Court Opinion

ID: 9759780
Source: CourtListenerOpinion
Date Created: 2023-08-29 00:27:45.428438+00
Date Added: 2024-06-11T07:29:04.604580
License: Public Domain

RICKHOFF, Justice,
concurring and dissenting.
As noted by Justice David Peeples in the panel opinion previously issued in this cause, “[t]he salient issue in this excess-judgment case is whether under Texas law an adjudicated defamer (appellee Curtis Robert) may profit from his defamation by recovering millions of dollars from his liability insurer (appellant State Farm).” While we concur with the majority’s reversal and rendition of judgment as to Robert’s insurance code and breach of duty of good faith and fair dealing claims, we respectfully dissent from the remainder of the majority’s judgment and, instead, would render a take-nothing judgment against both Maldonado and Robert as to all claims. Specifically, we cannot agree that Maldonado was entitled to recover contractual damages under the policy because: (1) there is no evidence that Robert was unaware of the falsity of his defamatory statements; (2) there is no evidence of an actual trial of the underlying defamation claim; and (3) there is no evidence of damages. In addition, we disagree with the majority’s conclusion that the evidence was sufficient to support the jury’s finding that State Farm negligently failed to settle Maldonado’s claims against Robert because: (1) there is no evidence of a settlement demand within policy limits; and (2) there is no evidence of damages.
Robert had been a well-regarded CPA who became terminally ill with a disease that *822affected his nervous system. Fearing death, Robert began ingesting excessive doses of medication in a desperate search for a cure. Other distinguished community leaders, like Judge Canales and his wife, were unaware of Robert’s condition. They heard the unusual comments by Robert that Maldonado, his former bookkeeper, was a thief and a whore, along with outrageous remarks, like his threatening to machine-gun everyone at the Brooks County courthouse. Apparently, the out-of-character threat made the slander suspect to some, but not to all.
Maldonado consulted a lawyer, who agreed to represent her in suing the then terminally-ill Robert for the statements he made about her in exchange for forty-five percent (45%) of her recovery. They sued Robert for making the defamatory statements in bad faith and with malice and for intentionally and negligently causing Maldonado mental distress.
State Farm hired an attorney, Roland Leon, to defend Robert; however, State Farm told Robert there were questions as to whether his policy provided coverage for his statements. Specifically, they questioned whether the statements arose out of Robert’s business and were made with knowledge of their falsity. Nevertheless, State Farm explained that Robert was required to cooperate with Leon, and any settlement without State Farm’s consent or an agreed judgment entered into by Robert would violate the terms of the insurance policy and result in Robert losing coverage.
Leon told Robert from the outset that his policy limit was $300,000. Leon later advised Robert that he should consult his own personal attorney after Maldonado made a settlement demand for $1.3 million, $1 million more than the potential policy coverage.
On November 11, Maldonado’s attorney gave Leon four (4) days to respond to his written demand for $1.3 million. In order to authorize the payment of the policy limits in this case, State Farm had a process for review which ultimately required approval of an Austin credit committee’s recommendation by State Farm representatives in its home office in Bloomington, Illinois. All requests by State Farm for an extension of this deadline were summarily denied.
On November 15, minutes after the deadline passed, Leon, Robert’s personal attorney and Maldonado’s attorney made a deal.1 Robert was required to pay $1 million of his own money to Maldonado in return for her agreement not to levy against any of Robert’s personal assets other than any proceeds he recovered from State Farm in excess of $1 million. Robert further agreed to pay Maldonado one-half of any such proceeds recovered from State Farm which exceeded $1 million up to an amount equal to the judgment entered against him.
More importantly, the agreement between Robert and Maldonado was contingent upon the entry of a judgment for Maldonado against Robert. So, Robert’s personal attorney, Leon and Maldonado’s attorney went before a judge to prove up Maldonado’s claim. Not surprisingly, the trial court found Robert’s statements were slanderous and awarded Maldonado $2 million in damages.
