Court Opinion

ID: 9671873
Source: CourtListenerOpinion
Date Created: 2023-08-24 03:44:12.514263+00
Date Added: 2024-06-11T18:13:46.304720
License: Public Domain

BLEIL, Justice,
dissenting.
This decision cries out for review and reversal by the Texas Supreme Court. The majority of this court fails to follow a number of Texas Supreme Court decisions. It scarcely notices Elbaor v. Smith, circumvents Allstate Insurance Company v. Watson, casts aside as dicta a clear pronouncement in Texas Farmers Insurance Company v. Soriano, and pays mere lip service to the decisions in Union Bankers Insurance Company v. Shelton, National Union Fire Insurance Company v. Dominguez, and Lyons v. Millers Casualty Insurance Company. And, in so doing, the majority — wittingly or not— makes this court a participant in the fraud perpetrated upon the Texas judicial system and the people of this state by these proceedings. For these reasons and for other legal errors made by the majority, I dissent.
FRAUD ON THE JUDICIAL SYSTEM
Maryland couples challenges to the evidence supporting the damages with an assertion that the judgment results from two Mary Carter agreements leading to this legal proceeding in violation of the public policy of *239Texas.14 These contentions are therefore discussed together.

Factual Framework

The scheme of this judicial charade is simple. Nelson sued the TU Electric defendants for injuries he suffered in 1987. TU sought indemnity from Head in accordance with an indemnity agreement between those two parties. Head had purchased insurance through Gans & Smith Insurance Agency to cover such an occurrence, with coverage in the amount of $500,000.00 provided by Maryland Insurance Company. Because of an error on the part of Gans & Smith, the policy actually issued by Maryland did not cover the claim against Head based upon contractual liability. When a claim was presented to Maryland, it denied the claim because the policy it had issued did not cover Head’s contractual liability.
While that case was proceeding, Gans & Smith realized that it had made a clerical error and had assured Head that it was covered for such losses, although the policy issued did not cover the losses. Thus, TU, Head, and Gans & Smith knew that, because Gans & Smith was Maryland’s recording agent, Maryland would be legally responsible for that claim.
Then, through two agreements, Nelson settled with TU and Head, and TU, Head, and Gans & Smith settled with each other. These settlements assured Nelson of no less than a $500,000.00 recovery. Nelson covenanted not to seek execution on any judgment he might recover against TU or Head, and Nelson was assigned all causes of action that TU or Head had or might have against the insurance company. Those settlements assured Nelson at least $500,000.00, and virtually assured TU, Head, and Gans & Smith that none of them would be responsible to pay the money.
With those two settlements — appropriately called “sweetheart deals” by the lawyers — in hand, Nelson proceeded with his suit as if there was no settlement and recovered what is called a “laydown” judgment against Head for about $1,889,000.00. That was in May 1992.
In April 1993, while deposing Hermes Payne, a Gans & Smith partner, in connection with the case now on appeal, Maryland’s attorney first learned that Payne had made an error when he did not bind coverage for contractual indemnity. Later that year, with most of these facts secreted from it, a jury found the “facts” in its verdict.

Mary Carter Background

Clandestine agreements between a plaintiff and one or more defendants in which the settling parties plan to cooperatively proceed against a remaining defendant or defendants became known as Mary Carter agreements following the 1967 case of Booth v. Mary Carter Paint Company.15 Before that time, however, Mary Carter types of agreements existed and had been utilized for many years.16 The Texas Supreme Court first addressed Mary Carter agreements in 1977, observing that those agreements tend to undermine the adversarial nature and integrity of the proceedings against the remaining defendants. General Motors Corp. v. Simmons, 558 S.W.2d 855, 858 (Tex.1977), overruled on other grounds by Duncan v. Cessna Aircraft Co., 665 S.W.2d 414 (Tex.1984). Two years later, the court wrote that Mary Carter agreements possessed the basic vice of presenting the jury with a false and misleading picture of the interests of the parties and witnesses. City of Houston v. Sam P. Wallace and Co., 585 S.W.2d 669, 674 (Tex.1979). Nonetheless, such agreements were rampant in multi-party litigation until the Texas Supreme Court decided Elbaor v. Smith in 1992, in which it determined that the Mary Carter agreement before the court revealed “yet another” jury trial and verdict distorted because of the use of such an *240agreement; the court then declared Mary Carter agreements void as against public policy. Elbaor v. Smith, 845 S.W.2d 240, 249-50 (Tex.1992).
While Mary Carter agreements were being assailed, lawyer ingenuity and craftiness created a variety of similar types of arrangements. Examples of such arrangements include “laydown” judgments coupled with a covenant not to execute in exchange for cooperation in subsequent suits,17 default judgments followed by an “Executory Agreement, Assignment and Covenant to Delay Execution,”18 agreed judgments against the insured of an insolvent insurer followed by an agreement to transfer (referred to by the parties to the agreement as “not a fraudulent transfer”) assets of original defendant, a waiver of right by the plaintiff to pursue those assets and an assignment of the defendant’s legal malpractice claim against its solvent attorney and law firm,19 and a “sham” judgment followed by a covenant not to execute against the original defendant and an assignment of his claim against his insurer.20
Ultimately, any litigation-settling agreement which corrupts the judicial process and causes an uninformed or misinformed jury verdict violates sound public policy. Whatever a multi-party litigation agreement or arrangement may be labeled, be it a “Mary Carter” agreement or not, if in fact it violates the sound public policy favoring fair trials, then it should be held void.

