Sandra Gervais Laine v. Farmers Insurance Exchange

Opinion issued February 4,

2010

In The

Court of Appeals

For The

First District of Texas

NO. 01-08-01010-CV

SANDRA GERVAIS LAINE, Appellant

V.

FARMERS INSURANCE EXCHANGE, Appellee

On Appeal from the 334th District Court

Harris County, Texas

Trial Court Cause No. 2007-12590

O P I N I O N

In this case, we determine whether

the public policy against an insurance recovery for punitive damages assessed

against an uninsured motorist applies to an umbrella policy, which defines its

scope of coverage to be the same as the underlying uninsured motorist

coverage. We conclude that it does.

Sandra Gervais Laine was driving her

mother home one evening when an uninsured drunk driver struck Laine’s car. The accident resulted in her mother’s death,

and Laine made a claim under her Farmers Insurance Exchange (Farmers) policies. Farmers paid the policy limit under the uninsured

and underinsured motorist (UM) provision of Laine’s auto policy, but when

Farmers did not respond to Laine’s request for payment under the umbrella

policy augmenting her coverage, Laine sued Farmers for breach of the policy and

its statutory obligation to provide prompt payment, as well as the drunk driver

responsible for her mother’s wrongful death.

The jury returned findings of actual

and exemplary damages against the drunk driver on the wrongful death claim and found

that Farmers failed to comply with its prompt payment obligation. But because the payment Farmers already had made

to Laine under the UM policy exceeded the amount the jury found as actual

damages, the trial court granted Farmers’ motion for judgment notwithstanding

the verdict (jnov), ruling that neither the UM provision, nor the overlying

umbrella policy, covers the award of exemplary damages.

Laine appeals the jnov, contending

that the trial court erred in declining to render judgment on the verdict

because (1) Farmers’ judicial admission that the umbrella policy provided

coverage estops it from claiming that public policy precludes coverage of

exemplary damages assessed against an uninsured tortfeasor, (2) the result

unconstitutionally impairs her existing rights under the policy and violates

her right to equal protection of the law, and (3) Farmers is waived or estopped

from contesting coverage because it paid benefits under the auto policy and its

administrative denial of umbrella coverage rests on a different, erroneous,

ground. Laine also complains of the

absence of an attorney’s fees award. Following

established precedent holding that UM coverage does not include coverage for exemplary

damages assessed against an uninsured tortfeasor, we conclude that the trial

court properly granted judgment to Farmers.

We therefore affirm.

BACKGROUND

Following

the accident that killed her mother, Laine made a claim to Farmers for UM

benefits. Her automobile policy had

coverage limits of $250,000, and the accompanying umbrella policy added

coverage up to $1,000,000. Farmers paid

Laine the policy limits on the underlying policy, but did not respond to her

request for additional payment under the umbrella policy.

When she did not receive additional

payment, Laine sued Farmers, claiming that Farmers breached the umbrella policy

and violated the Texas Prompt Payment Act.

Tex. Ins. Code Ann .

§ 542.056 (Vernon 2009). The trial

court tried the case in three phases. The

first phase addressed Laine’s actual damages in her wrongful death claim. The jury found actual damages of $175,000.00

for Laine’s mother’s wrongful death.

In the second phase, the trial court

directed a verdict finding the drunk driver guilty of intoxication manslaughter

and asked the jury to find the amount of exemplary damages that should be

assessed against the drunk driver. In

response to this question, the jury assessed $1,500,000.00 against the drunk driver.

The third phase involved Laine’s

claims against Farmers. The jury found

that Farmers failed to comply with the requirements of the Prompt Payment Act,

but declined to award her attorney’s fees.

Farmers

moved for jnov, contending that it had not violated the Prompt Payment Act

because the UM coverage under Laine’s policy does not include coverage for

punitive damages. The trial court agreed and, finding that Farmers’ $250,000.00

payment under Laine’s auto policy offset the jury’s $175,000.00 actual damages

finding on her wrongful death claim, signed a take-nothing judgment.

