Summary
noting that the focus in a Stowers suit is solely on the reasonableness of the settlement offer, but also considering evidence that the insurer was negligent; not just looking at the offer and its reasonableness, but at the conduct of the claims adjuster and defense counsel and ultimately finding that there was not adequate evidence of negligence
Summary of this case from Am. Guarantee & Liab. Ins. Co. v. ACE Am. Ins. Co.Opinion
Civil Action No. 3:00-CV-0330-L
September 24, 2003
MEMORANDUM OPINION AND ORDER
Before the court are Plaintiffs' Motion for Summary Judgment, or in the Alternative, Motion for Partial Summary Judgment, filed July 3, 2002; Third Party Defendants' Motion for Summary Judgment, filed July 8, 2002; and Plaintiffs' Objections to Defendants' Summary Judgment Evidence, filed December 24, 2002. After considering the motions, the responses, the replies, the summary judgment record, and the applicable law, the court grants Plaintiffs' Motion for Summary Judgment, grants Third Party Defendants' Motion for Summary Judgment and denies as moot Plaintiffs' Objections to Defendants' Summary Judgment Evidence. I. Factual Background
This is a declaratory judgment action in which Plaintiffs Gulf Insurance Company ("Gulf) and the Fidelity and Casualty Company of New York ("Fidelity") seek a declaration of their rights and obligations under a contract of insurance issued to Defendant Donald R. Blum ("Blum"). Blum is a podiatrist to whom Fidelity issued a professional liability policy. Gulf reinsured Fidelity's liability under the policy. Defendant Sonia Y. Jones ("Jones") sued Blum for medical malpractice, based on events that occurred during the effective dates of Blum's policy ("Jones Lawsuit"). Gulf defended Blum in the lawsuit. The lawsuit was tried in February 1999, and the jury returned a verdict in favor of Jones for $2,125,000. The trial court subsequently granted a remittitur and entered a judgment in favor of Jones on November 19, 1999 for $1.1 million, plus prejudgment and post-judgment interest.
As the real party in interest in this case, the term "Gulf" will refer to both Gulf and Fidelity.
Blum sought indemnity for the judgment from Gulf. Gulf agreed that coverage is owed to Blum; however, it contends that the amount of coverage is limited to the per person policy limit of $500,000, plus post-judgment interest. On March 27, 2000, Gulf paid Jones the per person limit of $500,000, plus the post-judgment interest on that amount through the date of payment. Gulf now seeks a declaration that it has no duty to indemnify Blum or pay any sum to Blum or Jones in excess of the per person limit of liability of $500,000 or any post-judgment interest on the $500,000. Gulf also seeks a declaration that it has no extra-contractual liability to Blum or Jones under the doctrine announced in Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex. Comm'n App. 1929).
Blum and Jones have each filed a counterclaim against Gulf. Jones admits that she lacks standing to assert a Stowers claim but asserts that she is entitled to a declaration of the policy coverage amount. Blum alleges that Gulf has breached the insurance contact, violated various provisions of the Texas Insurance Code, and was negligent by refusing to negotiate and settle the Jones Lawsuit within the limits of the insurance policy. Blum maintains that, as a result, he is entitled to extra-contractual damages.
On June 27, 2001, Blum and Jones settled their differences and entered into an agreement wherein Blum agreed to pay Jones $200,000 in exchange for Jones's agreement to seek satisfaction of the remaining amount owed on the judgment from only two sources: (1) Gulf and (2) the net recovery from any action Blum brings against his lawyers in the Jones Lawsuit. As part of the agreement, Blum was obligated to file and pursue a legal malpractice lawsuit against his lawyers in the Jones Lawsuit.
On August 22, 2001, Blum and Jones jointly filed a third party complaint, naming as third party defendants Cowles and Thompson, P.C. ("Cowles") and Paula S. Shiroma-Bender ("Shiroma-Bender") (collectively "defense counsel"). Cowles is the law firm retained by Gulf to defend Blum in the Jones Lawsuit. Shiroma-Bender is the individual attorney who was selected to represent Blum. Blum alleges that defense counsel failed to properly evaluate the case and settle the lawsuit within the limits of the insurance policy and failed to inform him of his rights and the consequences of failing to settle within the policy limits.
II. Summary Judgment Standard
Summary judgment shall be rendered when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett 477 U.S. 317, 323-25 (1986); Ragas v. Tennessee Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998). A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc. 477 U.S. 242, 248 (1986). When ruling on a motion for summary judgment, the court is required to view all inferences drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio 475 U.S. 574, 587 (1986); Ragas, 136 F.3d at 458. Further, a court "may not make credibility determinations or weigh the evidence" in ruling on motion for summary judgment. Reeves v. Sanderson Plumbing Prods., Inc. 530 U.S. 133, 150 (2000); Anderson 477 U.S. at 254-55.
Once the moving party has made an initial showing that there is no evidence to support the nonmoving party's case, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita 475 U.S. at 586. Mere conclusory allegations are not competent summary judgment evidence, and thus are insufficient to defeat a motion for summary judgment. Eason v. Thaler 73 F.3d 1322, 1325 (5th Cir. 1996). Unsubstantiated assertions, improbable inferences, and unsupported speculation are not competent summary judgment evidence. See Forsyth v. Barr 19 F.3d 1527, 1533 (5th Cir.), cert. denied 513 U.S. 871 (1994). The party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his claim. Ragas 136 F.3d at 458. Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to support the nonmovant's opposition to the motion for summary judgment. Id.; see also Skotak v. Tenneco Resins, Inc. 953 F.2d 909, 915-16 n. 7 (5th Cir.), cert. denied 506 U.S. 832 (1992). "Only disputes over facts that might affect the outcome of the suit under the governing laws will properly preclude the entry of summary judgment." Anderson 477 U.S. at 248. Disputed fact issues which are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the existence of an element essential to its case and on which it will bear the burden of proof at trial, summary judgment must be granted. Celotex 477 U.S. at 322-23.