Application of Public Policy

The sweetheart deals leading to the lay-down Nelson judgment, and the subsequent trial of this case before a misinformed jury, result in another distorted trial and jury verdict. As in the City of Houston v. Sam P. Wallace and Company case, the basic vice was the presentation of a false and misleading portrayal to the jury of the real interests of the parties and witnesses. See City of Houston, 585 S.W.2d at 674. As in Simmons, the adversarial nature and integrity of this proceeding against Maryland was undermined. See Simmons, 558 S.W.2d at 858. And, as in Elbaor, the secret settlements and laydown judgment skewed the trial process, misled the jury, and promoted collusion among nominal adversaries, leading to a less culpable, but perhaps deeper-pocketed, defendant being responsible for the full judgment. See Elbaor, 845 S.W.2d at 250.
Concerning the underlying Nelson judgment, this court has previously called such a judgment a sham. Speaking for a unanimous court, Chief Justice Cornelius said that, “The judgment is a sham because it is not what it is represented to be. It cannot be collected from the judgment debtor, and that was the parties’ intention when the judgment was taken.” State Farm Fire & Casualty Co. v. Gandy, 880 S.W.2d 129, 138 n. 5 (Tex.App.—Texarkana 1994, writ granted). Equally applicable here is what Chief Justice Cornelius said in Gandy, “the courts are being used to perpetrate and fund an untruth.” Id. at 138.
Looking to the most recent guidance on this important public question necessarily leads to the Elbaor v. Smith decision as well as the court of appeals’ decision in Zuniga v. Groce, Locke & Hebdon. In Elbaor, the Texas Supreme Court found that settlement arrangements that skew the trial process, mislead the jury, promote unethical collusion among nominal adversaries, and create the likelihood that a less culpable defendant will be responsible for the full judgment, violate the public policy favoring fair trials. Elbaor, 845 S.W.2d at 250. As previously noted, the present arrangement is violative of this public policy favoring fair trials. In Zuniga, the San Antonio Court of Appeals dealt with a personal injury suit against an insolvent defendant, followed by an assignment from the defendant to the plaintiff of the legal malpractice claim against the defendant’s lawyer. Zuniga v. Groce, Locke & Hebdon, 878 S.W.2d 313 (Tex.App.—San Antonio 1994, *241writ ref'd). Justice Peeples said that the costs of this arrangement were too high:
[T]he plaintiff would be able to drive a wedge between the defense attorney and his client by creating a conflict of interest; in time, it would become increasingly risky to represent the underinsured, judgment-proof defendant; and the malpractice case would cause a reversal of the positions taken by each set of lawyers and clients, which would embarrass and demean the legal profession.
We appreciate the goals furthered by assignment, but conclude that they do not justify the detrimental impact that assignment would have on the legal system.
Zuniga, 878 S.W.2d at 317. Because this arrangement encouraged the notion that lawyers will take any position depending on where the money lies, and that litigation is a mere game and not a search for the truth, the court held that the assignment of a legal malpractice claim arising from litigation is invalid. Id. at 318.
Our case is not exactly like Elbaor or Zuniga, but for all the sound public policy reasons announced in both of those cases, this scheme of a laydown judgment against an insured, followed by an assignment of its claim of unfair claim settlement practices, among other claims, by its insurer, ought not to be validated by this court.
The majority of this court arrives at a quizzical solution concerning the fraud upon the courts. While purporting to discuss the “settlement agreements,” it concludes that yes, the “second” settlement agreement violates Elbaor, thus this court will not enforce it. Maj. op. at 236. The first agreement, it concludes, was not offered into evidence, and was not given effect by the trial court. The majority fails to perceive the evil results produced in this case. The agreements and Nelson judgment were merely the well-placed seeds which produced the fraudulently obtained judgment which the majority upholds today. The two agreements themselves and the sham Nelson judgment are not what is wrong with these proceedings. The wrong is that the judgment now before us is patently the result of those clandestine agreements and the sham Nelson judgment. The net result of the majority’s misperception is that the majority approves a judgment based on a charade of untruths. While purporting to partially condemn the means, the majority wholeheartedly approves the ends which the wrongful means produced.
It baffles me that this court, which quite rightly recognized the offensive nature of arrangements like these last year in Gandy, now gives its stamp of approval to what plainly is a fraud upon the judicial system of this state. I would hold that these proceedings, including the sweetheart deals prior to trial leading to the Nelson judgment, and the charade of untruths and half truths presented to the jury leading to this judgment, are as violative of our public policy as any can be. This scheme among Nelson, TU, Head, and Gans & Smith permitted each of them to come through the litigation whole and, without risk, proceed to a rape of the assets of the least culpable, most deep-pocketed defendant. Now the majority restores risk to Gans & Smith but otherwise keeps the scheme intact.21 It ought not to be tolerated by this court.

