Court Opinion

ID: 9762758
Source: CourtListenerOpinion
Date Created: 2023-08-29 02:30:35.232669+00
Date Added: 2024-06-11T07:29:37.262797
License: Public Domain

SPECTOR, Justice,
delivered the opinion of the Court,
in which CORNYN, ENOCH, BAKER and ABBOTT, Justices, join.
This cause presents several questions about an insurer’s liability for extracontrac-tual damages. The court of appeals upheld jury findings of bad faith and malice, allowing the insureds to recover both mental anguish and exemplary damages. 869 S.W.2d 543. We agree that some evidence supports the jury’s finding that the insurer violated its duty of good faith and fair dealing. In addition, we hold that there is no evidence that the insurer acted unconscionably or with malice. Because the latter holding eliminates the Nicolaus’ recovery of common-law exemplary damages, we remand this cause to the court of appeals to consider the Nicolaus’ entitlement to additional damages on statutoly grounds.
In the insurance claim giving rise to this dispute, loan and Liana Nieolau sought coverage for extensive foundation damage at their Corpus Christi home. The Nicolaus’ homeowners policy, issued by State Farm Lloyds, generally excludes losses caused by “inherent vice,” or by “settling, cracking, bulging, shrinkage, or expansion of foundations.” Under an express exception, however, these exclusions do not apply to losses caused by an “[ajccidental discharge, leakage or overflow of water” from within a plumbing system.
The Nicolaus first experienced foundation problems in 1984, when cracks appeared in their walls. Unaware that the problems might be attributable to a plumbing leak and thus covered under their policy, the Nicolaus did not, at that time, file a claim. Instead, they hired Michael Krismer, a foundation repair contractor, to inspect the house. On his recommendation, they also engaged Dexter Bacon, a structural engineer with Maverick Engineering. After examining the house, Krismer and Bacon concluded that the ongoing drought that year — combined with four mesquite trees in the Nicolaus’ front yard — ■ was drying the soil under the front part of the house, causing the front of the house to sink. To prevent further downward movement, Krismer installed a series of concrete piers beneath the front of the house and part of the sides.
In 1986, the Nicolaus again noticed cracks in the interior and exterior of the house. Krismer again inspected the house but concluded that the cracks were insignificant. Krismer and Bacon both inspected the house again in 1988. Bacon determined that the piers installed in 1984 were providing adequate support. Krismer inspected the house once again in June 1989, and likewise concluded that the piers were continuing to function. Not yet realizing that they had a problem that might be covered under their insurance policy, the Nicolaus still did not file a claim.
In late 1989, however, Krismer became alarmed by additional foundation movement at the Nieolau home. One set of elevations indicated that the back of the house was five inches higher than the front. In Krismer’s words, the rear end of the house appeared to be “digging up out of the ground.” There was significant cracking in the sheetrock and exterior brick, and doors and cabinets were not closing properly.
At Krismer’s request, Bacon reexamined the house. Bacon realized there was a problem and referred the matter to Fred Hayden, *447a licensed civil engineer with Maverick Engineering. Krismer, Bacon, and Hayden together determined that the problem was with swelling of the soil at the back of the house rather than contraction of the soil at the front of the house. For that reason, they decided to test for leaks in the drainline system under the foundation. Such leaks, they reasoned, could be causing expansion of the clay soil under the rear of the house. Initial testing indicated that there was a significant leak in the plumbing system.
Realizing for the first time that their homeowners’ policy might cover their foundation problems, the Nicolaus filed a claim with State Farm in February 1990. State Farm referred the claim to Monty R. Murray, an adjuster with ABJ Adjusters, Inc. Murray provided an initial report to State Farm in late February 1990 and a second report in March. Both reports expressed doubts that the leak was responsible for the foundation damages, because the leak was located toward the front rather than the back of the house.
In late March, at Krismer’s request, Maverick Engineering provided the Nicolaus with a report based on its investigation and testing. The Nicolaus gave the report to Ralph Cooper, State Farm’s claims superintendent. The report stated that the water from the plumbing leak may have flowed along the plumbing lines and trenches and may have caused the rear of the house to heave.
