Court Opinion

ID: 4468828
Source: CourtListenerOpinion
Date Created: 2020-01-01 07:09:53.083004+00
Date Added: 2024-06-11T08:48:47.789281
License: Public Domain

Opinion issued December 31, 2019

                                   In The

                            Court of Appeals
                                   For The

                        First District of Texas
                          ————————————
                            NO. 01-18-00851-CV
                         ———————————
    WHITE LION HOLDINGS, L.L.C. AND BERNARD J. MORELLO,
                         Appellants
                                     V.
INSGROUP, INC. D/B/A AGIA AGRICULTURAL INS. AGENCY, Appellee

                  On Appeal from the 268th District Court
                         Fort Bend County, Texas
                   Trial Court Case No. 06-DCV-148721

                        MEMORANDUM OPINION

     White Lion Holdings, L.L.C. purchased an insurance policy from Scottsdale

Insurance Company. There were two intermediaries involved in the transaction:
U.S. Risk and Insgroup, Inc.1 White Lion did not receive the coverage it believed

was contractually due, and it, along with its sole member and manager, Bernard J.

Morello, (collectively referred to as White Lion) sued all three entities. U.S. Risk

settled with White Lion. Scottsdale also settled with White Lion. Scottsdale and

White Lion executed a settlement release in 2008. White Lion went to trial against

the only remaining defendant, Insgroup, in 2018.

      After White Lion rested, Insgroup moved for a directed verdict, arguing that

it was included in the release White Lion executed 10 years earlier. The trial court

granted the motion, dismissed the jury, and entered judgment in Insgroup’s favor.

White Lion appeals, arguing that the trial court erred in concluding that the release

with Scottsdale also released White Lion’s claims against Insgroup.

      We reverse.

                                Standard of Review

      A trial court may direct a verdict for a defendant when a plaintiff fails to

present evidence raising a fact issue essential to its right of recovery or when the

evidence conclusively proves a fact that establishes the defendant-movant’s right
1
      Many insurance transactions involve one or more intermediaries. See Michael
      Sean Quinn, “Agents” and “Brokers”: Texas Statutory Definitions and Rule-
      Entailing Characterizations, 8 J. TEX. INS. L. 2, 2 (Fall 2007). The intermediaries
      may be referred to as agents, brokers, producers, or other titles. See id.; see also
      May v. United Servs. Ass’n of Am., 844 S.W.2d 666, 669 n.8 (Tex. 1992)
      (discussing insurance agents and brokers who sell insurance); Spring v. Walthall,
      Sachse & Pipes, Inc., No. 04-05-00228-CV, 2005 WL 2012669, at *1 (Tex.
      App.—San Antonio 2005, no pet.) (noting that insurance producers also sell
      insurance).
                                           2
to judgment as a matter of law. Prudential Ins. Co. of Am. v. Fin. Review Servs.,

Inc., 29 S.W.3d 74, 77 (Tex. 2000). In reviewing the grant of a directed verdict, we

follow the standard of review for assessing legal sufficiency of the evidence. S.V.

v. R.V., 933 S.W.2d 1, 8 (Tex. 1996); see generally City of Keller v. Wilson, 168
S.W.3d 802 (Tex. 2005). We consider the evidence in the light most favorable to

the non-movant. Tex. Emp’rs Ins. Ass’n v. Page, 553 S.W.2d 98, 102 (Tex. 1977);

Mikob Props., Inc. v. Joachim, 468 S.W.3d 587, 594 (Tex. App.—Dallas 2015,

pet. denied). We can consider any reason why the directed verdict should have

been granted, even if not stated in the party’s motion. Gomer v. Davis, 419 S.W.3d
470, 476 (Tex. App.—Houston [1st Dist.] 2013, no pet.).

