Stewart Title Guar. Co. v. Sterling

• Decision Date: 11 December 1991
• Docket Number: No. C-8910,C-8910
• Citation: 822 S.W.2d 1
• Court: Texas Supreme Court
• Parties: STEWART TITLE GUARANTY COMPANY, Petitioner, v. W. Dawson STERLING, Trustee.

Page 1

822 S.W.2d 1

STEWART TITLE GUARANTY COMPANY, Petitioner, v. W. Dawson STERLING, Trustee.

No. C-8910.

Supreme Court of Texas.

Dec. 11, 1991.

Rehearing Overruled Feb. 12, 1992.

Eugene J. Pitman, Paul J. McConnell, III, C.M. Hudspeth, S. Bradley Todes, De Lange, Hudspeth & Pitman, Houston, James P. Wallace, Soules & Wallace, Austin, for petitioner.

Thomas T. Hutcheson, Roland M. Chamberlain, E. John Gorman, Rudy A. England, Hutcheson & Grundy, L.L.P., Houston, for respondent.

OPINION

GONZALEZ, Justice.

The principal issue on which we focus in this case is whether a defendant who is found liable for violating Art. 21.21, § 16 of the Texas Insurance Code can reduce liability by setting off against the amount of damages the amount of a settlement entered into by co-defendants. The nonsettling defendant, Stewart Title Guaranty Company, sought a credit based on the "one satisfaction rule." This doctrine was first articulated in Texas in Bradshaw v. Baylor University, 84 S.W.2d 703, 705 (Tex.1935), and its purpose is to limit an injured party to a single satisfaction for one injury. The main issue here is whether the Bradshaw doctrine applies. The trial court refused to allow the credit, and the court of appeals affirmed the judgment of the trial court. 772 S.W.2d 242 (1989). The court of appeals reasoned that this court completely abrogated the one satisfaction rule in all cases with its decision in Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 434 (Tex.1984). We disagree, and therefore we reverse the judgment of the court of appeals and remand to the trial court to render judgment consistent with this opinion.

FACTS

In 1983, W. Dawson Sterling, a lawyer, real estate broker, and developer, purchased 173.7297 acres of land for $521,189 to develop a residential subdivision. He received $37,000 of the purchase price as a real estate commission. The seller, Equitable Life Assurance Society of the United States, obtained the property through an earlier foreclosure. Equitable's counsel was the firm of Butler & Binion. As part of the transaction, Sterling sought to acquire title to 1.38597 acres that comprised three improved homesites. Ownership of these lots was essential to ensure his ability to control the municipal utility district of the subdivision. Sterling, Equitable, and Butler & Binion were aware that the three improved homesites were occupied, but they erroneously assumed that Equitable was the owner. ¹ Prior to closing, Sterling discovered that an earlier survey made for Equitable had excluded the 1.38597 acres. Sterling discussed this survey with an attorney at Butler & Binion who informed Sterling that the survey plat was incorrect and that the 1.38597 acres were included in the sale. Immediately before signing the closing documents, Sterling sought and obtained assurances from Equitable, Butler & Binion, and Stewart Title Guaranty Company that the three lots would be included in the transaction and that the survey was incorrect. Stewart Title's closing agent, Murray Camerson, stated that the owner's policy issued to Sterling would describe all of the land in the commitment. She also stated that the policy would guarantee good and indefeasible title to the property. A second attorney with Butler & Binion assured Sterling that "[a]s currently drawn the survey does not include three lots which are included within the property description of Lockshire II which will be attached to the deed. It is the complete description which will be insured by Stewart [Title]...." Additionally, Sterling testified that Equitable, Butler & Binion, and Stewart Title told him that Equitable owned the 1.38597 acres of occupied land. Both the title commitment and the title policy issued by Stewart Title contained a property description which included the three lots.

Sterling was required to sign a "Waiver of Inspection" at the closing which stated that Stewart Title's policy would except from coverage the rights of parties in possession, "the existence of which does not appear of record." The "Waiver of Inspection" provided as follows:

I hereby waive inspection by you of such property and accept your policy subject to rights of parties in possession, and those under whom they hold, and to any visible and apparent roadway or easement over or across the subject property, the existence of which does not appear of record, if any such parties are not in possession of, or if any such roadway or easement affects the premises upon which you have issued such policy, and take it upon myself to inspect such premises and obtain possession thereof from the present occupants.

