Mt. Hawley Insurance Company v. Howard Ragland, D/B/A Lightning Laydown

f:docs\cv0-079

IN THE COURT OF APPEALS, THIRD DISTRICT OF TEXAS,

AT AUSTIN

NO. 3-90-079-CV

MT. HAWLEY INSURANCE COMPANY,

APPELLANT

vs.

HOWARD RAGLAND, d/b/a LIGHTNING LAYDOWN,

APPELLEE

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 201ST JUDICIAL DISTRICT

NO. 441,865, HONORABLE MARY PEARL WILLIAMS, JUDGE PRESIDING

Mt. Hawley Insurance Company ("Mt. Hawley") appeals a

judgment rendered against it in an action for breach of contract,

fraud, breach of a duty of good faith and fair dealing, and

violations of the Texas Insurance Code and the Deceptive Trade

Practices Act. The suit arises out of Mt. Hawley's refusal to

defend or indemnify its insured, appellee Howard Ragland, d/b/a

Lightning Laydown ("Ragland"). When Mt. Hawley did not provide the

court with proof of its financial responsibility as unauthorized

insurer defendants are directed to do under the Texas Insurance

Code, the trial court struck Mt. Hawley's answer and rendered an

interlocutory default judgment. See Tex. Ins. Code Ann. art.

1.36, § 11 (Supp. 1991). A jury was selected to determine damages.

Based on the jury verdict, the trial court rendered judgment in

favor of Ragland for actual damages, exemplary damages, interest,

and attorney's fees.

In seventeen points of error, Mt. Hawley complains, among

other things, that the trial court erred in requiring it to comply

with the statutory financial responsibility requirement, in

striking its pleadings, in awarding actual and exemplary damages,

in awarding attorney's fees based on a percentage of recovery, and

in allowing opposing counsel to make certain arguments to the jury.

We will affirm the judgment of the trial court.

BACKGROUND

Mt. Hawley insured Ragland's business, an oilfield

service business named Lightning Laydown, under a comprehensive

general liability policy with limits of $300,000. General Accident

Insurance Company of America ("General Accident") also insured

Ragland under an automobile liability insurance policy. On March

11, 1985, a trailer rig being towed behind a vehicle operated by

one of Ragland's employees broke loose, crossed the center line of

the highway, and crashed into a car, killing the driver, Jose

Trevino, and injuring the passenger, his wife.

Mrs. Trevino and others ("the Trevinos") filed suit in

Travis County against Howard Ragland, Lightning Laydown, and

others, seeking damages of $65 million. The Trevinos alleged that

the accident was caused in part by the negligence of Howard

Ragland's employees in improperly hitching the trailer ball to the

towing vehicle and by inadequately welding the ball. General

Accident defended Ragland without reservation of rights.

Ragland notified Mt. Hawley of the suit and requested

that Mt. Hawley furnish a defense. Mt. Hawley refused to defend

and denied coverage, relying on a policy exclusion for bodily

injury arising out of the ownership, maintenance, operation, use,

loading or unloading of an automobile owned or operated by an

insured. It also based its denial on the ground that the claim was

outside the hazards the policy covered, described as oil lease work

by contractors. Mt. Hawley also refused later demands that it

defend Ragland and settle with the plaintiffs.

Shortly before trial on the Trevino claim, the plaintiffs

settled with Ragland. In a Mary Carter agreement among the

plaintiffs and Ragland, Lightning Laydown, and its employees, these

defendants agreed to pay the Trevinos $300,000, minus one-half of

the Trevinos' actual recovery from International Bank of Commerce,

another defendant. The jury found Lightning Laydown, International

Bank of Commerce, and other defendants guilty of negligence

proximately causing the collision, attributing seventy percent of

the fault to Lightning Laydown. (1) Based on the verdict, the court

signed a judgment March 10, 1988, awarding the Trevinos $110,300 to

be paid by the sole remaining negligent defendant, the

International Bank of Commerce.

Ragland assigned General Accident all proceeds from his

claim against Mt. Hawley, up to General Accident's costs in

defending the Trevino case and in pursuing the claim against Mt.