No Evidence/Insufficient Evidence

Public policy arguments aside, this court should hold that there is no evidence of damage to Head as a result of any of Maryland’s conduct. Apropos here, as in Gandy, are Chief Justice Cornelius’ remarks:
The amount of the judgment in a case like this, where a covenant not to execute is given contemporaneously with and as a part of a settlement and agreed judgment, cannot constitute damage to the judgment debtor. Allowing an assignee of the named judgment debtor in such a case to collect all or part of the judgment amount perpetrates a fraud on the court, because it bases the recovery on an untruth, i.e., that the judgment debtor may have to pay the judgment. See Whatley v. City of *242Dallas, 758 S.W.2d 301 (Tex.App.—Dallas 1988, writ denied); Garcia v. American Physicians Ins. Exch., 812 S.W.2d 25 (Tex. App.—San Antonio 1991) (Peoples (sic), J. dissenting), rev’d, 876 S.W.2d 842 (Tex.1994). Such a result should be against public policy, because it allows, as here, parties to take a sham judgment by agreement, without any trial or evidence concerning the merits, and then collect all or a part of that judgment from a third party. Allowing recovery in such a case encourages fraud and collusion and corrupts the judicial process by basing the recovery on a fiction.
Gandy, 880 S.W.2d at 138.
In Gandy, we reluctantly concluded that the current status of the law was that, in a situation like this, the underlying or laydown judgment might be some evidence of damage.22 Id. However, our position was consistent with a pronouncement by the Texas Supreme Court in the original opinion in Garcia, although that opinion was later withdrawn. Because the Texas Supreme Court declined to determine whether a judgment is some evidence of damages in the final Garcia decision, and because under the facts now before us Head has not been damaged whatsoever by the judgment, I would hold that the laydown judgment here is no evidence of damage to Head.
If the majority would not join in holding that there is no evidence of damage to Head and believed that the underlying judgment might be some evidence of damage to Head, this court should proceed to show that in reality Head was not damaged at all because of its secret agreements with Nelson, TU, and Gans & Smith. In that event, this court should proceed to find the evidence of damage to Head to be wholly insufficient, setting forth in detail all of the evidence why it is insufficient, as required by Pool v. Ford Motor Company,23
CIRCUMVENTION OF WATSON
This court was recently accused of rejecting the Texas Supreme Court’s opinion in Allstate Insurance Company v. Watson. Concerning our recent decision in Crum & Forster, Inc. v. Monsanto Co., 887 S.W.2d 103 (Tex.App.— Texarkana 1994, no writ), and our view of Watson as expressed therein it was urged that,
This open disdain of the Court’s analysis in Watson led the appellate court to construct improper and circuitous theories to avoid the result required by Watson. Much of the remaining opinion can best be viewed through that prism of hostility to the outcome compelled by a proper application of the holding in Watson.24
These remarks were off the mark in that context, but seem on target now.
Whatever the reasons behind the majority’s decision in this appeal, the decision does one thing if nothing else: it circumvents the results mandated by Watson. In pertinent part, the supreme court held that Watson, a third-party claimant against Allstate’s insured, lacked standing under section 16 of article 21.21 to sue Allstate directly for unfair claim settlement practices. Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 150 (Tex.1994). This holding is clear.
Applying the Watson holding to the facts of the case now on appeal, Nelson is the injured third-party claimant; Head is the insured. In the proceedings leading to the *243sham judgment, Nelson sued TU and Head. Head requested that Maryland provide coverage and a defense, which was denied. Head then established with Gans & Smith that, through the latter’s error, no coverage was provided in the policy, but that it should have been because Gans & Smith had made an error and was a local recording agent of Maryland.
As a part of the Nelson-TU-Head settlement, Nelson covenanted not to execute on any judgment he recovered against TU or Head. In return, Nelson was assigned any and all claims against the insurance company belonging to Head or TU. Then this bad faith suit by Head was instituted, for the benefit of Nelson, he being Head’s assignee of the cause of action.
Under Watson, Nelson could not bring such an action against Maryland — a third-party claimant cannot bring a claim against an insurer. The scheme arrived at by these parties, however, allows Head to proceed on behalf of Nelson (assignee of all of Head’s rights against Maryland), although the law of Texas forbids such a suit by Nelson. This court should not allow a scheme which plainly circumvents the law as pronounced in a decision of our Texas Supreme Court.25
VIABILITY OF CAUSE OF ACTION FOR BREACH OF DUTY OF GOOD FAITH & FAIR DEALING IN THIS CONTEXT ■
