State Farm Lloyds, Inc. v. Polasek

Decision Date16 December 1992
Docket NumberNo. 04-92-00100-CV,04-92-00100-CV
Citation847 S.W.2d 279
CourtTexas Court of Appeals
PartiesSTATE FARM LLOYDS, INC., Appellant, v. Robert POLASEK and Shirley Polasek d/b/a R & S Video, Appellees.

Carol A. Jenson, David L. Treat, Jones, Kurth & Treat, San Antonio, for appellant.

Scott R. Donaho, Kirk Dockery, Donaho & Dockery, P.C., Floresville, for appellees.



PEEPLES, Justice.

In this arson and bad faith case State Farm appeals a judgment against it for actual and exemplary damages. In 1990 a fire destroyed the Polaseks' video rental business, which State Farm insured. State Farm denied the Polaseks' insurance claim on the ground that the fire was caused by arson. The Polaseks filed suit, and ultimately a jury found that the Polaseks had not committed arson and that State Farm acted in bad faith because it did not have a reasonable basis for denying the claim. The jury found damages of $40,000 for property loss and $200,000 for mental anguish, and assessed $500,000 as exemplary damages. We affirm the judgment for property loss and attorney's fees based upon contract, but as to the bad faith recovery for mental anguish and exemplary damages we reverse and render judgment that the Polaseks take nothing.

The liability issues in this case fall into two categories: (1) whether State Farm established arson and misrepresentation, 1 which were its affirmative defenses to the Polaseks' suit to recover on the insurance policy; and (2) whether the Polaseks established that State Farm denied their insurance claim in bad faith. 2 The jury found all issues in the Polaseks' favor.


The jury refused to find that the Polaseks had set the fire or that they had misrepresented facts (i.e. that they had not set the fire) when they made their insurance claim. State Farm contends that it established a "yes" answer to the arson question as a matter of law, and that the jury's "no" finding is so against the weight of the evidence as to be manifestly unjust. We review these arguments under well-settled standards that need not be repeated here. See Sterner v. Marathon Oil Co., 767 S.W.2d 686, 690 (Tex.1989); In re King's Estate, 150 Tex. 662, 244 S.W.2d 660, 661 (1951).

To establish arson as a defense to a civil suit for insurance proceeds, the insurer must prove by a preponderance of the evidence that the insured set the fire or caused it to be set. St. Paul Guardian Ins. Co. v. Luker, 801 S.W.2d 614, 622 (Tex.App.--Texarkana 1990, no writ); Texas Gen. Indem. Co. v. Speakman, 736 S.W.2d 874, 880 (Tex.App.--Dallas 1987, no writ); Bufkin v. Texas Farm Bureau Mut. Ins. Co., 658 S.W.2d 317, 320 (Tex.App.--Tyler 1983, no writ). Because arson is usually planned and committed in secrecy to avoid detection, 3 these elements may be proved by circumstantial evidence. Luker, 801 S.W.2d at 622; Speakman, 736 S.W.2d at 880; Bufkin, 658 S.W.2d at 321; Garrett v. Standard Fire Ins. Co., 541 S.W.2d 635, 638 (Tex.Civ.App.--Beaumont 1976, writ ref'd n.r.e.). Ordinarily the circumstantial proof that the insured committed arson consists of evidence that the fire had an incendiary origin and that the insured had an opportunity and a motive to set it. See generally Charles T. Smith, Note, Arson--Defense of a Fraudulent Property Insurance Claim, 35 DRAKE L.REV. 831 (1986-1987).

The Polaseks have not suggested that the fire was caused by accident, or by natural causes, or that it did not have an incendiary origin. There was considerable evidence that the fire had an incendiary origin. Burn patterns showed the presence of accelerants in two places. Laboratory tests found traces of kerosene. No accidental cause was apparent; electricity and heaters were not present in the areas where the fire started. There was no evidence of forced entry into the building; this indicated that someone with a key might have been involved.

The Polaseks argued instead that they had nothing to do with the fire, and the jury obviously believed them. The evidence on this issue--whether the Polaseks set the fire or caused it to be set--was conflicting, and the jury's finding is within the evidence. There was evidence that the Polaseks had the opportunity to set the fire. Mrs. Polasek was the last person on the premises that night, no one else had a key, and the lights were not turned on, as they had been before. There was also evidence that the Polaseks had a motive for destroying the store for the insurance proceeds. The business had not been profitable; it owed a $6500 note, which fell due several days after the fire. The company had only $365 in the bank. The Polaseks had been paying operating expenses from their personal funds. They had borrowed money and had been late paying the rent.

