# 96-01 >n
AFFIRMED in part, REVERSED in part, RENDERED in part, AND REMANDED. Opinion issued August 28, 1995.

FILED IN SUPREME COURT OF TEXAS JUL - 5 1996 JOHN T. ADAMS. Clerk

Ry Deputy jn ^g 

### Qltfurt of Appeals 

### iHf ty Itstrtrt of Qkxas at Salias
No. 05-92-01354-CV
STATE FARM LLOYD'S INSURANCE COMPANY, Appellant
V. ASHBYAAA AUTOMOTIVE SUPPLY CO., INC. AND JOE BEN ASHBY, JR., INDIVIDUALLY, Appellees
On Appeal from the 298th Judicial District Court Dallas County, Texas Trial Court Cause No. 89-13647-M
OPINION Before Chief Justice Thomas1 and Justices Ovard and Barber Opinion By Justice Barber Ashby AAA Auto Supply, Inc. (Ashby, Inc.) sued State Farm Lloyd's Insurance 

### Company (State Farm) alleging damages from fire loss under apolicy issued by State Farm

1The Honorable LindaThomas was on the original panel at the time this cause was submitted for decision. Justice Thomas was sworn in as Chief Justice on January 1, 1995.We affirm in part and reverse and render in part. We overrule Ashby, Inc.'s crosspoints of error. We remand this cause to the trial court for entry of judgment consistent with this opinion.

BACKGROUND Ashby was president, and the sole shareholder, ofAshby, Inc. State Farm insured Ashby, Inc. The policy coveredAshby, Inc.'s really, the building's contents, and losses from business interruption. In the early morning hours of June 27, 1989, a fire occurred at Ashby, Inc. The building and some of its contents weredamaged in the fire. There was also an interruption in Ashby, Inc.'s business activities. State Farm began its investigation the morning of the fire. Phil Maxey, the State Farm agentfrom whom Ashby, Inc. purchased theinsurance policy, inspected thescene that morning. Todd Rutledge, a State Farm adjuster, and a fire damage expert inspected the 

### building that afternoon. Rutledge instructed Ashby to make an inventory of the damage and not tomove anything. Based on his observations atthe scene, Rutledge formed the opinion that the fire had four points of origin. 

### Rutledge requested afire report from the Addison Fire Department. Based on the 

### Addison Fire Department's report, Rutledge calledFire and Loss Analysis, Inc. on June 28 

### and requested an analysis ofthe cause and origin ofthe fire. He also returned Ashby's call 

### regarding business interruptionloss. Rutledge informedAshby that State Farmwould need

-4-Ashby, Inc.'s income tax returns for the last two or three years in order to begin adjusting the business interruption loss. Rutledge also ordered Ashby, Inc.'s credit report in order to determine if there were any liens against the property or the contents because the lienholders would also be insured by the policy. On June 30, Fire and Loss Analysis, Inc. called Rutledge and told him that it had determined that the fire was intentionally set, that it would submit a report, and that samples had been sent to a lab. Rutledge met with Ashby on July 5. He gave Ashby nonwaiver and blanket authorization forms to sign. Ashby brought six pages of inventory and gave them to Rutledge. Ashby advised Rutledge that hewould checkwith his lawyer aboutthenonwaiver form and that he would set a time for State Farm to take his recorded statement the following week. During this meeting, Rutledge informed Ashby that the initial report indicated the fire had been intentionally set. Rutledge also told Ashby that State Farm could notproceed with the claim until the nonwaiver form was signed. State Farm received Fire and Loss Analysis, Inc.'s report on July 7. The report concluded that the fire was intentionally setwith gasoline at five different points oforigin. 

### Rutledge metwith Ashby that day. Ashby signed the blanket authorization but said that he would have totalkwith his attorney again about signing the nonwaiver form. Later that day, 

### Ashby advised Rutledge that he had given Ashby, Inc.'s lawyer Rutledge's number. 

### Rutledge called Ashby, Inc.'s lawyer. Ashby, Inc.'s lawyer would not allow Ashby to sign

-5-the nonwaiver form.2 Rutledge met with Ashby on July 10. He again told Ashby that because the nonwaiver form was not signed, a reservation of rights letter would have to be sent and this would result in delay. Rutledge gave the file to his supervisor to send a reservation ofrights letter. Ashby, Inc.'s attorney called Rutledge and stated that he would advise Ashby not to sign the nonwaiver form. The attorney also threatened to file a badfaith claim because of the delay. Ashby went to State Farm's office on July 13 to give his statement. Ashby told Rutledge that he had notreceived thereservation ofrights letter. Rutledge informed Ashby that State Farm could not proceed until Rutledge received the green card back (showing

The nonwaiver form provided as follows: Reason(s) for executing this request: 1) There is a question as to whether the cause and origin of the loss was accidental in
nature. 2) It isquestionable whether there has been aloss sustained by aperil insured against. For the reasons stated above, STATE FARM LLOYDS COMPANY may have no obligation to defend orindemnify theundersignedfor claims arising outof anaccident or occurrence on or about 6/27/89 at or near 15201 Addison Rd. The undersigned request(s) and authorize(s) the Company to investigate, negotiate, settle, deny, ordefend any claim arising out ofsuch accident oroccurrence as itdeems expedient. Such action shall notwaive any right theCompany may have todeny anyobligation underthepolicycontract, andshallnotwaive any rightsof the undersigned. Ashby did not execute the nonwaiverform. However, he did return itto State Farm with thefollowing notation on the back: Todd, Iam not signing this because, on advice ofattorney, because (sic) it isnot providedfor in thepolicy. Iwill, ofcourse, cooperate inevery other way pursuant tothe policy. /s/ Joe Ben Ashby, Jr. President AAA Auto Supply, Inc.

-6-delivery of the letter) from the reservation of rights letter. Ashby, Inc.'s lawyer again called complaining of the delay and recommending that State Farm pay the business interruption
claim "or else." Rutledge and his supervisor discussed paying Ashby, Inc. an advance. State Farm paid Ashby, Inc. a $2000 advance on July 14. Ashby advised State Farm that he had received the reservation of rightsletter and made an appointment for hisrecorded statement
to be taken on July 17. On July17,Ashby gave hisrecorded statement at State Farm's office. The next day, Ashby picked up proof of loss claim forms from State Farm. On July 20, Rutledge contacted an analyst to find out what documents he needed to determine the business interruption loss. The analyst told Rutledge that he needed tax returns, eighteen months of sales records, and the last physical inventory before the fire occurred. Rutledge and Ashby talked on July 24. Ashby asked for another advance due to 

### business interruption. Rutledge asked Ashby for more information and told him that State 

### Farm had a list ofquestions that needed answers. Rutledge provided the list ofquestions 

### to Ashby the next day. Rutledge also interviewed Ashby's neighbors and on July 25, searched the courthouse records for suits involving Ashby. 

### Ashbyreturned the questions, with answers, onAugust 1. He also told Rutledge that he would have a contractor out on August 3 to estimate the damage to the building. 

### Rutledge told Ashby to advise him as to the estimate and that State Farm would have itsown estimate done. On August 2, Rutledge requested information regarding Ashby, Inc.'s financial status from Chrysler and Addison Bank. He also requested a credit report on Ashby. Additionally, Rutledge contacted a law firm to discuss obtaining Ashby's statement under
oath. On August 3, Ashby advised Rutledge that Ashby, Inc.'s contractor would examine the property the next day. Rutledge contacted Southwest Business Investigators to arrange anappointment todiscuss thefile. Rutledge also metwith his supervisorwho instructed him to conduct a thorough review ofcourthouse records and check on Ashby's wife's business. Rutledge went to the property onAugust 4 to inspect the building andits contents 

### for damages. All ofthe contents were gone. According to Ashby, the contents ofthe building had been thrown away. State Farm asserted the contents were disposed ofwithout 

### its knowledge or consent. Ashby, Inc.'s contractor did not show up that day. Rutledge did not complete his estimate that day because he was uncertain whether the heating or 

### electrical systemhadbeen damaged. Rutledge decided to wait until electricitywas restored to the building before completing his estimate. 