Hawley. In May 1988, Ragland filed this action against Mt. Hawley

for refusing to defend and indemnify him in the Trevino case. He

asserted multiple causes of action, including breach of contract

and breach of the duty of good faith and fair dealing. Mt. Hawley

answered by general denial. On November 14, 1989, Ragland filed a

motion to strike Mt. Hawley's answer because of its failure to

comply with the statutory requirement that unauthorized insurers

show financial responsibility. See Tex. Ins. Code Ann. art. 1.36,

§ 11(a) (Supp. 1991). On November 30, after notice and hearing,

the trial court ordered Mt. Hawley to post a $2,000,000 bond by

5:00 p.m. the next day. The court also struck Mt. Hawley's answer

until the bond was filed, but restrained Ragland from taking a

default judgment until the deadline had passed. Mt. Hawley failed

to post bond. On December 4, the court rendered an interlocutory

default judgment with a writ of inquiry under which Mt. Hawley was

deemed to have admitted all allegations in the third amended

petition except the amount of damages.

The case was tried to a jury which returned a verdict of

$4,000,000 in exemplary damages and found that Ragland was entitled

to an attorney's fee of one-third of his recovery. The trial court

awarded Ragland $440,747.70 in actual damages (the $300,000 Trevino

settlement plus $140,747.70 costs for defending the Trevino case,

both stipulated amounts); $4,000,000 in exemplary damages; legal

fees of $1,480,249.23 (one-third of $4,440,747.70); and interest.

THE FINANCIAL RESPONSIBILITY REQUIREMENT

In its first point of error, Mt. Hawley complains of the

trial court's requiring it to post a bond, striking its pleadings,

and rendering a default judgment when it failed to comply. Mt.

Hawley argues that the court erred because the financial

responsibility requirement does not apply to it under these

circumstances.

Article 1.36, § 11 provides, in relevant part:

Sec. 11 (a) Before an unauthorized person or insurer

files or has filed any pleading in any court action ,

suit, or proceeding . . . instituted against that person

or insurer through service of process, notice, order,

demand, or pleading under Section 7 or 8 of this article,

that person or insurer must either:

(1) deposit with the clerk of the court in which

the action, suit, or proceeding is pending cash or

securities or a bond with good and sufficient

sureties to be approved by the court in an amount

to be determined by the court sufficient to secure

the payment of any final judgment that may be

rendered in that court proceeding; . . . .

Tex. Ins. Code Ann. art. 1.36, § 11 (Supp. 1991) (emphasis added).

The Texas statute is drawn from the Uniform Unauthorized

Insurers Process Act, parts of which have been adopted in at least

forty states. See Retail Union Health & Welfare Fund v. Seabrum,

20 Ga. 695 , 242 S.E.2d 18, 20 (1978); see also 18 Couch on

Insurance § 73:216 (2d ed. 1983). Mt. Hawley cites no Texas case

construing this provision and only a handful of foreign cases. We

are guided by the general principle that statutes relating to

insurance should be liberally construed in favor of the public.

Johnson v. Prudential Ins. Co. 519 S.W.2d 111, 113 (Tex. 1975);

Mutual Life Ins. Co. v. Daddy$ Money, Inc., 646 S.W.2d 255, 257

(Tex. App. 1982, writ ref'd n.r.e.).

The purpose of § 11 is to protect Texas residents,

domestic corporations, and foreign corporations lawfully doing

business in Texas from the practices of unsupervised and

unregulated foreign insurers. Specifically, § 11 is designed to

insure that foreign insurance companies demonstrate their ability

to satisfy any judgments Texas plaintiffs are able to obtain

against them. See Seabrum 242 S.E.2d at 20 ; Dean Constr. Co. v.

Agricultural Ins. Co., 249 N.Y.S.2d 247, 249 (1964).

Mt. Hawley contends that the financial responsibility

requirement does not apply because (1) Mt. Hawley is a "surplus

lines" insurer, while § 11 applies only to "unauthorized" insurers,

and (2) Mt. Hawley was served with process under § 3, but § 11

applies only to an insurer sued under § 7 or § 8. We reject both

arguments.

Assuming Mt. Hawley has correctly characterized itself as

a surplus lines insurer, it is also an unauthorized insurer. Mt.

Hawley does not deny that it is an unauthorized insurance carrier

within the meaning of the Texas statute and, indeed, concedes the

fact on appeal. (2) The statute itself resolves any uncertainty. It

defines surplus lines insurers as a subset of the universe of

unauthorized insurers: "'Surplus lines insurer' means an

unauthorized insurer in which insurance coverage is placed or may

be placed under this Article." Tex. Ins. Code Ann. art. 1.14-2,

§ 2(b) (1981); see also 28 Tex. Admin. Code § 15.10 (1991). We

hold, therefore, that the reference in § 11 to "unauthorized"

insurers does not absolve surplus lines insurers from the financial

responsibility requirement.

