Murray v. San Jacinto Agency, Inc.

SPEARS, Justice,

dissenting.

I respectfully dissent. In Arnold v. National County Mutual Fire Ins. Co., 725 S.W.2d 165 (Tex.1987), this court considered the same question as is presented here and held “that the statute of limitations does not begin to run on a good faith and fair dealing claim until the underlying insurance contract claims are finally resolved.” 725 S.W.2d at 168 . This is binding precedent and I would continue to adhere to it.

In reaching our decision in Arnold , we analogized to Linkenhoger v. American Fidelity & Casualty Co., 152 Tex. 534 , 260 S.W.2d 884 (1953), where we held in a Stowers suit that limitations did not begin to run until the underlying judgment was final. The court now views this as an “incorrect” analogy and implies that the court simply made a mistake by failing to recognize the difference between a third-party claim such as Linkenhoger and a first-party claim such as was involved in Arnold . However, it is clear that the court did not simply make a mistake; we expressly recognized that the running of limitations in Arnold should be the same “as in Stowers cases.” 725 S.W.2d at 168 . Thus, Arnold ruled on the exact question now before the court and rejected the very argument that the court now chooses to adopt.

The court not only overrules Arnold but also overrules implicitly the even more recent decision of Street v. Second Court of Appeals, 756 S.W.2d 299 (Tex.1988). In Street , we reconsidered Linkenhoger to hold that, when a trial court renders final *831 judgment on a third-party’s contract claim, the insured may immediately bring a Stow-ers action even though the insured’s appeal from the excess judgment is still pending. Nevertheless, Street reaffirmed that part of Linkenhoger which held that limitations will not begin to run on the insured’s bad faith claim until all appeals have been exhausted and “until the underlying action has been completely resolved.” 756 S.W.2d at 302 . Thus, for purposes of limitations, Street effectively rejected any rigid application of the injury based rule of accrual and instead adopted a practical approach similar to the one announced in Arnold . An insured may bring a Stowers action upon the occurrence of the “injury-producing event” — i.e., the final trial court judgment exceeding policy limits — but “an insured who so wishes may still wait” and limitations will not begin to run on the action until the underlying claim is completely resolved. Id.

Rather than continuing with this practical approach for bad-faith causes of action, the court blindly adheres to a strict injury based rule of accrual as though there were no exceptions. In doing so, it cites Robinson v. Weaver, 550 S.W.2d 18 (Tex.1977) for the proposition that a cause of action accrues when facts that authorize a claimant to seek a judicial remedy first come into existence. While this is certainly a fair statement of the general rule, there are exceptions, and Robinson itself discussed one such exception — the discovery rule. 550 S.W.2d at 20 . Under this exception, a cause of action does not accrue at the time an injury comes into existence, but rather at the time the claimant discovers or, in the exercise of reasonable diligence, should have discovered the facts giving rise to the cause of action. See Willis v. Maverick, 760 S.W.2d 642 (Tex.1988); Gaddis v. Smith, 417 S.W.2d 577 (Tex.1967). Fraudulent concealment gives rise to another such practical exception to the injury based rule of accrual. See Borderlon v. Peck, 661 S.W.2d 907 (Tex.1983); see also Christian v. American Home Assurance Co., 577 P.2d 899 (Okla.1977) (Based on allegation that insurer had fraudulently concealed its bad faith, court allowed plaintiff to try bad faith claim after contract claim was already litigated.). Thus, the injury based rule of accrual is a general rule, not an absolute. Moreover, the Robinson decision itself was limited to medical misdiagnosis cases. In a subsequent medical malpractice case, we expressly recognized that Robinson was so limited and refused to strictly adhere to the injury based rule of accrual. Nelson v. Krusen, 678 S.W.2d 918, 923 (Tex.1984). Thus, Robinson is not' controlling even in all medical eases much less in other areas such as insurance bad faith litigation.

In explaining our holding in Street , we analogized to Arnold and reasoned that “[n]o valid public policy is served by forcing an insured to bring an action which may ultimately prove unnecessary.” 756 S.W.2d at 302 . We implicitly recognized that it is unjust to require an insured to pursue a Stowers action before he can determine whether there is any basis or necessity for doing so. Similarly, in first-party bad faith claims, it is unjust to require the insured to pursue a cause of action before he can determine whether there is any basis or necessity for doing so.

Limitations should begin to run when the insured’s underlying contract claim is finally resolved rather than when the claim is initially wrongfully denied. Both Arnold and Street mandate this result, and it is a result that comports with common sense. It is not the mere denial of a claim that gives rise to a bad faith cause of action; it must be a denial without a reasonable basis. Arnold, 725 S.W.2d at 167 . Often, the evidence suggestive of bad faith settlement practices will not surface until discovery is complete or trial has begun. See, e.g., Chavers v. National Security Fire & Casualty Co., 456 So.2d 293 (Ala.1984) (During trial of contract claim, plaintiff learned that sole basis for insurer’s denial of claim was uncorroborated hearsay statement of a convicted felon.); Christian v. American Home Assurance Co., 577 P.2d 899 (Okla.1977) (Plaintiff did not discover insurer’s bad faith until contract claim was submitted to jury.). By setting the denial date as the date a cause of action accrues, *832 the court requires insureds to file lawsuits before they may even know of the facts giving rise to a cause of action.