### Ashby delivered a contractor's estimate ofrepair costs to State Farm on August 8. Rutledge told Ashby that the estimate was not satisfactory because it was a lump sum estimate as opposed to an itemized one. Ashby delivered abreakdown ofrepair expenses 

### the following day. On August 11, the contractor completed a more detailed estimate;

-8-however, State Farm did not think the estimate was sufficiently itemized. Rutledge's estimate of the damage to the building, excluding electricity, was $13,000. In contrast, the
contractor estimated the damage to be $75,000. On August 14, State Farm received Ashby, Inc.'s banking records. The records showed four overdrafts during the months of May and June. OnAugust 24, Rutledge andhis supervisor metwith Ashby. They advised Ashby that they needed a CPA to verify the statements ofmonthly expenses andincome for the twelve months prior to thefire inorder to adjust thebusiness interruption loss. They also advised Ashby that the advances which had beenmade thus farwere with respect to content losses. Ashby, Inc. received another advance that day. With one exception discussed below, there was no adjusting activity between August 

### 24 and early October. During this period oftime, Rutledge was on emergency storm duty and vacation. On August 27, State Farm received anextensive report prepared by a third 

### party investigation service. While the report suggested further areas to investigate, it concluded that "[a]s ofthis report no evidence exists from which to implicate the insured and/or a third party in theintentional setting of thefire event." 

### On October 3, State Farm's analyst called Rutledge and advised him that Ashby 

### failed to show up for ameeting. Rutledge tried to contact Ashby twice on October 4, but
was unsuccessful. Ashby called State Farm on October 5 and indicated that he wanted to

meet on October 6.

-9-On October 17, State Farm reviewed the file and determined that while the insured may have had the means and opportunityto set the fire, it couldnot find sufficient evidence of motive. State Farm decided to move toward settlement, and Rutledge was instructed to advise Ashby of State Farm's decision. Rutledge attempted to call Ashby on October 19 and November 6, 7, 9, and 12. Callswere placed to Ashby's home and place ofbusiness. Rutledge was unable to contact Ashby. Rutledge did not write Ashby. On November 20, 1989, State Farm received suit papers. Prior to the time suit was filed, State Farm had made advances to Ashby, Inc. totaling $16,500. State Farm did not deny coverage prior to the time that Ashby, Inc. filed suit. However, State Farmdiscovered information after suitwas filed which itbelieved supported an arson claim. An arson issue was submitted to the jury. The jury answered the issue adversely to State Farm.3 Three theories ofrecovery were submitted to thejury: (1) contractual damages-- 

### what Ashby, Inc. was owed under the terms of the policy; (2) failure to attempt in good faith to effectuate a prompt, fair, and equitable settlement ofthe claim once liability had become reasonably clear in violation ofthe insurance code and the Texas Deceptive Trade

State Farm doesnotchallenge the jury's arson response on appeal.

-10-Practices-Consumer Protection Act;4 and (3) breach of the common-law duty of good faith and fair dealing. Separate damage issues were submitted with respect to each theory. With respect to contractual damages, thejuryawarded Ashby, Inc. $80,000 for repair of the building to restore it to its use and occupancy prior to the fire; $90,000 as the replacement cost of the contents thatwere damaged or destroyed in the fire; and $20,000 for business interruption loss. For breach of Texas Insurance Code article 21.21- 2(b)/DTPA, the jury awarded $75,000 for "lost investment in land and improvements;" $50,000 for loss of credit; $75,000 for lost past corporate profits; and $25,000 for loss of future corporate profits. The jury found thatState Farm did notknowingly engage in acts
or omissions constituting a breach of the insurance code/DTPA. Thejury awarded Ashby, Inc. $10,000 for breach of the common-law duty ofgood faith and fair dealing. Thejury found that the breach of the common-law duty of good faith and fair dealing was not 

### committed knowingly. Thejury found that thirty-three and one-third percent ofthe actual damages was the reasonable and necessary amount ofAshby, Inc.'s attorneys' fees. 

### The trial court entered judgment for Ashby, Inc. for $408,500 in actual damages.5 The trial court added $136,166.67 as attorneys' fees to the amount ofactual damages. The

4

Certain violations ofthe insurance codealsoconstitute violationsof the Deceptive Trade PracticesAct. See Tex. Ins. Code Ann art 21.21, §16(a) (Vernon Supp. 1995); Tex. Bus. & Com. CodeAnn. §17.41-.63 (Vernon 1987 & Supp. 1995) (DTPA); see also Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129, 134 (Tex. 1988) (lack ofgood faith in investigation and processingofclaimactionable);AlliedGen. Agency, Inc. v. Moody, 788S.W.2d601,604 (Tex. App.-Dallas1990, writdenied) (lack ofgoodfaith insettling claim actionable under DTPA). 5The parties stipulatedthat State Farm was entitledto a$16,500 offset representing the amounts it advancedto Ashby, Inc.

•11-trial court awarded prejudgment interest at ten percent per annum from November 12,1990 through December 20, 1991 on the actual damages and attorneys' fees. The trial court's judgment awarded postjudgment interest at ten percent per annum on all actual damages, attorney's fees, and prejudgment interest. Pursuant to the jury's findings, the trial court made conditional awards of attorneys' fees for appeals. BREACH OF THE INSURANCE CODE/DTPA AND THE COMMON-LAW DUTY OF GOOD FAITH AND FAIR DEALING In its first four points of error, State Farm asserts there was no evidence or insufficient evidence to supportthejury's findings thatitbreached theinsurance code/DTPA and the common-law duty of goodfaith applicable to insurers and that itfailed to promptly and fairly resolve the claim. These arguments were properlypreservedthrough State Farm's motion for directed verdict (no evidence arguments) and motion for new trial (factual 

### insufficiency arguments). See Cecil v. Smith, 804 S.W.2d 509, 510-11 (Tex. 1991).
A. Standards ofReview When reviewing State Farm's no evidence points, we will consider only the evidence andinferences thattend to support thefinding and disregard all evidence andinferences to 

### the contrary. Responsive TerminalSys., Inc. v. Boy Scoutsof Am., 11A S.W.2d 666, 668 (Tex. 1989). We must consider the evidence in the light most favorable to the verdict. See Havner v. E-Z Mart Stores, Inc., 825 S.W.2d 456, 458 (Tex. 1992). It is not within our 

### power to second guess the fact finder unless only one inference can be drawn from the

-12-evidence. Id. at 461. If there is more than a scintilla of evidence to support the finding, the
no evidence challenge fails. See Stafford v. Stafford, 726 S.W.2d 14, 16 (Tex. 1987). Evidence is more than a scintilla if it furnishes some "reasonable basis for differing conclusions byreasonable minds as to the existence of the vital fact." Kindred v. ConlChem, Inc., 650 S.W.2d 61, 63 (Tex. 1983). However, the quantum of evidence necessary to
overcome a no evidence challenge is not necessarily enoughevidence to support a verdict. Rather, it is merely enough evidence to warrant submission of the issue to thejury. See id. The Texas Supreme Court has given us further instructions in performing a no evidence review of insurance bad-faith claims. [W]e believe that when a court is reviewing the legal sufficiency of the evidence supporting a bad faith finding, its focus should be on the relationship of the evidence arguably supporting the bad faith finding to the elements of bad faith. The evidence presented, viewed in the light most favorable to the prevailing party, must be such as to permit the logical inference that the insurer had no reasonable basis to delay or deny payment of a claim, and that it knew or should have known it had no reasonable basis for its actions. The evidence must relate to the tort issue ofno reasonable basis for denial or delay in payment of a claim, not just to the contract issue of coverage. This is nothing more than a particularized application ofour traditional no evidence review. This focus on the evidence and its relation to the elements of bad faith is necessary to maintain the distinction between a contract claim on the policy, and a claim of badfaith delay or denial of that claim, which arises from the tort duty we imposed on insurers in Arnold and Aranda. 

