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

• Decision Date: 25 August 1998
• Docket Number: DAL-WORTH,No. 96-0148,96-0148
• Citation: 974 S.W.2d 51
• Parties: 41 Tex. Sup. Ct. J. 1357 ST. PAUL SURPLUS LINES INSURANCE COMPANY, INC., Petitioner, v.TANK COMPANY, INC., et al., Respondents.
• Court: Texas Supreme Court

Page 51

974 S.W.2d 51

41 Tex. Sup. Ct. J. 1357

ST. PAUL SURPLUS LINES INSURANCE COMPANY, INC., Petitioner, v. DAL-WORTH TANK COMPANY, INC., et al., Respondents.

No. 96-0148.

Supreme Court of Texas.

Aug. 25, 1998.

PER CURIAM.

The parties' motions for rehearing are overruled. We withdraw our per curiam opinion issued February 13, 1998, and substitute the following in its place.

Of the numerous issues raised by all parties in this case, we address only whether the court of appeals erred in its rulings concerning a Mary Carter agreement, damages for loss of credit reputation, whether defendant acted knowingly, prejudgment interest, and attorney fees. We affirm in part, reverse in part, and remand the case to the court of appeals.

The facts are fully set out in the court of appeals' opinion, 917 S.W.2d 29, 36-40, and we summarize them only as necessary to place the issues before us in context.

Dal-Worth Tank Co. received notice from one of its customers, Mission Butane Gas Co., that Mission intended to sue for several thousand dollars in damages caused when trucks it had bought from Dal-Worth had rolled over. Dal-Worth sent the notice to its insurer, St. Paul Surplus Lines Insurance Co., who opened a claim file. Mission's insurer also notified St. Paul of Mission's intention to sue Dal-Worth if Mission's claim was not satisfied. After discussing the claim with Dal-Worth, St. Paul concluded that Dal-Worth was not liable and refused to pay.

Mission then sued Dal-Worth. There is evidence that the suit papers were forwarded to St. Paul, although St. Paul disputed having received them. St. Paul heard conflicting accounts from Mission's insurer's employees about whether Mission had filed suit but concluded suit had not been filed. Even after Dal-Worth called St. Paul to ask about "the suit", St. Paul did not inquire whether suit had actually been filed.

Dal-Worth did not answer Mission's suit, and eventually Mission obtained a default judgment against Dal-Worth for $794,100. Dal-Worth received notice of the judgment from the court but did not realize its significance and did not send it to St. Paul. St. Paul first learned of the judgment seventy-eight days after it was signed and decided to determine whether it was covered by the policy before initiating a writ of error appeal. St. Paul advised Dal-Worth of the existence of the judgment but did not say that it was exploring coverage issues. Mission would have settled the case at this point for $17,000, but neither Mission, Dal-Worth, nor St. Paul made any settlement overtures.

Four weeks later St. Paul denied coverage but offered to pay an attorney of Dal-Worth's choice to appeal by writ of error. Dal-Worth accepted the offer and appealed, but when St. Paul would not supersede the judgment, Dal-Worth was forced into bankruptcy.

Dal-Worth then sued two insurance agents with whom it had dealt, later adding St. Paul as a defendant. Meanwhile, Dal-Worth settled with Mission for dismissal of the appeal, $50,000 cash, $25,000 credit, ninety percent of up to $2 million of any recovery by Dal-Worth against St. Paul, and fifty percent of any recovery over $2 million. Mission then joined Dal-Worth in its suit. Dal-Worth and Mission also settled with one of the agents, Shaffer, for about $500,000, to be repaid out of any recovery against St. Paul.

