State Farm Fire and Cas. Co. v. Gandy
| Citation | 925 S.W.2d 696,39 Tex. Sup.Ct. J. 965 |
| Decision Date | 12 July 1996 |
| Docket Number | No. 94-0781,94-0781 |
| Parties | 39 Tex. Sup. Ct. J. 965 STATE FARM FIRE AND CASUALTY COMPANY, Petitioner, v. Julie Kathleen GANDY, Individually and as Assignee of Ted Pearce, Respondent. |
| Court | Supreme Court of Texas |
Michael W. Huddleston, Michelle E. Robberson, Dallas, for petitioner.
Carl David Adams, Dallas, Jim Ammerman, II, Marshall, for respondent.
Julie Gandy sued her stepfather, Ted Pearce, for sexually abusing her as a child. State Farm Fire and Casualty Company, which at one time had issued Pearce a homeowner's policy, agreed to pay an attorney chosen by Pearce to defend him but reserved the right to deny coverage. While the case was pending, Pearce pleaded nolo contendere to criminal charges initiated by Gandy and Without notice to State Farm, Pearce settled with Gandy by agreeing to a judgment in her favor of over $6 million and assigning her any claims he had against State Farm. In return, Gandy agreed never to try to collect the judgment from Pearce. Gandy, as Pearce's assignee, then sued State Farm to collect her agreed judgment under Pearce's policy and to recover damages for State Farm's alleged failure to defend Pearce properly.
was given a probated sentence of five years' imprisonment.
The district court granted summary judgment for State Farm on Gandy's policy claim, holding that sexual abuse was intentional conduct not covered by the homeowner's policy and therefore State Farm never had a duty to defend Pearce. But since State Farm voluntarily undertook Pearce's defense, the court held that State Farm had a duty to conduct the defense properly. On a verdict that State Farm failed to do so, the court rendered judgment for Gandy. The court of appeals affirmed. 880 S.W.2d 129.
We hold that Pearce's assignment to Gandy violated public policy and therefore conveyed her nothing. Because she had no right to recover against State Farm except as Pearce's assignee, we reverse the judgment of the court of appeals and render judgment that Gandy take nothing.
Julie Gandy was eight years old when her mother, 32, who had been divorced from her father a little more than a year, married Ted Pearce, 49, and the three of them moved to Eustace, Texas. Pearce, who had ended his formal education in the ninth grade, owned and operated a service station in nearby Athens.
In December 1988, four months before her seventeenth birthday, Gandy told her mother that Pearce had been sexually abusing her at home and at the service station for three and one-half years. Gandy also gave a statement to the district attorney. Within a few weeks, Gandy's mother filed for divorce, and the Henderson County grand jury indicted Pearce for engaging in sexual intercourse with Gandy.
About two years later, in January 1991, Gandy sued her mother and Pearce in Dallas County, alleging that Pearce had negligently and intentionally abused her and that her mother had negligently failed to prevent it. Gandy claimed actual damages of not less than $1 million for mental anguish and medical expenses, and punitive damages from each defendant equal to four times actual damages. Gandy later amended her pleadings to name as a defendant a physician Pearce had once sent her to for birth control pills.
Pearce took the papers served on him to attorney E. Ray Andrews, who was representing him in the still pending divorce and criminal cases, and Andrews agreed to represent him in Gandy's suit. Gandy's mother took her suit papers to attorney Melvin G. Bateman, who was representing her in the divorce case, and Bateman agreed to represent her.
Bateman notified State Farm, which had insured the Pearces' home beginning in September 1987 (but never the service station where some of the alleged abuse occurred), that the suit had been filed. State Farm immediately investigated Gandy's allegations and concluded that they might not be covered by its policy, but that it should nevertheless undertake the Pearces' defense. In such circumstances State Farm's procedure was to allow each insured to choose his or her own counsel. State Farm would pay both attorneys' fees. Bateman told State Farm that he would file an answer for Gandy's mother, and he did so. State Farm learned that Andrews had been representing Pearce and contacted him to inquire whether he intended to represent Pearce in Gandy's suit. Andrews advised State Farm that he represented Pearce in Gandy's suit and would file an answer on Pearce's behalf, which he did.