III. Analysis
A. Plaintiffs' Motion for Summary Judgment, or In the Alternative, Motion for Partial Summary Judgment
1. Stowers claim
Blum contends that Gulf acted negligently by refusing to negotiate and settle the Jones Lawsuit. Defendant, Donald R. Blum, D.P.M.'s Original Answer to Plaintiffs' Complaint for Declaratory Judgment and Counter-Claim ("Blum's Counterclaim") at 6. Gulf counters that it was reasonable not to settle the Jones Lawsuit and that Blum agreed with the decision not to settle the case.
An insured's cause of action for negligence in failing to settle a claim was first recognized in Stowers. Under Stowers insurers are held "to that degree of care and diligence which an ordinarily prudent person would exercise in the management of his own business" in responding to settlement demands within the policy limits. Stowers 15 S.W.2d at 547. To impose a Stowers duty on an insurer, a settlement demand must propose to release the insured fully in exchange for a stated sum of money. American Physicians Ins. Exch. v. Garcia 876 S.W.2d 842, 848-49 (Tex. 1994). Three prerequisites must be met to impose a Stowers duty: (1) the claim against the insured is within the scope of coverage, (2) there is a demand within policy limits, and (3) the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured's potential exposure to an excess judgment. Id. at 849. "In the context of a Stowers lawsuit, evidence concerning claims investigation, trial defense, and conduct during settlement negotiations is necessarily subsidiary to the ultimate issue of whether the claimant's demand was reasonable under the circumstances, such that an ordinarily prudent insurer would accept it." Id. An insurer has no duty to make or solicit settlement offers. Id. The focus in a Stowers lawsuit is solely on the reasonableness of the settlement offer. Birmingham Fire Ins. Co. of Pennsylvania v. American Nat. Fire Ins. Co., 947 S.W.2d 592, 597 (Tex.App.-Texarkana 1997, writ denied).
In this case, the first two Stowers prerequisites have been met. The undisputed evidence shows the sum of $500,000 constituted the per person policy limit and that a pretrial settlement demand of $500,000 was made. Blum was informed of the offer and stated that he did not want to settle the case. The policy, however, did not require Blum's consent to settle. Blum was also advised of his right to hire personal counsel, and he did not do so. The settlement offer was refused.
Blum argues that Gulf was negligent because of alleged errors made by the claims adjuster assigned to the Jones Lawsuit. Defendants' Response to Plaintiff's Motion for Summary Judgment ("Blum's Resp.") at 9-10. First, Blum contends that the claims adjuster erred by not fully appreciating the weaknesses in Blum's defense, In support, Blum refers this court to three affidavits, consisting of approximately 82 pages in the record, without articulating the precise manner in which the affidavits support his claim and identifying the specific pages within the affidavits that support his point. It is undisputed, however, that the claims adjuster, was aware of and considered the evidence in the case, including the opinions of Jones's experts and the defense experts. In fact, Blum testified in his deposition that it was reasonable for the insurance company to believe that the claims in the Jones Lawsuit were defensible.
One reason the court took as long as it did to rule on these motions is the manner in which Defendants and Third Party Plaintiffs presented the evidence. Although the court is under no obligation to scour the record, it has painstakingly reviewed the record with respect to claims by Defendants and Third Party Plaintiffs. In essence, the court was referred to the entire record, and much of the evidence provided was not competent summary judgment evidence. It behooves no party or the legal process to "dump" on the court and hope that something catches hold.
Second, Blum contends that the claims adjuster erred by mistakenly concluding that she needed Blum's consent to settle the case. Although Blum is correct that the policy did not have a consent to settle provision, he was adamant that he did not want to settle the Jones Lawsuit and communicated his position on settlement to Gulf. Regardless of Blum's consent, it is undisputed that Gulf did not believe the Jones Lawsuit was worth the policy limits and thus would not have settled for that amount. Blum believes that the claims adjuster did not actively attempt to settle the case because of these errors. The insurer, however, has no Stowers duty to make or solicit settlement offers. Garcia 876 S.W.2d at 851. Even assuming that the claims adjuster's errors prevented her from soliciting or making a settlement offer, the law does not impose any such duty, and therefore it cannot be used as evidence of unreasonableness.
Blum further contends that Gulf was negligent because it retained an inexperienced attorney to defend the Jones Lawsuit. Blum's Resp. at 9-10. Blum admits, however, that he was satisfied with his defense despite the jury verdict. Blum nonetheless contends that but for defense counsel's inexperience, he might have been convinced to consent to settling the Jones Lawsuit. Such a statement is speculation at best. Speculation does not constitute competent summary judgment evidence and therefore does not raise a genuine issue of material fact. Second, an insurer is not vicariously responsible for the conduct of an independent attorney it selects to defend an insured. State Farm Mut. Auto. Ins. Co. v. Traver 980 S.W.2d 625, 629-30 (Tex. 1998) (holding that an insured cannot recover against an insurer on any common law or statutory claim based solely on the conduct of an independent attorney who the insurer selects to defend the insured). Therefore, Blum cannot recover against Gulf on a Stowers claim based on defense counsel's conduct.
Finally, Blum argues that Gulf was negligent because neither the claims adjuster nor defense counsel properly advised him regarding his right to hire independent counsel. Blum's Resp. at 13-14. The summary judgment evidence does not support this statement. Blum was advised of his right to hire separate counsel on several occasions. Specifically, Gulf informed him, in writing, that if the jury rendered a verdict in excess of $500,000, it would only be responsible for the amount up to the policy limit of $500,000 and that he had the right to retain separate counsel. Similarly, defense counsel discussed this issue with him and sent him two letters — one prior to trial and one after the jury verdict — informing him of his right to hire separate counsel. Blum, nevertheless, chose not to hire separate counsel. Blum candidly admits that even if he had hired separate counsel, he does not know whether he would have been convinced to settle the Jones Lawsuit.
