Onebeacon Insurance Co. v. T. Wade Welch & Associates , 841 F.3d 669 ( 2016 )

Case: 15-20402 Document: 00513758375 Page: 1 Date Filed: 11/14/2016
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
No. 15-20402 FILED
November 14, 2016
Lyle W. Cayce
ONEBEACON INSURANCE COMPANY, Clerk
Plaintiff – Appellant Cross-Appellee
v.
T. WADE WELCH & ASSOCIATES; T. WADE WELCH,
Defendants – Appellees Cross-Appellants
DISH NETWORK CORPORATION,
Defendant – Appellee
Appeals from the United States District Court
for the Southern District of Texas
Before BENAVIDES, HAYNES and GRAVES, Circuit Judges.
HAYNES, Circuit Judge:
After a jury verdict against it, OneBeacon Insurance Company
(“OneBeacon”) appeals the judgment, including the district court’s denials of
OneBeacon’s motion for judgment as a matter of law, renewed motion for
judgment as a matter of law, and motion for new trial. In addition, T. Wade
Welch & Associates (the “Welch Firm”) and T. Wade Welch (“Welch”) cross-
appeal the district court’s denial of its motion for entry of judgment.
Finding no error, we AFFIRM.
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I.
A.
Since the mid-1990s, the Welch Firm has represented DISH Network
Corporation (“DISH”) in over 400 different matters. The Welch Firm
eventually became DISH’s go-to litigation counsel, handling the majority of
DISH’s litigation, except for patent cases and small-claims cases. In or around
2003, DISH hired the Welch Firm to defend it in a suit brought against DISH
by Russian Media Group (“RMG”) (the “RMG Litigation”) in federal court in
Connecticut. Ross Wooten served as the first chair attorney from the Welch
Firm on the case.
In 2005, RMG served discovery on DISH. Wooten did not respond to
RMG’s discovery requests within the time limit, believing that he and RMG’s
counsel, David Golub, had orally agreed to extend the response deadline.
Golub later moved to compel Wooten to respond to the pending discovery
requests. Wooten did not respond to the motion. On February 23, 2006, the
Connecticut district court entered a discovery order (the “discovery order”)
requiring DISH to respond to all of RMG’s requests by March 16, 2006.
Wooten responded to RMG’s requests for admissions and interrogatories
and soon thereafter produced roughly 5,000 pages of documents to RMG.
Wooten did not, however, have DISH verify the responses at this time.
Further, a number of Wooten’s responses to interrogatories promised a later
supplement that would identify, by Bates number, applicable documents
relevant to the interrogatory. Wooten believed that he had complied with his
discovery obligations at that time.
On November 20, 2006, Welch, on behalf of the Welch Firm, completed
an application for insurance with Westport Insurance Company (“Westport”).
The application asked the following question:
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After inquiry of each lawyer, is the Applicant, its
predecessor firms or any lawyer proposed for this
insurance aware of any fact or circumstance, act, error,
omission or personal injury which might be expected
to be the basis of a claim or suit for lawyers . . .
professional liability?
Welch responded “No.” The application also asked, “[i]n the past five
years, has any action been taken against any lawyer proposed for this
insurance for disbarment, suspension, reprimand, or other disciplinary
action?” Welch responded “No.” The application also stated, “All claims will
be excluded that result from any acts, circumstances or situations known prior
to the inception of coverage being applied for, that could reasonably be expected
to result in a claim.”
On December 20, 2006, Welch represented to OneBeacon that the
statements made in the Westport application would be deemed made to
OneBeacon and that all statements were true as of December 20, 2006. He
also stated that he was “not aware of any claims against the Insured or
circumstances, Incidents, disputes or fee problems that may give rise to a claim
against the Insured, other than those disclosed in the application.”
OneBeacon issued a claims-made 1 malpractice policy to the Welch Firm
for December 20, 2006, to December 20, 2007 (the “2006–07 policy”). The 2006–
07 policy had a retroactive date of January 4, 1995, for which the Welch Firm
paid additional premiums. The retroactive date set the earliest possible date
upon which a wrongful act or omission or malpractice could occur and still be
covered under the policy, so long as the claim was made and reported during
the policy term (subject to the policy’s terms and exclusions).
1 “Claims-made” policies are distinct from “occurrence” policies; the latter focus on
whether an insured event occurred as specified during the policy period. The former focus
on the date that the claim was made against the insured. Prodigy Commc’ns. Corp. v. Agric.
Excess & Surplus Ins. Co., 288 S.W.3d 374, 378, 379 n.7 (Tex. 2009).
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The policy excluded certain claims, including, in relevant part:
A. any claim arising out of a wrongful act occurring
prior to the policy period if, prior to the effective date
of the first Lawyers’ Professional Liability Insurance
Policy issued by us to the named insured and
continuously renewed and maintained in effect to the
inception of this policy period:
[ . . .]