There was some contrary evidence on these issues. The Polaseks could have borrowed money from several sources to pay the $6500 note and to meet their other financial obligations, though that would simply have substituted one creditor for another. Income tax returns and other financial records, construed favorably to the verdict, showed that the Polaseks' financial situation was reasonably stable, although this was a hotly disputed issue.

All this evidence presented a fact issue on which State Farm had the burden of proof. We cannot say that the evidence compelled the jury to inculpate the Polaseks. Applying the appropriate standards, we hold that the evidence did not establish as a matter of law that the Polaseks set the fire or misrepresented facts about the fire, and that the jury's failure to find arson and misrepresentation is not so contrary to the weight of the evidence to be manifestly wrong and unjust. See Pool v. Ford Motor Co., 715 S.W.2d 629, 635-36 (Tex.1986). We therefore uphold the jury's failure to find that the Polaseks committed arson, which means that they prevail in their suit on the insurance contract.


The Polaseks' bad faith cause of action is not satisfied by proof that they did not commit arson. It is not satisfied by proof that State Farm should have paid their claim, or that State Farm acted unreasonably in denying their claim. Instead their bad faith cause of action required proof of a negative: that no reasonable basis existed for denying, or delaying payment of, their insurance claim. The plaintiff in a bad faith case must prove that the insurer had "no reasonable basis" for denying the claim or delaying payment, or that it failed to determine whether there was "any reasonable basis" for denying or delaying payment. Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1987). He must establish "the absence of a reasonable basis for denying or delaying payment of the benefits of the policy" and that the carrier knew or should have known that there was no reasonable basis for denying or delaying payment. Aranda v. Insurance Co. of North America, 748 S.W.2d 210, 213 (Tex.1988) (emphasis added). Under the bad faith cause of action, said the Aranda court, "carriers will maintain the right to deny invalid or questionable claims and will not be subject to liability for an erroneous denial of a claim." Id. (emphasis added). Thus the bad faith cause of action requires much more demanding proof than the suit on the insurance policy.

The cases reveal some confusion about the proper approach for assessing the legal sufficiency of a bad faith finding. In deciding whether there is legally sufficient evidence of a cause of action, we consider only the evidence supporting the verdict and disregard evidence and inferences to the contrary. Garza v. Alviar, 395 S.W.2d 821, 823 (Tex.1965). But courts do not disregard undisputed evidence. In effect, State Farm's no-evidence point contends that there is undisputed evidence that refutes the Polaseks' case in chief--that is, undisputed evidence that a reasonable basis existed for denying the Polasek's claim.

A no-evidence point will be sustained when the record establishes conclusively the opposite of a vital fact. Cecil v. Smith, 804 S.W.2d 509, 510 n. 2 (Tex.1991); Juliette Fowler Homes, Inc. v. Welch Assocs., Inc., 793 S.W.2d 660, 666 n. 9 (Tex.1990); Robert W. Calvert, "No Evidence" and "Insufficient Evidence" Points of Error, 38 TEX.L.REV. 361, 363-64 (1960). When evidence concerning a vital fact is uncontradicted and proven conclusively, its effect is a question of law and there is no issue for the jury. See Sullivan v. Barnett, 471 S.W.2d 39, 44 (Tex.1971); Wright v. Vernon Compress Co., 156 Tex. 474, 296 S.W.2d 517, 523 (1956); Schultz v. Shatto, 150 Tex. 130, 237 S.W.2d 609, 615 (1951); Clark v. National Life & Acc. Ins. Co., 145 Tex. 575, 200 S.W.2d 820, 822 (1947). When reasonable minds can draw only one conclusion about the vital fact, there is no jury issue and an instructed verdict is proper. Vance v. My Apartment Steak House, 677 S.W.2d 480, 483 (Tex.1984); Collora v. Navarro, 574 S.W.2d 65, 68 (Tex.1978); Najera v. Great Atl. & Pac. Tea Co., 146 Tex. 367, 207 S.W.2d 365, 367 (1948); 4 MCDONALD'S TEXAS CIVIL PRACTICE § 21.52, at 136 (1992).

We find the supreme court's decision in Burk Royalty Co. v. Walls, 616 S.W.2d 911 (Tex.1981), instructive on this point. Before Burk Royalty, appellate courts had set aside exemplary damage verdicts, which require a finding of an entire want of care, if there was evidence of "some care." The court in Burk Royalty noted that refuting "some care" was an impossible burden because almost anything could constitute "some care." The court also held that this practice violated the no-evidence standard of appellate review. "The jury, after all, does not have to believe evidence that 'some care' was exercised." Id. at 921. A finding of an entire want of care suggests the jury did not believe some care was exercised. Similarly, in bad faith cases if it is disputed whether there was any reasonable basis in existence to support denial of the claim, a jury issue is present....

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