DISCUSSION

Standard of review

A trial court may disregard a jury’s

verdict and render a jnov if the evidence is legally insufficient to support

the jury’s findings or if a directed verdict would have been proper because a

legal principle precludes recovery. Tex. R. Civ. P . 301; Brown v. Bank of Galveston , 963 S.W.2d

511, 513 (Tex.1998); Fort Bend County

Drainage Dist. v. Sbrusch , 818 S.W.2d 392, 394 (Tex.1991); Williams v. Briscoe , 137 S.W.3d 120, 124

(Tex. App.—Houston [1st Dist.] 2004, no pet.); John Masek Corp. v. Davis , 848 S.W.2d 170, 173 (Tex. App.—Houston

[1st Dist.] 1992, writ denied). To

determine whether the trial court erred in granting a jnov, we view the

evidence in the light most favorable to the verdict. See

Weirich v. Weirich , 833 S.W.2d 942, 945 (Tex. 1992). If more than a scintilla of competent evidence

supports the jury’s findings, we must reverse the jnov. Leitch

v. Hornsby , 935 S.W.2d 114, 118 (Tex. 1996); Old Republic Ins. Co. v. EX-IM Servs. Corp. , 920 S.W.2d 393, 395

(Tex. App.—Houston [1st Dist.] 1996, no writ). When the evidence supporting the finding, as a

whole, rises to a level that would lead reasonable and fair-minded people to

differ in their conclusions, the evidence comprises more than a scintilla. Williams ,

137 S.W.3d at 124 ; see Burroughs Wellcome

Co. v. Crye , 907 S.W.2d 497, 499 (Tex. 1995).

Insurance policy interpretation

The

gist of Laine’s contentions on appeal is that the umbrella policy covers the

jury’s exemplary damages award on her wrongful death claim, and the trial court

erred in ruling to the contrary. As with

other contracts, an insurance policy’s terms must be given effect if we can

discern the parties’ intent from their plain language. See

Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co. , 141 S.W.3d 198, 202 (Tex.

2004). If the policy language has only

one reasonable interpretation, then it is not ambiguous, and we construe it as

a matter of law. Fiess v. State Farm Lloyds , 202 S.W.3d 744, 746 (Tex. 2006); Am. Mfrs. Mut. Ins. Co. v. Schaefer , 124

S.W.3d 154, 157 (Tex. 2003). On the

other hand, if the language is susceptible of two or more reasonable

interpretations, then it is ambiguous, and we resolve the uncertainty by

adopting the reasonable interpretation that favors the insured. Fiess ,

202 S.W.3d at 746 (citing Nat’l Union

Fire Ins. Co. v. Hudson Energy Co. , 811 S.W.2d 552, 555 (Tex. 1991)).

A conclusion that the policy language

provides coverage does not end our inquiry.

See Fairfield Ins. Co. v. Stephens Martin Paving, L.P. , 246 S.W.3d 653,

655 (Tex. 2008) (applying two-step inquiry into whether exemplary damages for

gross negligence are insurable). In that

event, we must “determine whether the public policy of Texas allows or prohibits

coverage in the circumstances of the underlying suit.” Id. We look first to the statutes to determine

whether the Legislature has made an explicit policy decision. Id. If we find no explicit pronouncement, “we

then consider the general public policies of Texas.” Id.

Insurance policy language

Laine’s

umbrella policy defines “damages” as “the total of damages that the insured

must pay (legally or by agreement with our written consent) because of bodily

injury, personal injury or property damage caused by an occurrence covered by

this policy . . . .”

The umbrella policy contains no express general exclusion for general

damages within the description of damages that an insured must pay.

With respect to UM coverage, however,

the umbrella policy declares that

[f]or the

additional premium paid, it is agreed that this policy will provide Uninsured

and/or Underinsured Motorist Coverage(s) to you or any other insured under this

policy, to the extent that either or both coverages are a part of the

underlying insurance, except for our limit of liability.

Because the umbrella policy directs

us to the underlying auto insurance to determine the scope of the UM coverage,

we next turn to that provision. The UM

provision states:

We will pay

damages which a covered person is legally entitled to recover from the owner or

operator of an uninsured motor vehicle because of bodily injury sustained by a

covered person, or property damage, caused by an accident.

The UM provision defines “covered

person” as

1. You or any family member;

2. Any other person occupying your covered

auto;

3. Any person for damages

that person is entitled to recover because of bodily injury to which this

coverage applies sustained by a person described in 1. or 2. above.