After receiving the Maverick report, Cooper, on behalf of State Farm, notified the Nicolaus that he wanted to obtain a second opinion on the origin and extent of their damages. For that purpose, Cooper authorized ABJ Adjusters to obtain a report from Haag Engineering Company.
Two Haag engineers examined the Nico-laus’ house. They provided Cooper with a report concluding that the reported sewer line leak did not significantly affect the foundation. Cooper forwarded the report to the Nicolaus, together with a letter reserving State Farm’s rights to deny coverage.
A month later, after receiving an estimate from Michael Krismer, State Farm notified the Nicolaus that State Farm was denying most of the coverage sought. State Farm did reimburse the Nicolaus $1,820.50 for expenses incurred in locating and repairing the leak, but rejected the Nicolaus’ claim for $102,200 for further piering or leveling of the foundation. Cooper explained in a letter that State Farm felt the Haag Engineering report was correct: that the foundation damage was not related to the water leak but was instead caused by inherent vice or by settling problems, both of which were not covered.
The Nicolaus then obtained a report from Trinity Engineering Testing Corporation (Tetco) prepared by Chien Fu, a licensed professional engineer with a master’s degree in geotechnical engineering specializing in soils analysis and foundation reports. Based on soil samples taken at the house, Fu concluded that the plumbing leak had allowed water to travel great distances through the cushion sand layer, causing a widespread wet condition in the soils. The Nicolaus forwarded the Tetco report to Cooper.
Cooper then notified the Nicolaus that he and Haag Engineering had reviewed the Tet-co materials. The Haag engineers had reported that Tetco’s conclusions were unfounded, and that the opinions stated in Haag’s initial report remained unchanged. Cooper agreed with Haag and stated that State Farm was adhering to its denial of the Nicolaus’ claim.
The Nicolaus then sued State Farm, asserting breach of contract and several extra-contractual claims based on State Farm’s conduct. At trial, the jury found that State Farm had breached its insurance contract, engaged in an unfair or deceptive act or practice, maliciously breached its duty to deal fairly and in good faith, and knowingly engaged in an unconscionable action. The jury awarded the Nicolaus $102,200 in policy benefits owed for necessary repairs to their home; $50,000 for mental anguish suffered in the past; $300,000 in punitive damages; and attorney’s fees of either forty percent or $150,000.
The trial court chose to disregard all of the jury’s findings except those relating to breach of contract, amount of loss, and attorney’s fees. After subtracting the amount State Farm had already paid for plumbing *448repairs, the trial court rendered judgment for the Nicolaus for $100,380, plus attorney’s fees and interest.
The court of appeals affirmed the trial court’s judgment on the breach of contract finding. 869 S.W.2d at 555. However, in all other respects, the court of appeals reversed the trial court’s judgment and rendered judgment for the Nicolaus in accordance with the jury’s findings. Id.
I. Bad faith
In an opinion also issued today, we clarified the standard for imposing liability for a breach of the duty of good faith and fair dealing. See Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 54 (Tex.1997). We held in Giles that an insurer breaches its duty when the insurer fails to settle a claim if the insurer knew or should have known that it was reasonably clear that the claim was covered. Giles, 950 S.W.2d at 56. This ease was submitted in accordance with the bad-faith standard established in Arnold v. National County Mutual Fire Insurance Co., 725 S.W.2d 165 (Tex.1987). Under Arnold, an insurer breaches its duty of good faith and fair dealing if the insurer denies a claim with no reasonable basis. Id. at 167. There is some evidence in the record in this case to sustain a bad-faith finding under either formulation of the standard.
Here, State Farm argues that the Haag Engineering reports conclusively establish that it did not act in bad faith in denying the Nicolaus’ claim. Those reports, prepared by licensed engineers, conclude that a water leak did not cause the damage to the Nicolaus’ foundation. Because State Farm based its denial on these reports in the dispute over coverage of the Nicolaus’ claim, State Farm argues that any liability for bad faith is foreclosed as a matter of law.