The major question presented in this section of Maryland’s appeal concerns whether a cause of action exists against an insurer under section 16 of article 21.21 and focuses on the meaning of the Watson-Vail26-Arnold27 decisions taken together, as discussed by the majority. The majority notes that we have affirmed that we will follow Vail “until the Texas Supreme Court tells us that it is not to be followed in a case involving an insured.” Majority op. at 226 (citing Crum & Forster, Inc. v. Monsanto Co., 887 S.W.2d at 118). I acknowledge that the Watson decision may seem perplexing insofar as it appears, on the one hand, to restrict the broad holding in Vail yet, on the other hand, professes that Vail remains the law concerning claims for unfair claim settlement practices brought by insureds against their insurers. Watson, 876 S.W.2d at 149.
The claim in this case is not clearly a Watson claim, with a third-party claimant versus an insurer, nor is it a first-party Vail claim, with a “special relationship” between an insurer and its insured, because the insured has long since terminated the “special relationship,” if any, and assigned its right against the insurer to the third-party claimant. Nor is it like Vail for the reasons set forth in the Garcia and Soriano decisions of the Texas Supreme Court, as discussed, infra.
With this in mind, we might ask whether the Texas Supreme Court has spoken to us about our dilemma and we just were not listening. In the Watson decision itself, the supreme court expressed its displeasure with the notion that, in attempting to settle claims pursuant to the demands of a third-party claimant, the insurer may be liable to the insured for settling too quickly. Watson, 876 S.W.2d at 150 (referring to Texas Farmers Ins. Co. v. Soriano, 844 S.W.2d 808 (Tex.App.—San Antonio 1992), rev’d, 881 S.W.2d 312 (Tex.1994)).
Later in its decision in Soriano, the supreme court spoke to whether a cause of action for breach of the duty of good faith and fair dealing exists against an insurer when it fails to settle third-party claims against its insured. Justice Enoch, speaking for the court, wrote the following:
At the outset, we note that this Court has never recognized a cause of action for breach of the duty of good faith and fair *244dealing where the insurer fails to settle third-party claims against its insured. We first articulated the standard of care owed by insurers to their insureds in responding to claims made by the insured in Arnold v. National County Mutual Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1988). Under Arnold, an insurer may breach its duty of good faith and fair dealing in refusing to pay a first-party claim where (1) the insurer has no reasonable basis for denying or delaying payment of the claim or (2) the insurer knew or should have known that there was no reasonable basis for denying or delaying payment of the claim. Id. We reiterated an insurer’s duty of good faith and fair dealing to its insured in Aranda v. Insurance Co. of North America, 748 S.W.2d 210, 213 (Tex.1988), and most recently in Lyons v. Millers Casualty Ins. Co., 866 S.W.2d 597, 599 (Tex.1993). Significantly, each of these eases involves the insurer’s duty to its insured in handling first-party claims. We have never held and do not hold today that either of these two standards applies to insurers in responding to third-party claims.
Soriano, 881 S.W.2d at 317. Having thus spoken, the court then acknowledged that that particular issue was not before it and did not decide the question. Id.
Shortly after it wrote in Soriano, the supreme court again noticed a distinction between the Vail first-party bad faith standard and Stowers28 third-party failure to settle cases. It wrote:
We express no opinion concerning the difference between the requirement of “good faith” in “attempting” settlement under Tex.Ins.Code Ann. art. 21.21-2, § 2(b)(4), and the common law standard of ordinary care concerning a third-party liability insurer’s attempts to settle a covered lawsuit. Compare Stowers, 15 S.W.2d at 547 and Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656, 659 (Tex.1987) (third-party ordinary care standard) with Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex.1987) and Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210, 213 (Tex.1988) (first-party “bad faith” standard).
Garcia, 876 S.W.2d at 847 n. 11.
Of course, this court is correct that on some unclear issues we must stand firm and await guidance from higher courts. Monsanto, 887 S.W.2d at 118. However, it seems that perhaps the supreme court has been sending signals which we have tuned out. When we were first considering Monsanto, the messages from the Texas Supreme Court had not been sent. While Monsanto was submitted to this court but not decided, the Texas Supreme Court in fact did address this question. We were apparently unaware of what was said in Soriano and Garcia when Monsanto was decided, because neither decision is mentioned in our opinion.29 Now, being aware of the supreme court’s guidance, we should not rigidly adhere to a pronouncement just because we previously made it.30 Whatever the Texas Supreme Court did not hold in Soriano or Garcia, it has said one thing loudly and clearly: claims by an insured against an insurer in a first-party (Vail) context are different than those in a third-party context (Garcicir-Soriano). It appears that the Texas Supreme Court will hold, in an appropriate case involving a third-party claimant, an insured and an insurer, that the insured has no claim for the breach of the duty of good faith and fair dealing against the insurer. If any case ever could be the appropriate case, this is that case.
*245OTHER AREAS OF DISAGREEMENT
These are other, perhaps more mundane, matters about which I disagree with the majority. These concern the treatment of the questions of Maryland’s bad faith and the meaning of the relationship between Maryland and its recording agent.