### Lyonsv. Millers CasualtyIns. Co., 866 S.W.2d597, 600 (Tex. 1993) (citation omitted). First

-13-we must determine whether the insurer had a reasonable basis for delaying or denying the claim. See National Union Fire Ins. Co. v. Dominguez, 873 S.W.2d 373, 376 (Tex. 1994). Then applying the "traditionalrules of legalsufficiency, "we determine whether the insured presented evidence showing that the insurer lacked a reasonable basis for denying or delaying the claim. See id. In reviewing factual insufficiency points, we review all of the evidence in the record, including any evidence contrary to the verdict. Plas-Tex., Inc. v. U.S. Steel Corp., 772 S.W.2d 442, 445 (Tex. 1989). We will set aside a jury's finding on the basis of a factual insufficiency or greatweight andpreponderance pointonly ifwedetermine that the evidence isfactually insufficient or so against the great weight andpreponderance of the evidence as to be manifestly unjust, shocking to the conscience, or clearly demonstrating bias. Ames v. Ames, 776 S.W.2d 154, 159 (Tex. 1989), cert, denied, 494 U.S. 1080 (1990); see also Pilkington v. Komell, 822 S.W.2d 223, 230-31 (Tex. App.-Dallas 1991, writ denied). Ifwe are inclined to reverse on the basis of a factual insufficiency or great weight and 

### preponderance point, we must "detailthe evidence relevantto the issue in consideration and clearly state why the jury's finding is factually insufficient or is so against the great weight 

### and preponderance as to be manifestly unjust; why it shocks the conscience; or clearly demonstrates bias." Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986). 

### Additionally, we must set forth in what regard the contrary evidence greatly outweighs the evidence in support ofthe verdict. Id. Ifwe sustain afactual insufficiency or great weight

•14-and preponderance point, we can only remand the case. "Our present Constitution empowers the courts of appeals to 'unfind' facts, even if they cannot 'find' them." Id. at 634. We cannot substitute our interpretation of the evidence for that of the jury even if a different answer could be reached on the evidence. See Herbert v. Herbert, 754 S.W.2d 141, 144 (Tex. 1988). B. Applicable Law An insurer breaches its common-lawduty of good faith and fair dealing when it fails to promptly and equitably pay the insured's claim when liability becomes reasonably clear. Aranda v.Insurance Co. ofN.Am., 748 S.W.2d 210, 212-13 (Tex. 1988);Allied Gen.Agency, Inc. v. Moody, 788 S.W.2d 601, 604 (Tex. App.-Dallas 1990, writ denied). It is the insured's burden to show (1) the insurer did not have a reasonable basis for denying or delaying payment of the benefits of the policy and (2) the insurer knew or should have known that it had no basis for denying or delaying payment. Aranda, 748 S.W.2d at 213; Caserotti v. State Farm Ins. Co., 791 S.W.2d 561, 566 (Tex. App.-Dallas 1990, writdenied). The first element of this test requires an objective determination of whether a reasonable insurer under similar circumstances would have delayed or denied the claimant's benefits. The second element balances the right of an insurer to reject an invalid claim and the duty of the carrier to investigate and pay compensable claims. 

### Aranda, 748 S.W.2d at 213. Insurers have the right to deny invalid orquestionable claims 

### without liability for an erroneous denial ofaclaim; however, insurers that breach the duty

•15-of good faith and fair dealing may be subject to liability for their tortious conduct. Id.
The threshold of bad faith is reached when a breach of contract is accompanied by an independent tort. Evidence that merely shows a bona fide dispute about the insurer's liability on the contract does not rise to the level of bad faith. Nor is bad faith established if the evidence shows the insurer was merely incorrect about the factual basis for its denial of the claim, or about the proper construction of the policy.
... To the contrary, an insured claiming bad faith must prove that the insurer had no reasonable basis for denying or delaying payment of the claim, and that it knew or should have known that fact. Transportation Ins. Co. v. Model, 879 S.W.2d 10, 17-18 (Tex. 1994) (citations omitted). C. Application ofLaw to Facts Question numbers five and seven addressed State Farm's settlement of the claims with Ashby, Inc.6 Question numbers nine and ten dealt with State Farm's breach ofthe

QUESTION NO. 5: Do youfind that the insurance company failed to attempt in good faith to effectuate aprompt, fair and equitable settlement of theclaims submitted by the insuredwhen liability hadbecome reasonably clear? Answer "Yes" or "No".
ANSWER: Yes You are instructed: An insurance company owesa duty ofgoodfaith and fair dealing to itsinsureds. A breach ofthe insurance company's duty exists when (1) there is anabsence of a reasonable basisfor denyingordelaying payment of the benefit of the policy and (2) the insurance company knew orshown have known that there was not a reasonable basis for denying the claim ordelaying payment of the claim. If you have answered Question No. 5 "Yes" then answer Question No. 6, otherwise proceed to Question No. 9.
QUESTION NO. 7: Do youfind that the acts or omissions which youfound inQuestion No. 5were aproducing cause ofdamage tothe insured? Answer "Yes" or "No".

ANSWER: Yes

-16-implied covenant of good faith and fair dealing.7 State Farm contends the evidence is legally and factually insufficient to support the jury's answers to these questions.
1. No Evidence Based upon its investigation of the fire scene and reports received from third parties, State Farm had reason to investigate the possibility of arson. The fire started in the early morning hours, the building was locked and there was no sign of forced entry, there was evidence that accelerants were involved, and there were multiple points of origin of the fire. Thus, initially, State Farm had a reasonable basis to delay payment of the claim while it conducted its investigation. However, State Farm also knew that Ashby, Inc. could not operate its business until thebuilding was repaired and its contents replaced. Thus, State Farm was also aware that it was important to Ashby, Inc. that the investigation be

QUESTION NO. 9: Do youfind that the insurance company breached the implied covenantofgoodfaith andfair dealing inthebusiness ofinsurance withtheinsured? You are instructed that in connection with Question No. 9, breach of an implied covenant of goodfaith andfair dealing inthebusiness ofinsurance means that: (1) there isacontract between the insurer and the insureds;(2) the insurerdenied the insured's claim or delayed in payment; (3) there was absence of a reasonable basis for the insurer's denying or delayingpaymentof the insured's claim; andthe insurerknew orshouldhave known there was not a reasonable basisfor denying ordelaying payment of the claim. Answer "Yes"

or "No".
ANSWER: Yes Ifyou have answered Question No. 9 "Yes" then answer Question 10; otherwise proceed to Question No. 14. QUESTION NO. 10: Do youfind that the insurance company's breach, if any, of the implied covenant ofgoodfaith andfair dealing with itsinsured was theproximate cause of anydamages, ifany, sustained by the insured? Answer "Yes" or "No".
ANSWER: Yes

-17-completed quickly and the claim adjusted promptly. Prior to the time suit was filed by Ashby, Inc., State Farm never denied the claim. On October 17, 1989, State Farm determined that it had no reasonable basis for denying the claim because it could not find a motive or link between Ashby, Inc. and the fire. State Farm completed its arson investigation by August 27, 1989, when it received a third party's report indicating that it could not linkAshby, Inc. to the fire. The report did suggest some further areas of investigation; however, State Farm did not pursue any of them during the claim adjusting period. Thus, State Farm cannot claim that its arson investigation was a reason to delay resolution of Ashby, Inc.'s claim after August 27, 1989. State Farm didvirtually nothing from August 24through October 3, 1989. Evidence in the record indicates that State Farm actively refused to dealwith Ashby, Inc. during this 

### period. Rutledge, the adjuster assigned to Ashby, Inc.'s case, was on storm duty and vacation during this period oftime. Ashby, Inc. presented expert testimony that such along period oftime with no activity was unreasonable. After October 17, State Farm attempted to contact Ashby, Inc. by phone, through 