                       The Release and Directed Verdict

      After White Lion presented its evidence and rested, Insgroup orally moved

for a directed verdict, relying on the release White Lion executed in connection

with its settlement with Scottsdale a decade earlier. The Scottsdale release states

that, in consideration of the settlement amount, White Lion releases, acquits and

forever discharges

      SCOTTSDALE INSURANCE COMPANY, its officers, directors,
      shareholders, agents, attorneys, and employees, heirs, assigns, and
      members; their affiliated, related, successor, subsidiary and parent
      companies and corporations, and their officers, directors,
      shareholders, agents, attorneys and employees; and all their insurers,
      hereinafter known collectively as the Released Parties, from any and
      all claims, demands and causes of action of whatsoever nature,
      whether in contract or in tort, and for all other losses and damages of

                                         3
         every kind or character which have accrued, or may ever accrue, by
         reason of the matters or transactions made the basis of this litigation,
         including, but not limited to, any and all claims or causes of action
         arising out of, or in any way related to, the damages allegedly
         sustained by Plaintiffs, White Lion Holdings, L.L.C. and Bernard
         Morello, as the result of contractors removing equipment pursuant to
         the bankruptcy sale of the former Vision Metals steel plant . . . .

Stated more succinctly, White Lion released Scottsdale and its “agents” from all

claims related to damage caused by contractors removing equipment from White

Lion’s Fort Bend property.

         Insgroup made three arguments in support of its motion for directed verdict.

First, it argued that the broad language of the release resulted in the release of all

claims White Lion may have in connection with the Scottsdale insurance policy.

Second, it argued that, by statute, and as a matter of law, Insgroup is an agent of

Scottsdale, citing to Section 4001.051 of the Texas Insurance Code and, therefore,

Insgroup was one of the “Released Parties,” which was defined in the release to

include Scottsdale and its “agents.” Third, it argued that the directed verdict was

mandatory in that Insgroup had pleaded release as an affirmative defense and

White Lion had not amended its pleading to assert a defense to that affirmative

defense, relying on Ellis v. Woods, 453 S.W.2d 509 (Tex. App.—El Paso 1970, no

writ).

         White Lion made two arguments in response. First, it argued that Insgroup

waived its affirmative defense by litigating the case for 10 years without arguing

                                            4
the release insulated it from liability, not providing any context or argument in its

pleadings that raised release as an affirmative defense, and seeking relief, including

attorney’s fees, although the release—if Insgroup actually was a party to it—would

have prevented such a claim between parties to the release. White Lion argued that

the law does not support ambush tactics such as these.

      Second, White Lion argued that the conduct of the parties makes clear that

Insgroup was not a released party. White Lion noted that, after the Scottsdale

settlement, Scottsdale sought and obtained a severance so that a judgment could be

entered resolving White Lion’s claims against it. According to White Lion, a

severance would not have been needed if the only remaining defendant—

Insgroup—was also released when Scottsdale settled. White Lion pointed out that

Insgroup did not seek dismissal at the time of the release, did not oppose the

severance, and never took any steps to indicate to the parties or to the trial court

that it considered itself covered by the release, except amending its answer to

plead, without context, the affirmative defense of release.

      Insgroup responded by reurging its points about the release language being

broad, the Insurance Code designating it as Scottsdale’s agent as a matter of law,

and the failure of White Lion to plead any defense to release.

      At that point, the trial court granted the directed verdict, stating, “It is very

clear in my mind that this was a full and complete release.” About a month later,

                                          5
the trial court entered a final take-nothing judgment in Insgroup’s favor. The

judgment states that Insgroup argued that the release was dispositive of White

Lion’s claims against it and moved for a directed verdict, that the trial court

considered Insgroup’s argument and White Lion’s response, and that the trial court

granted the directed verdict.

                     The Appeal Presents a Question of Law

      Insgroup was the defendant in the trial court. A directed verdict in its favor

was proper only if Insgroup established a right to judgment as a matter of law.

Prudential Ins. Co., 29 S.W.3d at 77. In other words, there had to be legally

insufficient evidence to permit recovery against it. See S.V., 933 S.W.2d at 8. This

presents a question of law. See City of Keller, 168 S.W.3d at 822.

      On appeal, Insgroup argues that it is entitled to an affirmance of the trial

court’s judgment, regardless of merit, because White Lion requested only a partial

reporter’s record on appeal and failed to include in its request a statement of points

or issues to be presented. See TEX. R. APP. P. 34.6(c) (permitting a party to present

a partial reporter’s record if the party includes in the request a statement of the

points or issues to be presented on appeal). Insgroup argues that, “[b]y failing to

request the complete reporter’s record, White Lion has made it impossible for the

Court to review all evidence presented . . . [and] forfeited appellate relief.” We

disagree.

