St. Paul Surplus Lines Ins. Co., Inc. v. Dal-Worth Tank Co., Inc.

• Decision Date: 29 August 1995
• Docket Number: No. 07-93-0197-CV,DAL-WORTH,07-93-0197-CV
• Citation: 917 S.W.2d 29
• Parties: ST. PAUL SURPLUS LINES INS. CO., INC., Appellant, v.TANK CO., INC. and Mission Butane Gas Co., Appellees.
• Court: Texas Court of Appeals

Page 29

917 S.W.2d 29

ST. PAUL SURPLUS LINES INS. CO., INC., Appellant, v. DAL-WORTH TANK CO., INC. and Mission Butane Gas Co., Appellees.

No. 07-93-0197-CV.

Court of Appeals of Texas Amarillo.

Aug. 29, 1995.

Opinion Overruling Rehearing Dec. 28, 1995.

Rehearing Overruled Jan. 23, 1996.

Cooper & Huddleston P.C., R. Brent Cooper, Michael W. Huddleston, Michelle E. Robberson, Dana Harbin, and Scott A. Whisler, Dallas, Davidson & Troilo, Terry Topham and Mary Mishtal, San Antonio, for appellant.

Watkins & Brock P.C., Phil Watkins and Suzette Kinder, San Antonio, Pozza & Patton, Timothy Patton, San Antonio, Gary Crapster, Dallas, for appellees.

Before REYNOLDS, C.J., and DODSON and BOYD, JJ.

REYNOLDS, Chief Justice.

Complaining of the existence of a Mary Carter agreement, lack of or insufficient evidence to support the judgment rendered against it, and errors in the award of damages, St. Paul Surplus Lines Insurance Co., Inc. (St. Paul) presents fifty-six points of error ¹ to appeal from the judgment in favor of Dal-Worth Tank Co., Inc. (Dal-Worth) ² and Mission Butane Gas Co. (Mission Butane). Dal-Worth counters with a cross-point, asserting its entitlement to exemplary damages and attorney's fees. Based upon the authorities cited and the rationale expressed, we will reverse the judgment only to the extent that it permits recovery of future lost profits as well as treble damages and, because the change in the amount of recovery necessitates a recomputation of prejudgment interest and attorney's fees, remand the cause to the trial court in order that the damages, interest and fees may be computed in conformity with the applicable principles.

Because of the number of points and the cross-point, and St. Paul's contentions of evidential insufficiency, our address is necessarily lengthy. At the outset, we will outline the facts and circumstances leading to this appeal, and notice other pertinent facts in our discussion of specific contentions of error.

EVENTS LEADING TO THE LITIGATION

Fifty years ago, Dal-Worth began operations in Grand Prairie as a designer and fabricator of propane tanks and vessels. For a time, it was the only business in Texas designing and fabricating a liquid propane (LP) gas pressure vessel, and it also fabricated a custom-design line of tanks throughout the country and overseas.

During the years 1983 and 1984, Mission Butane purchased three vehicles from Dal-Worth's LP line. These vehicles were assembled by Dal-Worth from a Chevrolet truck chassis purchased from General Motors Corporation, together with valves, meters and other accessories purchased from various suppliers, and a liquid propane tank fabricated by Dal-Worth.

In 1987, Ed Talbot, acting in his capacity as secretary and treasurer of Dal-Worth, requested James Lawrence of the Lawrence & Wright Agency (collectively referred to as Lawrence unless otherwise indicated), to obtain bids for product liability and completed operations insurance. Lawrence contacted Surry George Shaffer, III of the Shaffer Insurance Agency, Inc. (collectively referred to as Shaffer unless otherwise indicated), to assist him since Shaffer was more experienced in such matters.

On 10 May 1987, Dal-Worth purchased an insurance policy from St. Paul through the efforts of Lawrence, Shaffer, and Skeels, Mullens & Associates, Inc. d/b/a Felts, Mullens & Fuos (collectively, Skeels), as the surplus lines broker for St. Paul, because St. Paul was not authorized to do business in Texas. The policy provided comprehensive coverage for products and completed work liability, with an aggregate limit of $1,000,000.00. The following month, one of the trucks purchased by Mission Butane rolled over in a single vehicle accident.

In March of 1988, Dal-Worth purchased a three-year extended reporting endorsement on its initial policy, and a second liability policy (collectively, the policies). All of Dal-Worth's transactions were conducted through Lawrence and Shaffer, who delivered the policies to Talbot. During this same time frame, another truck purchased by Mission Butane rolled over and, on 27 June 1988, a third truck rolled over in San Antonio, injuring the driver, Bobby Flores.

