Texas Farmers Insurance Company v. Charles T. Miller, Guardian of the Person and Estate of Karen L. Miller Eke, and Stephen R. Lupton, Administrator of the Estate of Steven D. Eke

• Court: Court of Appeals of Texas
• Decided: December 4, 1997
• Docket: 03-97-00233-CV
• Status: Published

Opinion

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-97-00233-CV Texas Farmers Insurance Company, Appellant

v.

Charles T. Miller, Guardian of the Person and Estate of Karen L. Miller Eke, and

Stephen R. Lupton, Administrator of the Estate of Stephen D. Eke, Appellees

FROM THE DISTRICT COURT OF TOM GREEN COUNTY, 119TH JUDICIAL DISTRICT

NO. B-95-O979-C, HONORABLE JOHN E. SUTTON, JUDGE PRESIDING

This is an appeal brought by appellant Texas Farmers Insurance Company ("Farmers") regarding the trial court's award of court costs and postjudgment interest to appellees Charles T. Miller, Guardian of the Person and Estate of Karen L. Miller Eke, and Stephen R. Lupton, Administrator of the Estate of Stephen D. Eke. We will affirm the trial court's judgment.

BACKGROUND

The facts of this case are undisputed and have been stipulated. In July 1992, Stephen Eke, his wife Karen Eke, and Karen's son Jack Rosson (Stephen Eke's stepson) were involved in a single car accident that killed Stephen Eke, rendered Karen Eke a quadriplegic, and injured Jack Rosson. Stephen Eke was the driver of the car and was insured by Farmers at the time of the accident. His insurance policy has three provisions relevant to this appeal. First, the policy contains a declaration limiting Farmers' liability to $25,000 per person and $50,000 per occurrence. Second, the policy contains a "Family Member Exclusion" which excludes liability coverage for any member of the insured's family. Finally, the policy contains a "Supplementary Payment" provision which provides as follows:

Supplementary Payment

In addition to our limit of liability, we will pay on behalf of a covered person:

3. Interest accruing after a judgment is entered in any suit we defend. Our duty to pay interest ends when we offer to pay that part of the judgment which does not exceed our limit of liability for this coverage.

Before filing a suit against Stephen Eke's estate, Karen Eke offered to settle for policy limits. Farmers refused her offer, asserting that the "Family Member Exclusion" in the policy relieved Farmers of liability. ⁽¹⁾ Thereafter, Karen Eke filed a negligence suit ("Negligence Suit") against her deceased husband's estate. Farmers provided the defense for Stephen Eke's estate. During the pendency of the Negligence Suit, the Texas Supreme Court issued its opinion in National County Mutual Fire Insurance Company v. Johnson, 879 S.W.2d 1 (Tex. 1993), invalidating "Family Member Exclusions" up to the minimum amount of statutorily mandated liability insurance. Johnson, 879 S.W.2d at 6. ⁽²⁾ Following that decision, Farmers made two settlement offers. Both offers were to settle Karen Eke's and her son's claims and both were conditioned upon a complete release in favor of Stephen Eke's estate. The first offer for $40,000 was rejected by both Karen Eke and her son. The second offer was for $50,000. This offer was accepted on behalf of Karen Eke's son, who received $25,000, but was rejected by Karen Eke.

Karen Eke's claims against her husband's estate proceeded to trial. The jury found Stephen Eke negligent and awarded Karen Eke $8,000,000 in damages. After calculating pre-judgment interest on Karen Eke's damages, a final judgment was rendered on February 10, 1995 for $9,534,246.58 ("Liability Judgment"). Following the Liability Judgment, Farmers again offered to settle with Karen Eke for the remaining policy limits of $25,000 conditioned upon a complete release for Stephen Eke's estate. Karen Eke refused.

