United Statesa Tex. Lloyds Co. v. Menchaca
| Decision Date | 07 April 2017 |
| Docket Number | No. 14-0721,14-0721 |
| Parties | USAA TEXAS LLOYDS COMPANY, PETITIONER, v. GAIL MENCHACA, RESPONDENT |
| Court | Texas Supreme Court |
ON PETITION FOR REVIEW FROM THE COURT OF APPEALS FOR THE THIRTEENTH DISTRICT OF TEXAS
JUSTICE JOHNSON did not participate in the decision.
When this Court decides a case by announcing a rule of law, the decision serves as "binding precedent . . . when the very point is again presented in a subsequent suit between different parties." Swilley v. McCain, 374 S.W.2d 871, 875 (Tex. 1964). Yet as one of history's most renowned jurists once observed, "seldom will it happen that any one rule will exactly suit with many cases." 3 WILLIAM BLACKSTONE, COMMENTARIES *335 (1765). We have similarly acknowledged that "it is at best difficult to avoid some uncertainties in the law because of the varying facts attending the different cases." Trapp v. Shell Oil Co., 198 S.W.2d 424, 427 (Tex. 1946). When our decisions create such uncertainties, "it is our duty to settle the conflicts in order that the confusion will as nearly as possible be set at rest." Id.
Today we endeavor to fulfill that duty in this case involving an insured's claims against her insurance company. The primary issue is whether the insured can recover policy benefits based on jury findings that the insurer violated the Texas Insurance Code and that the violation resulted in the insured's loss of benefits the insurer "should have paid" under the policy, even though the jury also failed to find that the insurer failed to comply with its obligations under the policy. Unfortunately, our precedent in this area has led to substantial confusion among other courts, and that confusion has permeated this case. In resolving this appeal, we seek to clarify our precedent by announcing five rules that address the relationship between contract claims under an insurance policy and tort claims under the Insurance Code. Ultimately, because the trial court and the parties lacked the clarity we provide today, and because their shared confusion prevented a proper resolution of these claims, we reverse the court of appeals' judgment and remand the case to the trial court for a new trial in the interest of justice.
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. USAA sent an adjuster to investigate Menchaca's claim, and the adjuster 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'srequest, 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 Menchaca's damages that resulted from either USAA's failure to comply with the policyor 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 its answer to Question 1 that USAA failed to comply with the policy's terms, 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 was conditioned on 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, — S.W.3d —,7 and we granted USAA's petition for review.
The parties agree that the damages the jury found in response to Question 3 represent theamount 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 USAA "should have paid" Menchaca $11,350 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 topay 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 United States Court of Appeals for the Fifth Circuit, for example, recently 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 Circuit interpreted Castañeda "as setting out the opposite rule from that in Vail." Id. (citing Great Am. Ins. Co. v. AFS/IBEX Fin. Servs., 612 F.3d 800, 808 & n.1 (5th Cir. 2010)).10 Today's case presents an opportunity to provide clarity regarding the relationship between claims for an insurance policy breach and Insurance Code violations. In light of the confusing nature of our precedent in this area, we begin by returning to the underlying governing principles. See, e.g., U.S. v. New Mexico, 455 U.S. 720, 733 (1982) ().
The first of these principles is that an "insurance policy is a contract" that sets forth the respective rights and obligations to which an insurer and its insured have mutually agreed. RSUI Indem. Co. v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015); see also Tex. Ass'n of Ctys. Cty. Gov't Risk Mgmt. Pool v. Matagorda Cty., 52 S.W.3d 128, 131 (Tex. 2000) (). Generally, we construe a policy using the same rules that govern the construction of any other contract. See Ulico Cas. Co. v. Allied Pilots Ass'n, 262 S.W.3d 773, 778 (Tex. 2008) (citing Forbau v. Aetna Life Ins., Co., 876 S.W.2d 132, 133 (Tex. 1994)). An insurance policy, however, is a unique type of contract because an insurer generally "has exclusive control over the evaluation, processing[,] and denial of claims," and it can easily use that control to take advantage of its insured. Arnold v. Nat'l Cty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). Because of this inherent "unequal bargaining power," we concluded in Arnold that the "special relationship" between an insurer and insured justifies the imposition of a common-law duty on insurers to "deal fairly and in good faith with their insureds." Id.
Similar to that common-law duty, the Insurance Code supplements the parties' contractual rights and obligations by imposing procedural requirements that govern the manner in which insurers review and resolve an insured's claim for policy benefits. See, e.g., TEX. INS. CODE § 541.060(a) (). The Code grants insureds a private action against insurers that engage in certain discriminatory, unfair, deceptive, or bad-faith practices, and it permits insureds to recover "actual damages . . . caused by" those practices, court costs, and attorney's fees, plus treble damages if the insurer "knowingly"commits the prohibited act. Id. §§ 541.151, .152; Tex. Mut. Ins. Co. v. Ruttiger, 381 S.W.3d 430, 441 (Tex. 2012).11 "Actual damages" under the Insurance Code "are those damages recoverable at common law," State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 435 (Tex. 1995) (citing Brown v. Am. Transfer & Storage Co., 601 S.W.2d 931, 939 (Tex. 1980)), which include "benefit-of-the-bargain" damages representing "the difference between the value as represented and the value received," Arthur Andersen & Co. v. Perry Equip. Corp., 945 S.W.2d 812, 817 (Tex. 1997) (citing Leyendecker & Assocs., Inc. v. Wechter, 683 S.W.2d 369, 373 (Tex. 1984)). But the Code does not create insurance coverage or a right to payment of...
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