We have recognized that evidence showing only a bona fide coverage dispute does not, standing alone, demonstrate bad faith. Transportation Ins. Co. v. Moriel, 879 S.W.2d 10, 17 (Tex.1994) citing National Union Fire Ins. Co. v. Dominguez, 873 S.W.2d 373, 376-77 (Tex.1994). But we have never held that the mere fact that an insurer relies upon an expert’s report to deny a claim automatically forecloses bad faith recovery as a matter of law. Instead, we have repeatedly acknowledged that an insurer’s reliance upon an expert’s report, standing alone, will not necessarily shield the carrier if there is evidence that the report was not objectively prepared or the insurer’s reliance on the report was unreasonable. Lyons v. Millers Casualty Ins. Co., 866 S.W.2d 597, 601 (Tex.1993); Dominguez, 873 S.W.2d at 377.
Courts of appeals have likewise held, in similar circumstances, that evidence casting doubt on the reliability of the insurer’s expert’s opinions may support a bad-faith finding. See State Farm Fire and Cas. Co. v. Price, 845 S.W.2d 427, 436-38 (Tex.App.— Amarillo 1992, writ dism’d by agr.); Guajardo v. Liberty Mut. Ins. Co., 831 S.W.2d 358, 364-65 (Tex.App.—Corpus Christi 1992, writ denied).
In this case, the Nicolaus presented evidence from which a fact-finder could logically infer that Haag’s reports were not objectively prepared, that State Farm was aware of Haag’s lack of objectivity, and that State Farm’s reliance on the reports was merely pretextual. Accordingly, there is some evidence that State Farm denied the claim without a reasonable basis or without attempting to objectively determine whether its liability had become reasonably clear. See Giles, 950 S.W.2d at 56; Lyons, 866 S.W.2d at 601. David Teasdale, a Haag engineer since his graduation from college in 1985, provided evidence that a substantial amount of Haag’s work is done for insurance companies; Teasdale estimated that eighty to ninety percent of his work consisted of investigations for insurance companies. He also testified that he was aware that an insurance company would be required to pay if a policyholder’s home were damaged by a leak.
Furthermore, the evidence supports a logical inference that State Farm obtained the reports from Haag Engineering because of Haag’s general view that plumbing leaks are unlikely to cause foundation damage. State Farm’s claim superintendent, Ralph Cooper, testified that he was aware of Haag’s view when he requested the first report:
*449Q: Okay. Did you know that Haag had a general opinion about leaks underneath houses?
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A: I knew that they were of the general opinion that a localized leak beneath the house would not cause foundation damage as a general rule. Sometimes they felt it would, sometimes they felt it wouldn’t.
Q: And you knew that before you hired Haag?
A: Yes, I did.
Cooper’s testimony was reinforced by Savannah Robinson, the Nicolaus’ attorney, who initially testified only about attorney’s fees. Under cross-examination, Robinson acknowledged that she had occasionally represented State Farm in the past. Robinson testified without objection that it was a “fair inference” that Cooper, whom she knew, hired Haag because he was aware that Haag, as a general rule, would not agree that a leak caused foundation damage.
Standing alone, this evidence would not always be evidence of bad faith. All experts presumably have certain general views and expertise, and an insurer’s mere awareness of such views is not necessarily an indication of bad faith. Taken together with the evidence outlined below, however, it does provide more than a scintilla of evidence from which the jury could logically infer that State Farm did not reasonably rely on Haag’s report to deny the Nicolaus’ claim.
The Nicolaus’ foundation repair contractor, Krismer, testified that he had reviewed eighty or ninety Haag reports in the local area. He knew of only two instances in which a Haag report concluded that a leak contributed to foundation movement. He further testified that, to his knowledge, neither of the two Haag engineers who reached that conclusion ever again worked on another case involving a slab foundation like the Ni-colaus’.1
Krismer’s testimony was corroborated by Robinson. Robinson testified that she was aware of only two instances in which Haag engineers had attributed foundation damage to a leak and that “the engineers who wrote those reports were never seen from [sic] again.”
There was also evidence that State Farm, and the engineers on which it relied, did not conduct an adequate investigation. Krismer testified that the Haag report was based on inadequate information. He said the failure of State Farm and Haag Engineering to examine the leaking pipe, take core samples, and perform other tests was unreasonable. Brock Thomas, a licensed insurance adjustor, testified about an insurer’s obligations when presented with a claim. He offered his opinion that State Farm was obligated to frilly investigate the claim and that the company had not done so. Thomas agreed that the investigators should have examined the leak and taken soil samples. Moreover, Cooper admitted that the Haag engineers had not seen the leaking pipe or taken any soil samples when they concluded that the leak did not cause the foundation damage. He also admitted that he did not contact Maverick Engineering to obtain further information after Maverick concluded that the leak may have caused the foundation damage.
