Woods v. William M. Mercer, Inc.

• Decision Date: 07 December 1988
• Docket Number: No. C-5863,C-5863
• Citation: 769 S.W.2d 515
• Parties: Peggy WOODS, C.R.N.A., Petitioner, v. WILLIAM M. MERCER, INC., et al., Respondent.
• Court: Texas Supreme Court

Page 515

769 S.W.2d 515

Peggy WOODS, C.R.N.A., Petitioner, v. WILLIAM M. MERCER, INC., et al., Respondent.

No. C-5863.

Supreme Court of Texas.

Dec. 7, 1988.

Rehearing Denied June 7, 1989.

Frank L. Branson and Paul N. Gold, Law Offices of Frank L. Branson, J. Hadley Edgar, Texas Tech University, Lubbock Alan S. Loewinsohn, Figari & Davenport, Dallas, for petitioner.

R. Brent Cooper and Michael W. Hudleston, Cowles & Thompson, Dallas, for respondent.

PHILLIPS, Chief Justice.

This is a suit against an insurance agent and an insurance carrier for failure to provide professional liability insurance. The principal question presented is whether the party seeking to benefit from the discovery rule to avoid the statute of limitations has the burden of pleading and proving the requirements of the discovery rule in a trial on the merits. We hold that it does. For this reason, we affirm the judgment of the court of appeals that plaintiff take nothing against her insurance agent because her action was barred by limitations. 717 On February 8, 1978, Peggy Woods administered anesthesia during childbirth to Mrs. Ena Bassham. Bassham died from complications related to the administration of the anesthesia on February 24, 1978. At that time, Woods was covered by a claims-made insurance policy issued by Glacier General Assurance Company through its then agent, William M. Mercer, Inc. The policy covered occurrences giving rise to claims against the insured that came to the attention of the insured and were made known to the insurer during the policy period. Woods subsequently changed her insurance to an "occurrence" policy. This type of policy covered claims arising from an event that occurred during the policy period, whether or not the claim or occurrence was actually brought to the attention of the insured or reported to the insurance company during the policy period.

                S.W.2d 391.   We further hold that plaintiff established some evidence that the carrier committed a deceptive trade practice and, thus, we reverse the judgment of the court of appeals affirming a judgment non obstante veredicto for the carrier
                

The transition from the "claims-made" policy to the "occurrence" policy created a potential gap in coverage. To bridge this gap, Glacier provided an opportunity for its insureds to purchase "tail coverage," which essentially extended the period of the "claims-made" policy to allow additional time to make claims for injuries that arose from events occurring during the time the policy was in effect.

In April, 1978, Glacier's agent, Mercer, sent a notice to the insured nurses regarding the need for tail coverage. Woods signed an application for the insurance and gave it to Dwayne Benefield, the employee in charge of insurance at Good Shepherd Hospital, where she worked. Benefield mailed the application to Mercer on May 16, 1978, which was received on May 18. Benefield did not, however, send the premium for the tail coverage policy to Mercer until June 19. Mercer received the check on June 21, one day after the deadline for obtaining coverage. In the interim, Mercer had not forwarded the application to Glacier. Since the payment was received one day late, Mercer informed Benefield on June 23, 1978, that it could not comply with the request for coverage. At trial, Woods argued that this representation by Mercer was false, because Glacier would have issued the policy if the application alone had been forwarded, making it Mercer's fault, not hers, that she did not obtain the tail coverage.

On October 27, 1978, counsel for the Bassham family gave notice of suit to the hospital for the death of Ena Bassham. Mercer refused coverage on the grounds that Woods had not purchased the tail coverage. The Basshams then filed suit against Woods in federal court. In a trial before the court, the Basshams were awarded a judgment against Woods of $1,209,016.59, plus post-judgment interest and costs. Woods took no appeal, and the judgment became final on May 14, 1981.

In April, 1983, Woods brought this suit against Glacier and Mercer for damages arising from their failure to provide coverage. The real plaintiffs in interest were the Basshams, to whom Woods had assigned her cause of action. Woods alleged common law negligence, violation of the Deceptive Trade Practices Act, and violation of the Unfair Claims Settlement Practices Act of the Insurance Code. After a jury trial, the trial court rendered judgment against Mercer for actual and treble damages pursuant to the Deceptive Trade Practices Act. However, the trial court granted Glacier's motion for judgment non obstante veredicto.

On appeal, the court of appeals ruled that Woods' action was barred by the statute of limitations. The court held that the evidence conclusively established that Woods, more than two years prior to the institution of her suit, had knowledge of such facts as would lead a reasonably prudent person to make such inquiry as would lead to the discovery of the fraud. The court of appeals also rejected Woods' complaint that the trial court erred in granting Glacier's motion for judgment non obstante veredicto. For the reasons discussed below,

we affirm in part and reverse in part the judgment of the court of appeals.

