Ulico Cas. Co. v. Allied Pilots Ass'n

• Decision Date: 15 December 2005
• Docket Number: No. 2-04-120-CV.,2-04-120-CV.
• Citation: 187 S.W.3d 91
• Parties: ULICO CASUALTY COMPANY, Appellant/Appellee, v. ALLIED PILOTS ASSOCIATION, Appellee/Appellant.
• Court: Texas Court of Appeals

187 S.W.3d 91

ULICO CASUALTY COMPANY, Appellant/Appellee, v. ALLIED PILOTS ASSOCIATION, Appellee/Appellant.

No. 2-04-120-CV.

Court of Appeals of Texas, Fort Worth.

December 15, 2005.

Rehearing Overruled February 9, 2006.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Figari & Davenport, L.L.P., Don Colleluori, Jonathan G. Erwin, Dallas, Shaw Pittman, L.L.P., Ruth Kochenderfer, McLean, VA, for appellant/appellee.

Kirkley & Berryman, L.L.P., J. Lyndell Kirkley, B. Dan Berryman, R. David Broiles, Fort Worth, for appellee/appellant.

PANEL A: LIVINGSTON, DAUPHINOT, and MCCOY, JJ.

OPINION

TERRIE LIVINGSTON, Justice.

This case arises out of a dispute over insurance coverage for defense costs under a claims-made policy. In two issues, appellant Ulico Casualty Company contends that it cannot be liable for appellee Allied Pilots Association's (the Association) defense costs because waiver and estoppel cannot create coverage for the Association's late-reported claim. Ulico also claims that the trial court erred by vacating the jury's damages award and entering judgment for almost double the amount of the jury's award. The Association brings three cross-issues, all contending that it is entitled to attorney's fees in its breach of contract suit against Ulico. Because we conclude that waiver and estoppel apply in this instance and that the Association proved its damages as a matter of law, we affirm the trial court's judgment as to liability and damages. However, because we also hold that the Association is entitled to attorney's fees under Texas Civil Practice and Remedies Code section 38.001(8), we remand as to the Association's request for attorney's fees. TEX. CIV. PRAC. & REM.CODE ANN. § 38.001(8) (Vernon 1997).

I. Background Facts

On October 4, 1999, the Association, the collective bargaining representative for the pilots of American Airlines, was served in a suit alleging that it breached its duty of fair representation to a class of Reno Air pilots who were hired by American Airlines (the Allen suit). At the time, the Association was covered by a Union Liability Insurance Policy¹ issued by Ulico. The expiration date of the policy had been extended twice by endorsement, first to September 25, 1999 and then to October 25, 1999.² The policy required Ulico to pay

all Loss which [the Association] shall become legally obligated to pay on account of any claim made against [the Association] during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act committed, attempted, or allegedly committed or attempted by [the Association] before or during the Policy Period, and reported to [Ulico] ... during the Policy Period or the Extended Reporting Period, if elected. [Emphasis added.]

The policy defined "Loss" to include defense costs. The policy further provided that "as a condition precedent to [the Association's] rights under [the] policy," the Association was required to "give [Ulico] written notice during the Policy Period or the Extended Reporting Period, if elected, of any claim made against any of them [the insureds] for a Wrongful Act." [Emphasis added.]³

The Allen suit was served on the Association before the October 25, 1999 expiration date of the Ulico policy, but the Association did not send notice of the suit to Ulico until November 5, 1999, after the policy had expired. Upon receiving the claim, Ulico assigned it to Sheila Bowers, a senior claims analyst for Ulico, on December 8, 1999. On March 1, 2000, Bowers sent a coverage letter to Steve Hoffman, the Association's counsel,⁴ which specifically stated that "[i]n the context of this litigation Defense Costs are afforded to" the Association. The letter globally reserved the right to contest coverage under sections VA(6) and VA(9) of the policy and also concluded with the following:

Ulico ... expressly reserves all rights under the policy and available at law to deny coverage and/or rescind the policy on additional alternative bases as other terms, conditions, exclusions, endorsements and provisions of the policy, including representations, statements, declarations and/or omissions in connection with the application therefore, are found to be applicable.

The letter did not specifically reserve the right to contest coverage if it was determined that the Association's claim was filed outside the policy's reporting period. With the letter, Bowers enclosed Ulico's Litigation Management Guidelines, a defense attorney evaluation form, and an attorney time forecast and asked the Association's counsel to complete and return them within thirty days, along with his billing rates. Hoffman did not respond to Bowers's request at that time, but he did bill the Association monthly for his work on the Allen suit, and the Association paid the bills.