Using this judgment against Robert as a stepping stone, Maldonado and Robert then brought the action from which this appeal is taken against State Farm seeking recovery for negligence and gross negligence, violations of the Insurance Code, breach of contract and breach of the duty of good faith and fair dealing. After a jury trial, the trial court rendered a judgment awarding Maldonado $1,536,355.70 plus three times the interest on the prior judgment dating from September 18, 1992, until State Farm pays the policy limit of $300,000. The judgment awarded Robert $6,156,355.92.
A. CONTRACTUAL COVERAGE
1. KNOWLEDGE OF FALSITY OF STATEMENTS
As the majority states, the policy in the instant case excludes coverage for personal *823injury arising out of the publication of slanderous statements if done by the insured with knowledge that the statements were false. In determining the evidence to be legally sufficient to support the finding that Robert did not have knowledge of the falsity of his statements, the .majority infers that Robert’s perception and judgment were, distorted from the evidence that Robert was ingesting excessive doses of medication. Based on this first inference, the majority then further infers Robert did not make the statements with knowledge of their falsity. The only other evidence to support the finding that Robert did not have knowledge of the falsity of his statements in the instant case was the trial court’s finding regarding that issue in the underlying defamation suit.
Neither the stacked inference nor the trial court’s finding in the underlying suit, however, constitutes legally sufficient evidence. We will address each item of evidence separately.
a. Stacking of Inferences
The stacking of inferences is not permissible under a no evidence review. See generally Calvert, “No Evidence” and “Insufficient Evidence” Points of Error, 88 Tex. L. Rev. 361, 365 (1960); see also W. Wendell Hall, Revisiting Standards of Review in Civil Appeals, 24 St. MARY’S L.J. 1041, 1134-35 (1993). The basis for this rule is the imper-missibility of establishing a vital fact by piling inference upon inference. Schlumberger Well Surveying Corp. v. Nortex Oil & Gas Corp., 435 S.W.2d 854, 858 (Tex.1968). “Facts upon which an inference may legitimately rest must be established by direct evidence, as if they were the facts in issue.” Texas Sling Co. v. Emanuel, 431 S.W.2d 538, 541 (Tex.1968) (citing Fort Worth Belt Ry. v. Jones, 106 Tex. 345, 166 S.W. 1130 (1914)); see also Rounsaville v. Bullard, 154 Tex. 260, 276 S.W.2d 791, 794 (1955).
The majority infers from the evidence that Robert was ingesting excessive doses of medication and acting out-of-charaeter that his perception and judgment were distorted by the medication. The majority then infers that this distortion in perception and judgment prevented Robert from realizing the falsity of his statements. This is inference stacking in violation of the aforementioned rule and does not support a finding that Robert was unaware that his statements were false.2
b. Trial Court Finding in Underlying Judgment
The second item of evidence the majority relies upon to support their conclusion that the evidence was legally sufficient to show an absence of knowledge of falsity was the trial court’s finding in the underlying defamation action. This evidence, however, should not be considered in light of the Texas Supreme Court’s recent decision in State Farm Fire & Cos. Co. v. Gandy, 925 S.W.2d 696 (1996).
In Gandy, the Texas Supreme Court without dissent discussed the dangers arising from arrangements between plaintiffs and insured defendants such as covenants not to execute. Id. at 711-13. First, the Court noted that such arrangements did not end the litigation but actually prolonged it. Id. at 711-12. Litigation is prolonged because the entire purpose of such arrangements is to find a means to recover against the insurer. Id. This danger clearly resulted from the arrangement in the instant ease which expressly contemplated additional litigation against State Farm and provided for a division of any proceeds recovered therefrom.
. A second concern expressed by the Court in Gandy regarding these types of arrangements is their tendency to distort the litigation that follows. Id. The settlement provides a disincentive for the insured to protect his position in the underlying action and, in some instances, results in a complete shifting of positions. Id. at 711-13. In the instant case, Leon was relegated to the role of a passive observer at the underlying trial in his *824efforts to protect his absent client’s interest. No mitigating evidence as to Robert’s illness was presented nor was Robert called upon to testify, as he did in the instant case, that he either never made such statements or he does not recall making such statements because they were not true. Thus, the arrangement between Maldonado and Robert distorted the judgment rendered in the defamation action by creating a disincentive to Robert’s presentation of the best case possible to defend against the claims.