The auto policy, unlike the umbrella

policy, does not define “damages.” The

UM coverage specifies that it will pay the amount to which a covered person is

legally entitled because of “bodily injury . . . or property damage,” and is

silent on the issue of exemplary damages.

The UM provision’s “Limit of Liability” section explains that “[i]n

order to avoid insurance benefits payments in excess of actual damages

sustained, subject only to the limits set out in the Declarations and other

applicable provisions of this coverage, we will pay all covered damages not

paid or payable under any workers’ compensation law, disability benefits law,

any similar law, auto medical expense coverage or Personal Injury Protection

Coverage.” Our court has held that this

language suggests that the UM provision is not intended to cover exemplary

damages because such amounts are in “excess of actual damages sustained” and

not losses “because of” bodily injury or property damage, but did so only after

looking to the statutory intent underlying UM coverage. State Farm Mut. Auto. Ins. Co. v. Shaffer , 888 S.W.2d 146 , 148–49

(Tex. App.—Houston [1st Dist.] 1994, writ denied).

Thus,

neither the umbrella policy nor the underlying auto policy expressly permits recovery

of exemplary damages for Laine’s wrongful death claim against the drunk driver under

the UM provision—nor does either policy expressly prohibit it. Laine contends that Farmers judicially

admitted that the policy provides coverage for exemplary damages because the

umbrella policy contained no exclusion for “damages which are punitive or

exemplary.” Under the umbrella policy’s

definition, “damages,” and thus, the corresponding exclusions and endorsements,

applies to amounts that an insured

must pay, not to amounts owed to a covered person by an operator of an uninsured or underinsured motor vehicle. These latter amounts are instead defined

within the insured’s auto policy. As the

trial court determined, Farmers’ acknowledgement that the umbrella policy

covered punitive or exemplary damages when the accident occurred does not

support a corollary conclusion that the umbrella policy’s coverage extends to

exemplary damages assessed against the third party uninsured or underinsured

drunk driver; rather, the UM policy refers the reader to the underlying UM

coverage to answer that question.

As

our court observed in Shaffer ,

however, we need not definitively answer the question of whether Laine’s

umbrella policy, together with the UM policy language, covers exemplary damages

assessed against a third-party tortfeasor—even if it does, Texas public policy nonetheless

prohibits it. See id.

Public policy considerations

As the Texas Supreme Court has

observed, “Texas appellate courts have uniformly rejected as against public

policy coverage under uninsured or underinsured motorist policies when the

insured seeks to recover from his own insurer exemplary damages assessed

against a third-party tortfeasor.” Fairfield , 246 S.W.3d at 668 ; see Milligan v. State Farm Mut. Auto. Ins.

Co. , 940 S.W.2d 228, 232 (Tex. App.—Houston [14th Dist.] 1997, writ

denied); Shaffer , 888 S.W.2d at 149 ; Vanderlinden v. United Servs. Auto. Ass’n

Prop. & Cas. Ins. Co. , 885 S.W.2d 239, 242 (Tex. App.—Texarkana 1994,

writ denied).

We

squarely addressed this issue in Shaffer ,

holding that “both public policy and the language contained in the Insurance

Code and the Motor Vehicle Safety-Responsibility Act limit recovery under an

uninsured-underinsured motorist policy to compensatory damages.” 888 S.W.2d at 149–50 (citing Tex. Civ. Stat. Ann . art. 6701h, § 1A(a)

(current version codified at Tex. Ins.

Code Ann . § 1952.101 (Vernon 2009)), and Act of Oct. 1, 1967, 60th

Leg., R.S., ch. 202, § 3, 1967 Tex. Gen.

Laws 448 , 449 (current version codified at Tex. Transp. Code Ann.

§ § 601.001–601.054

(Vernon 1999 & Supp. 2009)). We

observed that “[t]his policy does not support rendering damages against State

Farm since neither deterrence of wrongful conduct nor punishment . . .

of the wrongdoer[] is achieved by imposing exemplary damages upon Shaffer’s

insurance carrier for [the] wrongful act.”