Insurer’s Bad Faith

My examination of the cases in which an insurer is alleged to have acted in bad faith, whether or not the insurer was found to have acted in bad faith, compels the conclusion that Maryland, in the context of this case, is the most “innocent” of all the insurers who have been alleged to have acted in bad faith. It certainly is the least culpable of the named parties to the suit now on appeal.
Maryland knew that the policy issued did not cover the loss for which a claim was made. It knew that outside legal counsel opined that the loss was not covered. Even after it denied the claim, no one, not even its local recording agent, said a word to indicate possible coverage for about two years. When finally, during the course of discovery prior to the trial of this suit, it learned that its recording agent made a clerical error, it conceded that it was bound to the policy that should have been issued but for the clerical error. It admitted liability on that policy for the loss.
The various parties to this suit, other than Maryland, entered into “sweetheart” deals, insulating themselves from any liability, then led Maryland to the Texas judicial system much as a lamb is led to slaughter. Maryland’s only guilt in these proceedings is in being financially solvent, or having deep pockets. What is curious about the majority’s holding that the evidence supports a finding that Maryland engaged in unfair or deceptive acts and failed to comply with its duty of good faith and fair dealing to Head is that the evidence of wrongful conduct the majority cites to uphold these findings concerns the conduct of Hermes Payne of Gans & Smith. Yet throughout this suit, in pleadings and evidence, Head makes no complaint about Payne’s conduct. Of course, Head made its peace with Gans & Smith in 1992, before anyone spoke to Maryland of any wrongful conduct or clerical error.
The majority appropriately notices certain recent Texas Supreme Court decisions bearing on how appellate courts should review findings of bad faith against an insurer. As noted, to establish a bad faith cause of action a plaintiff must show an absence of a reasonable basis for the denial of or the delay in the processing of a claim and must further show that the carrier knew or should have known that fact. Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 288 (Tex.1994). In addressing Maryland’s challenge to the legal sufficiency of the evidence, we review the record for no evidence of a negative fact; that is, the absence of a reasonable basis for the insurer’s denial of the claim or delay in payment of processing. Lyons v. Millers Casualty Ins. Co. of Texas, 866 S.W.2d 597, 600 (Tex.1993); see also National Union Fire Ins. v. Dominguez, 873 S.W.2d 373, 376 (Tex.1994). After noticing these decisions, the majority scarcely pays them lip service. Its decision goes against the collective grain of these and other Texas Supreme Court decisions over the past few years.
Obviously, Maryland had a reasonable basis for denying Head’s claim. The policy it had issued did not cover the claim and, when Maryland sought an opinion from outside legal counsel, it was informed that there was no coverage. In addition, the issuing agent never informed Maryland of any reason that the written policy would not control. Any reasonable person or insurer would have denied the claim under those circumstances.