Based on the reasons previously set forth, the court determines that there is no genuine issue of material fact with respect to the Stowers claim. Accordingly, Gulf is entitled to summary judgment on Blum's Stowers claim.
2. Breach of Contract
Blum maintains that Gulf breached its policy in three ways: (1) by failing to provide all the benefits available under the policy, namely, coverage for prejudgment and post-judgment interest; (2) by failing to reimburse him for his time spent assisting in his defense; and (3) by failing to negotiate and settle the Jones Lawsuit. Blum's Counterclaim at 6-7. The essential elements in a suit for breach of contract are: (1) the existence of a valid contract; (2) the plaintiff performed or tendered performance; (3) the defendant breached the contract; and (4) plaintiff was damaged as a result of the breach. Runge v. Raytheon E-Sys., Inc. 57 S.W.3d 562, 566 (Tex.App.-Waco 2001, no pet.); Southwell v. University of Incarnate Word 974 S.W.2d 351, 354-55 (Tex.App.-San Antonio 1998, pet. denied).
a. Prejudgment interest
Blum contends that Gulf is contractually obligated to pay prejudgment and post-judgment interest pursuant to the "Additional Benefits" provision in the policy and that its failure to do so is a breach of the contract. Blum's Counterclaim at 6. Jones contends that she is entitled to a declaration of the amount owed by Gulf under the policy. Original Answer and Counter-Claim of Sonia Y. Jones, Individually and as Next Friend to Taisja Jones, Piaget Robinson, Minors ("Jones Counterclaim") at 7.
Post-judgment interest has been paid by Gulf, and thus this issue is moot.
The "Additional Benefits" provision provides coverage above and beyond the policy's limits of liability for, inter alia "all costs of defending a suit, including interest on that part of any judgment that does not exceed the limit of your coverage." Appendix to Defendants' Response to Motion for Summary Judgment ("Blum's App.") at 6 (emphasis added). In other words, if a person was injured and awarded damages, Gulf would pay up to $500,000, plus an additional amount not to exceed $500,000 for costs incurred in defending the lawsuit.
Gulf contends that only post-judgment interest is covered under the "Additional Benefits" provision because prejudgment interest is an element of damages and therefore is covered under the Insuring Clause not the "Additional Benefits" provision. The provision referred to by Gulf as the Insuring Clause reads, in relevant part, as follows: "[t]his agreement covers you . . . for damages which you become legally obligated to pay. . . ." Blum's App. at 6 (emphasis added). Gulf's position is best illustrated by the following hypothetical: assume that in this case, Jones had been awarded $350,000 in damages; that the amount in prejudgment interest was $150,000; and that $100,000 had accrued in post-judgment interest for a total of $600,000. Based on Gulf's position, it would pay the entire amount in this hypothetical because the damages and prejudgment interest together do not exceed the per person policy limit of $500,000 and thus would be payable under the Insuring Clause, and the post-judgment interest would be payable under the "Additional Benefits" provision.
The dispute between Gulf and Blum presents a question of policy interpretation. Insurance policies are contracts and as such are controlled by the rules of statutory construction. Burnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987). Pursuant to these rules, the entire policy should be examined in an effort to harmonize and give effect to all the provisions in the policy so that none will be rendered meaningless. See Ogden v. Dickinson State Bank, 662 S.W.2d 330, 335 (Tex. 1983); Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). "Unless two provisions in the agreement are necessarily repugnant or contradictory, the parties are presumed to have intended each one to accomplish some particular purpose." Ogden 662 S.W.2d at 335. If, after applying rules of construction, the term is susceptible to more than one reasonable meaning, it is ambiguous. D.E.W., Inc. v. Local 93, Laborers' Int'l Union, 957 F.2d 196, 199 (5th Cir. 1992) (applying Texas law). The determination whether a contract term is ambiguous is a matter of law. Id. A contract is unambiguous if the court can give it a definite legal interpretation, Coker, 650 S.W.2d at 393, and is not rendered ambiguous simply because the parties disagree over its interpretation. See Praeger v. Wilson 721 S.W.2d 597, 600 (Tex.App. — Ft. Worth 1986, writ ref'd n.r.e.). "The interpretation of an unambiguous insurance contract is a question of law." Utica Nat'l Ins. Co. v. Fidelity Cas. Co., 812 S.W.2d 656, 661 (Tex.App.-Dallas, 1991, writ denied).
The court determines that the term "interest" in the "Additional Benefits" provision of the policy is unambiguous because it can be given a definite legal interpretation. Prejudgment interest is defined as "compensation allowed by law as additional damages for lost use of the money due as damages during the lapse of time between the accrual of the claim and the date of judgment." Johnson Higgins, Inc. v. Kenneco Energy, Inc., 962 S.W.2d 507, 528 (Tex. 1998) (quoting Cavnar v. Quality Control Parking 696 S.W.2d 549, 552 (Tex. 1985)). Prejudgment interest falls within the common-law meaning of "damages." Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 898 (Tex. 2000). "Postjudgment interest, unlike prejudgment interest, is not an element of the measure of damages in a personal injury case. Instead, post-judgment interest is compensation allowed by law for the use or detention of money computed from the date of the rendition of a judgment until the date of its satisfaction." University of Texas Medical Branch v. York 808 S.W.2d 106, 112 (Tex.Civ.App. — Houston [1st Dist], 1991), rev'd on other grounds 871 S.W.2d 175 (Tex. 1994). Payment of pre-judgment interest, therefore, falls within the scope of the Insuring Clause because it falls within the meaning of damages; whereas, post-judgment interest is not an element of the measure of damages and therefore falls within the "Additional Benefits" provision.