On March 20, 1995, Farmers filed a declaratory judgment action to determine its liability for Karen Eke's Liability Judgment. Before trial, Karen Eke purchased any cause of action Stephen Eke's estate had against Farmers. Karen Eke subsequently amended her answer to Farmers' declaratory judgment action and asserted the following counterclaims against Farmers: negligent failure to settle for policy limits ("Stowers Claim"), DTPA ⁽³⁾ claims, violations of the Texas Insurance Code, ⁽⁴⁾ and finally breach of the insurance contract between Farmers and the Ekes. On March 21, 1996, Farmers mailed a check to Karen Eke's representatives for $20,000 without requesting a full release of claims against Stephen Eke's estate. This was Farmers' first payment that was not conditioned on a full and complete release. Karen Eke returned the check uncashed and proceeded to a trial on the merits of her counterclaims against Farmers. The trial court submitted all of the extra-contractual claims to the jury and retained for the court the breach of contract claim. The jury returned a verdict in favor of Farmers on all the extra-contractual claims. Pursuant to the jury verdict, a take-nothing judgment was ordered on Karen Eke's aforementioned extra-contractual claims. However, on the insurance contract cause of action, the trial court ordered that Farmers was liable to the representative of Karen Eke for the following: (1) "policy limits" of $20,000; ⁽⁵⁾ (2) interest accruing from the Liability Judgment entered on February 10, 1995 totaling $2,201,314; and (3) all costs expended on both the Negligence Suit against Stephen Eke's estate and the lawsuit against Farmers. The final judgment ("Final Judgment") in this cause was rendered on March 4, 1997. Farmers appeals the Final Judgment to this Court.

DISCUSSION

In its first point of error, Farmers argues that the trial court erred in awarding the representative of Karen Eke postjudgment interest accruing from the time the Liability Judgment was rendered on February 10, 1995 to the time the Final Judgment was rendered on March 4, 1997, totaling $2,201,314. Farmers contends that in accordance with the Supplementary Payment provision in Stephen Eke's insurance policy, it discharged its contractual duty to pay postjudgment interest by repeatedly offering policy limits to settle Karen Eke's claims against the executor of Stephen Eke's estate. In particular, Farmers contends that its duty to pay postjudgment interest terminated either before or immediately following the Liability Judgment, when it made various offers conditioned upon Karen Eke's complete release of all claims against the executor of Stephen Eke's estate. Alternatively, Farmers argues that its liability for postjudgment interest was, at the very latest, suspended when it unconditionally tendered $20,000 to Karen Eke on March 20, 1996.

We will first address the offers made before and immediately following the Liability Judgment which were conditioned upon a release of all claims against the executor of Stephen Eke's estate. As to these offers, we must consider whether a conditional offer activates the clause in the Supplementary Payment provision which suspends an insurance carrier's obligation to pay postjudgment interest. ⁽⁶⁾

Apparently, the standard clause suspending the insurance carrier's duty to pay postjudgment interest (hereinafter the "escape clause") has changed. Previously, the standard Supplementary Payment provision in an insurance policy provided that the insurance carrier would pay:

all interest accruing after entry of judgment until the company has paid, tendered or deposited in court such part of such judgment as does not exceed the limit of the company's liability thereon.

(Emphasis added). See Plasky v. Gulf Ins. Co., 335 S.W.2d 581 (Tex. 1960); see 15A Couch on Insurance 2d § 56:37 et seq. (George J. Couch et al. eds. 1983); 1A The Law of Liability Insurance § 9.01 et seq. (Rowland H. Long et al. eds. 1991 & Commutative Supp.). In the present case, as stated, the standard Supplementary Payment provision provides that the carrier will pay all interest accruing after a judgment until

we offer to pay that part of the judgment which does not exceed our limit of liability for this coverage.

(Emphasis added).

Farmers argues that while a tender, as used in the old Supplementary Payment provision, required an unconditional offer to pay, the term "offer," as used in the present Supplementary Payment provision, allows the carrier some discretion and flexibility to ask for a release in exchange for policy limits. Farmers contends that, from a public policy standpoint, it is advantageous to permit a carrier to activate the "escape clause" by making an offer conditioned upon a full and complete release of its insured. Farmers states that since their primary obligation is to their insured, an offer conditioned upon a full and complete release furthers the interest of their insured.

While on the surface this argument appears compelling, a closer examination of the Supplementary Payment provision shows that Farmers' argument must fail as contrary to public policy. The Supplementary Payment provision can be divided into two parts. The first part requires that the carrier pay "interest accruing after a judgment is entered in any suit we defend." This part of the provision is obviously meant to protect the insured. See Western Cas. and Sur. Co. v. Preis, 695 S.W.2d 579, 586 (Tex. App.--Corpus Christi 1985, writ ref'd n.r.e.) (making insurance company liable for interest protects insured from liability for additional interest and/or costs incurred because of actions taken insurer); 15A Couch on Insurance 2d § 56:39 at 55 n.17.