Some evidence also indicates that State Farm knew, when it denied the Nicolaus’ claim for the second time, that the Haag report did not justify denying the claim. The Tetco report, which the Nicolaus provided to State Farm after State Farm initially denied the claim, discussed the moisture content of soil samples taken from four locations within the Nicolaus’ house. State Farm referred the Tetco report, which had found that water from the leak had spread throughout the soils underlying the Nicolaus’ foundation, to the same Haag engineers who had prepared the initial report. There is no indication that the Haag engineers did any further testing in response to the Tetco report or that State Farm conducted any further investigation before denying the claim a second time.
*450Other evidence also called into question the accuracy of the Haag reports on which State Farm relied. The second Haag report asserted that the soil moisture content discussed in the Teteo report should not be considered high. Three of the Nicolaus’ experts strongly disagreed with this conclusion, and even State Farm’s own expert, Frelon Wiley, testified that he disagreed with it. The Haag report also suggested that the water Tetco’s engineer had observed — which had flowed upward through a hole in the foundation for three to five minutes — could be explained as condensation that had accumulated naturally. Krismer testified that this suggestion was “the most ridiculous thing I’ve ever heard.” Thomas Petrie, an expert called by State Farm, agreed that the suggestion was unreasonable.
Were we the trier of fact in this ease, we may well have concluded that State Farm did not act in bad faith. That determination is not ours to make, however. Instead, the Constitution allocates that task to the jury and prohibits us from reweighing the evidence, as the dissent does. See Tex. Const. art. I, § 15 and art. Y, § 10; art. V, § 6. Accordingly, viewing the evidence in the light most favorable to the Nicolaus, we hold that there is some evidence to support the jury’s finding that State Farm denied the Nicolaus’ claim in bad faith.
II. Malice
State Farm also argues that the court of appeals erred by reinstating the jury’s malice finding, because there is no evidence that State Farm’s conduct had a reasonable probability to result in human death, great bodily harm, or property damage. We agree.
When the parties tried this case, the statutory definition of “malice” included the following:
(A) conduct that is specifically intended by the defendant to cause substantial injury to the claimant; or
(B) conduct that is carried out by the defendant with a flagrant disregard for the rights of others and with actual awareness on the part of the defendant that the act will, in reasonable probability, result in human death, great bodily harm, or property damage.
Tex. Civ. PRAC. & Rem.Code § 41.001(6).2 The instruction accompanying the “malice” question in this case tracked part (B) of the statutory definition. The Nicolaus did not object to the omission of any language from part (A) and have not made any such complaint on appeal. Nor have the Nicolaus suggested that State Farm’s conduct was likely to result in human death or great bodily harm. Thus, to establish malice, the Nicolaus had to present evidence that State Farm was actually aware that its conduct would, in reasonable probability, result in property damage.
In support of the jury’s finding, the Nico-laus point out that they were greatly inconvenienced by living with a hole in the hallway of their home for over five months. The Nicolaus’ homeowners’ policy provided for “additional living expenses” if the house became unlivable due to a covered loss, but the Nicolaus assert that State Farm never brought this provision to their attention. The fact that State Farm did not advise the Nicolaus that they might be entitled to additional living expenses is no evidence, however, that State Farm’s denial of the Nicolaus’ foundation damage claim caused or threatened to cause property damage to the Nico-laus’ home.
The Nicolaus also assert that State Farm’s conduct forestalled any effort to make permanent repairs to the foundation, resulting in a significant loss in the house’s property value. But the damage to the Nicolaus’ foundation was caused by a plumbing leak, which State Farm paid to repair. There is no evidence that State Farm’s denial of the Ni-colaus’ foundation damage claim caused any additional property damage once the leak was repaired. The Nicolaus cite no other *451evidence that establishes that State Farm’s denial of the claim caused or threatened to canse property damage. Therefore, under the plain language of section 41.001(6)(B), the malice finding cannot stand.