Blum's relies on Embrey v. Royal Insurance Co., 22 S.W.3d 414, 416-417 (Tex. 2000), as support for his position that prejudgment interest is covered by the "Additional Benefits" provision. Blum contends that a State Board of Insurance Order, General Casualty Bulletin No. 644, which was discussed in dicta, supports his position that prejudgment interest is payable under the "Additional Benefits" provision. The Embrey court held that the insurance company was not required to pay prejudgment interest in excess of the policy limits pursuant to a "Supplementary Payments Provision" provision in the policy. Id at 417. Blum's reliance on Embrey is misplaced and provides no authority for his argument.
The Embrey case involved a commercial automobile liability policy that contained a "Supplementary Payments Provision" similar to and serving the same purpose as the "Additional Benefits" provision in this case. The "Supplementary Payments Provision" in Embrey did not address prejudgment interest but did explicitly obligate payment of post-judgment interest. The plaintiff contended that the "Supplementary Payments Provision" read in conjunction with Bulletin No. 644 obligated the payment of prejudgment interest. Bulletin No. 644, issued in 1984, required certain types of insurance, including Medical Professional Liability policies, to provide coverage for prejudgment interest under Supplementary Payments provisions, apparently in addition to policy limits. Embrey 22 S.W.3d at 417. The Bulletin, however, required insurance companies to file an amendment to their approved Medical Professional Liability programs if prejudgment interest coverage is to be included in their policies. Appendix to Gulfs Reply to Defendants' Response to Plaintiffs' Motion for Summary Judgment at 13-15 (General Casualty Bulletin No. 644). The Embrey court concluded that the policy did not provide coverage for prejudgment interest and that Bulletin No. 644 did not apply to the policy at issue.
The court fails to see the applicability of Bulletin No. 644 to the determination of whether prejudgment interest is covered by the "Additional Benefits" provision in this case. Whatever legal vitality Bulletin No. 644 has, the court knows this much: it cannot supplant that whole body of law which defines prejudgment interest as part of damages. Moreover, even if Bulletin No. 644 were applicable, there is no evidence that Gulf filed the amendment as required by the Bulletin. For these reasons, Blum cannot rely on Bulletin No. 644 as the basis to assert that prejudgment interest is covered by the "Additional Benefits" provision.
The court determines that Gulf is liable for prejudgment interest under the Insuring Clause because prejudgment interest is compensation allowed as additional damages. It is undisputed that Gulf has paid the entire amount of the per person policy limit under the Insuring Clause. Therefore, Gulf's failure to pay prejudgment interest is not a breach of the policy. Accordingly, Gulf is entitled to summary judgment on this claim.
b. Loss of earnings
Blum also contends that Gulf breached its contract by failing to reimburse him for time spent working with the attorneys in the Jones Lawsuit, attending depositions and trial, and otherwise participating in his defense. Blum's Counterclaim at 5, 7. The "Additional Benefits" provision of the policy further provides coverage for "all reasonable costs you and your organization incur at our request while helping us investigate or defend a claim or suit against you. This includes earnings you lose at our reqeust — up to $500 a day." Blum's App. at 6. Gulf contends that it never denied a claim for these costs because Blum never submitted a claim. Therefore, it never breached the contract by failing to reimburse Blum for these costs.
A cause of action for breach of an insurance contract accrues on the date coverage is denied. Stewart Title Guaranty Co. v. Hadnot 101 S.W.3d 642, 645 (Tex.App.-Houston [1 Dist] 2003, no pet.). Blum admits that he did not submit a claim for costs he incurred in assisting in the investigation and/or defense of the Jones Lawsuit but argues that he did not do so because he did not know about this provision in the policy. Blum contends that it was Gulf's obligation to inform him of this benefit. As support, Blum refers to an affidavit, from an individual designated as an expert, conclusorily and summarily stating that "[Gulf] negligently and/or recklessly disregarded their obligation to advise Dr. Blum of all available first party benefits." Blum's App. at 163. This affidavit is largely conclusory and incorrectly states the law.
Each party is under an obligation to read and become familiar with the contents of a contract before being bound by its terms. If a person obligates himself to a contract, he cannot later abrogate this obligation by asserting that he failed to read the terms of the contract. See Upton v. Tribilcock, 97 U.S. 45, 50 (1875); see also Insurance Co. v. Aberdeen Ins. Servs., Inc. 253 F.3d 878, 886 (5th Cir. 2001) (citing Kaplan v. Bernard Lumber Co., 710 S.W.2d 737, 740 (Tex.App.-Corpus Christi 1986, no writ). Accordingly, absent some requirement by law, and Blum provides the court with none, it was not incumbent upon Gulf to ensure that Blum read the contents of the insurance policy to be aware of his rights and benefits.
Given the lack of evidence that Blum made a claim for reimbursable costs or any authority that Gulf had a duty to advise him of this benefit, the elements of a breach of contract claim cannot be met. Accordingly, Gulf is entitled to summary judgment on this claim.
c. Failure to Settle
Blum further alleges that the policy provides a duty to investigate, negotiate and settle any suit or claim and that Gulf failed to properly do so in this case and thus breached its contract. Blum's Resp. at 14. The policy provision in question states "[w]e shall defend any suit brought against you and/or your organization for damages covered under this agreement. We have the right to investigate, to negotiate and to settle any suit or claim if we think that it is appropriate." Blum's App. at 6. Gulf does not specifically move for summary judgment on this claim but does move for summary judgment on all of the claims asserted by Blum. Accordingly, the court considers this issue as being properly before it.
There is no allegation that Gulf failed to defend Blum in the Jones Lawsuit. Further, contrary to Blum's allegations, the policy does not impose a duty to "investigate, negotiate and settle a suit or claim." Rather, it provides a right to do so, if Gulf believes it appropriate. Blum cannot recover for an alleged breach of Gulf's rights under the policy. Accordingly, Gulf is entitled to summary judgment on this claim.