However, the second part of the Supplementary Payment provision, the escape clause, is obviously drafted for the benefit of the carrier. This is true because upon activation of the escape clause the carrier escapes all liability for postjudgment interest and thrusts that obligation onto its insured. Therefore, if we were to allow the carrier to escape liability for postjudgment interest after having made a conditional offer, which, as discussed below, must ultimately be rejected, then the burden of postjudgment interest would fall entirely on the insured. This defeats both the purpose and the policy of the Supplementary Payment provision. It would be unreasonable to think that a third party would ever release its claims against an insured having a judgment in hand. See Plasky, 335 S.W.2d at 583-84; 1A The Law of Liability Insurance § 9.01 at 93 (Cumulative Supp.). Therefore, we hold that an unconditional offer is required to toll Farmers' liability for postjudgment interest. Since Farmers' offers were conditioned upon Karen Eke's complete release of her $9,534,246.58 judgment against the executor of Stephen Eke's estate, we hold that Farmers failed to suspend its obligation to pay postjudgment interest.

In the alternative, Farmers argues that its unconditional offer of $20,000 made on March 20, 1996 was sufficient to suspend its liability for postjudgment interest under the escape clause. We disagree. Although this offer was unconditional, it did not include any amount of interest that had accrued on the Liability Judgment. See Home Indemnity v. Muncy, 449 S.W.2d 312, 316 (Tex. App.--Tyler 1969, no writ) (carrier tendered full policy limits but did not tender any portion of accrued interest, court held carrier's obligation for interest on entire judgment did not terminate). We hold that Farmers' $20,000 unconditional offer was not sufficient to suspend Farmers' liability for postjudgment interest under the escape clause and overrule Farmers' first point of error. ⁽⁷⁾

In its second point of error, Farmers argues that the trial court erred by awarding the representative of Karen Eke court costs for the present case as well as court costs expended in the underlying Negligence Suit. This argument is without merit. The Texas Uniform Declaratory Judgments Act allows the trial court to award costs that are equitable and just. Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West 1986 & Supp.1997); Commissioners Court v. Agan, 940 S.W.2d 77, 81 (Tex. 1997). The decision to grant costs is within the trial court's sound discretion. Id. Karen Eke's representative specifically pleaded court costs in the present declaratory judgment action and was awarded court costs in the Negligence Suit pursuant to the Liability Judgment. Therefore, we hold that the trial court was well within its discretion to award court costs for both the Negligence Suit and the present cause. We overrule Farmers' second point of error.

In a cross-point of error, Karen Eke's representative argues that the trial court erred in awarding postjudgment interest only on the Final Judgment. Eke's representative argues that interest on both the Final Judgment and the underlying Liability Judgment should continue to accrue until Farmers acts effectively to toll the interest on the Liability Judgment and pay in full the Final Judgment. We disagree with that proposition. Pursuant to Farmers' declaratory judgment action, the interest owed on the Liability Judgment was converted to the Final Judgment. The trial court has declared that Farmers owes interest totaling $2,221,314. Therefore, the only postjudgment interest now owed by Farmers is on that Final Judgment. We decline to allow the accrual of postjudgment interest on two judgments at the same time. We overrule the cross-point of error.

CONCLUSION

Having overruled both points of error raised by Farmers, as well as the cross point of error raised by the representative of Karen Eke, we affirm the trial court's judgment.

Mack Kidd, Justice

Before Chief Justice Carroll, Justices Jones and Kidd

Affirmed

Filed: December 4, 1997

Do Not Publish

1. Prior to the Texas Supreme Court's decision in National County Mutual Fire Insurance Company v. Johnson, 879 S.W.2d 1 (Tex. 1993), "family member exclusions" in insurance policies allowed insurance companies to completely deny liability coverage for injuries sustained by family members of the insured.

2. The plurality of the Johnson Court held that such exclusions contravene the Texas Motor Vehicle Safety-Responsibility Act and are thus void for public policy reasons, as well as violations of statutory requirement of minimum liability insurance. See Johnson, 879 S.W.2d at 2. However, Justice Cornyn's concurring and dissenting opinion, which formed the plurality, stated that such exclusions are void only because they conflict with Texas' compulsory liability insurance statute. Therefore, Justice Cornyn stated that such exclusions should be invalid only up to the minimum amount of mandated liability insurance. See id. at 6 (Cornyn, J., concurring and dissenting). (emphasis added). The Supreme Court adopted Justice Cornyn's position as that of the Court in the per curiam opinion in Liberty Mutual Fire Insurance Company v. Sanford, 879 S.W.2d 9, 10 (Tex. 1994).