Finally, the Court in Gandy expressed a concern that these types of arrangements permit parties to take positions that appear contrary to their natural interests for no other reason than to obtain a judgment against the insurer. Id. at 712-13. Thus, the parties collude in a directed effort to take advantage of the insurer, and “the result is worse than if the parties had not settled.” Id. at 714; see also Employers Natl Ins. Co. v. Dalros, 1994 WL 81435, at 11 (Tex.App.—San Antonio Mar. 14, 1994) (Rickhoff, J., dissenting) (discussing failure to treat insurers as equal litigants and unfairness in imposing greater burdens on insurers).
Assuming the majority is correct in their footnote reference to Gandy that State Farm did not preserve the issue as to the validity of the arrangement under public policy considerations, this does not entitle the majority to ignore the Texas Supreme Court’s unanimous decision in Gandy and all of its implications. The Court in Gandy repeatedly announced its concerns regarding these types of arrangements and their pernicious effect on an underlying judgment, and these policy statements cannot and should not be ignored. See id. at 711-13 Apart from announcing the test applicable in determining the validity of such arrangements, the Court in Gandy also held that “in no event, however, is a judgment for plaintiff against defendant, rendered without a fully adversarial trial, binding on defendant’s insurer or admissible as evidence of damages in an action against defendant’s insurer by plaintiff as defendant’s assignee.” Id. at 714. Furthermore, the Court expressly disapproved “the contrary suggestion in dicta in Employers Casualty Company v. Block, 744 S.W.2d 940, 943 (Tex.1988), and United States Aviation Underwriters, Inc. v. Olympia Wings, Inc., 896 F.2d 949, 954 (5th Cir.1990).” Id.
While the majority concedes the trial court’s finding was not binding, it must rely on that finding in order to conclude the evidence is legally sufficient to support the jury’s finding that Robert did not know his statements were false at the time he made them.3 Given the considerations announced in Gandy, the majority’s reliance is misplaced. While Gandy only directly addresses the admissibility of the judgment as evidence of damages, we are equally convinced that the Texas Supreme Court would extend the rule to trial court findings where the underlying trial was not fully adversarial and the insurer was prevented from presenting evidence to counter such a finding. Therefore, we would hold that there was no evidence that Robert was unaware of the falsity of his statements.
2. ACTUAL TRIAL
The majority also contends the evidence was legally and factually sufficient to support the jury’s implied finding of an actual trial. This implied finding was necessary because the policy provided State Farm could only be sued to recover the underlying judgment if it was obtained after an actual trial. In support of its conclusion, the majority relies on the fact that “Robert and Maldonado appeared before the district judge together with their attorneys” and “evidence was presented to the court in regard to liability and damages through the deposition of four witnesses and live testimony of two witnesses.”
The majority is correct in their brief synopsis of the trial events. Maldonado’s attorney introduced the deposition testimony of Judge Canales, his wife and the county auditor (Maldonado’s supervisor) regarding Robert’s statements. In addition, Maldonado’s former employer, a CPA, testified that Maldonado could have been damaged by at least $2 million. Maldonado also testified it would take at least $2 million to compensate her. *825This synopsis does not, however, take into account what did not occur.
No objections were made, no cross-examination was undertaken, and no defense was presented. Indeed, Leon testified he requested Robert not to be present at the trial and took no action because he was afraid Robert’s presence or any action on his part could have jeopardized the agreement with Maldonado. In fact, if Leon had presented evidence, the court might have concluded that Robert was not competent to agree to pay such a large sum to Maldonado or, at the very least, that his illness mitigated the recoverable damages.4 See Eidinojf, 321 S.W.2d at 371.
The most determinative feature of this “trial” was the trial court’s refusal to allow State Farm to intervene in the suit. As a result, State Farm’s attorney was expressly denied permission to cross-examine any witnesses. Thus, Leon refused to cross-examine, and State Farm’s attorney was prevented from doing so.