By forcing the insured to bring his bad faith action at the time a claim is denied, the court presents the insured with a dilemma. On the one hand, if an insured does not bring his bad faith claim within two years of the date of denial, he will face a limitations bar to his claim regardless of whether he had any real basis for ascertaining bad faith within that time period. On the other hand, if an insured brings the bad faith claim immediately in order to avoid the limitations bar, he has in effect been forced to bring a claim that may later prove unnecessary. This result conflicts with our decision in Street and will result in a proliferation of premature bad faith lawsuits as insureds attempt to avoid the possibility of a limitations bar. It will impede the expeditious settlement of contract claims because plaintiffs will now automatically assert a bad faith claim regardless of whether there are any facts to indicate that the denial was without some reasonable basis.

This is a bad result even when it is clear on the date of denial that the insurer acted in bad faith. Both the insured and the insurer will face a protracted pretrial discovery dispute on the bad faith claim. Courts may allow broader discovery when the bad faith claim is joined with the contract claim. See, e.g., Lunsford v. Morris, 746 S.W.2d 471 (Tex.1988) (with a tort claim that seeks punitive damages, court may allow discovery of defendant’s net worth). This discovery phase will delay the resolution of the insured’s underlying contract claim, and this delay will then bring about the very economic hardship that the insured sought to avoid by purchase of the policy.

On what powerfully persuasive authority does the majority rely as justification for its decision to reject the rule of stare deci-sis and to break with prior precedent? The only bad faith cases it cites are three cases from the Alabama Supreme Court and one ease from a California appeals court. In addition, the majority cites to the book Bad Faith Liability in which author Stephen Ashley stated that “one would expect” an insured’s bad-faith cause of action to accrue “the moment an insurer should pay a claim but fails to do so.” S. Ashley, Bad Faith Liability § 4.05 at 148 (1987). However, Ashley made clear that this statement represented nothing more than his own expectation because in the immediately preceding sentence he said: “There are no cases clearly raising the issue of when a cause of action for bad faith accrues in a first-party case.” Id. at 147-148. Perhaps Stephen Ashley would have expected the result the majority now reaches but it is not what this court held in Arnold . Surely this court’s own precedent should carry more weight than one commentator’s “expectation.”

As for the cases in other jurisdictions, they are either distinguishable or inappo-site. Frazier v. Metropolitan Life Ins. Co., 169 Cal.App.3d 90 , 214 Cal.Rptr. 883 (1985) involved the construction of a time limitations provision contained within an insurance policy; Frazier did not address the running of limitations on a common-law bad faith cause of action. The Alabama cases merely hold that a bad faith cause of action accrues when the insured gains knowledge of facts which would reasonably lead him to discover the bad faith, and that this is a question of fact in each case. Farmers and Merchants Bank v. Home Ins. Co., 514 So.2d 825, 831-832 (Ala.1987); Safeco Ins. Co. of America v. Sims, 435 So.2d 1219, 1222 (Ala.1983); see also Alfa Mut. Ins. Co. v. Smith, 540 So.2d 691 (Ala.1988). As already noted, an insured often will not gain this knowledge until long after the claim has been denied.

The rule of stare decisis is not inviolable. See, e.g., Sanchez v. Schindler, 651 S.W.2d 249 (Tex.1983). However, when confronted with nothing more than the “expectation” of one commentator and a few inapposite decisions from other jurisdictions, I would choose to adhere to stare decisis and to follow this court’s precedent of only three years past. See Hill v. Mobile Auto Trim, Inc., 725 S.W.2d 168, 175 (Tex.1987) (Gonzalez, J., dissenting) (criticizing court for refusal to follow precedent); see also Mag *833 ro v. Ragsdale Bros., Inc., 721 S.W.2d 832, 838 (Tex.1986) (Gonzalez, J., dissenting).

In accordance with Arnold , I would hold that Murray’s bad faith cause of action did not accure until the underlying contract claim was “finally resolved.” Murray’s contract claim was not “finally resolved” until San Jacinto Agency acknowledged coverage on March 15, 1985. Therefore, Murray was still within the two-year limitations period on January 21, 1987 when service of citation was made on San Jacinto Agency. Murray’s claim is not barred by limitations. I would reverse the judgment of the court of appeals and remand the cause to the trial court for trial on the merits of Murray’s cause of action.

RAY, MAUZY and DOGGETT, JJ„ join in this dissent.