Mt. Hawley also argues that the financial responsibility

requirement, § 11, does not apply because it was served with

process not under § 7 but, instead, under § 3. (3) Mt. Hawley not

argues, in the alternative, that as a surplus line insurer, it

cannot be served under § 7.1 (4)

We disagree with both contentions. First, §§ 3 and 7 are

complementary, rather than alternative, provisions. Section 7

provides a means for obtaining personal jurisdiction over an

unauthorized insurer by authorizing substituted service on the

insurance commissioner. One subsection states that "[p]rocedures

and fees for service of process are governed by § 3 of this

article." Tex Ins. Code Ann. art. 1.36, § 7(e) (Supp. 1991).

Section 3 prescribes the procedure for serving process on the

commissioner, that is, the manner of accomplishing substituted

service. See C.W. Bollinger Ins. Co. v. Fish, 699 S.W.2d 645, 648

(Tex. App. 1985, no writ) (construing the previous statute).

Mt. Hawley makes an alternative argument that it cannot

be served under § 7 because that section applies to unauthorized

insurers "doing acts of insurance business" as provided by Article

1.14-1, § 2, while as a surplus line insurer, it is regulated under

Article 1.14-2. See Tex. Ins. Code Ann. art. 1.36, § 7 (Supp.

1991). We reject Mt. Hawley's argument because the article also

provides: "A surplus line insurer may be sued . . . under the same

procedure provided for unauthorized insurers in Sections 3, 7, and

8 of this article." Tex. Ins. Code Ann. art. 1.36, § 12(a) (Supp.

1991). (5) In addition, Mt. Hawley's argument, even if correct,

relies upon its factual contention that Ragland's policy was a

lawful surplus lines transaction. The trial court found otherwise.

Mt. Hawley does not direct us to support for its contrary position

and the record contains no statement of facts from the hearing on

the motion for partial summary judgment.

Finally, Mt. Hawley claims that, even if it were subject

to the statutory requirement, the court erred by striking its

answer. It argues that it should have had notice that the

provision applied before its pleadings were stricken.

Mt. Hawley had constructive notice of its

responsibilities under the Texas Insurance Code; it was charged by

law with awareness of all statutory requirements before placing its

first insurance policy in Texas. See Tex. Ins. Code Ann. art.

21.42 (1981). "It is well settled that the familiar principle

applied in the construction of contracts -- that statutes bearing

on the subject matter of the contract become a part of the contract

just as though they had been copied therein -- applies to the

construction of insurance contracts." Harkins v. Indiana

Lumbermen's Mut. Ins. Co., 234 S.W.2d 430, 431 (Tex. Civ. App.

1950, no writ).

The statute is unambiguous: the bond is mandatory. The

insurer must file the required bond before filing any pleading. In

this case, Mt. Hawley filed its answer more than 17 months before

Ragland brought to the court's attention that Mt. Hawley had not

filed a bond. Ragland filed his motion twenty days before the

court struck Mt. Hawley's answer. The statute does not require

that the court give a party any time certain for filing a bond.

Presumably, the bond must be filed before answer date or the

unauthorized insurer risks default judgment. Because the statute

does not mandate what action the trial court should take when an

insurer fails to file a bond, the court has wide discretion in

responding to a failure to file. The record also does not reflect

that Mt. Hawley requested more time than it was actually given.

Courts in other states agree that when the unauthorized

insurer fails to post bond, the court may strike the insurer's

pleadings. See Akron Co. v. Fidelity Gen. Ins. Co., 250 F.Supp.

201 (N.D. Ohio 1964) (construing the Ohio statute drawn from the

Uniform Unauthorized Insurers Process Act). Seabrum , the case upon

which Mt. Hawley relies for the position that striking the

insurer's answer is improper, is distinguishable. In Seabrum , the

insurer unsuccessfully challenged the constitutionality of the bond

requirement and tendered the bond once it learned of the insured's

motion to strike its pleadings. Seabrum , 242 S.E.2d at 19 . In the

present case, Mt. Hawley never tendered a bond.

We overrule Mt. Hawley's first point of error.

FAILURE TO BRING FORWARD A STATEMENT OF FACTS

In its second through fifth points of error, Mt. Hawley

charges that the trial court committed numerous errors at the

November bond hearing. Specifically, Mt. Hawley argues that

Ragland waived his right to require the bond by his delay; that the

court erred in setting the bond at $2,000,000 and in not allowing

a postponement; and that the bond and default judgment denied it

due process of law.

All of these contentions involve issues of fact, but Mt.

Hawley has failed to bring forward a record of the November 30

hearing. The appellant has the burden to see that a sufficient

record is presented to show error requiring reversal. Tex. R. App.

