U.S. Fidelity & Guaranty Co. v. Valdez, 14511

• Decision Date: 29 April 1965
• Docket Number: No. 14511,14511
• Citation: 390 S.W.2d 485
• Parties: UNITED STATES FIDELITY & GUARANTY CO., Appellant, v. Mrs. Olga VALDEZ et al., Appellees.
• Court: Texas Court of Appeals

Page 485

390 S.W.2d 485

UNITED STATES FIDELITY & GUARANTY CO., Appellant, v. Mrs. Olga VALDEZ et al., Appellees.

No. 14511.

Court of Civil Appeals of Texas, Houston.

April 29, 1965.

Rehearing Denied May 27, 1965.

Wiley Thomas and Ballard Bennett, Angleton, for appellant.

Helm, Jones & Pletcher and George E. Pletcher, Houston, for appellees.

BELL, Chief Justice.

The appellant, who was defendant and cross-plaintiff in the trial court, claimed it was subrogated to the rights appellees had against M & M Air Service, Inc., which concern through negligence brought about the death of the husband and father of appellees. Appellant, as the insurance carrier for deceased's employer, had paid appellees compensation under a voluntary workmen's compensation policy. It claims subrogation to the extent of its payment together with a reasonable attorney's fee. Judgment was in favor of appellees.

Modesto Valdez, Jr., was the husband of Olga Valdez and the father of the other five appellees, all of whom were minors. He was employed as a farm laborer by Bar X Ranch. On January 4, 1962, he, while acting in the course and scope of his employment, was killed by the propeller of an airplane owned and operated by M & M Air Service, Inc. The plane was spraying crops on the Bar X Ranch for Modesto's employer. It became stuck in the mud and he was assisting in an effort to get the plane free. There is no suggestion of any negligence of the employer or its representatives.

On April 16, 1962 appellees filed suit against appellant to recover benefits provided by the voluntary compensation policy. On the same day an agreed judgment was rendered in favor of appellees for $11,030.25 and $500.00 funeral expenses. This is the full amount that would be owing under the policy of insurance for voluntary workmen's compensation. The attorneys representing appellees in that suit were not the attorneys thereafter representing them in the suit for damages against M & M Air Service, Inc., or in this suit. The compensation suit was found by the trial court to be a 'friendly' one. As shown by the court's findings of fact the term 'friendly suit' is used to mean a suit where there was no dispute as to liability or that the full amount of the compensation was owed. The judgment was approved as to form by counsel for appellees, the minors' attorney ad litem and the attorney for appellant. It contained this provision:

'It is further provided that nothing contained in this Judgment shall release or prejudice any right of Olga Quintero Valdez or the minor Plaintiffs in any right that they might have against any third party responsible for the death of Modesto O. Valdez other than United States Fidelity & Guaranty Company, David C. Bintliff or Bar-X Ranch of Brazoria County, Texas.'

By a release dated April 14, 1962, Olga Valdez, acting individually and as next friend of the minor children, released appellant, Bintliff and Bar X Ranch from all liability for the death of the deceased. It recites the payment of voluntary compensation that was being made; that Modesto was in the course and scope of his employment; that, being a farm hand, he was not covered by the Texas Workmen's Compensation Law; and that the payment is in satisfaction of a disputed claim. There is then this provision:

'It is further provided that nothing contained in this release shall release or prejudice any right of Olga Quintero Valdez or the minor Plaintiffs in any right that they might have against any third party responsible for the death of Modesto O. Valdez other than United States Fidelity & Guaranty Company, David C. Bintliff or Bar X Ranch of Brazoria County, Texas.'

In August, 1962, appellees, through present counsel, filed suit against M & M Air Service, Inc. in the District Court of Brazoria County seeking damages for the death of Modesto, basing the suit on the defendant's negligence.

On January 4, 1963, appellant filed a petition in intervention in the last case, asserting it was subrogated to appellees' rights to the extent of its compensation payments and also seeking an attorney's fee. A copy of the petition was sent to appellees' counsel and it was received by him shortly after that date. No citation on the petition in intervention was requested or issued. The defendant in the case filed its answer. When the case came on for trial in April, 1963, appellees and the defendant announced to the court they had reached a settlement of the case in the amount of $30,000.00. Appellant's counsel was present asserting its rights to subrogation. Appellees, over appellant's protest, took a nonsuit.