III. Unconscionabiliiy
In addition to finding that State Farm acted with malice, the jury also found that State Farm knowingly engaged in an unfair or deceptive act or practice, as well as an unconscionable action or course of action. These findings, if supported by evidence, would allow the Nicolaus to recover additional damages under section 17.50 of the Texas Deceptive Trade Praetices-Consumer Protection Act (DTPA), Tex. Bus. & . Com.Code §§ 17.41-.63.
The only DTPA findings the court of appeals reached were the findings that State Farm engaged in unconscionable conduct that was a producing cause of damages to the Nicolaus. The court of appeals upheld these findings, reasoning that there was a gross disparity between the premiums the Nicolaus paid and the value they received. 869 S.W.2d at 554. State Farm argues that the court of appeals erred in reinstating the findings because there is no evidence that State Farm acted unconscionably. We agree.
The DTPA defines unconscionable action as
an act or practice which, to a person’s detriment:
(A) takes advantage of the lack of knowledge, ability, experience, or capacity of a person to a grossly unfair degree; or
(B) results in a gross disparity between the value received and consideration paid, in a transaction involving transfer of consideration.
Tex. Bus. & Com.Code § 17.45(5). We have previously held that the term “gross,” as used in this section, means “glaringly noticeable, flagrant, complete and unmitigated.” Chastain v. Koonce, 700 S.W.2d 579, 583 (Tex.1985).
In support of the jury’s findings, the Nico-laus rely on testimony from Mr. Nicolau that State Farm should have conducted a more thorough investigation and should have told him about the insurance policy’s provision for additional living expenses. The record, however, provides no support for the conclusion that State Farm took advantage of the Nico-laus to a grossly unfair degree. Mr. Nicolau testified that he was aware of the policy’s provisions about foundation settlement and leaks when the claim was first made. Additionally, as mentioned previously, State Farm agreed to pay for the Nicolaus’ plumbing repairs. State Farm also agreed to pay for the tests the Nicolaus arranged, including the report provided by Maverick Engineering and the plumbing tests. Considering this evidence, as well as the continual exchange of information between State Farm and the Ni-colaus, there is no basis for concluding that State Farm took advantage of the Nicolaus to the degree that the resulting unfairness was glaringly noticeable, flagrant, complete, and unmitigated.
There is also no evidence that State Farm acted unconscionably because of an act that resulted in a gross disparity between the value the Nicolaus received and the consideration they paid. Although State Farm refused to pay the Nicolaus’ claim for foundation repairs, it did pay for the plumbing repairs and investigative costs after the leak was discovered. There is no evidence that the disparity between what the Nicolaus paid for insurance and the amounts they received under the policy was “glaringly noticeable, flagrant, complete and unmitigated.” Chas-tain, 700 S.W.2d at 583.
IY. Jury charge
State Farm next argues that the trial court reversibly erred in submitting the breach of contract question to the jury, because the court’s charge did not include instructions about the specific terms of the insurance contract. We disagree.
Rule 277 of the Texas Rules of Civil Procedure requires a trial court to submit “such instructions and definitions as shall be proper to enable the jury to render a verdict.” This rule, we have recognized, affords the trial court considerable discretion in deciding what instructions are necessary and proper in submitting issues to the jury. Mobil *452Chem. Co. v. Bell 517 S.W.2d 245, 256 (Tex. 1974).
Here, the trial court refused the instruction only after confirming that the policy itself was in evidence. Other circumstances also indicated that additional instructions were unnecessary. The relevant exclusions were presented to the jury in an exhibit and were discussed at length. Moreover, there was no dispute about the meaning of the policy’s terms; State Farm’s own claims superintendent acknowledged that the Nico-laus’ policy would cover any foundation settlement caused by a plumbing leak.
The jury’s findings demonstrate that its understanding of the policy was consistent with State Farm’s explanation of the policy’s terms. The jury found, in its answer to question 8A, that plumbing leakage caused $102,200 in damages to the Nicolaus’ home. The jury also found, in its answer to question 8(a), that State Farm owed the Nicolaus policy benefits of $102,200 for necessary repairs to their home.
We conclude, therefore, that the trial court did not abuse its discretion by refusing the instruction.