P. Ann. 50(d) (Pamph. 1991); Balla v. Northeast Lincoln Mercury,

717 S.W.2d 183, 185 (Tex. App. 1986, no writ). In the absence of

a statement of facts, we must presume the evidence supports the

finding. Guthrie v. Nat'l Homes Corp., 394 S.W.2d 494, 495 (Tex.

1965); Adams v. Sadler, 696 S.W.2d 690, 691 (Tex. App. 1985, writ

ref'd n.r.e.).

Mt. Hawley's second through fifth points of error are

overruled.

DAMAGES

Mt. Hawley attacks the damages award in its sixth through

eleventh points of error. Specifically, Mt. Hawley complains that

the trial court erred in rendering judgment against it for actual

and exemplary damages because no actual damages were found, and

because there was either no evidence or insufficient evidence of

any actual damages. In addition, Mt. Hawley urges that the court

erred in awarding exemplary damages because there is no finding of

actual damages in a cause of action for which exemplary damages are

available. Finally, appellant argues that the court erred in

excluding evidence that Ragland's automobile liability insurance

carrier paid all obligations he incurred.

When Mt. Hawley failed to post the required bond, the

court entered an interlocutory default judgment deeming Mt. Hawley

to have admitted all allegations in plaintiff's third amended

original petition except for the amount of damages. The following

allegations were deemed admitted:

1. Mt. Hawley issued a comprehensive general liability

policy to Ragland covering the Trevinos' claims.

2. Mt. Hawley failed to properly investigate the

claims.

3. Mt. Hawley wrongfully refused to defend and

indemnify Ragland against the Trevinos' claims.

4. Mt. Hawley denied coverage without a reasonable

basis when it should have known that there was no

reasonable basis for denying coverage.

5. Mt. Hawley did not attempt in good faith to

effectuate a prompt, fair and equitable settlement

of the Trevinos' claims against Ragland.

6. Mt. Hawley was negligent and acted with malice.

7. Mt. Hawley's actions and/or omissions constituted

gross negligence and were done with reckless and

heedless disregard for Ragland's rights.

8. Mt. Hawley failed to give due consideration to its

insured's financial interest.

9. Mt. Hawley fraudulently induced Ragland to purchase

an insurance policy by wrongfully concealing

material facts regarding its coverages and its

status as an "unauthorized insurer."

10. Mt. Hawley engaged in conduct prohibited by the

Texas Insurance Code, by representing that the

policy provided Ragland characteristics and

benefits which it did not have, by advertising

protection it did not intend to afford, by

misrepresenting the applicable policy coverages to

induce Ragland to forfeit the policy, and by making

untrue, deceptive and misleading statements with

respect to the policy.

11. Mt. Hawley engaged in unlawful practices under the

Insurance Code by knowingly misrepresenting

pertinent facts and/or policy provisions relating

to coverage, failing to adopt and implement

reasonable procedures for prompt investigation of

claims, not attempting in good faith to effectuate

prompt and equitable settlement of claims submitted

in which liability has become reasonably clear,

refusing to pay claims without conducting a

reasonable investigation based upon all available

information, failing to provide promptly a

reasonable explanation of the basis for denial of

the claim, and failing to exercise good faith in

the investigation and processing of the Trevinos'

claims.

12. Mt. Hawley failed to make disclosures as required

by the rules and regulations of the Texas State

Board of Insurance.

13. Mt. Hawley engaged in unconscionable conduct.

The interlocutory ruling adjudged Mt. Hawley legally indebted to

Ragland under theories of breach of contract, breach of a duty of

good faith and fair dealing, fraud, and violations of the Texas

Insurance Code and the Texas Deceptive Trade Practices Act. See

Tex. Ins. Code Ann. art. 21.21 (Supp. 1991); Tex. Bus. & Com. Code

Ann. § 17.41 et seq . (1987).

Thus, when the case went to the jury by writ of inquiry,

the jury's only task was to assess damages. Tex. R. Civ. P. Ann.

243 (1976). This task was further limited because Mt. Hawley had

stipulated that the Ragland-Trevino settlement was $300,000, that

the legal fees and expenses for the Trevino defense were

$140,747.70, and that both sums were reasonable.

The jury awarded Mt. Hawley four million dollars

($4,000,000) in exemplary damages and one-third (33-1/3%) of that

sum as attorney's fees. Mt. Hawley does not complain of the size

of the exemplary damage award or seek remittitur. Instead, Mt.

Hawley argues that Ragland suffered no loss -- General Accident

defended him in the underlying suit and paid for his $300,000

settlement and his legal fees. The default judgment and

stipulations notwithstanding, Ragland could not recover, Mt. Hawley

contends, because he suffered no loss and thus could show no actual

damages.