Agency Aspects

Any discussion of the law of agency in this appeal is tangential, but nonetheless I address the topic because of the majority’s misconstruction of agency principles. The basis for the majority’s holding that all which Gans & Smith knew is imputed to Maryland is founded on erroneous notions of agency law.
Initially, it is appropriate to note that Gans & Smith was a local recording agent for Maryland. The majority fails to observe what that means. A local recording agent is,
[A] person or firm engaged in soliciting and writing insurance, being authorized by an insurance company or insurance carrier, *246including fidelity and surety companies, to solicit business and to write, sign, execute, and deliver policies of insurance, and to bind companies on insurance risks, and who maintain an office and a record of such business and the transactions which are involved, who collect premiums on such business and otherwise perform the customary duties of a local recording agent representing an insurance carrier in its relation with the public; or a person or firm engaged in soliciting and writing insurance, being authorized by an insurance company or insurance carrier, including fidelity and surety companies, to solicit business, and to forward applications for insurance to the home office of the insurance companies and insurance carriers, where the insurance company’s and insurance carrier’s general plan of operation in this State provides for the appointment and compensation of agents for insurance and for the execution of policies of insurance by the home office of the insurance company or insurance carrier, or by a supervisory office of such insurance company or insurance carrier, and who maintain an office and a record of such business and the transactions which are involved, and who collect premiums on such business and otherwise qualify and perform the custody duties of a local recording agent representing an insurance carrier in its relation with the public.
Tex.Ins.Code Ann. art. 21.14, § 2(a)(1) (Vernon Supp.1995). The Insurance Code clearly defines a recording agent’s duties and powers, yet the majority looks to common-law or general ideas about what it thinks an agent can do. Agency is a fiduciary relation resulting from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other to so act. Restatement (SECOND) OF AGENCY § 1 (1958). The action is taken on behalf of the principal; the one who acts is the agent. Id.
In the relationship of insurer and recording agent enjoyed by Maryland and Gans & Smith, although the latter acts as a type of agent defined by statute, it also acts as an independent contractor. See Restatement (Second) of Agency § 2(3) (1958) (independent contractor contracts with another to do something for him but not controlled by other nor subject to other’s right to control concerning physical conduct in performing the undertaking in question). Typically, an agent like Gans & Smith may be a corporation itself and may be an agent for one or numerous insurance carriers. See TexJns. Code Ann. art. 21.07, §§ 1(a), 6 (Vernon Supp.1995).
The majority’s general statements concerning recording agents’ authority to act provide it with no support for its decision. Its decision traces its formulation to a single Texas Supreme Court decision: La Sara Grain Co. v. First Nat’l Bank of Mercedes, 673 S.W.2d 558 (Tex.1984). That case noted that a bank or corporation is bound by knowledge that comes to the agent in the course of the agent’s employment. Id. at 563. That case does not remotely resemble this. There, the bank required and possessed La Sara’s corporate resolution that two signatures were required on any checks cashed. Id. Someone obviously altered the signature card, and after La Sara’s general manager, Jones, embezzled over $300,000.00 from the company by "writing checks on his signature alone, La Sara sued. Id. at 561-63. The bank, through its president, admitted that the bank possessed and knew of the corporate resolution. Id. at 563. The actual holding on the issue before the Texas Supreme Court was that the evidence at trial supported the trial court’s finding that the bank knew that Jones’ signature alone was not the authorized signature of La Sara. Id.
In Mercedes, the agency relationship was a master-servant one. The bank officers and employees were in reality servants of the bank’s board of directors. See Restatement (Second) of Agenoy § 2(2) (1958). The difference between the bank officers’ and employees’ actions and those of Gans & Smith have been observed in a comment under section 2 of the Restatement. The following comment appears:
Servant contrasted with independent contractor. The word “servant” is used in contrast with “independent contractor”. The latter term includes all persons who *247contract to do something for another but who are not servants in doing the work undertaken. An agent who is not a servant is, therefore, an independent contractor when he contracts to act on account of the principal. Thus, a broker who contracts to sell goods for his principal is an independent contractor as distinguished from a servant. Although, under some circumstances, the principal is bound by the broker’s unauthorized contracts and representations, the principal is not liable to third persons for tangible harm resulting from his unauthorized physical conduct within the scope of the employment, as the principal would be for similar conduct by a servant; nor does the principal have the duties or immunities of a master towards the broker.