3. Article 21.21 of the Texas Insurance Code
Blum contends that Gulf violated the Texas Insurance Code ("Code") and the Deceptive Trade Practices Act ("DTPA"). Blum's Counterclaim at 6. The facts pled in Blum's Counterclaim to support these violations can be separated into two groups: (1) Gulf s failure to negotiate and settle the Jones Lawsuit, and (2) Gulf's failure to pay prejudgment interest and reimburse Blum for his time spent assisting in his defense. Blum's Counterclaim at 4-7.
Section 16 of article 21.21 provides a cause of action to an injured party who is damaged (1) by "an act or practice declared in Section 4 of this Article to be unfair methods of competition or unfair or deceptive acts or practices in the business of insurance" or (2) "in any practice specifically enumerated in a subdivision of Section 17.46(b), Business Commerce Code, as an unlawful deceptive trade practice." Tex Ins. Code Ann. Art. 21.21 § 16(a) (Vernon Supp. 2003).
a. Failure to negotiate or settle
Blum contends that Gulf violated the Code by refusing to negotiate and settle the Jones Lawsuit. Blum's Counterclaim at 6-7. Gulf counters that this cause of action is not available to Blum based on the holding in Maryland Ins. Co. v. Head Indus. Coatings Servs., Inc., 938 S.W.2d 27, 28-29 (Tex. 1996) (per curiam). The Head court held that the insured's rights against its insurer regarding the insurer's settlement practices were limited to the rights under the Stowers doctrine. Id. Head however, is not longer applicable. At the time suit was filed in Head article 21.21 did not include section 4(10), which permits an insured to bring a cause of action against an insurer for unfair settlement practices. See Chickasha Cotton Oil Co. v. Houston Gen. Ins. Co., 2002 WL 1792467 *7 (Tex.App.-Dallas 2002, no pet.) (not designated for publication). Specifically, section 4(10)(a)(ii) defines unfair settlement acts as "failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer's liability has become reasonably clear." Tex. Ins. Code Ann. Art. 21.21 § 4(10)(a)(ii) (Vernon Supp. 2003).
To establish liability for the insurer's failure to reasonably attempt settlement of a claim, the insured must show that (1) the policy covers the claim, (2) the insured's liability is reasonably clear, (3) the claimant has made a proper settlement demand within policy limits, and (4) the demand's terms are such that an ordinarily prudent insurer would accept it. Rocor Int'l Inc. v. National Union Ins. Co., 77 S.W.3d 253, 262 (Tex. 2002). The Rocor court adopted the common-law Stowers standard in determining the statutory liability standard. Id. Although the opinion in Rocor does not purport to interpret section 4(10), the language Rocor interpreted is virtually identical to the language in section 4(10)(ii). Chickasha 2002 WL 1792467 at 8. Therefore, the elements set out in Rocor are applicable to a cause of action under section 4(10)(ii). Id. Under the court's holding in Rocor the insurer does not have to solicit a settlement offer. Rocor 77 S.W.3d at 262.
Having found no Stowers violation for the reasons stated in Section III.A.1, supra the court grants summary judgment to Gulf on the section 4(10)(ii) claim.
b. Failure to pay prejudgment interest and reimburse Blum for time spent assisting in his defense
Blum contends that Gulf violated article 21.21, section 4(10) of the Code by failing to pay prejudgment interest, making misrepresentations regarding the coverage for prejudgment interest and failing to reimburse him for time spent assisting in his defense. Blum's Counterclaim at 6-7. Gulf counters that it paid the amount it contractually owed under the policy, and therefore, its failure to pay prejudgment interest cannot be the basis for an extra-contractual claim. Further, Gulf argues that Blum never spoke to it about the coverage for prejudgment interest, and therefore no misrepresentations could have been made. Gulf finally contends that it never denied Blum's claim for the time he spent assisting in the defense, and therefore there is no violation.
Sections 4(10)(iv) and (viii) prohibit insurance companies from engaging in unfair claims settlement practices by:
(iv) failing to provide promptly to a policyholder a reasonable explanation of the basis in the policy, in relation to the facts or applicable law, for the insurer's denial of a claim or for the offer of a compromise settlement of a claim;
(viii) refusing to pay a claim without conducting a reasonable investigation with respect to the claim.
For the reasons stated in Section III.A.2.a., supra Gulf is not responsible for the prejudgment interest in the Jones Lawsuit because the per person limit of liability has been exhausted. Therefore, Gulf's refusal to pay prejudgment interest cannot be the basis for any of these violations. With respect to the alleged misrepresentations, Blum does not elaborate on the manner in which prejudgment interest coverage was misrepresented. It is undisputed that Blum never had any conversations with Gulf regarding coverage for prejudgment interest. Thus, there is no genuine issue of material fact regarding this issue. Moreover, it is undisputed that Blum did not file a claim for the time he spent assisting in the defense of the Jones Lawsuit. For the reasons stated in Section III.A.2.b., supra there is no evidence that Gulf has denied a claim or that a claim was ever made. Accordingly, the court grants Gulf summary judgment on this claim.
c. Podiatrist Newsletter and Panel of Experts
Blum expands the factual basis for the alleged violations of the Code and the DTPA in identifying an alleged misrepresentation made by the claims adjuster and alleged misrepresentations made in a Podiatrist Newsletter ("Newsletter") sent by Gulf to Blum. Blum's Brief at 16-17. Gulf objects to these factual allegations contending that the facts "fall outside the scope of [Blum's] pleadings" and were never mentioned during Blum's two-day deposition. Gulf's Reply at 2. Moreover, Gulf objects on the grounds of relevancy to, inter alia the portions of Blum's affidavit that refer either to the Newsletter or the panel-of-experts issue and objects to those portions of the affidavit at variance with Blum's deposition. Gulf's Objections to Defendants' Summary Judgment Evidence ("Gulf's Objections") at 2. Specifically, during his deposition, Blum was asked twice — once generally and then specifically as to article 21.21 of the Code — to identify all the "criticisms" he had with respect to Gulf as it relates to this lawsuit. Blum did not identify either of these issues. Gulf therefore requests that the court disregard these new factual allegations. Blum did not dispute Gulf's objections.
