IN THE LINITED STATES DISTRICT COURT

NORTHERN DISTRICT OF TEXAS

DALLAS DIVISION

FRED HARALSON. ET AL.

Plaintiffs,

VS.

STATE FARM MUTUAL AUTOMOBILE

INSURANCE COMPANY

NO. 3-05-CV-25 r3-BD

(Consolidated With

No. 3-06-CV-1075-BD)

Defendant.

MEMORANDUM OPINION AND ORDER

Defendant State Farm Mutual Automobile Insurance Company ("State Farm") has filed

separate motions for summary judgment with respect to the contract and extracontractual claims of

Virginia Haralson and Fred Haralson in this civil action seeking underinsured motorist ("UIM")

benefits under a standard Texas personal automobile policy. For the reasons stated herein, defendant

is entitled to summary judgment as to Virginia's claims, but not as to Fred's claims.

I.

On March 6,2005, Fred Haralson sustained serious bodily injuries when the car he was

driving collided with a vehicle that ran a red light. (See Plf. MSJ Resp. App. at 129). His wife,

Virginia, and daughter, Christina, were following behind in another car and witnessed the collision.

(Id. atL44,\4). Following the accident, the Haralsons filed a third-party liability claim against the

driver of the other car, Carmen Andrade-Silva, who had coverage in the amount of $20,048 per

person or $40,048 per incident. (See Jt. PTO at I I, fl l0). Fred accepted the per person policy limit

of $20,048 .(Id. at 11, n n). Virginia and Christina jointly settled their claims against AndradeSilva for $ I8,000. (/d ). Fred and Virginia then filed separate claims for UIM benefits under their
State Farm personal automobile policy, which pays:

[D]amages which a covered person is legally entitled to recover from

the owner or operator of an uninsured motor vehicle because of

bodily injury sustained by a coveredperson . . . caused by an accident.

(Plf. MSJ Resp. App. at 187). It is undisputed that the State Farm policy provides UIM coverage in

the amount of $50,000 per person or $100,000 per accident, and that the Haralsons are "covered

persons" under the policy. (See Jt. PTO at l0-I l, fln 1,2 & 13).

On April 4,2005, State Farm tendered a $50,000 check payable to "Robert Fred Haralson

& Virginia Haralson, Individually and as Husband and Wife &Law Offices of Van Shaw, Their

Attorney." (Plf. MSJ Resp. App. at ll0). The next day, the Haralsons, through their attorney,

rejected the check because it purported to settle the claims of both Fred and Virginia. (Id. at 103).

Van Shaw, counsel for the Haralsons, pointed out that his clients were making separate UIM claims,

each seeking the $50,000 policy limits. (Id.). Inresponse to this demand, State Farm notified Shaw

that "Mrs. Haralson's claim, if any, would be considered a derivative claim of Mr. Haralson's claim

for underinsured injury benefits under the same $50,000 per person limit of coverage. The most we

can pay is $50,000 which was previously sent to you." (ld. at 101). On April 14, 2005, Shaw told

State Farm that including Virginia as a payee on Fred's settlement draft was "not proper or

acceptable," and reiterated that the Haralsons were making separate UIM claims. (Id. at 99). State

Farm adhered to its position that Virginia's claim was derivative of Fred's claim and, therefore,

subject to the same $50,000 UIM limit. (Id. at 98). Unable to resolve this dispute through

negotiation, the Haralsons filed separate lawsuits against State Farm in state district court. State

Farm timely removed both cases to federal court,r where they were consolidated into one action. On

' Federal subject matterjurisdiction is proper because the Haralsons and State Farm are citizens ofdifferent

states and the amount in controversy exceeds $75,000, exclusive of interest and costs. See28 U.S.C. $ 1332(aXl).
January 37,2006, five weeks after Fred filed his lawsuit, State Farm reissued a $50,000 settlement

draft payable to "Robert Fred Haralson &Law Offices of Van Shaw, His Attorney." (Id. at 198).

Fred refused to accept the check without explanation. (See id. at 196-97).

