plaintiffs because the Plaintiffs were not "insureds" under the policy at the time of the loss. Instead, the sole basis for denial of Plaintiffs' claim in this suit will henceforth be ST. PAUL'S allegation that the fire was intentionally set by the Plaintiffs or at their instance and that the Plaintiffs have misrepresented the circumstances and extent of their "loss."

We first address the issue of whether St. Paul owed a duty of good faith and fair dealing to Kim and Teri Luker. St. Paul argues that as a matter of law it owed no duty of good faith and fair dealing to Kim and Teri Luker because they were not insureds under the policy to Kim's father. The named insured in the policy was Emmett Luker, although the testimony showed that Kim Luker actually purchased the policy from the agent on his father's behalf, and the agent indicated to him that the personalty in the house belonging to Kim and Teri would be covered. The court in Arnold v. National County Mutual Fire Insurance Co., 725 S.W.2d 165, 167 (Tex.1987), established that insurers have a duty to deal fairly and in good faith with their insureds. This duty arises from the parties' unequal bargaining power and other factors which place the insured at a disadvantage in dealing with the insurer. See also Vail v. Texas Farm Bureau Mutual Ins. Co., 754 S.W.2d 129, 133 (Tex.1988); Aranda v. Insurance Company of North America, 748 S.W.2d 210, 212 (Tex.1988). A cause of action compensable in tort damages for breach of that duty exists when there is no reasonable basis for denial of the claim or for delay in payment, or for a failure on the part of the insurer to determine whether there was any reasonable basis for the denial or delay. Arnold, 725 S.W.2d at 167; National Union Fire Insurance Company v. Hudson Energy Company, 780 S.W.2d 417, 425-26 (Tex.App.--Texarkana 1989, writ denied). A bona fide controversy is a sufficient reason for failure of an insurer to make a prompt payment of a loss claim. Id., at 426.

St. Paul contends that because Kim and Teri Luker's names do not appear on the insurance policy, Kim and Teri Luker were not parties to the policy and that St. Paul therefore did not owe them the duty of good faith and fair dealing which it owed to Emmett Luker as the insured.

The Lukers correctly argue that a third person not a party to a contract has a cause of action to enforce a contract if the contract was made for that person's benefit, citing Quilter v. Wendland, 403 S.W.2d 335, 337 (Tex.1966). The question of whether third party beneficiaries are owed a duty of fair dealing and good faith was not addressed by the Texas Supreme Court in Arnold, nor has the question come before the Supreme Court in any subsequent cases. Such a duty by the insurer has been applied to an injured third party in workers' compensation cases. Aranda, 748 S.W.2d 210.

In Chaffin v. Transamerica Insurance Co., 731 S.W.2d 728, 732 (Tex.App.--Houston [14th Dist.] 1987, writ ref'd n.r.e.), the court stated that it knew of no Texas case in which a Texas court had broadened an insurance carrier's duty of good faith and fair dealing to provide a remedy to an injured third party. The court in that case, however, was dealing with a third party seeking recovery under a liability policy carried by the insured. Although a liability policy may provide compensation to third parties injured by the conduct of the insured, it does so based on the liability of the insured. The primary purpose for which a person purchases a policy is for his own financial protection. In the present case, the policy was purchased for purposes that included not only coverage of the house owned by Emmet Luker but also coverage of property belonging to a third party. The additional coverage was not on the basis of the insured's liability; rather, it applied in the event there was any loss to the third party beneficiary's property that was covered under the terms of the policy. In this situation, an insured voluntarily purchased coverage...