The "evidence" supporting the new factual allegations is not competent summary judgment evidence. The court notes that portions of Blum's affidavit is riddled with inadmissible hearsay and conclusory statements, and thus cannot be considered. See Martin v. John W. Stone Oil Distrib., Inc., 819 F.2d 547, 549 (5th Cir. 1987) (hearsay evidence in affidavits cannot be considered for purposes of summary judgment); Davis v. Howard, 561 F.2d 565, 569 (5th Cir. 1977). Moreover, the affidavit violates Rule 56(e) of the Federal Rules of Civil Procedure regarding its requirements for affidavits. Rule 56(e) requires that "[s]worn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith." Id. Lastly, Blum's affidavit differs from his deposition testimony. In Blum's affidavit, he brings forth additional facts by way of the Newsletter and the panel-of-experts issue to support violations of the Code and the DTPA. His affidavit, however, does not explain why he did not identify these issues as "criticisms" during his deposition. He offers nothing to clarify the variance between the "criticisms" described in the deposition and those set forth in the subsequent affidavit. A party should not be allowed after discovery closes to add factual matters by way of an affidavit that were the subject of inquiry at the deposition. Thus, the portions of Blum's affidavit that vary from his sworn deposition testimony are not competent summary judgment evidence, and the court will not consider them. See S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 495 (5th Cir. 1996). Therefore, the competent summary judgment failed to raise a genuine issue of material fact. Accordingly, the court grants summary judgment on Gulf on these claims.
Blum's deposition was taken several months prior to the date his affidavit was submitted.
B. Third Party Defendants' Motion for Summary Judgment
Third Party Defendant Blum filed a counterclaim against his former defense counsel, Cowles and Shiroma-Bender, alleging legal malpractice and breach of contract. Defendants' Third Party Complaint ("Third Party Comp.") at 3-4. Third Party Defendant Jones joins Blum in his causes of action against defense counsel to the extent necessary to protect her rights. Jones, however, does not bring a cause of action or an assignment of a cause of action against defense counsel. Defendants' Response to Third Party Defendant's Motion for Summary Judgment ("Third Party Resp.") at 3. Cowles and Shiroma-Bender have moved for summary judgment on all of Blum's claims.
1. Legal Malpractice
Blum contends that defense counsel was negligent in the handling of the Jones Lawsuit, in that defense counsel did not (1) properly evaluate the case and failed to adequately inform him of the probability and consequences of an adverse judgment; (2) properly prepare to defend him, in that he was not informed of the reimbursement provision in the policy and that he had the right to hire separate counsel; (3) adequately advise him after receiving the Stowers demand; and (4) inform him of the conflict of interest that existed between his interests and Gulf's interest. Third Party Comp. at 3-4. Blum alleges that defense counsel is therefore responsible for Blum's damages, that is, liability above and beyond the per person limit of liability in the insurance policy. Cowles and Shiroma-Bender disagree and contend that they are entitled to summary judgment because Blum was satisfied with the representation he received and thus there has been no breach of duty, and because he cannot establish a casual connection between his allegations of damages and the failure to settle. The court agrees.
An attorney malpractice action in Texas is based upon negligence and requires proof of four elements: (1) the existence of a duty, (2) the breach of that duty, (3) that the breach proximately caused the plaintiff's injuries, and (4) that damages occurred. See Peeler v. Hughes Luce, 909 S.W.2d 494, 496 (Tex. 1995). The law requires a necessary showing of a causal relation between the act complained of and the injury sustained. Brown v. Edwards Transfer Co., 764 S.W.2d 220, 223-24 (Tex. 1988). In other words, "the plaintiff is entitled to recover damages only for those injuries caused by the event made the basis of the suit." Morgan v. Compugraphic Corp., 675 S.W.2d 729, 732 (Tex. 1984). The components of proximate cause are cause in fact and foreseeability. Doe v. Boys Clubs of Greater Dallas, Inc. 907 S.W.2d 472, 477 (Tex. 1995). The test for cause in fact is whether the negligent "act or omission was a substantial factor in bringing about injury," without which the harm would not have occurred. Id.; see also Peeler, 909 S.W.2d at 498. The plaintiff must adduce evidence which shows that the negligence was the proximate and not the remote cause of resulting injury, and justify the conclusion that the injury was the natural and probable result of the negligence. Boys Clubs of Greater Dallas, 907 S.W.2d at 477. Even if the injury would not have happened but for the defendant's conduct, the connection between the defendant and the plaintiff's injury may be too attenuated to constitute legal cause. Id. Foreseeability requires that a person of ordinary intelligence should have anticipated the danger created by a negligent act or omission. Id. The danger of injury is foreseeable if its general character might reasonably have been anticipated. Id. Foreseeability requires more than someone viewing the facts retrospectively and theorizing an extraordinary sequence of events through which the defendant's conduct brings about the injury. Id.
Blum is urging this court to view his malpractice claim with the omniscience of hindsight gained after the jury's verdict and his settlement with Jones in the underlying case. The court, however, must instead view defense counsel's conduct in light of all the surrounding circumstances existing at the time of the litigation.
"[L]egal malpractice actions are `intrinsically personal,' and the satisfaction of the client is `paramount.'" In the matter of: Kayla Segerstrom, Debtor, 247 F.3d 218, 226 (5th Cir. 2001) (citing Charles v. Tamez, 878 S.W.2d 201, 207 (Tex.App. — Corpus Christi 1994, writ denied)). Although the facts here are different from those in Segerstrom the underlying principle is the same and applicable to this case. The court sees no reason to abandon a principle that has been recognized by Texas courts and the Fifth Circuit.