The title commitment Sterling previously received did not contain this clause. However, the policy actually issued by Stewart Title included the clause. The Owner's Policy issued to Sterling by Stewart Title provided:

This Policy is subject to the Conditions and Stipulations hereof, the terms and conditions of the leases or easements insured, if any, shown in Schedule A, and to the following matters which are additional exceptions from the coverage of this Policy.... 24. Rights of parties in possession.

Significantly, the qualifying language, "the existence of which does not appear of record," which was included in the waiver signed by Sterling, was omitted from the policy issued to him. At the closing, Sterling signed the waiver of inspection and accepted the title policy which also recited the exception.

PROCEDURAL HISTORY

After Sterling learned that he did not have good title to the three lots, he asserted a claim under Stewart Title's policy. Stewart Title denied coverage on the basis that the owner's policy contained an exception for the rights of parties in possession. In 1983, Stewart Title filed a declaratory judgment action to determine Sterling's rights under the policy. In a separate suit, Sterling sued Stewart Title, Equitable, and Butler & Binion for, among other things, violations of the Insurance Code, violations of the Deceptive Trade Practices Act, ² negligence, gross negligence, and fraud. Sterling alleged that he contracted with Equitable for the purchase of land including the area occupied when Equitable and Butler & Binion knew that this area had previously been conveyed to the occupants; and additionally, that Sterling relied upon the representations and promises of each of the defendants in closing the transaction and would otherwise not have purchased the property. Sterling alleged that he later learned that he did not acquire title to these lots; that the defendants conspired to cause Sterling to accept an inferior title; and that Stewart Title wrongfully denied liability under the policy. Sterling sought joint and several liability against all defendants. The two lawsuits were consolidated for trial.

Sometime after the jury trial began, Equitable and Butler & Binion settled with Sterling for $400,000 and were dismissed from the suit. The case proceeded to trial against Stewart Title and the jury found: 1) that Stewart Title knowingly engaged in improper trade practices; ³ 2) that these actions were the producing cause of damages to Sterling; and 3) that Sterling sustained $200,000 in actual and consequential damages. ⁴ Sterling elected to recover under Article 21.21, § 16 of the Insurance Code which provides that the actual damage award may be trebled upon a showing of liability. ⁵ Stewart Title attempted to invoke the "one satisfaction rule" of Bradshaw, and thus obtain a pre-trebling credit for the amount already paid to Sterling by the settling defendants. Stewart Title argued that Sterling already received $400,000 as compensation for damages of only $200,000. Therefore, a settlement credit would reduce the damage award against Stewart Title to $0 leaving nothing to treble. The trial court rejected Stewart Title's argument, denied any credit and rendered judgment for Sterling against Stewart Title for $1,028,372.60 ($200,000 trebled, plus prejudgment interest and attorney's fees). The court of appeals affirmed the judgment of the trial court.

ONE SATISFACTION RULE

At this time, Texas has four distinct contribution schemes--three based on statute and one created at common law. TEX. CIV. PRAC. & REM. CODE § 32.001 et seq. (1986) (the original contribution statute); former TEX. CIV. PRAC. & REM. CODE § 33.001 et seq. (1986), amended by Acts 1987, 70th Leg., 1st C.S., ch. 2, § 2.04 (the comparative negligence statute); TEX. CIV. PRAC. & REM. CODE § 33.001 et seq. (1991) (the comparative responsibility statute); Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 429 (Tex.1984) (common law contribution by comparative causation). The applicable contribution scheme is determined by the theories of liability adjudged against the tortfeasors. Beech Aircraft Corp. v. Jinkins, 739 S.W.2d 19, 20 (Tex.1987).

The comparative negligence statute applies only in pure negligence cases filed before September 2, 1987. The Duncan comparative causation scheme applies only to products cases involving strict liability, breach of warranty, and mixed theories of strict liability and negligence tried after July 13, 1983. Duncan, 665 S.W.2d at 434. In 1987, the legislature enacted the comparative responsibility statute which merged the comparative negligence statute with the holdings of Duncan. TEX. CIV. PRAC. & REM. CODE § 33.001 et seq. (1991). The effective date of this new statute is September 2, 1987. Act of September 2, 1987, 70th Leg., 1st C.S., ch. 2, § 4.05, 1987 Tex.Gen.Laws 37, 51.

This case was filed before the effective date of the comparative responsibility statute; therefore, that statute is clearly inapplicable. Additionally, because the comparative negligence statute applies only to cases in which negligence is the only theory involved, the comparative negligence statute (former TEX.CIV.PRAC. & REM.CODE § 33.001) is inapplicable. Thus, the only two remaining options are the original contribution statute and Duncan.

Stewart Title...