                                          6
      “The appellate record consists of the clerk’s record and, if necessary to the

appeal, the reporter’s record.” TEX. R. APP. P. 34.1 (emphasis added). When a

contention amounts to a strict question of law, a reporter’s record is not necessary.

See In re J.A.B., 13 S.W.3d 813, 815 (Tex. App.—Fort Worth 2000, no pet.).

Moreover, the release was attached to pleadings filed with the trial court and is in

the clerk’s record. Cf. Sam Houston Hotel, L.P. v. Mockingbird Restaurant, Inc.,

191 S.W.3d 720, 721 (Tex. App.—Houston [14th Dist.] 2006, no pet.) (noting that

reporter’s record was required in that case because issues required reference to

evidence admitted at trial).

      Because White Lion presents a question of law regarding whether its release

with Scottsdale also released its claims against Insgroup and because the release

was part of the clerk’s record on appeal, we reject Insgroup’s argument that it is

entitled to affirmance regardless of the merits.

                  Pleading a Defense to an Affirmative Defense

      Insgroup argues that White Lion may not defend against Insgroup’s

affirmative defense of release because White Lion failed to amend its pleading to

assert any defense to the claimed release. Insgroup argues by analogy that a

plaintiff must plead the discovery rule in response to a defendant’s pleading of the

affirmative defense of statute of limitations. See TEX. R. CIV. P. 94; Woods v.

William M. Mercer, Inc., 769 S.W.2d 515, 518 (Tex. 1988) (“A party seeking to

                                          7
avail itself of the discovery rule must therefore plead the rule, either in its original

petition or in an amended or supplemented petition in response to defendant’s

assertion of the defense as a matter in avoidance”).

      Here, though, White Lion admits it signed a release as part of its settlement

with Scottsdale and that the release identified certain released parties. What White

Lion disputes is that the release has any relevance to the status of White Lion’s

claims against Insgroup given that Insgroup was not identified by name or

sufficiently descriptive text as a released party.

      The rule on affirmative defenses requires that “[i]n a pleading to a preceding

pleading, a party shall set forth affirmatively” any matter “constituting an

avoidance or affirmative defense.” TEX. R. CIV. P. 94. According to the Texas

Supreme Court, an affirmative defense is “[a] defendant’s assertion of facts and

arguments that, if true, will defeat the plaintiff’s or prosecution’s claim, even if all

the allegations in the complaint are true.” Zorrilla v. Aypco Constr. II, LLC, 469
S.W.3d 143, 155–56 (Tex. 2015) (quoting affirmative defense, Black’s Law

Dictionary (10th ed. 2009)). An avoidance “derives from the historic English

common-law pleas of ‘confession and avoidance’” and means “a plea in which a

defendant admits allegations but pleads additional facts that deprive the admitted

facts of an adverse legal effect.” Id. at 156 (quoting confession and avoidance,

                                           8
Black’s Law Dictionary (10th ed. 2009)); see Godoy v. Wells Fargo Bank, N.A.,

575 S.W.3d 531, 536 (Tex. 2019) (quoting same).

      White Lion’s position is not an affirmative defense or a matter of avoidance

that would invoke Rule 94’s requirement to raise defensive matters. Cf. Godoy,
575 S.W.3d at 536; Zorrilla, 469 S.W.3d at 156. It is, instead, a simple rejection of

the proposition that Insgroup was a released party.

      Insgroup had the burden to establish its affirmative defense. See Campbell v.

Abrazo Adoption Assocs., No. 04-07-00093-CV, 2007 WL 3271608, at *3 (Tex.

App.—San Antonio Nov. 7, 2007, pet. denied) (mem. op.) (citing Keck, Mahin &

Cate v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692, 699 (Tex.

2000)). White Lion was not required to amend its petition to hold Insgroup to that

burden.