After the parties conducted discovery and the court denied summary j udgment, the underlying

UIM claim proceeded to trial on the issues of liability and damages. Prior to trial, State Farm

stipulated that the underinsured driver, Andrade-Silva, was liable for the accident and that Fred

incurred medical expenses in excess of $100,000. (See Jt. PTO at ll, flfl 8-9). A jury found that

Virginia sustained a "bodily injury" as a result of witnessing the automobile accident and awarded

her $25,000 in compensatory damages, $15,000 for loss of consortium, and $1,000 for loss of

household services. In an order dated July 8, 2008, the court set aside the damages for loss of

consortium and loss of household services, upheld the $25,000 compensatory damage award, but

offset the amount of compensatory damages by $20,000--the coverage available to Virginia under

the tortfeasor's liability policy. See Harqlson v. State Farm Mut Auto. Ins. Co., 564 F.Supp.2d 616,

626-27 (N.D. Tex. 2008). Over the next 60 days, State Farm tendered Virginia a series of checks

totaling $7,809.66 in satisfaction of the $5,000 in damages determined by the court, together with

prejudgment interest, postjudgment interest, and court costs. (See Def. MSJ-I App. at l-3, 18-19;

Def. MSJ Supp. App. at 34). It is not clear whether Virginia, who disputes the $20,000 offset and

State Farm's interest calculations, has negotiated any of the checks. (Def. MSJ Supp. App. at 34, 38-

3e).

State Farm now moves for summary judgment with respect to the Haralsons' claims for

breach of contract and violations of the Texas Insurance Code. The issues have been fullv briefed

by the parties and this matter is ripe for determination.
u.

Summary judgment is proper when there is no genuine issue as to any material fact and the

movant is entitled to judgment as a matter of law. Feo. R. Clv. P. 56(c); Celotex Corp. v. Catrett,

477 U.S. 317 ,322, 106 S.Ct. 2548,2552,91 L.Ed.zd 265 (1986). The substantive law determines

which facts are material. See Anderson v. Liberty Lobby, Inc., 477 U.5.242,247 , 106 S.Ct. 2505,

2509-10,91L.8d.2d202 (1986). Where, as here, the summary judgment movant does not have the

burden of proof at trial, the movant must point to the absence of a genuine fact issue. See Duffu v.

LeadingEdgeProducts, lnc.,44F.3d308,312(sthCir. 1995). Theburdenthenshiftstothenonmovant to show that summary judgment is not proper. See Duckett v. City of Cedar Park,950 F.2d

272,276 (5thCir. 1992). Thepartiesmaysatisfutheirrespectiveburdensbytenderingdepositions,

affidavits, and other competent evidence. See Topalian v. Ehrman,954 F .2d II25, | 13 I (5th Cir.),

cert. denied,ll3 S.Ct. 82 (1992). All evidence must be viewed in the light most favorable to the

party opposing the motion. See Rosado v. Deters,5 F.3d 119,722 (5th Cir. 1993).

ru.

In their most recent pleadings, the Haralsons assert claims for breach of contract and

violations of the Texas Insurance Code. (See F. Haralson Third Am. Comp. at 3, \\ a.l-a.2; Y .

Haralson Sec. Am. Compl. at2-3,nn 4.1-4.2). Under the State Farm policy:

If we notiff you that we will pay your claim, or part ofyour claim, we

must pay within 5 business days after we notiff you.

(Def. MSJ-II App. at 8, fl 2.G.1) (emphasis in original). Section 541.003 of the Texas Insurance

Code provides:

A person may not engage in this state in a trade practice that is

defined in this chapter as or determined under this chapter to be an

unfair method of competition or an unfair or deceptive act or practice

in the business of insurance.
Tnx. INs. Coop At tN. $ 541 .003 (Vernon 2008). One of the unfair or deceptive insurance practices

prohibited by the statute is "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." Id.

