United Statesa Tex. Lloyds Co. v. Menchaca

• Court: Texas Supreme Court
• Citation: United Statesa Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479 (Tex. 2018)
• Decision Date: 13 April 2018
• Docket Number: No. 14–0721,14–0721
• Parties: USAA TEXAS LLOYDS COMPANY, Petitioner, v. Gail MENCHACA, Respondent

545 S.W.3d 479

USAA TEXAS LLOYDS COMPANY, Petitioner,

v.Gail MENCHACA, Respondent

No. 14–0721

Supreme Court of Texas.

Argued October 11, 2016

Opinion delivered: April 13, 2018

Wallace B. Jefferson, Rachel A. Ekery, Alexander Dubose, Jefferson & Townsend LLP, Mary Margaret Roark, Thomas R. Phillips, Baker Botts LLP, Austin TX, Charles T. Frazier Jr., Alexander Dubose, Jefferson & Townsend LLP, Dallas TX, Bruce E. Ramage, Martin Disiere Jefferson & Wisdom LLP, Christopher W. Martin, Levon G. Hovnatanian, Paul Wayne Pickering, Robert T. Owen, Martin Disiere Jefferson & Wisdom LLP, Tanya Dugas, Raley & Bowick, LLP, Houston TX, for Petitioner USAA Texas Lloyds Company.

Jennifer Bruch Hogan, James C. Marrow, Richard P. Hogan Jr., Hogan & Hogan, Pennzoil Place, John Steven Mostyn, The Mostyn Law Firm, Houston TX, Gilberto Hinojosa, Law Offices of Gilberto, Hinojosa & Associates, P.C., Brownsville TX, Randal G. Cashiola, Cashiola & Bean, Beaumont TX, for Respondent Menchaca, Gail.

Michael A. Choyke, Thomas C. Wright, Lisa Wright, Wright, Close & Barger, LLP, Houston TX, for Amicus Curiae, Lexington Insurance Company.

Brendan K. McBride, The McBride Law Firm, Marc E. Gravely, Matthew R. Pearson, Gravely & Pearson, LLP, San Antonio TX, for Amicus Curiae, Brass Real Estate Funds, Texas Automobile Dealers Association, Texas Independent Automobile Dealers Association, Texas Organization of Rural & Community, Hospitals.

Russell S. Post, Beck Redden LLP, Houston TX, for Amicus Curiae, Cameron, a Schlumberger Company.

Dale Wainwright, Kendyl Taylor Hanks, Greenberg Traurig, LLP, Austin TX, Lindsay E. Hagans, Houston TX, for Amicus Curiae, Chamber of Commerce of the United States of America.

Catherine L. Hanna, Hanna & Plaut LLP, Austin TX 7870, for Amicus Curiae, Insurance Council of Texas.

Hugh Rice Kelly, Texans for Lawsuit Reform, Houston TX, for Amicus Curiae, Texans for Lawsuit Reform.

Marc S. Tabolsky, Penelope E. Nicholson, Schiffer Odom Hicks & Johnson PLLC, Houston TX, for Amicus Curiae, United Policyholders.

Justice Boyd announced the Court's judgment and delivered the Court's opinion as to Parts I, II, and III.A, in which Chief Justice Hecht, Justice Green, Justice Guzman, Justice Lehrmann, Justice Devine, and Justice Brown joined, a plurality opinion as to Parts III.B and III.C, in which Chief Justice Hecht, Justice Lehrmann, and Justice Devine joined, and an opinion as to Parts III.D, III.E, III.F, and III.G, in which Justice Lehrmann and Justice Devine joined.

Having granted Petitioner's motion for rehearing, we withdraw the judgment and opinion we issued on April 7, 2017. We unanimously reaffirm the legal principles and rules announced in that opinion, but we disagree on the procedural effect of those principles in this case. Because a majority of the Court agrees to reverse the court of appeals' judgment and remand the case to the trial court for a new trial, our disposition remains the same.

In our first opinion, we sought to fulfill our duty to eliminate confusion regarding the Court's previous decisions addressing insureds' claims against their insurance companies. As presented in this case, the primary issue is whether the insured can recover policy benefits based on the insurer's violation of the Texas Insurance Code even though the jury failed to find that the insurer failed to comply with its obligations under the policy. We sought to clarify the Court's previous decisions by announcing five rules addressing the relationship between contract claims under an insurance policy and tort claims under the Insurance Code. We unanimously reaffirm those rules today and provide additional guidance in response to the parties' arguments on rehearing. We also concluded in our first opinion that the trial court erred in this case by disregarding the jury's answer to Question 1, in which the jury failed to find that the insurer failed to comply with its obligations under the policy. We unanimously reaffirm that holding as well.