The district court rendered judgment on a verdict for Dal-Worth and Mission finding liability under the Deceptive Trade Practices Act and the Insurance Code, and for negligence. The judgment awarded Dal-Worth and Mission $331,750.00 past lost profits, $2,160,000.00 future lost profits, $25,000.00 bankruptcy attorney fees, $507,000.00 increased business costs, $500,000.00 lost credit reputation, $607,921.49 prejudgment interest, $1,117,219.30 due on the Mission judgment, $2,000,000.00 statutory damages under the DTPA, $10,497,781.00 statutory damages under the Insurance Code, and $11,500,000.00 punitive damages for gross negligence. The judgment also awarded forty percent of the total judgment as attorney fees on the statutory claims, which were calculated to be $6,767,429.60 under the DTPA and $10,497,781.00 under the Insurance Code, but did not award attorney fees on the negligence claim. Dal-Worth and Mission elected to recover under the Insurance Code because it provided the largest judgment: $26,244,352.79. (Actually, as the court of appeals noted, 917 S.W.2d at 40 n. 7, the awards total $26,244,452.79, but Dal-Worth has not complained of the error.)

St. Paul appealed. The court of appeals reversed the award of future lost profits, affirmed the rest of the judgment, and remanded the case for recalculation of the total award. 917 S.W.2d at 64. All parties appealed to this Court, raising numerous complaints. We address only those as to which the court of appeals erred.

The Mary Carter agreement. St. Paul argues that the Shaffer settlement was a Mary Carter agreement prohibited under Elbaor v. Smith, 845 S.W.2d 240 (Tex.1992). The court of appeals incorrectly held that St. Paul preserved this complaint by raising it in its motion for new trial. The court reasoned that because Elbaor was not decided until after the verdict was returned (but before judgment was rendered), St. Paul could not have objected earlier. 917 S.W.2d at 43-44. But the fact that Elbaor had not been decided did not relieve St. Paul of its obligation to timely object to the effect of the Shaffer agreement on the trial any more than it relieved the defendant in Elbaor from objecting. Even though Elbaor was not yet the law, St. Paul was obliged to lodge a timely objection to preserve error. See General Chem. Corp. v. De La Lastra, 852 S.W.2d 916, 921 (Tex.), cert. dism'd, 510 U.S. 985, 114 S.Ct. 490, 126 L.Ed.2d 440 (1993). We specifically held in Elbaor that the rule announced would apply only to pending cases "where error has been preserved". Elbaor, 845 S.W.2d at 251. In this case St. Paul did not preserve error because it failed to object at trial to the Shaffer agreement. We disapprove of the court of appeals' contrary conclusion and thus need not consider whether the Shaffer agreement was indeed a Mary Carter agreement and if so whether its effect on the trial was or could have been harmless error.

Loss of credit reputation. St. Paul argues that there is no evidence to support an award for loss of Dal-Worth's credit reputation, and we agree. "To prove that credit rating is harmed is to prove nominal damages; not until a loan is actually denied or a higher interest rate charged is there proof of actual damages which may be compensated." LAWRENCE A. C UNNINGHAM, 5 C ORBIN ON C ONTRACTS § 1007 (Supp.1998). While Professor Cunningham suggests that this rule may not apply in tort cases, see id., we believe that it should. Regardless of whether an action sounds in contract or tort, a plaintiff does not suffer actual damage merely from the inability to obtain a loan. There must be a showing that such inability resulted in injury and proof of the amount of that injury. Here, it is undisputed that Dal-Worth had strong credit before filing for bankruptcy, perhaps as much as $2.75 million, and weak credit afterwards, maybe as little as $250,000. But there is no evidence that the decline injured Dal-Worth in any way because Dal-Worth never needed to use the credit and never tried to do so. Indeed, Dal-Worth prided itself on not having borrowed money for more than a decade. There is evidence that Dal-Worth's vendors insisted on payment in advance, resulting in increased costs to Dal-Worth. While this is a compensable injury, Dal-Worth characterized this loss as "increased business costs," for which it recovered damages under a separate jury issue. Under these circumstances, this evidence cannot also support the jury's award of lost credit reputation. The award of $500,000 to Dal-Worth for lost credit reputation must therefore be reversed.

Whether St. Paul acted knowingly. St....