2. you had a reasonable basis to believe that you had
committed a wrongful act, violated a disciplinary
rule, or engaged in professional misconduct; [or]
3. you could foresee that a claim would be made
against you . . . .
The policy defined wrongful act as “any actual or alleged act, error,
omission or breach of duty arising out of the rendering or the failure to render
professional legal services.” The definition included “personal injury arising
out of [the insured’s] conduct relating to the delivery of professional legal
services.”
Two months after the effective date of the 2006–07 policy, Golub filed a
motion seeking sanctions (the “Sanctions Motion”) for Wooten’s failure to
comply with the court’s February 2006 discovery order, citing his “blatant
failure to respond fully and properly to [RMG’s] discovery requests.” Golub
identified three deficiencies in Wooten’s discovery responses: his failure to
provide verifications, Bates number references to documents that responded to
certain interrogatories, and certain categories of additional documents. He
requested “death penalty” sanctions against DISH, which would deem RMG’s
three primary claims established and preclude DISH from challenging RMG’s
damages evidence.
Wooten later testified that at this point he still believed he could work
the discovery dispute out and avoid sanctions. Indeed, there was evidence
presented at trial that had Wooten addressed the deficiencies or attempted to
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resolve the dispute with Golub, he might have avoided sanctions altogether
and would have avoided severe sanctions: Golub testified that death penalty
sanctions were “unheard of in Connecticut” and that he believed “there was
never going to be sanctions issued here.” The magistrate judge held a hearing
on the motion for sanctions on July 12, 2007, and the same day, entered an
order granting RMG’s motion for death penalty sanctions (the “Sanctions
Order”). Wooten did not tell DISH or the Welch Firm about the Sanctions
Order.
On December 6, 2007, Welch completed a renewal application for
malpractice insurance with OneBeacon, this time using OneBeacon’s
application form. The application asked:
Have you or any member of your firm ever been
disbarred, refused admission to practice law,
suspended, reprimanded, sanctioned, fined, placed on
probation, held in contempt or the subject of any
disciplinary complaint, grievance or action by any
court, administrative agency or regulatory body?
[...]
Are you or any members or employees of your firm
aware of any fact, circumstance, or situation which
might reasonably be expected to give rise to a claim?
Welch answered “No” to both questions. OneBeacon renewed the policy
for the period December 20, 2007, through December 20, 2008 (the “2007–08
policy”). The 2007–08 policy had the same prior-knowledge exclusion as the
2006–07 policy.
Wooten filed objections to the magistrate judge’s order, but the district
court affirmed the Sanctions Order in February 2008. Welch first learned of
the order from another associate at the firm; Welch then informed DISH’s
general counsel of the order. Welch reached out to Wooten for information
regarding the order, but Wooten resigned from the firm. DISH replaced the
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Welch Firm with another firm in August 2008, which failed to overturn the
Sanctions Order.
In April 2008, the Welch Firm advised OneBeacon that DISH had a
potential malpractice claim relating to the RMG Litigation. OneBeacon
responded with a reservation of rights and a request to be notified if the Welch
Firm received a formal demand from DISH. On June 4, 2008, the Welch Firm
informed OneBeacon that RMG was demanding in excess of $105,800,000 to
settle the underlying lawsuit. OneBeacon began formally treating the matter
as a claim at this point but had not yet begun an investigation. In December
2010, DISH requested that OneBeacon make its policy limits available for a
potential settlement with RMG.
OneBeacon later sent Welch an “investigative” reservation-of-rights
letter, which was followed by a supplemental reservation-of-rights letter. The
prior-knowledge exclusion was identified as a potential policy defense in the
latter letter. Counsel for the Welch Firm sent OneBeacon a report concluding
that DISH’s claim against the Welch Firm was “a potentially high exposure
claim” and that “Wooten clearly committed malpractice.” One estimate of
RMG’s damages exceeded $25 million.
On June 14, 2011, DISH offered to settle and release the Welch Firm in
exchange for OneBeacon’s policy limits. DISH did not offer to release Wooten
in this letter. Counsel for the Welch Firm wrote OneBeacon on June 27, 2011,
formally requesting that OneBeacon settle DISH’s claims against the Welch
Firm for an amount within the Welch Firm’s policy limits. OneBeacon
responded on August 5, 2011, declined DISH’s settlement offer, and noted that
“it [was] uncertain whether any damages were actually caused by [the Welch
Firm].”
OneBeacon then rescinded the Welch Firm’s insurance policy, and on
August 22, 2011, filed the instant suit for declaratory judgment, seeking to
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rescind the policy or obtain a declaration that the prior-knowledge exclusion
barred coverage. The Welch Firm counterclaimed, asserting violations of the
common law Stowers duty 2 and the Texas Insurance Code. DISH intervened.