      We cannot agree that White Lion was required to amend its pleading to deny

that Insgroup could meet its burden to establish its affirmative defense, with the

penalty of an automatic take-nothing judgment for failure to do so. See Godoy, 575
S.W.3d at 536 (concluding that party was not required to amend pleading in

response to legal argument and noting that court will “reject form-over-substance

requirements that favor procedural machinations over reaching the merits of a

case.”). Having rejected Insgroup’s procedural arguments, we will review the legal

issue presented.

                                         9
                         A Party is Not Released Unless
                       Adequately Identified in the Release

      One of the arguments Insgroup made to the trial court was that the broad

language in the release effectively released any conceivable claim White Lion

might have related to the Scottsdale insurance policy. This argument contravenes

the rule established in McMillen v. Klingensmith, 467 S.W.2d 193 (Tex. 1971), as

later interpreted in Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 419–20 (Tex.

1984).

      Before McMillen and Duncan, Texas followed the common-law doctrine

referred to as the “unity of release rule.” Duncan, 665 S.W.2d at 419. Under that

rule, a release of one tortfeasor operated as a release of all tortfeasors. See id. Over

time the harshness of the rule and its perverse incentives on nonsettling defendants

led to its rejection. See McMillen, 467 S.W.2d at 196; Duncan, 665 S.W.2d at 422;

see also Philadelphia Indem. Ins. Co. v. SSR Hospitality, Inc., No. 08-CV-680-

JRN, 2010 WL 11506976, at *6 & n.17 (W.D. Tex. Nov. 1, 2010) (order).

      The Texas Supreme Court rejected the rule in McMillen. 467 S.W.2d at 196.

A new rule was announced: “a release of a party or parties named or otherwise

specifically identified fully releases only the parties so named or identified, but no

others.” Id.

      There are several important interests that were furthered by abolishing the

“unity of release” rule and, instead, requiring specific identification of nonsettling

                                          10
tortfeasors who would thereafter benefit from the release. Duncan, 665 S.W.2d at

422. First, doing so would “encourage both partial and full settlements.” Id.

Second, it would “avoid unfairly depriving injured Texas residents of their full

satisfactions.” Id. Third, it would “avoid providing an incentive to tortfeasors to

delay or to stay out of early settlement negotiations.” Id. Fourth, it would “ensure

that Texas claimants do not inadvertently lose their valuable rights against

unnamed and perhaps unknown tortfeasors by settling with only one of the

wrongdoers.” Id. The new rule was adopted in recognition that a “nonsettling

tortfeasor should not fortuitously escape compensating his Texas victim simply

because of settlement arrangements that did not encompass him or his conduct and

to which he contributed nothing.” Id.

      As a result, under McMillen and Duncan, a nonsettling tortfeasor—like

Insgroup—cannot claim the protection of a release unless “the release refers to him

by name or with such descriptive particularity that his identity or his connection

with the tortious event is not in doubt.” Id. at 420; see Schomburg v. TRW Vehicle

Safety Sys., Inc., 242 S.W.3d 911, 914 (Tex. App.—Dallas 2009, pet. denied).

      There is no longer unity of release in Texas; for Insgroup to benefit from the

Scottsdale release, it must show that it was either referred to by name or “with such

descriptive particularity” that its inclusion in the release “is not in doubt.” Id.

                                           11
      Whether a release refers to a tortfeasor with descriptive particularity so as to

leave no doubt is reviewed do novo. See Schomburg, 242 S.W.3d at 914–15; Atl.

Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 218 (Tex. App.—Houston [1st Dist.]

2004, pet. denied).

          Insgroup Did Not Establish as a Matter of Law that it was a
               Released Party as to Non-Insurance Code Claims

      Insgroup’s argument to the trial court why it was a released party as a matter

of law relied on Insurance Code section 4001.051(b). That section provides that,

regardless “whether the act is done at the request of or by the employment of an

insurer, broker, or other person, a person is the agent of the insurer for which the

act is done or risk is taken for purposes of the liabilities, duties, requirements, and

penalties provided by this title, Chapter 21, or a provision listed in Section

4001.009,” if the person does any of nine enumerated acts, including “(1) solicits

insurance on behalf of the insurer; (2) receives or transmits other than on the

person’s own behalf an application for insurance or an insurance policy to or from

the insurer; . . . (4) receives or transmits an insurance policy of the insurer; . . .