### Ashby, several times. Most ofthe calls were placed to one ofAshby's places ofresidence 

### during business hours. One call was placed to Ashby's place of business on a Sunday 

### morning. State Farm nevertried to contactAshbythrough his attorney, relatives, orfriends
even though it had the necessary information to do so. State Farm did not try to contact 

### Ashby, Inc. by mail. State Farm had earlier rejected Ashby's offer to sign for areservation

-18-!j«;-rf:.'^y«iv--;«SW"*'*v^«^.^!^:«*^i.'j

of rights letter in its office, electing rather to send the letter by mail with the consequent delay in handling the claims. The responsible adjuster offered no explanation for failure to contact Ashby, Inc. by mail other than that he did not think of using the alternative means. Ashby, Inc. presented expert testimony that State Farm's efforts to contact it were
unreasonable. Evidence was presented at trial indicating that Ashby, Inc. had done everythingthat State Farm had asked it to do during the adjusting period. Evidence was also presented showing that State Farm never made a complete or adequate determination during the adjusting period of what it thought Ashby, Inc. was entitled to under the policy. State Farm knew Ashby, Inc. could not conduct its business until the building was repaired and its contents replaced. It also knew Ashby, Inc. was incurring expenses even though it was not open for business. The arson investigation did not delay resolution ofthe claim after Ashby, Inc. did 

### everything thatwas asked ofitin atimely fashion. State Farm failed to complete its analysis of the loss within the time limits set forth in the insurance policy. Even thoughAshby, Inc. 

### requested itto do so, State Farm never made an offer to Ashby, Inc. From the foregoing facts, the jury could have reasonably concluded that State Farm was "stringing along" a distressed insured in bad faith in an effort to force an inequitable settlement and that the 

### delay proximately caused Ashby, Inc. injury. The evidence supported the existence of an independent tort, as found by the jury, above and beyond any breach ofcontract.

•19-We overrule State Farm's first and third points of error.
2. Insufficient Evidence State Farm had a reasonable basis for investigating arson. This matter was hardly disputed at trial. After August 27, State Farm cannot rely on arson as a reason for delaying resolution ofthe claim. At trial, State Farm claimed that Ashby, Inc.'s actions, such as not signing the waiver letter, delayed resolution of the claim. However, all of the asserted deficiencies on Ashby, Inc.'s part were rectified by the end ofJuly. State Farm's bad faith expert could not identify a single specific action which Ashby, Inc. did or did not do that resulted in delay ofresolution of the claim. Theresponsible adjuster indicated that Ashby, Inc. did everything it was asked to do. Exceptfor testimony thatits adjusterwas onvacation andstorm duty between August 27, 1989 and October 3, 1989, State Farm gave no explanation as to why there was no activity regarding the claim during thatperiod. State Farm presented noevidence showing that it did not have the resources to assign someone else to the claim during this period. 

### State Farm's expert conceded that amonth without activity on afile would work ahardship

on an insured. State Farm retained an analyst to examine Ashby, Inc.'s inventory loss andbusiness 

### interruption loss on July 20, 1989. By October 19, the analyst was "almost finished" with his report. State Farm received the report in early November. The analyst's report was 

### incomplete when it was transmitted to State Farm. It noted that there were a number of

-20-&.'^wM^*^»^**?*^^

public records which could and should be obtained that would assist the analysis. No explanation was provided as to why the analyst did notobtain the documents or why State Farm did not obtain the documents. At no time during the claim adjusting period did State Farm attempt to obtain such documents even though it knew they were material to evaluating Ashby, Inc.'s loss. State Farm asserts that Ashby, Inc.'s "destruction" of the contents of the store delayed resolution of the claim because State Farmwas denied the opportunity to recover salvage value andaccurately assess theloss. Ontheday ofthefire, State Farm told Ashby, Inc. not to touch anything. More than a month later, on August 4, State Farm went to the store to examine the inventory. By that time, the inventory had been removed. There is 

### nothing in the record showing that State Farm ever told Ashby, Inc. why the inventory had to remain. Evidence was presented from which thejury could have concluded State Farm knew or should have known that some or all of the contents of the store were being removed prior to the time it went to examine them. 

### Ashby, Inc. filed its sworn proofofloss by August 20, 1989. Ashby, Inc.'s insurance policy provided in relevant part that: The amount of loss for which this Company may be liable shall be payable sixty days after proof ofloss, as herein 

### provided, is received by the Company and ascertainment ofthe loss is made either by agreement between theinsured and this 

### Company expressed in writing or by the filing with this Company of an award as herein provided.

-21-Even thoughits investigation was completed bythe end ofAugust, State Farm did not make the determination that it could not maintain an arson defense until October 17, a mere two days before the sixty-day period contemplated by the policy expired. Atbest, State Farm
was less than diligent in its efforts to contact Ashby, Inc. after October 17 to discuss settlement. More importantly, State Farm was never prepared to discuss settlement with Ashby, Inc. during the adjusting period. State Farm had not thoroughly inspected the building to determine whether the electrical or heating/air conditioning system needed 

### repair. State Farm's evaluation of Ashby, Inc.'s business interruption and lostprofits claims
was never completed. From the evidence presented attrial, thejury could have concluded thatState Farm's failure to adequately and completely evaluate Ashby, Inc.'s claims within 

### the time periods contemplated by the insurance policy was the product ofState Farm's bad faith and lack of diligence. 

### State Farm did make partial payments totaling $16,500 during the adjusting period. 

### However, this was afraction of the total coverage affordedby the policy and amere portion of the undisputed amount of the loss. 

### From the evidence presented at trial, the jury could have concluded that (1) State 

### Farm was not diligent in evaluating its arson claim and Ashby, Inc.'s damages; (2) State 

### Farm failed to use adequate efforts to contact Ashby, Inc. in October and November; (3) State Farm's failure towork the claim and communicate with Ashby, Inc. between August 

### 24 and October 3 was unreasonable; and (4) during the adjusting period, State Farm was

-22-never prepared to fairly discuss or dispute Ashby, Inc.'s claim because its investigation was spotty and incomplete. State Farm also knew that Ashby, Inc. could not operate until the building was repaired and inventory replaced. From the foregoing, the jury could have concluded that State Farm attempted to take advantage of a distressed insured by delaying resolutionof the claimwithoutadequatejustification. There wasfactually sufficient evidence to support thejury's findings that State Farm acted in badfaith and unreasonably delayed resolution of the claim to Ashby, Inc.'s detriment. In its brief, State Farm conjectures that the jury's findings were predicated upon conduct which occurred after Ashby, Inc. filed suit. State Farm asserts that it is being 

### penalizedfor litigating its defense to the claim. Evidence ofpostsuit activitywas introduced without objection orrequest for an instruction limiting the jury's consideration ofit. State Farm did not object tothe charge on the basis that itwas improper for thejury to consider 

### postsuit activities in determining whether there was unreasonable delay orbad faith. Thus, State Farm failed topreserve error, ifany. See Tex. R. App. P. 52(a). Further, the error, 

### ifany, was harmless. As discussed above, there was sufficient evidence ofpresuit activity 

### to support thejury's findings. State Farm's argument that thejury's verdict was based on postsuit activity is speculation and is unsupported by the record. We overrule State Farm's second and fourth points of error.

-23-CONDUCT OF ASHBY, INC.'S COUNSEL Inits fifth point oferror, State Farm asserts the trial court erred in notgranting a mistrial and/or its motion for new trial because (1) Ashby, Inc.'s lead counsel testified as
a material fact witness and expert witness beyond the issue ofattorney's fees; and (2) the 

### conduct ofAshby, Inc.'s counsel prior to and during trial violated the rules ofprofessional

conduct. A. Standard ofReview Generally, thegranting or denying of a motion for mistrial is reviewed on an abuse ofdiscretion standard. See Ussery v. Gray, 804 S.W.2d 232, 237 (Tex. App.-Fort Worth 

### 1991, no writ) (disqualification ofattorney); Mendoza v. Ranger Ins. Co., 753 S.W.2d 779, 

### 781 (Tex. App.-Fort Worth 1988, writ denied) (jury selection). Atrial court's grant or denial of a motion for new trial is also reviewed under an abuse of discretion standard. 