In light of the parties' understandable confusion regarding the Court's previous decisions, we decided in our first opinion to remand the case for a new trial in the interest of justice without addressing the procedural effect of our holdings in this case. We address those issues today, but we reach three different conclusions. JUSTICE GREEN , JUSTICE GUZMAN , and JUSTICE BROWN conclude that the jury's answer to Question 1 is dispositive as to the plaintiff's ability to recover damages for the Insurance Code violation the jury found in answer to Question 2, so they would render judgment for the insurer. See post at ––– ( GREEN , J., dissenting). THE CHIEF JUSTICE, JUSTICE LEHRMANN , JUSTICE BOYD , and JUSTICE DEVINE conclude that the jury's answer to Question 1 creates a fatal conflict with its answers to Questions 2 and 3. THE CHIEF JUSTICE concludes that we must remand the case for a new trial because we cannot resolve that conflict on appeal. See post at 522 ( HECHT , C.J., concurring). JUSTICE LEHRMANN , JUSTICE BOYD , and JUSTICE DEVINE conclude that, because the conflicting answers do not present a fundamental error, the insurer waived the conflict by failing to raise it before the trial court discharged the jury. See TEX. R. CIV. P. 295. Nevertheless, because the parties lacked the benefit of the clarity we provide today, they conclude that we should remand the case for a new trial in the interest of justice. JUSTICE BLACKLOCK agrees with that disposition, although he does not join any opinion. With five votes ( JUSTICE JOHNSON not participating), the Court remands the case for a new trial.

I.

Background

After Hurricane Ike struck Galveston Island in September 2008, Gail Menchaca contacted her homeowner's insurance company, USAA Texas Lloyds, and reported that the storm had damaged her home. The adjuster USAA sent to investigate Menchaca's claim found only minimal damage. Based on the adjuster's findings, USAA determined that its policy covered some of the damage but declined to pay Menchaca any benefits because the total estimated repair costs did not exceed the policy's deductible.¹ About five months later, at Menchaca's request, USAA sent another adjuster to re-inspect the property. This adjuster generally confirmed the first adjuster's findings, and USAA again refused to pay any policy benefits. Menchaca sued USAA for breach of the insurance policy and for unfair settlement practices in violation of the Texas Insurance Code.² As damages for both claims, she sought only insurance benefits under the policy, plus court costs and attorney's fees.³

The parties tried the case to a jury. Question 1 of the jury charge, which addressed Menchaca's breach-of-contract claim, asked whether USAA failed "to comply with the terms of the insurance policy with respect to the claim for damages filed by Gail Menchaca resulting from Hurricane Ike." The jury answered "No." Question 2, which addressed Menchaca's statutory claims, asked whether USAA engaged in various unfair or deceptive practices, including whether USAA refused "to pay a claim without conducting a reasonable investigation with respect to" that claim. As to that specific practice, the jury answered "Yes."⁴ Question 3 asked the jury to determine the amount of Menchaca's damages that resulted from either USAA's failure to comply with the policy or its statutory violations, calculated as "the difference, if any, between the amount USAA should have paid Gail Menchaca for her Hurricane Ike damages and the amount that was actually paid."⁵ The jury answered "$11,350."⁶

Both parties moved for judgment in their favor based on the jury's verdict. USAA argued that because the jury failed to find in answer to Question 1 that USAA failed to comply with the policy, Menchaca could not recover for "bad faith or extra-contractual liability as a matter of law." Menchaca argued that the court should enter judgment in her favor based on the jury's answers to Questions 2 and 3, neither of which required a "Yes" answer to Question 1. The trial court disregarded Question 1 and entered final judgment in Menchaca's favor based on the jury's answers to Questions 2 and 3. The court of appeals affirmed, 2014 WL 3804602⁷ and we granted USAA's petition for review.

II.

Recovering Policy Benefits for Statutory Violations

The parties agree that the damages the jury found in response to Question 3 represent the amount of insurance policy benefits the jury concluded USAA "should have paid" to Menchaca. USAA contends that Menchaca cannot recover any amount of policy benefits because the jury failed to find that USAA breached its obligations under the policy. Although the jury did find that USAA violated the Insurance Code, USAA contends that Menchaca cannot recover policy benefits based on that finding alone.⁸ USAA primarily relies on Provident American Insurance Co. v. Castañeda , in which we stated that an insurance company's "failure to properly investigate a claim is not a basis for obtaining policy benefits." 988 S.W.2d 189, 198 (Tex. 1998). Menchaca argues that the jury's findings that USAA violated the Code and that the violation resulted in Menchaca's loss of policy benefits USAA "should have paid" sufficiently support the award of policy benefits. Menchaca primarily relies on Vail v. Texas Farm Bureau Mutual Insurance Co. , in which we stated that an insurer's "unfair refusal to pay the insured's claim causes damages as a matter of law in at least the amount of the policy benefits wrongfully withheld." 754 S.W.2d 129, 136 (Tex. 1988).

Courts and commentators have expressed confusion over our decisions in this area, and over our statements in Castañeda and Vail in particular.⁹ The Fifth Circuit, for example, concluded that Castañeda and other "decisions from the Supreme Court of Texas and Texas's intermediate appellate courts arguably cast doubt on Vail 's continued vitality."

In re Deepwater Horizon , 807 F.3d 689, 698 (5th Cir. 2015). In the Deepwater Horizon panel's view, the Fifth...