In September of 1988, Dal-Worth received notice from Mission Butane's insurer, Ranger Insurance Company, that it intended to pursue a subrogation claim for property damage arising out of the Flores accident, and requesting Dal-Worth notify its insurance carrier of a possible design defect claim. Talbot testified that he followed the same procedure he followed in past lawsuits of giving the letter to Lawrence, who gave it to Shaffer, who gave it to Skeels, who forwarded it to St. Paul. Skeels forwarded the letter to St. Paul with a notation that the correspondence was provided by "our agent," and asked St. Paul to set up a claim file.

On 19 October 1988, John M. Killian, acting as Mission Butane's attorney, sent a thirty-day demand letter pursuant to the Texas Deceptive Trade Practices-Consumer Protection Act (DTPA), ³ to Dal-Worth, General Motors Corporation, and Mission Chevrolet, the San Antonio Chevrolet dealership which serviced the truck since its purchase from Dal-Worth until the time of the accident. Upon receipt of this letter on 22 October 1988, Talbot followed his customary practice, and gave it to Lawrence. It is undisputed that Lawrence forwarded the letter through the channels outlined above, and it was received on 25 October 1988 by St. Paul's Specialty Underwriting department in its corporate headquarters in Minnesota.

St. Paul's San Antonio office, which had responsibility for the claim because the Flores accident happened in San Antonio, received the demand letter twenty-two days after it was originally received by St. Paul, but still six days prior to the deadline for responding to the demand. St. Paul opened a claim file, assigned Beatrice Asfeld as the claim representative, and set reserves of $10,000 on the claim. Asfeld had exclusive responsibility for handling the claim, originally under the supervision of W.D. "Scotty" Scott, and later his replacement, Jack Larsen. It is undisputed that no action was taken to respond to the demand letter, nor to contact Killian for an extension of time in which to respond.

An 8 December 1988 telephone call was the only conversation Asfeld had with Killian concerning the claim or lawsuit. Killian offered to arrange an inspection of the trucks, but Asfeld declined. Killian informed Asfeld he would be filing suit in the near future because the statute of limitations was about to expire.

Immediately following her conversation with Killian, Asfeld spoke with Talbot, but admittedly failed to tell him of Killian's stated intent to file suit in the near future. Her memorandum memorializing the conversation recites that Talbot forwarded the Mission demand letter to his insurance agent "through proper channels" to St. Paul. Talbot testified that Asfeld told him to keep sending material and correspondence related to the claim through the agents, and did not give him any special instructions for forwarding papers in the event a lawsuit was filed.

On 2 February 1989, Mission Butane filed suit in San Antonio against Dal-Worth, General Motors Corporation, and Mission Chevrolet, alleging violations of the DTPA, breach of warranty, unconscionability, and misrepresentation, and seeking an unspecified amount of damages. Mission Butane's DTPA cause of action alleged knowing violations by Dal-Worth, but did not specifically allege its intentional conduct. The Mission Butane suit was not connected to the injuries sustained by Flores, who filed a separate cause of action for that recovery.

Dal-Worth was served with notice of the Mission Butane suit on 22 February 1989, and Talbot delivered the suit papers to Lawrence either that same day, or the following day. It is undisputed that Lawrence sent the papers to Shaffer, but there is disagreement between the parties as to what happened once Shaffer received the papers.

Amy Spross, a former employee of Shaffer responsible for handling claim and lawsuit papers, testified that she mailed the papers directly to St. Paul, as she had done on previous occasions, without going through Skeels. No documentation of the mailing of the papers was presented, and St. Paul denied receiving them.

On 2 March 1989, Asfeld memorialized her conversation with Dora Sarcozy of Ranger Insurance, recording that Sarcozy stated she believed suit had been filed against Dal-Worth in connection with the Mission Butane claim. Asfeld did not investigate the verity of Sarcozy's statement. Rather, on 9 March 1989, she spoke to another Ranger Employee, Barbara Bayer, who stated she "doubted" Ranger would have filed suit because of a probable arbitration agreement with St. Paul. Despite Killian's letter notification and telephone confirmation that suit would be filed, Asfeld chose to believe no suit had been filed by Ranger or anyone else; she assumed that because its insurance company agreed not to file suit, Mission Butane would not file suit in its own right and Flores would not file suit.

Talbot received information from Shaffer that St. Paul intended to answer the Mission lawsuit. Several days later, Talbot spoke to Asfeld and specifically asked about the status of the "suit," to which Asfeld replied that St. Paul was investigating it.

Dal-Worth's answer in the Mission Butane lawsuit was due on 20 March 1989. No answer was filed by, or on behalf of, Dal-Worth. ⁴ On 27 September 1989, Mission Butane took a default judgment against Dal-Worth, by which Mission Butane was awarded $794,100 in damages, plus an award for attorney's fees. The default judgment recited findings of knowing violations of the DTPA, but no intentional conduct.

Notice of the default judgment, albeit perhaps deficient under the rules of civil procedure, was sent to Dal-Worth. Talbot was not aware of the notice for some time.

In a matter unrelated to...