### Champion Int'l Corp. v. Twelfth Court ofAppeals, 762 S.W.2d 898, 899 (Tex. 1988) (per 

### curiam); Fluty v. Simmons Co., 835 S.W.2d 664, 666 (Tex. App.-Dallas 1992, no writ). B. Attorney Testifying as Fact Witness The substance ofState Farm's complaintis that the trial court failed toproperly limit 

### the scope ofAshby, Inc.'s counsel's testimony. Atrial court's rulings on the admission or exclusion of evidence are reviewed under an abuse of discretion standard. Coker v. 

### Burghardt, 833 S.W.2d 306, 309 (Tex. App.-Dallas 1992, writ denied); see also Ginsberg v. 

### Fifth Court ofAppeals, 686 S.W.2d 105, 108 (Tex. 1985) (holding admission of evidence

-24-

### rests largely within the discretion ofthe trial court). Failure to request the court to instruct 

### thejuryto disregard inadmissible evidence results in waiver ofany error stemming from the admission of the evidence. State Bar v. Evans, 114 S.W.2d 656, 658 n.6 (Tex. 1989) (per curiam). 

### Ashby, Inc.'s counsel testified at great length at trial. His testimony often went 

### beyond the issue ofthe reasonableness ofhis attorney's fees. He testified as to his opinions regarding State Farm's lack ofgood faith and his course ofdealings with State Farm prior

to and after suit was filed. State Farm made numerous objections to Ashby, Inc.'s counsel's testimony. Most 

### of the objections were sustained. On appeal, State Farm does not complain of a single instance inwhich thetrial court failed to sustain aspecific objection to such testimony. State 

### Farm does not argue that counsel's allegedly improper testimony was such that it presented incurable error thatcould not be corrected through instruction to thejury to disregard it. 

### The gravamenofState Farm's complaint on appeal is thatAshby, Inc.'s counsel's testimony

was heard and considered by the jury. 

### On appeal, State Farm argues that the trial court erred in overruling its motions for
new trial/mistrial because Ashby, Inc.'s counsel should have been disqualified because he 

### testified to matters outside attorney's fees. State Farm does not dispute that said counsel 

### could properly testify as to attorney's fees. See Tex. Disciplinary R. Prof. Conduct 3.08(a)(3) (1994), reprintedinTex. Gov'tCodeAnn. tit. 2, subtit. G app. A(VernonSupp.

-25-1995). We have reviewed Ashby, Inc.'s counsel's testimony and agree it extended beyond the issue ofattorney's fees. However, State Farm does not identify any instances where the trial court allowed Ashby, Inc.'s counsel to testify outside the issue ofattorney's fees over its specific objection. 

### Ashby, Inc.'s counsel was entitled to testify at trial as to attorney's fees.8 It was incumbent upon State Farm to take the necessary steps to limit such testimony to attorney's fees. Instructions to the jury limiting its consideration ofcounsel's testimony could have 

### prevented any unfairprejudice. StateFarmfailed to take the necessary steps-objecting and requesting instructions-to minimize the potentially unfairly prejudicial impact ofcounsel's testimony. Under these circumstances, we cannot say the trial court abused its discretion innot granting State Farm's motion for mistrial ormotion for new trial. C. Ashby, Inc.'s Counsels' Behavior Prior to AndDuring Trial State Farm asserts that Ashby, Inc.'s counsel threatened witnesses and opposing 

### counsel and ignored the trial court's orders in violation ofthe Texas Disciplinary Rules of Professional Conduct. Control ofcounsel prior to and during trial is a matter lying within the sound discretion ofthe trial court, and a reviewing court will not interfere unless it is 

### clear that the trial court abused its discretion. Wells v. HCA Health Servs., 806 S.W.2d 850, 

### 854 (Tex. App.-Fort Worth 1990, writ denied); Mandril v. Kasishke, 620 S.W.2d 238, 247
8 The facts are distinguishable from Warrilow v. Norrell, 791 S.W.2d 515, 523 (Tex. App.-Corpus Christi 1989, writ denied), wherein the attorney's testimony comprised approximately 341 pages of1090pages (nearly one-third) ofthe testimony offered by the plaintiff, the bulk of such testimony apparently being unrelated to attorney's fees.

-26-(Tex. Civ. App.-Amarillo 1981, writ ref d n.r.e.). 

### The question ofwhether Ashby, Inc.'s counsel violated the Texas Disciplinary Rules of Professional Conduct is not dispositive of any issue before us. 

### [T]hese rules are not designed to be standards for procedural decisions. Furthermore the purpose of these rules can be abused when they are invoked by opposing parties as 

### procedural weapons. The fact that a rule is ajust basis for a lawyer's self-assessment, orfor sanctioning a lawyer under the administration ofa disciplinary authority, doesnotimply that an antagonist inacollateral proceeding ortransaction has standing to seek enforcement of the rule. Accordingly, nothing in the rules should be deemed to augment any substantive legal duty oflawyers or the extra-disciplinary consequences ofviolating such a duty.
Tex. Disciplinary R. Prof. ConductPreamble, Scope § 15 (1994), reprinted in Tex. Gov't 

### Code Ann., tit. 2, subtit. Gapp. A (Vernon Supp. 1995) (State BarRules art. X, § 9). 

### The question before us is whether the trial court abused its discretion in denying State Farm's motion for mistrial and/or motion for new trial because ofAshby, Inc.'s counsels'

conduct. 

### State Farm has alleged that Ashby, Inc.'s counsel engaged in improper conduct 

### rangingfrom leadingwitnesses towitness tamperinginviolation ofTexas Penal Code section 35.05. Ashby, Inc.'s counsel disputed these charges and their evidentiary foundation. The trial court conducted an evidentiary hearing on these matters. From the record before us, 

## it appears that the evidentiary hearing regarding Ashby, Inc.'s counsels' threatening of

-27-witnesses was not completed. In some instances, the trial court exonerated Ashby, Inc.'s counsel. In others, it found his conduct inappropriate. The trial court took State Farm's complaints about Ashby, Inc.'s counsel seriously. 

### Itsustained many of State Farm's objections and went so far as to threaten Ashby, Inc.'s counsel with contempt. State Farm's complaint is that the trial court should have gone 

### further and granted it amistrial or anew trial. State Farm has not directed us to (1) any incident absolutely requiring amistrial/new trial or(2) any authority regarding the incidents about which it does complain which requires a mistrial/new trial. While we have not 

### detailed each ofthe alleged improprieties, we have examined each ofthem in light ofthe attendant circumstances. We conclude thealleged improprieties were notsofundamentally detrimental to the trial as to necessitate a mistrial. The trial court was in the best position to evaluate Ashby, Inc.'s counsels' conduct 

### and its impacton the trial. Ittook affirmative steps to controlAshby, Inc.'s counsel. Under these circumstances and onthebasis oftherecord before us, we find no abuse ofdiscretion. We overrule State Farm's fifth point of error. UNQUALIFIED EXPERTS 

### In its sixth and seventh points oferror, State Farm asserts the trial court abused its 

### discretion in allowing John Agnew and ChristopherWeil to testify as experts. State Farm's 

## positionis thattheywere notqualified to renderthe opinions they did, particularlybecause they were notlicensed insurance adjusters.

-28-A. Applicable Law Whether a witness is allowed to testify as an expert witness is a matter ofjudicial discretion. Prellwitz v. Cromwell, Truemper, Levy, Parker &Woodsmale, Inc., 802 S.W.2d 

### 316, 317 (Tex. App.-Dallas 1990, no writ). Atrial court's determination will not be disturbed on appeal unless the record shows "it clearly abused its discretion." Id. The party offering an expert witness has the burden of establishing the expert's 

### qualifications. Id. A purported expert's qualifications can be established through a 

### predicate showing "knowledge, skill, experience, training or education." Tex. R. Civ. Evid. 702. However, awitness who is to give an expert opinion about the standard ofcare within 

### aparticular licensed profession must ordinarily be licensed in that same profession. See Prellwitz, 802 S.W.2d at 317 (architects and mechanical engineers); see also Bilderback v. 