[or] (8) takes any other action in the making or consummation of an insurance

contract for or with the insurer other than on the person’s own behalf . . . .” TEX.

INS. CODE § 4001.051(b) (emphasis added). Insgroup argued to the trial court that

it was Scottsdale’s agent as a matter of law, thereby mandating that it was covered

by the term “agent” in the release.

                                          12
      On appeal, White Lion notes that Section 4001.051 was enacted after the

release was executed and argues that it is inapplicable. Insgroup has responded that

the predecessor statute, Insurance Code article 21.02, defined “agents” in

“substantially similar terms.” Article 21.02(a) provided that “[a]ny person who

solicits insurance on behalf of any insurance company . . . or who takes or

transmits other than for himself any application for insurance or any policy of

insurance to or from such company, . . . or who shall receive or deliver a policy of

insurance of any such company, . . . shall be held to be the agent of the company

for which the act is done . . . as far as relates to all the liabilities, duties,

requirements and penalties set forth in this chapter.” TEX. INS. CODE art. 21.02

(effective Sept. 1, 2001 to March 31, 2005) (emphasis added).

      Insgroup’s statutory argument ignores limiting language found in both

versions of the statute. An entity that solicits or transmits an insurance policy is the

agent of the insurer only “as far as relates to all the liabilities, duties, requirements

and penalties set forth in” the Insurance Code. Id.; see TEX. INS. CODE

§ 4001.051(b) (using similar terms). The statute does not make Insgroup the agent

of Scottsdale for all purposes.

      This limitation within the statute was noted by the Fourteenth Court of

Appeals in Westview Drive Invs., LLC v. Landmark Am. Ins. Co., 522 S.W.3d 583

(Tex. App.—Houston [14th Dist.] 2017, pet. denied). There, an insured argued that

                                           13
its broker was the agent of the insurer as a matter of law with regard to the

insured’s fraud claim, citing Section 4001.051(b). Id. at 604. The court rejected the

argument, holding that, by its terms, the Insurance Code provision created an

agency relationship only for purposes of specific statutes, not for purposes of the

common-law fraud claim. Id. (quoting the language “for the purposes of the

liabilities, duties, requirements, and penalties” of particular statutes). Under that

court’s analysis, the Insurance Code does not make an insurance intermediary the

insurer’s agent as a matter of law with regard to non-statutory, common law tort

claims. See id.

      We adopt the Fourteenth Court of Appeals’s interpretation and hold that

neither Article 21.02 nor its successor, Section 4001.051(b), establishes Insgroup

as Scottsdale’s agent as a matter of law outside the realm of the enumerated

Insurance Code and Occupations Code provisions. See TEX. INS. CODE

§ 4001.051(b) (designating person as agent of insurer “for purposes of the

liabilities, duties, requirements, and penalties provided by this title, Chapter 21, or

a provision listed in Section 4001.009”); § 4001.009 (listing various Insurance

Code provisions and Chapter 107 of the Occupations Code).

      White Lion and Insgroup were mid-trial when the trial court granted the

directed verdict. White Lion’s live petition asserted claims against Insgroup for

negligence, negligent misrepresentation, violations of the Deceptive Trade

                                          14
Practices Act, violations of the Insurance Code, and breach of contract. As a matter

of law, the referenced Insurance Code provisions, on which Insgroup relied in

moving for a directed verdict, do not designate Insgroup as Scottsdale’s “agent” for

purposes of White Lion’s common-law and DTPA claims or its breach-of-contract

claim. See Westview Drive Invs., 522 S.W.3d at 604. The trial court erred in

granting a directed verdict—judgment as a matter of law—against White Lion on

those claims.

                                     Conclusion

      We affirm the trial court’s directed verdict as to White Lion’s Insurance

Code violation claim and reverse it as to all other claims. We remand the suit to the

trial court for additional proceedings.

                                               Sarah Beth Landau
                                               Justice

Panel consists of Chief Justice Radack and Justices Landau and Hightower.

                                          15