Court Opinion

ID: 9832164
Source: CourtListenerOpinion
Date Created: 2023-09-01 21:41:00.24731+00
Date Added: 2024-06-11T07:43:43.347409
License: Public Domain

On Rehearing.
We have the following comments to make regarding Insurer’s motion for rehearing:
(1) The Commission’s description (in Stowers Furn. Co. v. American Indemnity Co., 15 S.W.2d 544, 547) of Insurer’s relation to Insured shows that the Commission rejected good faith as the test of Insurer’s liability in such a case as this. For the Commission said that the Insurer before them “by the very terms of the contract, assumed the responsibility to act as the exclusive and absolute agent of the assured in all matters pertaining to the questions in litigation, and, as such agent, it ought to be held to that degree of care and diligence which an ordinary prudent person would exercise in the management of his own business.”
In likening the Insurer to an agent, bound to satisfy the standard of care stated, the Commission obviously had in mind the rule of decision in this State whereby an agent is held liable to his principal for negligence (over and above bad faith) in conducting his principal’s affairs. Thus in Williams v. O’Daniels, 35 Tex. 542, after concluding that the defendant was to be treated as an agent, the court held: “With this view of the law of the case, we think the court did not err in the charges given to the jury, and especially — wherein the jury were instructed ‘that if, in the exercise of sound discretion, defendant used such diligence and care as a prudent man would have used with his own cotton, he would not be liable for its subseqaent loss.’ ” In Murrah v. Brichta, Tex.Sup., 9 S.W. 185, the agent, a layman who undertook to lend plaintiff’s money upon adequate security, was held liable for negligence regarding a settled point of law, his negligence having-resulted in loss to his principal. Section 379 (Sub-sec. 1) of the Restatement of Agency reads: “Unless otherwise agreed, a paid agent is subject to a duty to the principal to act with standard care and with the skill which is standard in the locality for the kind of work which he is employed to perform, and in addition, to exercise any special skill that he has.” And in Comment (c), page 840 it is said: “The rules stated in the Restatement of Torts defining the standard of conduct which, must be maintained to prevent conduct from being negligent are applicable, except so far as the agent, because of undertaking work involving superior knowledge or skill, is required to meet a higher standard.” The decisions cited above and those now to be listed show that the courts of this State, in determining an agent’s liability for negligence, have not been governed by the agent’s good faith'. They have, instead, inquired whether the agent had complied with the legal standard of conduct. See the following decisions: Van Velzer v. Houston Land & Trust Co., Tex.Civ.App., 16 S.W.2d 865; Yarborough v. Fulton, Tex.Civ.App., 78 S.W.2d 247, at page 250; Blondeau v. Sommer, Tex.Civ.App., 99 S.W.2d 668; 2 Tex.Jur. 601 (Sec. 188).
We adhere to our conclusion that due care and not good faith is the test of Insurer’s liability.
(2) Paragraphs 21 and 17 of the motion of rehearing express the argument that the question, whether Riley Alexander’s offer to settle should be accepted, was solvable only by a lawyer, and that our judgment necessarily implies a holding that the two lawyers who represented Insured on the trial of Alexander’s case were guilty of malpractice in advising that Alexander’s *932offer be refused. Further: (from paragraph 17) “Since appellant’s lawyer was at most only guilty of an honest mistake of judgment as to the course of the litigation, he could not be held guilty of malpractice or breach of any duty to appellant.”
It seems to us that a lawyer’s good faith in representing his client does not necessarily determine whether he is liable in damages to a client who has suffered injury from his acts. See: 5 Tex.Jur., 468, et seq., Sections 60, 61 and 62.
However, whether the lawyers who defended Insured and who advised Insurer not to accept Alexander’s offer of settlement were, or were not, liable to Insured is not material.
If these lawyers are not to be treated as Insurer’s agents, then at the bottom of the argument made in paragraphs 21 and 17 is a proposition that Insurer had the absolute right to follow the opinion of these lawyers, and that Insurer need not make inquiry concerning the grounds of that opinion, nor form any independent judgment concerning the grounds of that opinion.
This would reduce Insurer’s obligation to the employment of competent lawyers to defend Insured, and would abrogate the duty and the standard of care imposed upon Insurer by the Commission’s opinion in the Stowers case.
The result of such a conclusion is but to shift to the lawyers defending Insured a responsibility which actually rests upon Insurer. For its own purposes, and in return for a compensation which presumably bore some relation to the total risk run, Insurer assumed control of Insured’s defense; and the responsibility incidental to that control must remain with Insurer.
If the lawyers are to be treated as agents of Insurer, we note that regarding the liability of an agent for a sub-agent’s acts, Section 406 of the Restatement of Agency states: “Unless otherwise agreed, an agent is as responsible to the principal for the conduct of a sub-agent with reference to the principal’s affairs intrusted to the sub-agent as the agent is for his own conduct; and as to other matters, as a principal is for the conduct of an agent.” Comment (b) under Section 406 states: “Since the agent is the sub-agent’s principal and, as between himself and the ultimate principal, is primarily responsible for the subagent’s conduct, he is as liable to the ultimate principal as is any other principal for the conduct of an agent. Thus, he is subj ect to liability to the principal for damages caused to the principal by the negligence of the subagent in conducting the affairs of the principal, or for his misrepresentations because of which the principal is made liable or because of which a contract is avoided.”
Responsibility for Insured’s defense rested upon Insurer not upon Insurer’s agents. The judgment which was to be formed in determining whether Insurer would accept Alexander’s offer was Insurer’s judgment, not 'the judgment of the lawyers who defended Insured and advised Insurer; and the authorized and responsible officer of Insurer, whose duty it was to form Insurer’s judgment was charged with the necessity of exercising some degree of independence in forming that judgment. That this may have required some knowledge of the law is no defense to Insurer; instead, it simply put Insurer to the burden of seeing that this officer had the requisite knowledge.
This, of course, brings us back to the duty and the standard of care declared in G. A. Stowers Furniture Co. v. American Indemnity Co., Tex.Com.App., 15 S.W.2d 544. We adhere to our conclusion that the evidence supports the jury’s findings.