$ 541 .060(aX2)(A). Another provision of the Texas Insurance Code subjects an insurer to statutory

damages if it fails to pay a claim within 60 days of receiving all required information from the

insured. See id. $ 542.058(a). According to the Haralsons, State Farm breached the insurance

contract and violated state law by failing to pay each of them the $50,000 UIM policy limits in a

timely manner.

A.

State Farm maintains that Vireinia Haralson is not entitled to recover on her contract and

extracontractual claims because she was paid in full within 60 days after the court established the

amount of her bodily injury damages. Under Texas law, a "UIM insurer is under no contractual duty

to paybenefits until the insured obtains ajudgment establishing the liability and underinsured status

of the other motorist." Brainard v. Trinity (Jniversal Ins. Co., 216 S.W.3d 809, 8l 8 (Tex. 2006).

In this case, liability and damages were not established until July 8, 2008, when the court upheld the

jury's finding that Virginia sustained a "bodily injury" as a result of witnessing the automobile

accident involving her husband, but offset the $25,000 compensatory damage award by $20,000--

the amount of coverage available to Virginia under the tortfeasor's liability policy. On August 7,

2008, State Farm tendered a check to Virginia and her attorney in the amount of $6,409.87, which

represents the $5,000 in damages allowed by the court, $695.21in prejudgment interest, $9.66 in

postjudgment interest, and $705.00 in taxable court costs. (See Def. MSJ-I App. at 1-3).2 As a result

2 The record shows that State Farm would have tendered payment earlier, but Virginia's attorney was on

vacation and did not return to the office until August 4,2008. (See Def. MSJ-I App. at 4-9)'
of further discussions between the attorneys, State Farm issued two additional checks--one for

$1,310.00 on August 18,2008 and one for $89.79 on September 8, 2008--to cover disputed cost

items and prejudgment interest. (See id. at l8-19; Def. MSJ Supp. App. at 34). Although Virginia

continues to dispute State Farm's interest calculations, she acknowledges being paid $7,809.66 on

her UIM claim. (SeeDef. Mot. for Leave to File Supp.App. at 5).

In an attempt to create a fact issue for trial, Virginia asks the court to revisit its decision

allowing State Farm a full $20,000 offset against the $25,000 in compensatory damages found by

the jury.3 According to Virginia, one-half of the proceeds under the tortfeasor's liability policy were

available to her minor daughter, Christina, to whom Virginia owed a fiduciary duty. Virginia

therefore believes that the court should have offset the $25,000 compensatory damage award by

$ 1 0,000, which would require State Farm to pay $ 1 5,000 in damages and interest thereon. (See Plf.

MSJ Resp. at20-23). Even ifthe court was inclined to reconsider its decision, Virginia still has not

adduced any evidence showing how much, if any, of the settlement with Andrade-Silva went to

Christina.a Without such evidence, there is no way to apportion the offset. Moreover, State Farm

was entitled to rely on the court's determination of damages, even if erroneous, in calculating

prejudgment interest.

3 To the extent Virginia attempts to raise new theories of liability for the first time in her summary judgment

response, such as State Farm's failure to investigate her bystander claim (see Plf. MSJ Resp. at l7), the court declines

to consider those arguments. See Cutrera v. Bd. of Supervisors of Louisiana State Univ., 429 F .3d I 08, I I 3 (5th Cir.

2005) ("A claim which is not raised in the complaint but, rather, is raised only in response to a motion for summary

judgmentisnotproperlybeforethecourt."); Dqvisv.Ll/al-MartStores,.frc.,No.3-05-CV-1805-L,2007 WL836860

at * l2 (N.D. Tex. Mar. 19,2007) (rejecting attempt to raise new theory of liability in response to motion for summary

judgment).

4 Although Virginia alleges that 50Yo of the settlement proceeds were "set aside" for her minor daughter, (see

Plf. MSJ Resp. Sec. App. at 2,n7), nothing in the settlement agreement with Andrade-Silva supports that claim. (See

id.,Exh. A). Instead, the settlement agreement indicates that Virginia, individually and as next friend of her daughter,

jointly settled the two liability claims for the aggregate sum of $18,000. (1d., Exh. A at 2).
State Farm properly deducted the $20,000 offset allowed by the court from the $25,000

compensatory damage award before calculating prejudgment interest. See Pringle v. Moon,158

S.W.3d 607,61I (Tex. App.--Fort Worth 2005,no writ) (credit or offset should be applied from the

total damages awarded before prejudgment interest is calculated); Mullins v. TestAmerica, Inc.,Na.