### Priestley, 709 S.W.2d 736, 740 (Tex. App.-San Antonio 1986, writ ref'd n.r.e.) (op. on 

### reh'g) (doctors); Tijerina v. Wennermark, 700 S.W.2d 342, 347 (Tex. App.-San Antonio 1985, no writ) (lawyers), disapproved on othergrounds, Cosgrove v. Grimes, 114 S.W.2d 662 

### (Tex. 1989) (op. on reh'g); Johnson v. Hermann Hosp., 659 S.W.2d 124, 126 (Tex. App.- Houston [14th Dist.] 1983, writ ref'd n.r.e.) (nurses). Butsee State v. Taylor, 721 S.W.2d 541, 551 (Tex. App.-Tyler 1986, writ refdn.r.e) (appraiser who was not licensed real estate broker but who had more than nine years' experience as an independent real estate 

## appraiser, was amember of the International Institute of Appraisers and the National Association of Appraisers, and had experience in making appraisals for banks and

-29-condemning authorities was qualifiedto rendervalue anddamages opinions incondemnation proceeding). Individuals who adjust insurance claims must be licensed as agents under Texas law. See Tex. Ins. Code Ann. art. 21.02, § 2(a) (Vernon Supp. 1995) (defining "agent" to include 

### those who adjust claims); Tex. Ins. Code Ann. art. 21.07 (Vernon Supp. 1995) (requiring 

### agents to be licensed); Tex. Ins. Code Ann. art. 21.07-4, § 2(a) (Vernon 1981) (specifically 

### requiring adjusters to be licensed); 28 Tex. Admin. Code § 19.602 (West 1992-93) (Texas Department ofInsurance) (types ofadjuster's licenses authorized). In orderto be licensed,
an adjuster must (1) demonstrate to the licensing board that he has "experience orspecial education ortraining
... ofsufficient duration and extent to make him competent tofulfill 

### the responsibilities ofaninsurance adjuster" and (2) he mustpass an examination. Tex. Ins. Code Ann. art. 21.07-4, § 7 (Vernon 1981). Attorneys are exempted from the licensure 

### requirement to the extent they may perform adjusting activities in the course of their 

### practice oflaw. See Tex. Ins. Code Ann. art. 21.02 (Vernon Supp. 1995); Tex. Ins. Code Ann. art. 21.07-4, § l(l)(b)(l) (Vernon Supp. 1995). B. Application of Law to Facts 

### Agnew and Weil expressed their opinions that State Farm had breached the duty of 

## goodfaith and fair dealing. State Farm complains thatAgnew and Weil were not qualified to testify as expert witnesses, and the trial court erred in allowing them to testify as such.

-30-Ashby, Inc. offered JohnAgnew as an expert on attorney's fees and bad-faithclaims practices. Agnew was licensed to practice law in 1970. He did not hold an adjuster's license. He had engaged in a mixed plaintiff/defendant trial practice. He hadrepresented insurance carriers on coverage questions andexposure regarding bad-faith claims. He had handled some lawsuits involving fires. Apartfrom his activities as a lawyer, he had never been a claims manager or done anything with respect to adjusting claims from the insurer's point of view. Ashby and Ashby, Inc. offered Christopher Weil as a rebuttal witness and elicited 

### testimony regarding interpretation ofthe subject insurance policy. Weil is anattorney. He had significant experience in the litigation offire insurance policies. Whether awitness isallowed to testify asan expert iswithin thediscretion of the trial court. Prellwitz, 802 S.W.2d at 317. The trial court's determination will not be reversed 

### exceptfor abuse ofdiscretion. Based on the information before the trial court, we conclude the trial court did not abuse its discretion in allowing Agnew and Weil to testify as expert witnesses. An attorney who has been involved inhandling insurance cases may be more 

### qualified to testify as an expert concerning bad-faith claims than a licensed adjuster with limited expertise in the area. We overrule State Farm's sixth and seventh points oferror. TESTIMONY REGARDING JOE BEN ASHBY, JR.'S TRUTHFULNESS 

### Inits eighth point oferror, State Farm asserts the trial court erredin allowing Ashby, Inc.'s arson expert to testify regarding Mr. Ashby's truthfulness. On appeal, State Farm

-31-asserts that the investigator's testimony violated the exclusive province of the jury and was admitted in violation of Texas Rule of Civil Evidence 702. At trial, State Farm objected to the testimony arguing that the testimony was beyond the witness's designated expertise. 

### Ashby, Inc. called John L. Henning, III as an expert witness on arson investigation and the fire at issue in this case. Henning had extensive experience as a fire and arson 

### investigator in the public and private sectors. He had investigated suspected arsons for a number ofinsurance companies, including State Farm. Henning testified that evaluating witnesses' veracity was part ofhis experience and training. Henning's qualifications to render opinions regarding the fire inissue and arson are not disputed. State Farm did not make the objections at the trial court level it now asserts on 

### appeal. Therefore, it failed to preserve the arguments for appeal. See Tex. R. App. P. 52(a). We overrule State Farm's eighth point of error.
DAMAGES 

### In its ninth and tenth points of error, State Farm attacks the legal and factual 

### sufficiency ofthe evidence to support some ofthe damages recoveredby Ashby, Inc.9 State
State Farm complains specifically ofthejury's answers to question number eight. Question eightasked thefollowing: QUESTION NO. 8: What sura of.money, ifany, paid now in cash, would fairly and reasonably compensate the insured for itsdamages incurred as a result of the acts or omissions that youfound inQuestion No. 5? You are toconsidereach elementof damage separately, so as not to include damages for an element in any other element. Answer separately indollars and cents, ifany, with respect toeach item. (a) Lost investment in land and improvements. ANSWER: $75,000.00

-32- (continued...)Farmalso argues, although indirectly, thatsome ofthedamages awarded to Ashby, Inc. are barred by the single satisfaction rule. A. Injury to Realty

1. Applicable Law 

### The type of compensation to be awarded a property owner for damage to his 

### property depends on the type of injury in issue. Kraft v. Langford, 565 S.W.2d 223, 227 (Tex. 1978). Permanent injuries to property, other than chattels, give rise to damages 

### measured by the value ofthe property before and after the injury. Id. Damages for 

### temporary injuries are measured as the amount necessary to place the owner in the position hewas inprior tothe injury. Id. When aninjury torealty is repairable, the proper measure 

### ofdamages is the cost ofrepair. Hollingsworth Roofing Co. v. Morrison, 668 S.W.2d 872, 876 

### (Tex. App.-Forth Worth 1984, no writ); see also General Supply & Equip. Co. v. Phillips, 490 S.W.2d 913, 919 (Tex. Civ. App.-Tyler 1972, writ refd n.r.e.) (cost of repair is 

### generally measure of damages for injury to realty). Generally, an injury which can be terminated or which is short in duration is temporary. Kraft, 565 S.W.2d at 227. The

'(...continued) (b) Loss of credit. ANSWER: $50,000.00 (c) Past loss ofcorporate profits[.] ANSWER: $75,000.00 (d) Loss of corporate profits inreasonable probability in the future. ANSWER: $25,000.00

-33-?,^:-^r-.v'.-WX&v.w^



### concepts oftemporary and permanent injuries are mutually exclusive, and damages for both 

### may not be recovered in the same action. Yancy v. City ofTyler, 836 S.W.2d 337, 340 (Tex. App.-Tyler 1992, writ denied) (op. on reh'g); see also Kraft, 565 S.W.2d at 227. "The [single] satisfaction rule applies to prevent aplaintifffrom obtaining more than


### one recovery for the same injury." Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 7 (Tex. 1991). This rule prevents a plaintifffrom recovering the same elements ofdamages for a 

### given injury even ifthe wrongful conduct is actionable under different theories. See Mayo
v. John Hancock Mut. Life Ins. Co., Ill S.W.2d 5, 7 (Tex. 1986). 2. Application ofLaw to Facts 

### In response tojury question number two, thejury found that the cost of repair ofthe 

### building was $80,000. In response to jury question 8(a), the jury found that Ashby, Inc. suffered $75,000 in damages as aresult oflost investment in land and improvements. State Farmasserts that as a matter oflaw, the only properly recoverable damages were the costs 

### ofrepair and that Ashby, Inc. cannot recover both elements ofdamage. There are two distinct injuries in this case, and only one involves damage to the 

### realty. Ashby, Inc.'s first injury occurredwhen thebuildingburned. Underthe policyissued by State Farm, Ashby, Inc. was entitledto recoverfor damage to the realty, thatis, the cost of repairs. 