Mt. Hawley is correct that, as a general rule, the trier

of fact must find and award actual or compensatory damages before

it may award punitive damages. Bellefonte Underwriters Ins. Co. v.

Brown, 704 S.W.2d 742, 745 (Tex. 1986); see Annot., Sufficiency of

Showing of Actual Damages to Support Award of Punitive Damages --

Modern Cases, 40 A.L.R. 4th 25 (1985). We reject Mt. Hawley's

no-loss argument for two reasons: first, the argument is

insupportable under the combined weight of the default judgment and

the stipulations and second, the trial court's proper application

of the collateral source rule undercuts the argument.

A. The Default Judgment and the Stipulations

A default judgment treats all matters properly alleged in

the petition, except unliquidated damages, as admitted. Stoner v.

Thompson, 578 S.W.2d 679, 684 (Tex. 1979); Nixon v. Nixon, 348

S.W.2d 434, 437 (Tex. Civ. App. 1961, writ ref'd n.r.e). The

default establishes liability and proximate cause for the cause of

action alleged. Morgan v. Compugraphic Corp., 675 S.W.2d 729, 731

(Tex. 1984). Pursuant to Rule 243, the complaining party must come

forward at the damages hearing with competent evidence to establish

that the event actually caused the alleged injuries and to show the

amount of the damages to which the party is entitled. Morgan , 675

S.W.2d at 732-33 ; see also First Nat'l Bank v. Shockley, 663 S.W.2d

685, 688 (Tex. App. 1983, no writ).

The record in the trial court contains evidence that Mt.

Hawley refused to defend Ragland in the action in which the

Trevinos sued Ragland, along with other defendants, for $50 million

in punitive damages and $15 million in actual damages. The jury in

the underlying suit found Lightning Laydown to be seventy percent

responsible for the Trevinos' injuries. It assessed damages at

$2,206,000, so in the absence of his settlement, Ragland would have

been liable for about $1.6 million.

The default judgment established Mt. Hawley's liability

for refusing, in bad faith, to defend Ragland or settle the Trevino

suit. See Fleming Mfg. Co. v. Capitol Brick, Inc., 734 S.W.2d 405,

409 (Tex. App. 1987, writ ref'd n.r.e.). Where liability is

established, an insured is entitled to recover as actual damages

the costs of the defense and settlement -- minus any properly

claimed offsets, none of which are in issue here. See Texas United

Ins. Co. v. Burt Ford Enterprises, Inc., 703 S.W.2d 828, 835 (Tex.

App. 1986, no writ).

The only question remaining for the jury is whether the

amount of actual damages suffered was reasonable. See Employers

Casualty Co. v. Block, 744 S.W.2d 940, 942-43 (Tex. 1988). Under

these circumstances, the trial court properly awarded actual

damages without submitting a jury issue on that point; indeed, it

would have been inappropriate to submit such a question. See

Block, 744 S.W.2d at 944 ; see also Texas Emp. Ins. Ass'n v. Miller,

596 S.W.2d 621, 625 (Tex. Civ. App. 1980, no writ) (uncontroverted

issues need not be submitted to the jury by the trial court); City

of Wichita Falls v. Ramos, 596 S.W.2d 654, 658 (Tex. Civ. App.

1980, writ ref'd n.r.e.); Tex. R. Civ. P. Ann. 278, 279 (Supp.

1990).

B. The Collateral Source Rule

In support of its no-loss argument, Mt. Hawley argues

that the trial court erred in using the collateral source rule to

exclude from evidence General Accident's payment of claims in the

underlying suit. Mt. Hawley argues that Ragland seeks a duplicate

recovery, citing several foreign cases for the proposition that an

insured is not harmed by an insurer's refusal to defend if another

insurer provides the defense. We have been unable to find any

Texas authority supporting the position that the collateral source

rule should not be applied under these facts.

The collateral source rule is an exception to the general

principle forbidding more than one recovery for the same loss.

Brown v. American Transfer & Storage Co., 601 S.W.2d 931, 934-36

(Tex.), cert. denied, 449 U.S. 1015 (1980). "The theory behind the

collateral source rule is that a wrongdoer should not have the

benefit of insurance independently procured by the injured party,

and to which the wrongdoer was not in privy." Brown , 601 S.W.2d at

934 . In Brown , the supreme court concluded that the collateral

source rule applied, because the defendant had not made any

contribution to the procurement of the separate insurance policy,

and was not in privity, because the plaintiff paid for it. Brown ,

601 S.W.2d at 935-36 .

Similarly, in the present cause, Ragland independently

bought insurance from General Accident. Mt. Hawley was not privy

to that contract. Thus, under Brown , Mt. Hawley should not benefit

from Ragland's procurement of other insurance. We hold that the

trial court did not err by excluding evidence that General Accident

paid the claims against Ragland in the Trevino matter.