Meanwhile, DISH sent a formal arbitration demand to the Welch Firm, and
ultimately filed a demand in arbitration. 3
The parties filed motions for summary judgment in early 2014, including
cross-motions for summary judgment with respect to the policy’s prior-
knowledge exclusion. 4 The trial court held that the prior-knowledge exclusion
in the OneBeacon policy could not be read in isolation, without considering the
context of the policy as a whole, because to do so would render the policy’s
retroactive coverage illusory. The district court adopted the Welch Firm’s
construction of the prior-knowledge exclusion: whether a reasonable attorney
with Wooten’s subjective knowledge on December 20, 2006, could have
reasonably expected his or her acts, errors and omissions to lead to a
malpractice claim by DISH. Concluding that whether the claim was
foreseeable was an appropriate question for the jury, the court denied the
parties’ motions for summary judgment. During the pretrial conference, the
district court concluded that DISH’s June 14 letter to OneBeacon offering to
settle the case was a valid Stowers demand.
2 Under Texas law, an insurer can be liable for negligently failing to settle a claim
within policy limits. See G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 547
(Tex. Comm’n App. 1929, holding approved).
3 DISH pursued its malpractice claim in arbitration against the Welch Firm in March
2013. The arbitrator found that Wooten had committed malpractice that led to the Sanctions
Order; that, but for the order, DISH had viable defenses to the RMG Action; and that DISH
suffered roughly $12.5 million in damages as a result of the malpractice. In June 2013, a
Texas state court confirmed the arbitration award as a final judgment.
4 In December 2012, the district court granted the Welch Firm’s earlier-filed partial
motion for summary judgment as to OneBeacon’s duty to defend DISH’s malpractice claim.
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B.
The case was tried to a jury. After the Welch Firm rested, OneBeacon
moved for judgment as a matter of law, which the court denied. The jury
returned a verdict in favor of DISH and the Welch Firm on every question.
Specifically, the jury found that OneBeacon had not shown that a reasonable
attorney, given Wooten’s knowledge in December 2006, could have reasonably
expected his actions to result in a malpractice claim; that OneBeacon had not
proved its claim for rescission; that OneBeacon knowingly violated Chapter
541 of the Texas Insurance Code; and that OneBeacon was grossly negligent
in violating its Stowers duties. The jury verdict provided for damages to the
Welch Firm equal to the malpractice judgment (approximately $12.5 million)
plus $8 million in past and future lost profits, $5 million in exemplary
damages, and $7.5 million in additional damages for OneBeacon’s knowing
violation of the Texas Insurance Code. The district court partially remitted
the jury’s award, requiring the Welch Firm to elect between the $5 million
award for gross negligence and the $7.5 million for the knowing violation of the
Texas Insurance Code. OneBeacon filed a renewed motion for judgment as a
matter of law under Rule 50(b) and a motion for new trial under Rule 59. The
district court denied both.
OneBeacon timely appealed, contending that the district court erred in
holding that (1) OneBeacon was not entitled to judgment as a matter of law
based upon the prior-knowledge exclusion, (2) DISH’s June 14, 2011, letter was
a valid Stowers demand, (3) additional damages were proper under Chapter
541 of the Texas Insurance Code, and (4) there was competent evidence of the
Welch Firm’s lost profits. The Welch parties cross-appealed, contending that
the district court erred in requiring Welch to elect between the jury’s $5 million
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award for gross negligence and its $7.5 million award for the knowing violation
of the Texas Insurance Code. 5
II.
Our review of a jury’s verdict is “especially deferential.” SMI Owen Steel
Co. v. Marsh U.S.A., Inc., 520 F.3d 432, 437 (5th Cir. 2008) (quoting Flowers v.
S. Reg’l Physician Servs., Inc., 247 F.3d 229, 235 (5th Cir. 2001)). We review
the denial of a motion for judgment as a matter of law de novo but apply the
same legal standard as the district court. Baisden v. I’m Ready Prods., Inc.,
693 F.3d 491, 498 (5th Cir. 2012). A litigant cannot obtain judgment as a
matter of law “unless the facts and inferences point ‘so strongly and
overwhelmingly in the movant’s favor that reasonable jurors could not reach a
contrary conclusion.’” Id. (quoting Flowers, 247 F.3d at 235). We also draw all
reasonable inferences in the light most favorable to the verdict and cannot
substitute other inferences that we might regard as more reasonable. Westlake
Petrochems., L.L.C. v. United Polychem, Inc., 688 F.3d 232, 239 (5th Cir. 2012).
“[I]t is the function of the jury as the traditional finder of the facts, and not for
the Court, to weigh conflicting evidence and inferences, and determine the
credibility of witnesses.” Roman v. W. Mfg., Inc., 691 F.3d 686, 692 (5th Cir.