V. Remand for consideration of new evidence
At trial, State Farm interrupted the presentation of its evidence with a motion based on newly discovered evidence. Outside the presence of the jury, State Farm informed the court that additional plumbing tests had just been completed at the Nicolaus’ house, resulting in the discovery of another large leak. State Farm requested that the trial court either stay the proceedings to allow additional testing or declare a mistrial. The trial court did not grant the motion. Instead, the court proceeded with the trial after receiving assurances from the Nicolaus’ counsel that she would instruct their witnesses not to mention the new testing, and that she would not use the exclusion of the new evidence as a basis for appeal.
After the trial court rendered its judgment, State Farm moved for a new trial on the basis of the new evidence. The trial court declined to rule on this issue on the basis of Rule 324(c) of the Texas Rules of Civil Procedure, which allows postponement of an evidentiary hearing until after remand from an appellate court.3
State Farm now argues that the court of appeals erred in failing to remand this case for consideration of the motion for new trial based on the new evidence. We disagree, because State Farm has not shown any likelihood that the new evidence, if introduced at trial, would have resulted in a different verdict on any of the Nicolaus’ claims.
On the issue of contractual liability, the evidence tends to provide additional support for the jury’s finding that State Farm breached the insurance contract. The Nico-laus’ policy undisputedly provides coverage for damage caused by plumbing leaks, so the existence of an additional leak only strengthens the Nicolaus’ claim for coverage.
Likewise, on the issue of bad faith, the evidence tends to lend additional support to the jury’s determination that State Farm breached its duty of good faith and fair dealing. At least two of the Nicolaus’ witnesses testified that State Farm should have conducted further testing, such as taking soil samples, before concluding that the foundation damage was not caused by plumbing leaks. The Nicolaus’ witnesses also criticized State Farm’s conclusion, based on the Haag engineers’ second report, that the moisture levels below the house should not be considered abnormally high. The new evidence supports the Nicolaus’ position in both respects; it suggests that additional testing might well have established that the foundation damage was a covered loss and that the moisture levels were abnormally high.
*453We hold, therefore, that any error in the trial court’s action probably did not result in the rendition of an improper judgment, and thus is not reversible. See Tex.R.App. P. 81(b)(1).
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We conclude that the Nicolaus should recover on their bad faith claim. Because no evidence supports the jury’s finding of malice, however, the Nicolaus should not recover exemplary damages on that basis.
The Nicolaus may nonetheless be entitled to recover additional damages based on the jury’s findings that State Farm knowingly engaged in unfair or deceptive acts or practices. See Tex. Bus. & . Com.Code § 17.50. Accordingly, we affirm in part and reverse in part the judgment of the court of appeals and remand this cause to that court for review of these findings in light of State Farm’s previously asserted reply points and cross-points, which include factual insufficiency arguments.4
ENOCH, J., filed a concurring opinion.
HECHT, J., joined by PHILLIPS, C.J., GONZALEZ and OWEN, JJ., filed a dissenting opinion.

. The testimony of Krismer cited by the dissent is consistent with this evidence. Krismer acknowledged that two Haag engineers had found that a leak had caused foundation damage; thus, his testimony that it would not be true to say that "Haag only ... finds that there’s no relation between the leak and foundation movement” is not surprising.

. We note that the Legislature revised this definition in the last legislative session, and changed the paragraph number from (6) to (7). See Act of April 11, 1995, 74th Leg., R.S., ch. 19, § 1, 1995 Tex. Gen. Laws 108, 109. Preexisting law governs suits filed before the Act’s effective date. Id., § 2, at 113.

. The rale applies to a judgment non obstante veredicto or notwithstanding the findings of a jury on one or more questions, and provides in part:
The failure to bring forward by cross-points such grounds as would vitiate the verdict shall be deemed a waiver thereof; provided, however, that if a cross-point is upon a ground which requires the taking of evidence in addition to that adduced upon the trial of the cause, it is not necessary that the evidentiary hearing be held until after the appellate court determines that the cause be remanded to consider such a cross-point.

. Because the court of appeals’ decision may affect the amount of damages awarded, as well as the award of attorney’s fees, we do not reach State Farm’s argument that the court of appeals erred by awarding attorney’s fees on the entire amount of damages found by the jury.