Mt. Hawley further argues that the trial court erred in

awarding actual damages because Ragland's proper recourse was to

pursue a subrogation claim for the pro rata part of the settlement

and defense costs that General Accident was obliged to pay. We

need not address the merits of this argument. The cause was

prosecuted as a subrogation action and, even if the actual damages

in the present case should have been limited to a pro rata

recovery, Mt. Hawley failed to preserve error as required by Tex.

R. App. P. Ann. 52(a) (Pamph. 1991).

In the trial court, Mt. Hawley never contested the amount

of the actual damages award by pleading an offset, by requesting a

remittitur, or by taking any other step. Mt. Hawley did not

complain of excessive damages in a motion for new trial as required

by Tex. R. Civ. P. Ann. 324 (b)(4) (Supp. 1991). A point of error

not preserved is not before the appellate court for review. Lemons

v. EMW Mfg. Co., 747 S.W.2d 372, 373 (Tex. 1988). Further, none of

Mt. Hawley's seventeen points of error claim that the actual or

exemplary damage awards were excessive or should be reduced. An

appellate court is not authorized to reverse a trial court's

judgment in the absence of properly assigned error. State Bd. of

Ins. v. Westland Film Indus., 705 S.W.2d 695, 696 (Tex. 1986).

C. The Relationship Between Exemplary and Actual Damages

Mt. Hawley argues that the court erred in rendering

judgment against it because there is no finding establishing any

actual damages relating to a cause of action for which exemplary

damages were recoverable. Mt. Hawley urges that in an action for

both breach of contract and a resulting tort, tort damages

independent of the breach of contract damages must be recovered

before exemplary damages may be awarded. See Jim Walter Homes,

Inc. v. Reed, 711 S.W.2d 617, 618 (Tex. 1986); Lone Star Steel Co.

v. Scott, 759 S.W.2d 144, 156 (Tex. App. 1988, writ denied).

Mt. Hawley argues that the actual damages here -- the sum of the

settlement and defense costs -- are damages for breach of contract

and, therefore, will not support an award of exemplary damages.

We disagree. A common law duty of good faith and fair

dealing may arise as a result of a special relationship between

parties governed or created by a contract. Crim Truck & Tractor

Co. v. Navistar Int'l Transp. Corp., 34 Tex. Sup. Ct. J. 647 , 648

(June 12, 1991); Arnold v. Nat'l County Mut. Fire Ins. Co., 725

S.W.2d 165, 167 (Tex. 1987). Breach of a duty of good faith and

fair dealing is compensable in tort and entitles the wronged party

to recover all actual damages proximately caused by the breach.

Chitsey v. Nat'l Lloyds Ins. Co., 738 S.W.2d 641, 643 (Tex. 1987).

In addition, exemplary damages are recoverable under the same

principles allowing recovery of those damages in other tort

actions. Arnold , 725 S.W.2d at 168 .

Ragland's relationship with Mt. Hawley is a special

relationship, entitling him to recover for breach of a duty of good

faith and fair dealing. The special nature of the relationship

created by an insurance contract imposes a duty, independent of

that created by the terms of the contract, on the insurance company

to treat its insured fairly and in good faith. Arnold , 725 S.W.2d

at 167 . The default judgment established that Mt. Hawley handled

this claim with malice, gross negligence, and reckless and heedless

disregard of Ragland's rights. Based on that judgment, the trial

court did not err in awarding the actual tort damages that it did.

Those damages furnish a sufficient basis for the award of exemplary

damages. See Fleming Mfg. Co. , 734 S.W.2d at 409 .

Equally unpersuasive is Mt. Hawley's argument that,

because the tort damages equaled the amount Ragland would have

received for breach of contract, the actual damages do not support

exemplary damages. The damages here could have been recovered

under either theory -- breach of contract or breach of a duty of

good faith and fair dealing. In a similar case, the supreme court

held, "in this case, under either theory, breach of contract or

tort, the recovery is the same." Chitsey , 738 S.W.2d at 644 .

Chitsey suggests that the damages will not be conclusively presumed

to be breach-of-contract damages simply because the same amount

would be recovered under either theory. See also American Nat'l

Petroleum Co. v. Transcontinental Gas Pipe Line Corp., 798 S.W.2d

274, 278 (Tex. 1990); Vail v. Texas Farm Bureau Mut. Ins. Co., 754

S.W.2d 129, 136 (Tex. 1988).