STATUTE OF LIMITATIONS

This case is governed by the two-year statute of limitations set out under TEX.REV.CIV.STAT. art. 5526 (repealed, now codified at TEX.CIV.PRAC. & REM.CODE § 16.003). ¹ Mercer pleaded that Woods' cause of action was barred by the statute of limitations and raised this defense in both its motion for summary judgment and in its motion for judgment non obstante veredicto. The trial court denied both motions. The proof at trial conclusively showed that all of the misrepresentations on which the jury based its findings occurred on or before June 23, 1978. Suit was not filed until April 13, 1983. Thus, absent a tolling of the statute of limitations, Mercer's limitations defense was established as a matter of law.

Woods argues that the discovery rule should be applied to toll the statute because she did not discover that Mercer had misrepresented Glacier's policies until within two years of the filing of the suit. Woods did not plead the discovery rule at trial, however, and no issues were requested or obtained by either side as to when Woods discovered or in the exercise of reasonable diligence should have discovered Mercer's misrepresentations.

We must decide whether Woods may, under these circumstances, assert the discovery rule in order to avoid the limitations bar. Past opinions of this court have been less than precise in the terminology used to describe and classify the discovery rule. Compare, Weaver v. Witt, 561 S.W.2d 792, 794 (Tex.1977) (the discovery rule "is not a plea in confession and avoidance ..."); with Smith v. Knight, 608 S.W.2d 165, 166 (Tex.1980) (the discovery rule is "an affirmative defense to the statute of limitations."). See also National Resort Communities v. Short, 712 S.W.2d 200, 201 n. 1 (Tex.App.--Austin 1986, writ ref'd n.r.e.) (discussing the different treatments of the discovery rule).

This inconsistency has given rise to some confusion over how the discovery rule is to be treated. The confusion is exemplified by the apparent assumption of both parties in this case and the court of appeals that defendant Mercer bore the burden of proving that Woods discovered or should have discovered Mercer's misrepresentations in order to prevail on its affirmative defense of limitations. 717 S.W.2d at 397. In view of this confusion, we deem it appropriate to review and clarify the rules of pleading and proof governing assertion of the discovery rule in a trial on the merits.

The statute of limitations is an affirmative defense. Tex.R.Civ.P. 94. The defendant thus bears the initial burden to plead, prove, and secure findings to sustain its plea of limitations. Metal Structures Corp. v. Plains Textiles, Inc., 470 S.W.2d 93, 99 (Tex.Civ.App.--Amarillo 1971, writ ref'd n.r.e.).

In an action for fraud, limitations begins to run when the fraud is perpetrated, or if the fraud is concealed, from the time it is discovered or could have been discovered by the exercise of reasonable diligence. Quinn v. Press, 135 Tex. 60, 64, 140 S.W.2d 438, 440 (1940). The plaintiff may therefore raise the discovery rule as an excuse for its failure to file suit within the appropriate period of limitations.

We hold that the discovery rule is a plea in confession and avoidance. A plea in confession and avoidance is one which avows and confesses the truth in the averments of fact in the petition, either expressly or by implication, but then proceeds to allege new matter which tends to deprive the facts admitted of their ordinary legal effect, or to obviate, neutralize, or avoid them. Black's Law Dictionary, 269 (5th ed. 1979). This most closely describes the function of the discovery rule, which asserts that while the statute of limitations may appear to have run, giving rise to that appearance should not control.

A party seeking to avail itself of the discovery rule must therefore plead the rule, either in its original petition or in an amended or supplemented petition in response to defendant's assertion of the defense as a matter in avoidance. TEX.R.CIV.P. 94; Wise v. Anderson, 163 Tex. 608, 359 S.W.2d 876 (1962); Sherman v. Sipper, 137 Tex. 85, 90, 152 S.W.2d 319, 321 (1941); Liles v. Phillips, 677 S.W.2d 802, 808-809 (Tex.App.--Fort Worth 1984, writ ref'd n.r.e.). A defendant who has established that the suit is barred cannot be expected to anticipate the plaintiff's defenses to that bar. A matter in avoidance of the statute of limitations that is not raised affirmatively by the pleadings will, therefore, be deemed waived. Tex.R.Civ.P. 94; B.L. Nelson & Assoc. v. City of Argyle, 535 S.W.2d 906, 911 (Tex.Civ.App.--Fort Worth 1976, writ ref'd n.r.e.).

The party seeking to benefit from the discovery rule must also bear the...