Restatement (Second) of Agency § 2 cmt. b (1958).
The court in Mercedes based its position, concerning a bank or corporation being bound by knowledge that comes to its president in the course of employment, on two earlier decisions. One of those involved an agency relationship between a corporate title company and its vice president (master-servant relationship). See City of Fort Worth v. Pippen, 439 S.W.2d 660, 665 (Tex.1969) (corporate title company bound by constructive notice of its vice president). The other decision involved a relationship between a corporate oil company and its president (also a master-servant relationship). See Wellington Oil Co. of Delaware v. Maffi, 136 Tex. 201, 150 S.W.2d 60, 64 (1941) (corporate oil company bound by facts known by its president).
No rationale in any of these cases provides any suggestion or support for extension of the principles of law found in those cases to a claim against an insurer for bad faith in denying or delaying payment of a claim based upon the actions or inactions of a local recording agent. The majority erroneously applies case law concerning agent/servant cases to this case involving an agent/independent contractor.
In light of the extreme differences in the relationships between those parties in the Mercedes case and the parties in this case, there is no logical reason to extend the rationale of the language in the Mercedes opinion to the present case. Certainly no case has ever extended the authority of recording agents to bind their principals — not with regard to any business such agents are statutorily empowered to conduct — as far as today’s decision does. This decision is further in contrast with the long line of cases holding that a recording agent has no authority to bind an insurer via statements made after a loss occurs. Mid-Century Ins. v. H & H Meat Prods., 822 S.W.2d 747 (Tex.App.—Corpus Christi 1992, no writ); accord Royal Globe Ins. Co. v. Bar Consultants, Inc., 577 S.W.2d 688, 694-95 (Tex.1979); State Farm Mut. Auto. Ins. Co. v. Matlock, 462 S.W.2d 277, 279 (Tex.1970); Westbrook v. Millers Mut. Fire Ins. Co., 374 S.W.2d 248, 249 (Tex.Civ.App.—San Antonio 1963, no writ).
Maryland relies on the McGuff decision approving the rule as set out in the Restatement of Torts. King v. McGuff, 149 Tex. 432, 234 S.W.2d 403, 405 (1950); Restatement (Second) of TORTS § 909 (1979). This rule strictly limits when punitive damages can be awarded against a master or principal for an agent’s conduct. McGuff, 234 S.W.2d at 405. The majority parries the thrust of this rule with a simple statement that recovery here is not dependent on “the rules of common-law negligence, but rather depends on the existence of corporate knowledge.” (Majority op. at 229, 230). I am not sure precisely what that statement means, but it does not provide support or authority for the majority’s decision. Rather, this case on appeal is more closely akin to the venerable case of Centennial Mutual Life Association v. Parham, 80 Tex. 518, 16 S.W. 316 (1891). That case spoke to the knowledge of an agent ordinarily being imputable to his principal. Chief Justice John W. Stayton wrote for the court that:
It is ordinarily true that a principal is affected with notice of such facts as come to the knowledge of his agent in the course of his business. When an agent, however, ceases to act for his principal in good faith and through collusion with another, desiring through him to cheat and defraud the principal, practically enters into the service *248of that other for the purpose of promoting the interest of that person, or the common interest of himself and that other, in fraud of his principal, then the person who so avails himself of the services of such an agent cannot claim that his act or his knowledge in reference to matters to which the fraudulent collusion relates are binding on the person intended to be defrauded. In such a case, the agent pro hac vice becomes the agent of the person he collusively serves.
Id. 16 S.W. at 319.
In this case, after the Nelson litigation arose and Maryland denied coverage, all of Gans & Smith’s actions were in collusion with Nelson, TU, and Head. In fact, Gans & Smith’s Payne declined to talk to Maryland about Gans & Smith’s role as Maryland’s recording agent until it had arranged a collusive deal with the others whereby it could not be held accountable. Payne told Maryland he did not know what he could tell it because Gans & Smith was represented by an attorney in the Nelson suit. Under these circumstances, the majority’s holding that Gans & Smith’s knowledge is imputed to Maryland as a matter of law is not supported by agency law and is directly refuted by it.
For these reasons, I disagree with the majority’s position that Payne’s conduct in failing to inform the company of the coverage actually sold was imputed to Maryland.31 No evidence supports a bad faith finding on the part of Maryland.
I would modify the judgment to allow recovery for the policy limits and costs of defense only. As modified, I would affirm. Under no circumstances should Head be allowed to recover punitive damages, or additional damages, against Maryland.
I disagree with the majority’s decision and, insofar as it allows recovery for more than the policy limits and costs of defense, I respectfully dissent.