Although the Texas Supreme Court in Gandy did not expressly hold that for purposes of determining coverage in these types of cases an actual trial means a fully adversarial trial, this can be implied from the Court’s decision. As the Court concluded, an insurer’s liability should be litigated on the strength of the plaintiffs claims as the insured’s assignee rather than on the generosity of the defendant insured’s concessions. Gandy, 925 S.W.2d at 719. Leon admitted that the underlying judgment in the instant case did not result from an adversarial situation. This is supported by the absence of objections, the absence of cross-examination, and the insured’s failure to present a defense or any mitigating evidence. Therefore, we would conclude that there is no evidence to support the jury’s finding that there was an “actual trial,” which is implicitly defined by the Texas Supreme Court in Gandy to mean a fully adversarial trial. See also Emscor Mfg., Inc. v. Alliance Ins. Group, 879 S.W.2d 894, 908 (Tex.App.—Houston [14th Dist.] 1994, writ denied) (judgment following actual trial contemplates more than “prove up” or “friendly suit”); Wright v. Allstate Ins. Co., 285 S.W.2d 376, 379-80 (Tex.Civ.App.—Dallas 1956, writ ref'd n.r.e.) (actual trial presupposes contest of issues).
3. EVIDENCE OF DAMAGES
With respect to State Farm’s second point of error, the majority holds “State Farm is bound by the damages recited in the underlying judgment, which judgment in this case is not a consent judgment but was the result of an actual trial.” In Gandy, the Texas Supreme Court expressly held that “in no event, however, is a judgment for plaintiff against defendant, rendered without a fully adversarial trial, binding on defendant’s insurer or admissible as evidence of damages in an action against defendant’s insurer by plaintiff as defendant’s assignees.” Id. at 717. In addition, the Court disapproved the dicta in Block, 744 S.W.2d at 943, wherein it was held that the insurer was “barred from collaterally attacking the agreed judgment by litigating the reasonableness of the damages recited therein.” Id. Since there was no evidence presented on the issue of damages other than the underlying judgment, which the Court held inadmissible as evidence in Gandy, we would hold the evidence to be legally insufficient to support the jury’s damage finding.
B. STOWERS ACTION
1. NO DEMAND WITHIN POLICY LIMITS
As the majority correctly recites, one of the prerequisites to the imposition of a duty to settle under Stowers5 is a demand within policy limits. Texas Farmers Ins. Co. v. Soriano, 881 S.W.2d 312, 314 (Tex.1994). The majority contends that everyone under*826stood Maldonado’s offer to settle for $1.3 million as bifurcated, requiring State Farm to pay its policy limits of $300,000 and Robert to personally pay the other $1 million. Even accepting the majority’s presumption that everyone understood this from the record before us, the demand was nevertheless for $1.3 million, which exceeds the policy limits by $1 million. The fact that Robert individually agreed to pay $1 million to Maldonado does not convert the $1.3 million demand into a demand within policy limits. Moreover, Robert’s agreement to pay $1 million was not effected until after Maldonado’s offer expired. Maldonado’s attorney, Boyd, made it clear at trial that he would not consider an agreement with Robert individually before the deadline had passed. After the deadline had passed and Maldonado and Robert had reached their agreement, Boyd stated he had no intention of accepting the policy limits. Indeed, when State Farm subsequently tendered its limits prior to trial, Boyd rejected the offer.
The only evidence of any demand made by Maldonado, therefore, is the demand for payment of $1.3 million. It does not matter whether the demand was first made orally on October 2, 1991, or whether it was not made until Boyd’s letter of November 11, 1991. It also does not matter that Maldonado’s attorney testified after the fact that he would have accepted $300,000 early in the case if State Farm had offered it.6 The fact remains that Maldonado never made a demand within the policy limits. State Farm had no duty to respond to the demand in excess of policy limits; its failure to settle in response to that demand cannot be negligence. See Soriano, 881 S.W.2d at 314; American Physicians Ins. Exchange v. Garcia, 876 S.W.2d 842, 849 (Tex.1994) (excess demand does not trigger Stowers duty).