On July 8, 1963, appellees filed a new suit against M & M Air Service, Inc. On the same day an agreed judgment in favor of appellees for $30,000.00 was rendered and entered. Appellant knew nothing of this suit.

On November 22, 1963, appellees filed suit against appellant and Bank of the Southwest National Association for a declaratory judgment concerning appellant's and appellees' respective rights. The Bank, who holds the disputed funds in escrow, was later dismissed. Appellees claim appellant is not entitled to subrogation.

Appellant by its cross-action which impleads M & M Air Service and its insurer, asserts that it is entitled to subrogation on three grounds:

1. In equity merely by reason of its having paid the compensation.

2. Because of the policy provision giving subrogation.

3. Under the Texas Workmen's Compensation Law, which is in effect a part of the policy because of the policy provisions.

The policy of insurance issued the Bar X Ranch and David C. Bintliff covers numerous risks in Texas, Louisiana and California. We will not notice each state. It covers employees who come under the Texas Workmen's Compensation Law. It indemnifies the insured against liability for damages for bodily injury suffered by employees. These two coverages (A and B) are set up in the regularly printed form of the policy plus the material endorsements showing them applicable. The printed form of the policy in paragraph 12 provides as follows:

'In the event of any payment under this policy, the Company shall be subrogated to all rights of recovery therefor of the Insured and any person entitled to the benefits of this policy against any person or organization, and the insured shall execute and deliver instruments and papers and do whatever else is necessary to secure such rights. The Insured shall do nothing after loss to prejudice such rights.'

Voluntary compensation is provided for by endorsement Coverage C. It provides for compensation to employees not covered by the workmen's compensation law if they are injured under such circumstances that they would be entitled to compensation under the law if it were applicable to them. The amount of compensation and benefits are the same as would have been payable under law had it been applicable. Then follows this provision as a part of Coverage C:

'The benefits payable under Coverage C on account of such injury shall be paid to such person or persons as would have been entitled thereto under the designated workmen's compensation law, provided, however, that as a condition precedent to any such payment the injured employee, or in the event of his incapacity, his legal representative, or, in the event of his death, his legal representative or the person or persons entitled to sue therefor, shall (1) execute such full and binding release of all claims against the Insured and the Company on account of such injury or death as may be required by the Company, and (2) assign to the Company all claims or judgments or the proceeds thereof which he or they may have or recover against any person who or organization which is or may be liable on account of such injury or death and execute such other documents as the Company may require to enable it to enforce such rights or collect such proceeds. The Company shall have full power to enforce such rights under any such assignment in its own name or in the name of the injured employee or to make such negotiations and settlement as may be deemed expedient by the Company, but the Company shall not be obligated to enforce such rights. In the event of any recovery or settlement the Company shall pay the proceeds thereof, less payments hereunder and all expenses incident to such recovery or settlement, to the person or persons entitled thereto.'

Paragraph 5 provides that if a person entitled to compensation under Coverage C refuses to accept such payment and comply 'with the terms and conditions set forth above' or commences suit seeking damages, other than under Coverage C, then the insurer's liability under Coverage C terminates.

Paragraph 6 of Coverage C provides that as respects injuries to employees covered by voluntary compensation but who do not choose to accept it on the terms and conditions provided, then the insurer will indemnify the insured from obligation to pay damages for bodily injury to the extent of $100,000.

The record reflects that no demand was made by the appellant on appellees to assign any claim they might have against M & M Air Service, Inc., until during the trial of this case. None was ever given. The record is silent as to whether appellees were ever notified that if they accepted the voluntary compensation appellant would be subrogated to their rights against M & M to the extent of the compensation payments or that they would have to assign their rights to this extent. Nor does the record reflect that appellees were ever familiar with the policy, except as reflected by their filing the 'friendly suit' by which they, under an agreed judgment, were awarded compensation.

Appellant cannot claim subrogation by reason of the Texas Workmen's Compensation Law because such law has no governing effect as to voluntary compensation. Voluntary workmen's compensation is purely a matter of contract and the rights and obligations of the parties are measured by the contract. The policy of...