The cases Mt. Hawley relies on are inapposite. Neither

Jim Walter Homes nor Lone Star Steel involved a contract giving

rise to a duty of good faith and fair dealing; neither was a bad

faith insurance case. See Jim Walter Homes , 711 S.W.2d at 618 ;

Lone Star Steel , 759 S.W.2d at 156 . Under the default judgment,

Mt. Hawley was deemed to have admitted breaching its duty of good

faith and fair dealing; therefore, the actual damages resulting

from its conduct support an award for exemplary damages. The trial

court properly awarded exemplary damages.

Mt. Hawley's sixth through eleventh points of error are

overruled.

ATTORNEY'S FEES

In its twelfth through fourteenth points of error, Mt.

Hawley attacks the award of a one-third fee to Ragland's attorneys.

See Tex. Civ. Prac. & Rem. Code Ann. § 38.001 (1986). It argues

that the court erred in submitting a jury question asking the jury

to determine Ragland's reasonable and necessary attorney's fees as

a percentage of his total recovery. It also complains that there

is no evidence or insufficient evidence from which the jury could

conclude that reasonable and necessary legal fees amounted to one-third of the recovery.

First, the court did not err in submitting the question

as it did; it need not pose the question in terms of dollars and

cents. In similar cases, appellate courts have approved

submissions of attorney's fees that inquired what percentage of the

recovery should be awarded:

We do not find it crucial . . . that the jury know how

much money counsel for appellees would receive, although

the jury could have calculated in dollars the amount in

controversy and what an award of 33 1/3 percent

attorney's fees would represent . . . . Whether the fee

awarded was proved reasonable is the relevant question

. . . .

Liberty Mut. Ins. Co. v. Allen, 669 S.W.2d 750, 755 (Tex. App.

1983, writ ref'd n.r.e.); see also March v. Thiery, 729 S.W.2d 889,

897 (Tex. App. 1987, no writ); Hochheim Prairie Farm Mut. Ins. v.

Burnett, 698 S.W.2d 271, 278 (Tex. App. 1985, no writ); Texas

Farmers Ins. Co. v. Hernandez, 649 S.W.2d 121, 124 (Tex. App. 1983,

writ ref'd n.r.e.).

Second, sufficient evidence supports the award of

attorney's fees. An Austin attorney testified that suits against

insurance companies for bad faith are customarily handled on a

contingent fee basis. He also testified that in Travis County a

reasonable contingent fee would range from one-third to 40%. His

testimony is sufficient to support the award. See Burnett , 698

S.W.2d at 278 ; Hernandez , 649 S.W.2d at 125 .

Third, contrary to Mt. Hawley's argument, a plaintiff is

not required to show that an attorney's fee is "necessary," but

only that is "reasonable." Tex. Civ. Prac. & Rem. Code Ann.

§ 38.001 (1986). The statute also provides that the reasonableness

of the fee is presumed where it is shown that it is usual and

customary. See Tex. Civ. Prac. & Rem. Code Ann. § 38.003 (1986).

In the present cause, there was unrebutted testimony that a one-third contingent fee was usual, customary, and reasonable. That

evidence is sufficient to support the award. Burnett , 698 S.W.2d

at 278 ; Allen , 669 S.W.2d at 755 .

We overrule Mt. Hawley's twelfth through fourteenth

points of error.

JURY ARGUMENT

In its fifteenth point of error, Mt. Hawley argues that

the trial court erred in overruling its objection to Ragland's jury

argument because it was unsupported by and outside the record.

Specifically, it claims that the jury argument improperly referred

to Mt. Hawley's "profits," "profit ratio," and "a fair rate of

return," even though the record contained no such evidence.

Gary Bonham, Mt. Hawley's Vice President of Claims,

testified that gross premiums for insurance written in the State of

Texas in 1988 were $8,586,582 and that direct losses paid in the

state were $494,991. During jury argument, Ragland's counsel

referred to those figures and said:

Now if you subtract those, which I did during the lunch

hour, this is how much money these people took in, less

what they paid out in Texas in 1988, just one year.

What I am saying is when you come down to the punitive

damage award, exemplary damage award, right here in

answer to No. 1, let's just take these people's profits

away from them in Texas for one year, 1988. That will

get the message across to them. That figure right here

is what I suggest.

Mt. Hawley objected that these figures did not represent profits.

The court overruled the objection, instructing the jury to rely on

its own memory of the testimony about the figures.