Moreover, even were we to accept the majority’s contention that Robert’s offer to personally pay $1 million of the $1.3 million settlement demand somehow converted or reduced the settlement demand to $300,000, thereby triggering a duty under Stowers, we believe Justice Peeples, in the original panel opinion in this case, accurately stated the reason Robert would still be unable to recover damages for a violation of the Stowers duty: the insurer is entitled to a reasonable time to evaluate offers to settle. The ultimate issue in any Stowers case is whether the settlement demand was reasonable under the circumstances. See American Physicians Ins. Exchange v. Garcia, 876 S.W.2d at 849. Assuming the $1.3 million offer became a $300,000 offer on the afternoon of November 14, when Leon convinced Robert to pay the $1 million, the offer expired at 5:00 p.m. on November 15. Even if we infer from the record that Leon contacted State Farm and informed it of Robert’s intent to pay the $1 million when he arrived at Boyd’s office on the morning on November 15, State Farm was then given only a few hours in which to respond to this “new” or “reduced” demand. As a matter of law, such a time constraint was not reasonable under the circumstances; therefore, State Farm was not negligent in failing to settle in response thereto.
2. NO EVIDENCE OF DAMAGES
Although the negligence action in the instant case was brought by Robert, rather than by Maldonado as Robert’s assignee, the damage award in the underlying judgment should not be admissible as evidence in the instant ease under the rule announced in Gandy. 925 S.W.2d at 711. The Court in Gandy held a judgment that does not result from a fully adversarial trial is not admissible in an action by a plaintiff as a defendant insured’s assignee, disapproving its prior holding in Block, 744 S.W.2d at 943, i.e., that the insurer was barred from collaterally attacking the underlying judgment by litigating the reasonableness of the damages. Id. at 979. Permitting the defendant insured to use the judgment as evidence of damages raises the same concerns regarding collusion and distortion that arise where the judgment is used as evidence by the plaintiff as the defendant’s assignee. The underlying judgment in the instant case did not result from a fully adversarial trial, and no mitigating evidence was presented therein. Therefore, the *827reliance by the trial court (and the majority) on the underlying judgment as evidence to compute the damages in the instant case was erroneous.
CONCLUSION
The majority does a disservice to a well-reasoned opinion by a unanimous Texas Supreme Court by relegating the Gandy decision to a footnote. For the reasons expressed above, we would reverse the judgment of the trial court in its entirety and award Robert and Maldonado nothing. As to Maldonado, of course, by “nothing” — we mean nothing more than the $1 million she has already received from the now at-peace Robert.

. Leon's testimony suggests he concluded his client would not be well received by a local jury since he was a wealthy Anglo employer who had impugned the morals of a Hispanic female, and the jury would not excuse his behavior due to his illness. He was partially correct. The illness would not excuse the behavior; however, if it was believed to be the reason for his behavior, it would mitigate the damages recoverable. See Eidinoff v. Andress, 321 S.W.2d 368, 371 (Tex.Civ.App.—El Paso 1959, writ ref'd n.r.e.).

. We note that Maldonado’s demand letter dated November 11, 1991, states that "it is very hard to imagine that the defamatory comments made by the Defendants was not intentional, negligent or without malice and intent to harm my client.” Having made such an assertion, it is difficult for us to comprehend Maldonado’s struggle to understand the reason State Farm appropriately questioned its coverage.

. Since the majority's reliance on the stacked inference is impermissible, the only other evidence relied upon by the majority is the trial court’s finding.

. During the subsequent jury trial, Robert, perhaps due to his illness, could not recall important testimony given the day before. But, while the court hearing the slander action knew the comments were made and that they were injurious, Robert’s illness was kept from the court so no mitigation could have been applied.

. G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App.1929, holding approved).

. The insurer does not bear the burden of making setdement offers. American Physicians Ins. Exchange v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994).