### The second injury occurred afterthe fire whenAshby, Inc. was forced to sellthe land 

### and improvements at agreatly reduced price. Ashby, Inc. was forced to sell because State

-34-Farm refused to pay the submitted claims even though the policy covered business interruption losses. Ashby testified that he sold the land and improvements because he could notmake the payments and feared foreclosure. This was not an injury to the realty. Based upon the evidence, thejury could have believed Ashby, Inc. was situated on 

### avery lucrative piece ofreal estate. Ashby testified he purchased the land for $60,000 and built a $60,000 shell on it in 1969. Over the years Ashby received several inquiries about 

### selling or leasing the property, and had rejected one offer to purchase the property for $650,000. 

### Ashby further testified that the land was appraised at $434,000 prior to the fire. There was evidence that the land and building were assessed at a value of $306,910 for 

### property tax purposes in April 1989. After the fire, Ashby sold the property and building for $175,000. Hecharacterized the sale as a "fire sale" necessitated by his inability tomake the loan payments. 

### The jury charge did not define "lost investment in land and improvements." However, based upon the evidence concerning the value ofthe property before and after 

### the fire, thejury could have reasonably concluded thatAshby, Inc. lost its investment in the 

### land and improvements. We overrule State Farm's ninth point of error to the extent it complains of a double recovery onthe property damage.

-35-B. Loss of Credit State Farm asserts that the evidence was legally andfactually insufficient to support 

### the jury's award of$50,000 for loss ofcredit. State Farm does not challenge the amount awarded as being excessive. Loss ofcredit is a recoverable element ofdamages in insurance cases such as this. See Automobile Ins. Co. v. Davila, 805 S.W.2d 897, 908 (Tex. App.-Corpus Christi 1991, 

### writ denied), disapproved on other grounds, Hines v. Hash, 843 S.W.2d 464 (Tex. 1992). 

### Damages for loss of credit are not subject to precise determination. See Commonwealth 

### Lloyd's Ins. Co. v. Thomas, 825 S.W.2d 135, 146-47 (Tex. App.-Dallas 1992), writgranted without reference to merits,judgmentvacated, 843 S.W.2d 486 (Tex. 1993); American Bank
v. WacoAirmotive, Inc., 818 S.W.2d 163, 175 (Tex. App.-Waco 1991, writ denied); Davila, 805 S.W.2d at908. Because there is no special guide orrule in measuring damages for loss 

### of credit, the amount of damages awarded is amatter within the discretion of the jury. American Bank, 818 S.W.2d at 175. "Unless an award of such damages is flagrantly 

## outrageous, extravagant, and so excessive as to shockthejudicial conscience, it should not
be disturbed." Id. 

### Two ofAshby, Inc.'s creditors testifiedthatAshby, Inc. had agood creditreputation 

## withthempriorto the fire andthatithad suffered since the fire. One creditortestifiedthat it would no longer sell to Ashby, Inc. on open account. In the absence of aclaim of excessiveness, the foregoing is legally and factually sufficient evidence to support thejury's

-36-

### award. We overrule State Farm's ninth and tenth points oferror with respect tothe award
for loss of credit. C. Lost Profits 

### "Recovery for lost profits does not require the loss be susceptible of exact calculation." HoltAtherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992). However, 

### the amount ofthe loss mustbe shown by competent evidence and with reasonable certainty. 

### Id.; DIFWCommercialRoofing Co., Inc. v. Mehra, 854 S.W.2d 182, 187 (Tex. App.-Dallas 1993, no writ). "What constitutes reasonably certain evidence of lost profits is a fact intensive determination. As aminimum, opinions orestimates oflost profits mustbe based 

### onobjectivefacts, figures, ordatafromwhichthe amountoflostprofits canbe ascertained." Heine, 835 S.W.2d at 84. 

### Evidence of lost income, standing alone, is not evidence of lost profits. Id. The 

### record must show how the lost profits were calculated. See id.; Frank B. Hall &Co. v. 

### Beach, Inc., 733 S.W.2d251, 259 (Tex. App.-Corpus Christi 1987, writref'd n.r.e.); Village 

## Square, Ltd. v. Barton, 660 S.W.2d 556, 559-60 (Tex. App.-San Antonio 1983, writ refd n.r.e.). 

### Aparty must show either ahistory ofprofitability or the actual existence of future contracts from which lost profits can be 

### calculated with reasonable certainty. Texas cases permit 

### recovery for lostprofits in reliance upon routinely keptbusiness records so long as the evaluation of the business's decreased 

### profitability is based upon objective facts, figures, and data.

-37-Mehra, 854 S.W.2d at 187 (citations omitted) 

### The jury awarded $75,000 for lost past profits and $25,000 for lost future profits. State Farm asserts that the evidence was legally and factually insufficient to support the 

## jury's awards of lost profits.10 Ashby, Inc. directs this Court to avariety of evidence it introduced regarding cost ofinventory, income stream, overhead, and alarge number of Ashby, Inc.'s business records. 

### The record contains some evidence ofAshby, Inc.'s historical profitability or lack 

### thereof. Formany ofthe years prior to the fire, Ashby, Inc. operated at aloss: 1980 (loss 

## of approximately $11,000), 1981 (loss of approximately $15,000)u, 1982 (loss of 

## approximately $54,000), 1983 (loss ofapproximately $55,000), 1986 (loss ofapproximately $36,000), 1988 (net income perbooks as reflected on 1988 income tax return shows aloss of$4,667.54). In 1987, Ashby, Inc. had net income per its books as reflected in its 1987 income tax return of$1167.07. Some evidence was introduced indicating that Ashby, Inc. 

## had aprofitof$2500 during the first sixmonths of 1989. There was also testimony thatthe numbers shown on the financial statements for 1989 did not take into account all of the 

## outstanding liabilities, such as an approximately $1600 to $1700 per month mortgage owed to Chrysler Corporation.
10 StateFarmdoesnotchallengethe$20,000thejuryawardedascompensationforthebusinessinterruptionlossinresponse to jury question number four. 

### 11 Someevidencewaspresentedindicatingthatafterdepreciationandallowingforbusinesslosscarryforward, Ashby, Inc. may have broken even after taxes in1980 and 1981.

-38-

## "Netprofits" is defined as "whatremains inthe conductofabusiness afterdeducting from its totalreceipts all ofthe expenses incurredin carrying onthebusiness." Turnerv. PV 

## Int'l Corp., 765 S.W.2d 455, 465 (Tex. App.-Dallas 1988), writ denied per curiam, 778 S.W.2d 865 (Tex. 1989). The supreme courthas not sanctioned one particularmethod for determining lost profits, nor has the court said the calculation must be reduced to writing and shown to the jury. The court did, however, state that "once aparty has chosen a 

## particular method for measuring lost profits, they must provide acomplete calculation." Heine, 835 S.W.2d at 85. Pieces ofseveral different methods ofcalculating lost profits do
not support one complete calculation. 

## WeinterpretHeineto meanthatonce apartyhas chosenthemethodfor determining 

## lost profits, it must include sufficient evidence to show profits with areasonable certainty. This informationwould includethe existence ofknown liabilities relatedto the operation of

the business. 