A month after Gandy filed suit, State Farm sent Pearce the following letter, with a copy to Andrews Dear Mr. Pearce:
There is a question as to whether this company is obligated to defend or indemnify you for claims arising out of the incident which is alleged to have occurred on or about March 17, 1983 at 312 West Corsicana, Athens, Texas [the address of Pearce's service station] and Highway 136 South, Eustace, Texas [the Pearces' home address].
We wish to call your attention to the fact that we specifically reserve our rights to deny coverage to you for the following reasons:
1. There is a question as to whether there was a policy in force on the date of loss.
This question is raised due to the fact that State Farm Insurance did not provide you with a Homeowner's policy until September 8, 1987 and this loss occurred sometime in the years 1983 through 1988.
2. Coverage D, Section 2 Liability: shall not apply to Bodily Injury or Property Damage caused intentionally by or at the direction of the insured.
The lawsuit contains allegations of intentional acts.
For these reasons, you are hereby notified that any action taken by State Farm Fire and Casualty Company or its authorized representative in investigating, negotiating, denying or defending claims arising out of such incident, shall not be considered a waiver of such policy defense or of any policy defense which may be involved in this case, nor shall such action waive any of your rights under the policy.
If we do not hear from you to the contrary, we will assume that it is acceptable for us to continue to handle the case on these terms.
State Farm sent an identical letter to Gandy's mother and her attorney. Neither of the Pearces and neither of their attorneys objected to the letter.
After Pearce received this letter he called State Farm's agent, who asked for an appointment to take his statement. Pearce said he would contact Andrews and call back. He did so on March 25, 1991, and agreed to meet with State Farm's agent three days later. When the agent met with Pearce to take his statement, Andrews was present. Pearce told the agent he absolutely denied all Gandy's allegations.
Pearce called State Farm again in June, and the agent told him she was sending a letter concerning State Farm's decision to defend him. That letter, sent to Andrews with a copy to Pearce, stated:
Dear Mr. Andrews:
Please be advised that State Farm has made the decision to defend Ted Pearce under a Reservation of Rights. The coverage questions we will continue to reserve are:
1. There is a question as to whether there was a policy in force on the date of the loss.
2. Coverage D, Section II Liability; shall not apply to bodily injury or property damage caused intentionally by or at the direction of the insured.
Additionally, the insuring agreement states:
"To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages".
To the extent that any attempt is made to impose liability on one spouse for the tort of the other, there may be no coverage.
Also, please be advised State Farm will be filing a Declaratory Relief Action, asking the court to resolve the issues of coverage in this matter.
If you have any questions with regards to the above, please feel free to contact Claim Representative Beckey Hukill at (214) 250-5214.
Neither Pearce nor Andrews called State Farm in response to this letter.
A few days later, State Farm assigned Pearce's file to another adjuster, who wrote Andrews the following letter on July 2:
Dear Mr. Andrews:
This letter is to inform you that I will be handling Mr. Ted Pearce's file in regards to the negligent allegations filed against him by Julie Kathleen Gandy.
You should direct your fee invoices to my attention for payment. Your fee invoices need to be itemized by date and activity, and calculated to the nearest tenth of an hour.
I request you keep me advised on the progress of the lawsuit from this point on. Please understand my only interest in this case is to work with you on the defense of Mr. Ted Pearce.
Please feel free to call me at any time to discuss the case.
Andrews testified that he regarded the letter as "junk mail" and did not respond to it. He never requested payment of fees from State Farm for representing Pearce. Andrews charged Pearce for representing him only in the divorce and criminal proceedings and not in Gandy's suit.
State Farm agreed to represent Gandy's mother under the same reservation of rights and agreed to pay her attorney's fees. In late June Bateman called State Farm and said that he no longer wished to represent Gandy's mother. State Farm immediately recommended other counsel to Gandy's mother, whom she agreed to have represent her. State Farm paid that lawyer's fees.
In August Pearce decided he no longer wished to have Andrews represent him in Gandy's lawsuit or in the divorce and criminal cases. Pearce secured the services of attorney Howard Pattison, who had represented him in several matters in the past. Pattison agreed to represent Pearce in all three cases. Neither Pearce, Andrews nor Pattison informed State Farm of this change. At first, Pearce and Pattison were not aware of State Farm's July 2 letter offering to pay Andrews' fees, but when they found it in the file, they still...
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