In conjunction with Ins malpractice claim, the court puts the evidence in perspective. Blum was a sophisticated client, as he is both a practicing doctor and a practicing lawyer. He believed, and continues to believe to this day, that Ins medical care and treatment of Jones were proper and that he did nothing wrong with respect to such care and treatment. He understood the issues in the Jones Lawsuit, including the criticisms expressed by Jones's experts regarding Ins medical care. He was provided copies of relevant documents, including copies of all the depositions. Defense counsel informed him that as the defendant in the case he was entitled to attend all depositions. He chose to only attend one — the deposition of one of Jones's expert witnesses — but reviewed all of the depositions.
Further, Blum had been a party to three prior lawsuits and settled all three, In this instance, however, he was adamant that he did not want to settle the Jones Lawsuit. He understood the risks associated with a jury trial, including the risk of a verdict in excess of the policy limits. He believed, however, that he had a reasonable chance of convincing the jury that he properly treated and cared for Jones. He was informed, in writing, by defense counsel that Jones had made a settlement demand for the policy limits, $500,000, and that he could retain separate counsel. He had on at least one occasion discussed the issue of separate counsel with defense counsel. He chose not retain separate counsel and admits that had he done so, he cannot say whether he would have considered any advice to settle the case. He believed that the settlement demand was unreasonable.
From what the court can ascertain from the record, Blum certainly remains satisfied with the representation he received by defense counsel. Blum testified in Ins deposition that despite the jury verdict, he believed that defense counsel had done a "superb job" for him. He further admitted that he told Gulf that if he had to take another case to trial, he would insist on the same defense counsel to defend him; however, because of a settlement Blum negotiated with Jones regarding the amount of the state court judgment in excess of the policy limits, on paper he takes a different position. As part of this settlement, Blum obligated himself to file a legal malpractice case against Ins defense counsel. Because of this obligation, Jones agreed to seek satisfaction of that portion of the judgment in excess of the policy from either Gulf or the net recovery of the legal malpractice case that Blum would bring against Ins defense counsel. Blum's App. at 181-2 ¶ 1.7; 187-8 ¶ 3.9. In light of the deal made between Blum and Jones, Blum has no alternative but to take the position that he believes defense counsel committed legal malpractice. His deposition testimony, however, most clearly reveals that he does not believe defense counsel committed malpractice.
In an effort to establish a material fact question regarding the existence of a breach, Blum relies on Ins own affidavit and affidavits from individuals designated as experts (Diane Henson and Michael Sean Quinn). See generally Third Party Resp. Cowles and Shiroma-Bender object to this "evidence" on the grounds that Blum's and Quinn's affidavits contradict prior deposition testimony and that all the affidavits are replete with conclusory statements.
Based on Ins deposition testimony, Blum was pleased with the representation that defense counsel provided to him. By way of one example, Blum testified that he was "completely satisfied" with defense counsel's preparation and that there was nothing more that defense counsel should have done in advance of trial. The tone of Ins affidavit, however, is totally different whereby he criticizes defense counsel's preparation and strategy. For example, in Ins affidavit, Blum criticizes defense counsel for failing to obtain an independent medical evaluation of Jones; yet, he did not identify this issue in Ins deposition. If Blum did testify in this regard in Ins deposition, such evidence has not been submitted to the court. In fact, Blum did not submit any excerpts of Ins deposition testimony to the court.
Similarly, Quinn's sworn deposition testimony is inconsistent with Ins affidavit. For example, Quinn testified that he believes Shiroma-Bender made some mistakes at trial but that those mistakes did not "contribute one iota to the loss, to the verdict, or to the judgment." Appendix to Reply of Third-Party Defendants and Brief in Support of their Motion for Summary Judgment ("Cowles's App.") (Quinn's Depo. at 248). In Ins affidavit, however, Quinn conclusorily states that Cowles was negligent in allowing Shiroma-Bender to try the Jones Lawsuit implying that her conduct somehow affected the outcome of the trial. Blum's App. at 12-13. Unexplained variances between statements in an affidavit and sworn testimony cannot create a fact question precluding summary judgment. S.W.S. Erectors, 72 F.2d at 495. Therefore, the portions of Blum's and Quinn's affidavits that vary from their previous testimony are not competent summary judgment evidence.
Quinn's deposition was taken several months prior to the date Ins affidavit was submitted.
Further, all three affidavits (Blum, Quinn and Henson) are replete with conclusory statements, which are not sufficient to defeat summary judgment, and some are based on incomplete facts. The court notes that in Henson's affidavit, she refers to the first letter sent to Blum, in which defense counsel advised him of his right to separate counsel, as "tepid" and the second letter as more assertive because it "strongly encouraged" Blum to seek separate counsel. Henson, however, minimizes or downplays the import of the first letter by omitting key language. The first letter states ". . . I do remind you of your right to confer with personal counsel of your choice to discuss your rights and options in this matter." Blum's App. at 97 (emphasis added). While the first letter may not be as assertive as the second, it clearly lets Blum know of Ins right to seek advice from personal counsel. Even if the court were to accept the affidavits of the attorney experts in their entirety (Henson and Quinn), the affidavits cannot overcome existing precedent in Texas and the Fifth Circuit that client satisfaction is paramount.
Even assuming a breach of duty, there is no competent summary judgment evidence establishing a material fact question regarding proximate cause. There is no evidence that defense counsel had authorization from either the insurance company to settle the case or Blum's support to settle it. The undisputed evidence is that the insurance company would not have authorized a settlement for the policy limits based on their evaluation of the case, and, therefore, defense counsel could not have settled the case regardless of their conduct.