## Ashby, Inc.'s evidence of profits did not take into account all known liabilities associatedwithrunning the business. Ashby, Inc. did notpresentone complete calculation. We conclude the evidence is legally insufficient to support the award for lost profits. We sustain State Farm's ninth point of error with respect to lost past and future 

## profits. We renderjudgmentthatAshby, Inc. take nothing on its claims for lostprofits.

-39-

### PREJUDGMENT INTEREST ON ATTORNEYS' FEES AND FUTURE DAMAGES 

### State Farm argues in its eleventh point oferror that the trial court erred as amatter 

### oflawin awardingprejudgmentintereston attorneys' fees andfuture damages. StateFarm also asserts a constitutional challenge to such award. We have disallowed Ashby, Inc.'s 

## recovery of future damages. Prejudgment interest is not recoverable on attorneys' fees because attorney's fees are not part of the "amount of the judgment." See C&H Nationwide v. Thompson, 37 Tex. Sup. Ct. J. 1059, 1068 (June 22,1994); Ellis County State Bank v. Keever, 888 S.W.2d 790, 797 n.13 (Tex. 1994). 

### We sustain State Farm's eleventh point of error. We reverse the trial court's 

## judgmentto the extentit awarded prejudgment interest on future damages and attorneys' fees. Because ofour disposition ofits eleventh point oferror, itis not necessary to address the constitutional arguments urged therein by State Farm. ASHBY, INC.'S CROSS-POINTS OF ERROR 

## Ashby, Inc.'s four cross-points oferror are directed atthe trial court's submission of 

## ajury issue regarding knowing breach of the insurance code/DTPA12 and its refusal to treble the damages it recovered under its insurance code/DTPA cause of action. All of 

## Ashby, Inc.'s complaintsturnonwhetherthetrialcourterredingrantingStateFarm'spost12 QUESTIONNO. 6: Do youfind thatthe actoromissionswhichyoufound in [QJuestion No. 5was engaged inknowingly? Answer "Yes" or "No".
ANSWER: No

-40-

### verdict trial amendment. Ashby, Inc. essentially concedes that ifthe trial court did not err 

### in granting State Farm's trial amendment, its cross-appeal is meritless. A. Procedural Background 

### State Farm's original answer contained ageneral denial. However, its subsequent 

### answers did not contain ageneral denial and only asserted arson as adefense. State Farm 

## candidly admits that its live pleading "failed to deny any of [Ashby, Inc.'s] allegations." 

## Ashby, Inc. did not object to the lack ofageneral denial or any other deficiency in State Farm's answer prior to the time the charge was prepared. It did not move for adefault 

## judgmentbeforejuryselectionorcommencementofitscaseinchief. Whileitdidnotobject to the basic liability questions, Ashby, Inc. objected to the court's proposed instruction on the issue ofwhether State Farm "knowingly" breached the insurance code/DTPA. Ashby, Inc. moved for an instructedverdict on the "knowingly" issue, objectedto submission ofthe 

## issueto thejury, movedforjudgmentn.o.v. whenthejuryansweredthe questions adversely toit, andmovedtodisregardthejury'sresponses. Thetrial courtdeniedall ofAshby, Inc.'s motions largely on the ground that the issue was tried by consent. 

## State Farmsoughtleave to file apostverdicttrial amendmentwhichput "knowingly" in issue. The trial court granted leave. Ashby, Inc. objected to the posttrial amendment 

## arguing thatitwas surprised and prejudicedbythe interjection ofthe "new" issue into the

case.

-41-B. Applicable Law 

### The governing law regarding trial amendments was set out by this Court in Whatley v. City ofDallas, 758 S.W.2d 301 (Tex. App.-Dallas 1988, writ denied). To determine whether parties have impliedly consented to trial of an unpleaded cause ofaction, the trial court must 

### carefully consider the proceedings as a whole. The trial court hasbroaddiscretion indeterminingwhether anunpleaded claim 

### has been tried by implied consent of the parties. The trial court is to exercise that discretion liberally in favor of justice. However, trial amendments are to be the exception, not the rule, and should not be allowed in doubtful cases. 

### Id. at 306 (citations omitted). Alitigant objecting to atrial amendment bears the burden 

### ofshowing that the "allowance ofsuch amendment would prejudice him in maintaining his action or defense upon the merits." Tex. R. Civ. P. 66. C. Application of Law to Facts 

### The trial court correctly allowed StateFarm's trial amendment and overruledAshby, 

### Inc.'svarious motions. Ashby, Inc. was aware ofthe defectbefore trial started. Ashby, Inc. 

### asserts that it was prejudiced by the trial amendment because it intended to rely on State 

### Farm's failure to deny Ashby, Inc.'s "knowingly" allegations withrespect to violation ofthe insurance code/DTPA. WerejectAshby, Inc.'s argument. Ashby, Inc.'s assertionthatwhile 

## the question ofwhether State Farm actedwrongfullywas in issue, the question ofwhether the allegedly wrongful conduct was committed knowingly was not, is illogical. If aparty denies committing awrongful act, by unavoidable implication it denies committing the

-42-

### wrongful act knowingly. We overrule Ashby, Inc.'s cross-points oferror. ASHBY'S MOTION FOR RULE 84 SANCTIONS 

## Appellee Joe Ben Ashby, Jr. filed amotion for rule 84 sanctions. See Tex. R. App. P. 84. As we understand Ashby's argument, he asserts State Farm's appeal as to him 

### individually must be frivolous and for purposes of delay because State Farm has not challenged the take-nothingjudgment rendered in his favor.13 

## Ashby was aparty to the underlying litigation. Thejury found that Ashby was the 

## alter ego ofAshby, Inc. In his motion, Ashby asserts State Farm sought to recover its attorney's fees incurred in defending the "Unfair Claims Practices/Texas Deceptive Trade Practices claims." Based on the foregoing, we conclude that State Farm did not appeal as 

## to Ashby without sufficient cause andfor purposes ofdelay. We deny Ashby's motion for

rule 84 sanctions. DISPOSITION 

## We affirmthatportion ofthe trial court'sjudgmentawardingAshby, Inc. $80,000for 

## costs ofrepairto the building; $90,000 for lostinventory; $20,000 for business interruption 

## loss; $50,000 for loss ofcredit; $75,000 for lostinvestment in land and improvements; and $10,000 as damagesforbreachofthe common-lawdutyofgoodfaith andfair dealing. We 

## thatportionofthetrial court'sjudgmentawardingdamages onAshby, Inc.'s claims
reverse 

### 13 Ashbyalsocomplains,atsomelength,aboutStateFarm'sactionsatthetrialcourtlevel. Theseactivitiesarebeyondthe scope of rule 84.

-43-for lost past corporate profits and lost future corporate profits, and render judgment that Ashby, Inc. take nothing on those claims. We reverse the trial court's judgment to the
extent that it awarded prejudgment interest on future damages and attorneys' fees. We render judgment that Ashby, Inc. is not entitled to recover prejudgment interest on future damages, there being no recovery thereof, or its attorneys' fees. We remand this cause for recalculation of prejudgment and postjudgment interest because the amount ofthejudgment has changed. We also remand this cause for recalculation of attorneys' fees based on the reduction in Ashby, Inc.'s recovery.14 See Loomis v. Blacklands Prod. Credit Ass'n., 579 S.W.2d 560, 564 (Tex. Civ. App.-Waco 1979, writ ref'd n.r.e.); Petroleum Casualty Co. v. Canales, 499 S.W.2d 734, 738 (Tex. Civ. App.-Houston [1st Dist.] 1973, writ ref'd n.r.e.). The trial court shall enter judgment consistent with this opinion.

Thomas, C.J., dissenting opinion
Do Not Publish Tex. R. App. P. 90 921354F.U05 WILL BARBER JUSTICE

14 The jury awarded attorney's fees through the trial in an amount of 33 1/3 percent of the total recovery.

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