Ragland then told the jury that if it figured "the profit

ratio on these figures here, it would be something like 90% or

95%." Mt. Hawley objected that there was no evidence of a 90% or

95% profit ratio and that Ragland's counsel made this up out of

whole cloth. The trial court overruled the objection.

Finally, Ragland urged the jury to "figure out what you

think a fair rate of return [is] for an insurance company that does

business in a legal manner in the state and then apply that to

these figures" as another way of calculating exemplary damages.

Again, Mt. Hawley objected that there was no evidence of a

reasonable rate of return for insurance companies in Texas. The

jury awarded sizeable damages, but far less than Ragland suggested.

To reverse a judgment because of improper argument of

counsel, two elements must appear: (1) the argument must have been

improper; (2) such as to satisfy the reviewing court that it was

reasonably calculated to cause and probably did cause the rendition

of an improper judgment. Houston Lighting & Power Co. v. Fisher,

559 S.W.2d 682, 684 (Tex. Civ. App. 1978, writ ref'd n.r.e.); see

also Standard Fire Ins. Co. v. Reese, 584 S.W.2d 835, 839 (Tex.

1979).

We hold that Ragland's jury argument was proper.

Evidence about Mt. Hawley's gross premiums and direct losses for

1988 were introduced without objection. In addition, the same

witness testified, without objection, to the company's low

overhead, mentioning that four claims examiners handled all the

nationwide claims of Mt. Hawley and two other insurance companies,

that Mt. Hawley employed no investigators, and that Mt. Hawley

conducted its Texas business through a Louisiana firm of

underwriters.

Counsel is afforded considerable latitude in making jury

argument, and is "entitled to draw inferences from the evidence

presented, whether reasonable or not." Fisher , 559 S.W.2d at 684 ;

see also 3 McDonald, Texas Civil Practice, § 13.052, at 389 (1983).

We can distinguish the present cause from those cited by Mt.

Hawley. Here, Ragland's attorney drew inferences from the evidence

presented. World Wide Tire Co. v. Brown, 644 S.W.2d 144, 146 (Tex.

App. 1982, writ ref'd n.r.e.), involved an improper argument urging

the jury to put itself in the shoes of the plaintiff. Southland

Corp. v. Burnett, 790 S.W.2d 828, 830 (Tex. App. 1990, no writ),

involved speculative evidence admitted over proper relevancy

objections. Even if the argument was improper, we hold that it did

not cause rendition of an improper judgment. Mt. Hawley's

fifteenth point of error is overruled.

In its remaining points of error, Mt. Hawley asks this

Court, in the event of remand, to consider the trial court's action

in granting Ragland's motion for partial summary judgment. As this

cause is not being remanded, we need not address these points of

error. We overrule all of Mt. Hawley's points of error.

The judgment of the trial court is affirmed.

Marilyn Aboussie, Justice

[Before Chief Justice Carroll, Justices Aboussie and Jones]

Affirmed

Filed: August 21, 1991

[Publish] [Do Not Publish]

1.

1 The judgment was affirmed on appeal to this Court.

Trevino v. Lightning Laydown, Inc., 782 S.W.2d 946 (Tex. App.

1990, writ denied). Ragland's personal attorney testified that

Lightning Laydown, Inc. was really a sole proprietorship of

Ragland, but there is no explanation in the record for why

Lightning Laydown, Inc. was identified as a Texas corporation and

a separate defendant in the Trevino case and was identified in

the judgment as a separate defendant appearing through its

corporate representative.

2. We note without relying thereon that, before striking the

pleadings and rendering default judgment, the trial court had

granted a partial summary judgment declaring that Mt. Hawley was

an unauthorized insurer and that Ragland's policy was in

violation of the statutory requirements for surplus lines

insurers. Further, Mt. Hawley's Vice President of Claims, Gary

Bonham, testified by deposition that, as a surplus lines carrier,

Mt. Hawley is an unauthorized insurer.

3. Section 8 of Article 1.36 concerns service through the

secretary of state. No one suggests that this section was

invoked; therefore, we do not discuss it further.

4. The enabling legislation's stated purpose is "to clarify

and consolidate procedure for effecting service of process on

companies doing business in Texas, whether licensed or not

. . . ." 1987 Tex. Gen. Laws, ch. 46, § 2, at 79.

5.

5 Formerly art. 1.14-2, § 11. 1967 Tex. Gen. Laws, ch.

185, § 11 at 412 [Tex. Ins. Code Ann. art. 1.14-2, § 11, since

repealed]; see also Lloyd's of London v. Walker, 716 S.W.2d 99,

103 (Tex. App. 1986, writ ref'd n.r.e.).