Id. , quoted in Fairfield , 246 S.W.3d at 668 . More recently, the Supreme Court has pointed

to Chapter 41 of the Civil Practice and Remedies Code as further indication

“that the punishment imposed through exemplary damages is to be directed at the

wrongdoer.” Fairfield , 246 S.W.3d at 667 . Our own precedent, cited with approval by the

Texas Supreme Court in Fairfield , and

the more recent authority, lead us to decline Laine’s invitation to follow

older Texas decisions to the contrary, which have been disapproved by the

Supreme Court in the intervening years. See Fairfield , 246 S.W.3d at 668 &

n.22 (citing with approval Milligan , Shaffer , Vanderlinden , and Government

Employees Ins. Co. v. Lichte , 792 S.W.2d 546, 549 (Tex. App.—El Paso 1990),

writ denied per curiam, 925 S.W.2d

431 (Tex. 1991)); see also id. at 683

(Hecht, J., concurring) (identifying Manriquez

v. Mid-Century Ins. Co. , 779 S.W.2d 482 (Tex. App.—El Paso 1989, writ

denied), a case relied on by Laine, as one of only two courts that “have

concluded that punitive damages are damages for bodily injury covered by

automobile policies,” a position that “has been uniformly rejected in the

context of uninsured and underinsured motorist coverage”); Home Indem. Co. v. Tyler , 522 S.W.2d 594, 597 (Tex. Civ.

App.—Houston [14th Dist.] 1975, writ ref’d n.r.e.) (holding that language

requiring insurer to “pay all sums which the insured . . . shall

be legally entitled to recover as damages from the owner or operator of an

uninsured automobile” includes recovery of exemplary damages under uninsured

motorist provision of policy), overruled

by Milligan , 940 S.W.2d 228 (citing Shaffer

with approval).

Laine criticizes Fairfield , but, as a lower appellate court, we must obey the

pronouncements of the Texas Supreme Court.

See In re K.M.S. , 91 S.W.3d

331, 331 (Tex. 2002) (per curiam). The

trial court thus correctly determined that the UM coverage available under

Laine’s umbrella policy does not extend to exemplary damages against the

tortfeasor as a matter of law. [1]

Estoppel and constitutional claims

Because

Laine’s UM provisions do not provide coverage of exemplary damages, her remaining

waiver and estoppel arguments are unavailing.

The fact that Farmers may have denied coverage for one reason does not

mean that coverage is made available when another reason for denial would

suffice. “The doctrine of estoppel

cannot be used to create insurance when none exists by the terms of the

policy.” Utica Nat’l Ins. Co. , 141 S.W.3d at 203 (quoting Texas Farmers Ins. Co. v. McGuire , 744

S.W.2d 601 , 602–03 (Tex. 1988)).

Finally, Laine contends that her

inability to recover exemplary damages under the UM coverage violates her right

to equal protection under the Texas Constitution because other similarly

situated claimants can collect exemplary damages under an insured tortfeasor’s

policy. The Texas Supreme Court,

however, has articulated the rationale for that result:

In the uninsured

and underinsured motorist context, it may be appropriate for policyholders to

share in the burden of injuries caused by underinsured motorists, but not their

punishment. In other words, the purpose

of exemplary damages may not be achieved by penalizing those who obtain the

insurance required by law for the wrongful acts of those who do not.

Fairfield , 246

S.W.3d at 669–70. By requiring UM

coverage, the Texas Legislature ensured that persons injured by uninsured

motorists would be compensated for their actual injuries. See Tex. Ins. Code Ann . § 1952.101; Shaffer , 888 S.W.2d at 149 . Nothing prevents Laine from executing the

exemplary damages judgment directly against the tortfeasor himself. Laine therefore has failed to show an equal

protection violation.

CONCLUSION

Following Shaffer , we hold that the trial court correctly granted Farmers’ motion

for jnov on the basis that the UM provision of Laine’s umbrella policy does not

cover the exemplary damages award the jury assessed against the uninsured drunk

driver for the wrongful death of her mother.

We therefore affirm the judgment of the trial court.

Jane Bland

Justice

Panel consists of Justices Bland,

Massengale, and Wilson. [1]

[1] Because Laine does not prevail on her Prompt Payment

Act claim, she is not entitled to recover her attorney’s fees. See Tex. Ins. Code Ann . § 542.060

(Vernon 2009).

[1 ] The

Honorable Randy W. Wilson, judge of the 157th District Court of Harris County,

Texas, participating by assignment. See Tex. Gov’t Code Ann. § 74.003(h) (Vernon 2005).