3. Tex. Bus. & Com. Code Ann. § 17.46 et seq. (West 1987 & Supp. 1997).

4. Tex. Ins. Code Ann. § 21.21 (West 1987 & Supp. 1997).

5. Given the plurality opinion in Johnson, the "family member exclusion" in Stephen Eke's insurance policy was invalid up to the $20,000 minimum liability coverage mandated by statute at the time judgment was rendered by the trial court. On appeal, the parties do not dispute that $20,000 is equivalent to "policy limits" as enunciated in the Johnson opinion.

6. Because the plain and unequivocal meaning of the Supplementary Payment provision specifically applies to offers made "after a judgment" is rendered, we note without deciding that a strong argument could be made that the offers made prior to the Liability Judgment had no effect on Farmers' duty to pay postjudgment interest.

7. Because Farmers' first point of error only disputes whether Farmers discharged its liability to pay postjudgment interest by making various offers to Karen Eke, we need not decide whether Farmers was liable for interest attributable to its policy limits or interest on the entire Liability Judgment. Farmers argues that the new language of the Supplementary Payment provision changed the carrier's liability under the old Supplementary Payment provision which required the carrier to pay "all interest on the entire amount of the judgment." See Plasky, 335 S.W.2d at 583-84 (emphasis added). Assuming without deciding the validity of this argument, Farmers' argument still fails because it did not include any amount of interest in its unconditional offer.

gment action and was awarded court costs in the Negligence Suit pursuant to the Liability Judgment. Therefore, we hold that the trial court was well within its discretion to award court costs for both the Negligence Suit and the present cause. We overrule Farmers' second point of error.

In a cross-point of error, Karen Eke's representative argues that the trial court erred in awarding postjudgment interest only on the Final Judgment. Eke's representative argues that interest on both the Final Judgment and the underlying Liability Judgment should continue to accrue until Farmers acts effectively to toll the interest on the Liability Judgment and pay in full the Final Judgment. We disagree with that proposition. Pursuant to Farmers' declaratory judgment action, the interest owed on the Liability Judgment was converted to the Final Judgment. The trial court has declared that Farmers owes interest totaling $2,221,314. Therefore, the only postjudgment interest now owed by Farmers is on that Final Judgment. We decline to allow the accrual of postjudgment interest on two judgments at the same time. We overrule the cross-point of error.

Having overruled both points of error raised by Farmers, as well as the cross point of error raised by the representative of Karen Eke, we affirm the trial court's judgment.

1. Prior to the Texas Supreme Court's decision in National County Mutual Fire Insurance Company v. Johnson, 879 S.W.2d 1 (Tex. 1993), "family member exclusions" in insurance policies allowed insurance companies to completely deny liability coverage for injuries sustained by family members of the insured.

2. The plurality of the Johnson Court held that such exclusions contravene the Texas Motor Vehicle Safety-Responsibility Act and are thus void for public policy reasons, as well as violations of statutory requirement of minimum liability insurance. See Johnson, 879 S.W.2d at 2. However, Justice Cornyn's concurring and dissenting opinion, which formed the plurality, stated that such exclusions are void only because they conflict with Texas' compulsory liability insurance statute. Therefore, Justice Cornyn stated that such exclusions should be invalid only up to the minimum amount of mandated liability insurance. See id. at 6 (Cornyn, J., concurring and dissenting). (emphasis added). The Supreme Court adopted Justice Cornyn's position as that of the Court in the per curiam opinion in Liberty Mutual Fire Insurance Company v. Sanford, 879 S.W.2d 9, 10 (Tex. 1994).

3. Tex. Bus. & Com. Code Ann. § 17.46 et seq. (West 1987 & Supp. 1997).

4. Tex. Ins. Code Ann. § 21.21 (West 1987 & Supp. 1997).

5. Given the plurality opinion in Johnson, the "family member exclusion" in Stephen Eke's insurance policy was invalid up to the $20,000 minimum liability coverage mandated by statute at the time judgment was rendered by the trial court. On appeal, the parties do not dispute that $20,000 is equivalent to "policy limits" as enunciated in the Johnson opinion.

6. Because the plain and unequivocal meaning of the Supplementary Payment provision specifically applies to offers made "after a judgment" is rendered, we note without deciding that a strong argument could be made that the offers made prior to the Liability Judgment had no effect on Farmers' duty to pay postjudgment interest.

7. Because Farmers' first point of error only disputes whether Farmers discharged its liability to pay postjudgment interest by making various offers to Karen Eke, we need not decide whether Farmers was liable for interest attributable to its policy limits or interest on the entire Liability Judgment. Farmers argues that the new language of the Supplementary Payment provis