. The majority declines to give effect only to one of the agreements on appeal. Maj. op. at 236. The only significance of the majority’s action is that the insurance agency rather than the insurance carrier may have to fund the fraud.

. 202 So.2d 8 (Fla.Dist.Ct.App.1967).

. See American Transp. Co. v. Central Indiana Ry. Co., 255 Ind. 319, 264 N.E.2d 64, 67 (1970) (as of 1970 such agreements had been used by railroads for at least thirty years to induce plaintiffs to proceed against railroads’ joint tortfea-sors).

. Woods v. William M. Mercer, Inc., 769 S.W.2d 515 (Tex.1988); Garcia v. American Physicians Ins. Exch., 812 S.W.2d 25 (Tex.App. — San Antonio 1991), rev'd, 876 S.W.2d 842 (Tex.1994).

. Wheelways Ins. Co. v. Hodges, 872 S.W.2d 776 (Tex.App.— Texarkana 1994, no writ).

. Zuniga v. Groce, Locke & Hebdon, 878 S.W.2d 313 (Tex.App. — San Antonio 1994, writ ref'd).

. State Farm Fire & Casualty Co. v. Gandy, 880 S.W.2d 129 (Tex.App.—Texarkana 1994, writ granted).

. The majority of this court allows Nelson and Head to reap the full benefits of the ill-gotten judgment, but it takes a tougher stance against the insurer and the insurance agency. It directs that they fight it out in yet another judicial proceeding to see which one must pay the judgment in an amount of almost four times the policy limits.

.Although the supreme court originally held in Garcia that the amount of judgment was no evidence of damage, in its ultimate opinion it expressly declined to rule on the question whether a pretrial nonexecution agreement negated all damages from the amount of the judgment. American Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 843 (Tex.1994). The damages, in reality, from such judgments are nonexistent. If the lawyer representing the party against whom the judgment was taken — like Head in these proceedings — held up the judgment before the jury and said, “Look how we have been damaged,” he would surely look away from the jury and wink at the other lawyers aligned with him or perhaps whisper, "Ha! Ha!” to them. In truth, the lawyers and judge know these are "Ha! Ha!” damages, or fictional damages. But the jury is not given the facts.

. Pool v. Ford Motor Co., 715 S.W.2d 629 (Tex.1986).

. Application for writ of error, Crum & Forster, Inc. v. Monsanto Co., filed in the Court of Appeals, Sixth District, Mar. 3, 1995, p. 6 (filed just before settlement of the case).

.The majority summarily disagrees with my view that today's decision circumvents Watson. It says that, after all, "Head Industrial is the named insured” (maj. op. at 225), wholly failing to address the notion that, because Head has assigned its rights to Nelson, the effect of these proceedings is to allow Nelson to proceed directly against Maryland, albeit via assignment.

. Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129 (Tex.1988).

. Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165 (Tex.1987).

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

. As a member of the court in Monsanto, I candidly concede that I was unaware of the Texas Supreme Court's Soriano and Garcia counsel on this legal question when we made the statement in Monsanto quoted by the majority. Majority op. at 226. I can only assume that the majority also was unaware of this counsel at that time.

.The majority finds "incomprehensible” any distinction in an insurer's duty to its insured based upon whether the insurance contract covers first-party losses or third-party losses. Majority op. at 226. Perhaps it might try harder to examine the differences between the two insurer-insured relationships rather than hold fast to a previous uninformed position.

. Even the jury, although denied most of the facts, could see enough to find that any wrongful conduct on the part of Maryland was not committed "knowingly.”