3-02-CV-0106-K, 2008 WL 4526182 at*3 (N.D. Tex. Oct. 8, 2008) (same). The uncontroverted

summary judgment evidence establishes that State Farm tendered all sums due and payable to

Virginia--including prejudgment interest, postjudgment interest, and court costs--within 60 days of

the court's decision modiffing the damage award. On these facts, there can be no liability for breach

of contract or violations of the Texas Insurance Code. See Wellisch v. United Services Automobile

Ass'n,75 S.W.3d 53,57 (Tex. App.-- San Antonio2002,writ denied) (insurer may wait for ajudicial

determination of an insured's legal entitlement to benefits before making payment without breaching

the insurance contract or violating the Texas Insurance Code).

B.

The court reaches a different conclusion with respecto the claims of Fred Haralson. Unlike

Virginia's claim for bodily injuries sustained as a result of witnessing the automobile accident, State

Farm never disputed that Fred sustained bodily injuries in excess of the $50,000 UIM policy limit.

Nor is there any dispute that Fred was legally entitled to recover those damages from the owner or

operator of an underinsured motor vehicle. (See Jt. PTO at 1 1,']J 8-9). Yet State Farm waited until

January 37,2006--more than l0 months after the accident--to issue a settlement draft to Fred and his

attorney for the $50,000 policy limits. Prior to that time, State Farm insisted on including Virginia

as a payee on the check, despite repeated letters from opposing counsel notiffing the adjuster that

Fred and Virginia were making separate claims for UIM benefits. (See Plf. MSJ Resp. App. at 98,

99, 101 , 103). At least two Texas courts have held that including the spouse of a settling party as
a payee on a settlement draft raises a fact issue as to whether the parties intended to settle the

spouse'separate claim. See, e.g. Frenchv, Henson,No. 05-06-01036-CV,2008 WL 2266119 at

* I (Tex. App.--Dallas, Jun. 4,2008,no pet.); Harris v. Balderas, 27 S.W.3d 71,78 (Tex. App.--San

Antonio 2000, writ denied). If Fred is able to convince a jury that State Farm improperly

conditioned the payment of his UIM claim on the release of Virginia's claim for bodily injury

damages, State Farm may be liable for breach of contract and delay damages under the Texas

Insurance Code. See Keelingv. State Farm Lloyds,No. 3-01-CV-1285-8D,2002 WL 31230804 at

*4 (N.D.Tex. Sept. 30,2002).

State Farm also seeks summary judgment on the ground that Fred has failed to adduce any

evidence of actual damages. However, under Texas law, the failure to prove actual damages

stemming from a breach of contract does not defeat recovery on a contract theory. See Fisher v.

llrestinghouse Credit Corp., 760 S.W.2d 802, 808 (Tex. App.--Dallas 1988, no writ). Instead, the

court may award nominal damages upon proof that the contract was breached. Id. Fred may also

recover statutory damages, in the form of interest on the amount of his claim at the rate of l8%o per

annum, and reasonable attorney's fees, if State Farm delayed payment of the claim for more than 60

days. See Tsx. INs. ConB Arw. $$ 542.058 (a) & 542.060(a). For these reasons, summary judgment

is not proper.

CONCLUSION

Defendant's motion for summary judgment as to the claims asserted by Virginia Haralson

[Doc. #133] is granted. Those claims will be dismissed with prejudice by separate judgment filed

today. Defendant's motion for summary judgment as to the claims asserted by Fred Haralson [Doc.

#1341is denied. Those claims will proceed to trial on December 15, 2008.

SO ORDERED.
DATED: November 5. 2008.

STATES N,IAGISTRATE JUDGE