Finally, Blum contends that defense counsel's failure to advise him to retain separate counsel amounts to a conflict of interest. Blum's Third Party Brief at 4-5. His theory appears to be that defense counsel represented him while simultaneously formulating a coverage defense for Gulf. There is no evidence to support Ins theory. Blum's "smoking gun" is a post-verdict letter from defense counsel to Gulf in which defense counsel recounts a conversation she had with Jones's trial attorney in which he implied misconduct on the part of Gulf. At the end of the letter, defense counsel explains her belief that no bad faith claim existed because Blum never consented to settle the case. Blum fails to establish how this letter reveals a real or perceived conflict of interest. Prior to the "smoking gun" letter, Gulf sent Blum a letter advising him that
[i]f a jury were to render a verdict in excess of $500,000 in compensatory damages and costs, [Gulf] would be responsible only for the amount up to the policy limit of $500,000. If you wish to retain personal counsel, of your own choosing, at your own expense, please be assured that Ms. Shiroma-Bender will cooperate with your attorney.
Gulf's App. at 119. This letter clearly advises Blum of the possibility that Ins interest would be adverse to Gulf if the judgment was in excess of the policy limits. See J.E.M. and S.J.B. v. Fidelity Casualty Company, 928 S.W.2d 668, 674 (Tex.App.-Houston [1st Dist.] 1996, no writ) ("Although the words "conflict of interest" do not appear in the letter, the letter makes clear the possibility that Fidelity may have an adverse position to the defendants on the issue of coverage."). Similarly, defense counsel sent Blum two letters advising him of Ins right to separate counsel. Even if defense counsel had a duty to do more than it did with respect to the issue of separate counsel, there is no evidence of proximate cause. Moreover, Blum conceded that even if he had retained separate counsel, he does not know whether he would have wanted to settle the Jones Lawsuit.
Given Blum's laudatory comments about defense counsel's representation of him and the weight that Texas courts and the Fifth Circuit place on client satisfaction, the court determines that a reasonable jury could not conclude that defense counsel committed legal malpractice. This determination is best illustrated by the colloquy between Third Party Defendants' counsel and Blum:
Q [by counsel]: And I just want to make sure I walk away from here understanding what I think you're really telling me, and that is, when all is said and done, [Shiroma-Bender] did a good job in defending you in this case?
A [by Blum]: I thought she did, yes.
Cowles's App. at 67-8. Blum's positive assessment of defense counsel's performance in the Jones Lawsuit is inherently inconsistent with the maintenance of a legal malpractice claim.
The court fully appreciates that emotions run high in legal malpractice cases. The water in the creek has been vigorously stirred; however, once the stirring stops and the mud has sunk to the bottom, the water is clear, and one sees no fish in the water, In other words, at the end of the day, one necessarily concludes that there are no genuine issues of material fact with respect to Blum's legal malpractice claim. Accordingly, the court grants summary judgment to Cowles and Shiroma-Bender on Blum's legal malpractice claim.
2. Breach of Contract
Blum alleges a breach of contract claim based on the same facts as the legal malpractice claim. Third Party Comp. at 4. Although not addressed per se Cowles and Shiroma-Bender generally move for summary judgment on all of Blum's claims, which would necessarily include the breach of contract claim.
Texas law does not permit a plaintiff to fracture legal malpractice claims. Greathouse v. McConnell, 982 S.W.2d 165, 172 (Tex.App.-Houston [1st Dist] 1998, pet. denied; see Klein v. Reynolds, Cunningham, Peterson Cordell, 923 S.W.2d 45, 49 (Tex.App. — Houston [1st Dist.] 1995, no writ) (concluding claims of negligence, legal malpractice, breach of contract, and breach of fiduciary duty were all essentially "means to an end" to achieve one complaint of legal malpractice). When the additional causes of action all arise from the same set of facts and circumstances as the alleged legal malpractice and when a defendant negates an element of the legal malpractice claim, summary judgment for the defendant is proper on the additional causes of action, as well. See Greathouse, 982 S.W.2d at 172; Smith v. Heard, 980 S.W.2d 693, 697 (Tex.App. — San Antonio 1998, pet. denied).
Blum's legal malpractice claim failed for the reasons previously discussed; therefore, Ins breach of contract claim also fails. Accordingly, the court grants summary judgment in favor of Cowles and Shiroma-Bender on Blum's breach of contract claim.
C. Objections by the Parties
Gulf has filed objections to certain summary judgment evidence produced by Defendants. See Gulf's Objections. The court has set forth the applicable standard for competent summary judgment evidence earlier in this opinion. If the summary judgment evidence did not meet the standard, the court did not consider it, and such evidence played no part in the court's ruling. The court therefore denies as moot Gulf's Objections to Defendants' Summary Judgment Evidence.
Cowles and Shiroma-Bender have also objected to certain summary judgment evidence produced by Third Party Plaintiffs. The court has already addressed objections raised by defense counsel. If it did not specifically address an objection, it applies the same standard to any matter it deemed not competent summary judgment evidence. The court therefore denies as moot Third Party Defendants' objections.
VII. Conclusion
For the reasons herein stated, there is no genuine issue of material fact regarding any claims. Accordingly, Plaintiffs' Motion for Summary Judgment is granted and Third Party Defendants' Motion for Summary Judgment is granted. The court declares that Gulf has no duty to indemnify Blum or pay any sum to Blum or Jones in excess of the per person policy limit of $500,000 or prejudgment interest on the $500,000. Defendants' and Third Party Plaintiffs' claims are dismissed with prejudice. Having granted Plaintiffs' Motion for Summary Judgment and dismissed all of Plaintiffs' claims, the court need not address Gulf's Objections to Defendants' Summary Judgment Evidence, which are denied as moot. Judgment will issue by separate document as required by Fed.R.Civ.P. 58.