Bowers and Hoffman did not have any further contact until April 25, 2001, when Bowers sent an additional letter to Hoffman's partner, Edgar James, stating that "[p]ursuant to my March 1, 2000 reservation of rights letter, Ulico has agreed to reimburse [the Association] for reasonable and necessary defense expenses." This letter contained no reservation of rights language. Bowers enclosed the same forms she had forwarded in March 2000 and asked that they be completed within two weeks. Hoffman responded on May 3, 2001. At that time, his firm had incurred approximately $635,000 in defense costs on the Allen suit, all of which had been paid by the Association.

On September 14, 2001, the trial court in the Allen suit granted summary judgment in the Association's favor. The plaintiffs in that case filed an appeal, but they later dismissed it. Thus, the only "Loss" that the Association suffered in connection with the Allen suit was the defense expenses that it paid to Hoffman and others.

Bowers did not realize that the Association had not timely reported its claim during the policy period as required by sections III.A and VIII of the policy until after she received copies of Hoffman's invoices for legal fees and expenses. Ulico never informed the Association about the mistake. Instead, on November 28, 2001, Ulico brought this declaratory judgment action against the Association, asking the trial court to determine that it did not owe defense costs to the Association under the policy because the Association did not timely report its claim. The Association counterclaimed, contending that Ulico breached its obligation to pay defense costs under the policy. The trial court realigned the parties for trial.

Upon conclusion of the trial, Ulico moved for a directed verdict on all of the Association's claims, which the trial court denied. The jury found that Ulico had provided the Association an extended reporting period under the policy, that Ulico had agreed, separate and apart from the policy, to cover the Association's defense costs in the Allen suit, and that Ulico had waived its right to assert, and was estopped from asserting, that the policy did not cover the Association's claim for defense costs. The jury awarded the Association $308,235 in damages.

Ulico filed a motion for judgment notwithstanding the verdict (JNOV), asking that the trial court set aside the jury's verdict on liability and damages. The Association moved for judgment on the verdict as to Ulico's liability and JNOV as to the jury's damages award, requesting that the trial court vacate the award and award damages of $616,468.55 instead. The trial court granted Ulico's motion as to the jury's findings that Ulico had provided the Association an extended reporting period under the policy and that Ulico had agreed, separate and apart from the policy, to cover the Association's defense costs in the Allen suit. But it denied the motion as to the jury's findings that Ulico had waived its right to assert, and was estopped from asserting, that its policy did not cover the Association's defense costs in the Allen suit. The trial court therefore granted the Association's motion for judgment on the verdict as to the waiver and estoppel theory of liability. The trial court also granted the Association's motion for JNOV, vacated the jury's damage award, and awarded the Association damages of $616,468.55 instead.

II. Summary of Ulico's Issues

In its first issue, Ulico contends that the trial court erred by denying its motions for directed verdict and JNOV requesting that the trial court set aside the jury's findings that Ulico waived and was estopped from denying coverage for the Association's defense costs because the doctrines of waiver and estoppel cannot be used to create coverage where none exists and no exception to this general rule applies. In its second issue, Ulico claims that the trial court erred by granting JNOV as to the jury's damages finding.

III. Standard of Review

A directed verdict is proper only under limited circumstances: (1) when the evidence conclusively establishes the right of the movant to judgment or negates the right of the opponent; or (2) when the evidence is insufficient to raise a material fact issue. Prudential Ins. Co. v. Fin. Review Servs., Inc., 29 S.W.3d 74, 76-77 (Tex.2000); Ray v. McFarland, 97 S.W.3d 728, 730 (Tex.App.-Fort Worth 2003, no pet.).

A trial court may disregard a jury verdict and render judgment notwithstanding the verdict ("JNOV") if no evidence supports the jury findings on issues necessary to liability or if a directed verdict would have been proper. See TEX.R. CIV. P. 301; Tiller v. McLure, 121 S.W.3d 709, 713 (Tex.2003); Fort Bend County Drainage Dist. v. Sbrusch, 818 S.W.2d 392, 394 (Tex.1991). Thus, the propriety of a JNOV is determined under the no-evidence standard as well.

A legal sufficiency challenge may only be sustained when: (1) the record discloses a complete absence of evidence of a vital fact; (2) the court is barred by rules of law or of evidence from giving weight to the only evidence offered to prove a vital fact; (3) the evidence offered to prove a...