2012) (quoting Mosley v. Excel Corp., 109 F.3d 1006, 1009 (5th Cir. 1997)).
The jury is “free to choose among reasonable constructions of the
evidence.” United States v. Ramos-Cardenas, 524 F.3d 600, 605 (5th Cir. 2008).
Thus, we “cannot reverse a denial of a motion for judgment as a matter of law
unless the jury’s factual findings are not supported by substantial evidence, or
if the legal conclusions implied from the jury’s verdict cannot in law be
supported by those findings.” Am. Home Assurance Co. v. United Space All.,
LLC, 378 F.3d 482, 488 (5th Cir. 2004). Nevertheless, “[i]n reviewing an award
5 In this diversity case, we have jurisdiction over this appeal from a final judgment
under 28 U.S.C. §§ 1291 and 1332.
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of damages, we review all issues of law de novo.” Nero v. Indus. Molding Corp.,
167 F.3d 921, 929 (5th Cir. 1999).
Any argument made in a renewed motion for judgment as a matter of
law under Rule 50(b) must have been previously made in a motion for judgment
as a matter of law under Rule 50(a). See Unitherm Food Sys., Inc. v. Swift–
Eckrich, Inc., 546 U.S. 394, 398 n.1 (2006); see also Flowers, 247 F.3d at 238
(“If a party fails to move for judgment as a matter of law under Federal Rule
of Civil Procedure 50(a) on an issue at the conclusion of all of the evidence, that
party waives both its right to file a renewed post-verdict Rule 50(b) motion and
also its right to challenge the sufficiency of the evidence on that issue on
appeal.”).
We review a district court’s denial of a motion for new trial for an abuse
of discretion. See McCaig v. Wells Fargo Bank (Tex.), N.A., 788 F.3d 463, 472
(5th Cir. 2015). “The district court abuses its discretion by denying a new trial
only when there is an ‘absolute absence of evidence to support the jury’s
verdict.’” Wellogix, Inc. v. Accenture, L.L.P., 716 F.3d 867, 881 (5th Cir. 2013)
(quoting Seidman v. Am. Airlines, Inc., 923 F.2d 1134, 1140 (5th Cir. 1991)).
If the evidence is legally sufficient, we must find that the district court did not
abuse its discretion in denying a motion for new trial. See Cobb v. Rowan Cos.,
Inc., 919 F.2d 1089, 1090 (5th Cir. 1991); see also Whitehead v. Food Max of
Miss., Inc., 163 F.3d 265, 269 (5th Cir. 1998) (explaining that it is “far easier”
to show a district court should have granted a motion for judgment as a matter
of law than it is to show a district court abused its discretion by not granting a
new trial).
III.
A.
OneBeacon argues that the district court erred in denying its motion and
renewed motion for judgment as a matter of law based on the policy’s prior-
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knowledge exclusion. Specifically, OneBeacon asserts that the district court
incorrectly concluded that the prior-knowledge exclusion, if applied as written,
would render the policy’s retroactive coverage illusory. Accordingly,
OneBeacon contends the district court also erred in adopting the Welch Firm’s
proposed interpretation of the prior-knowledge exclusion. 6
The district court concluded, as a matter of law, that OneBeacon’s
interpretation of the malpractice policy would render the policy’s retroactive
coverage illusory. The district court then turned to the Welch Firm’s
interpretation of the policy. The Welch Firm urged the court to read the prior-
knowledge exclusion in conjunction with the required disclosures in the 2007
policy application and to construe the exclusion to apply only to a claim arising
out of a wrongful act that the insured could reasonably foresee would result in
a claim. The district court accepted this construction.
The district court could not apply the literal policy language because of
the extreme overbreadth of the wrongful act definition used in the exclusion:
“any actual or alleged act, error, omission or breach of duty arising out of the
rendering or the failure to render professional legal services.” On its face, this
covers every single thing an attorney does or does not do, wrongful or not. As
written, then, the exclusion renders the coverage illusory and is facially
6 As a preliminary matter, we reject DISH’s contention that OneBeacon is barred from
challenging the district court’s denial of its motion for judgment as a matter of law because
OneBeacon failed to include them in its Rule 50(a) motion. See Unitherm, 546 U.S. at 398
n.1. Although OneBeacon’s arguments regarding the prior-knowledge exclusion were
considerably more extensive in its Rule 50(b) motion, the exclusion is also mentioned in its
Rule 50(a) motion, which stated that the district court should rule that the exclusion applies
“as a matter of law.” The Rule 50(a) motion also referenced the more fulsome discussion of
the exclusion engendered by OneBeacon’s prior summary judgment motion, which the
district court denied in an order adopting its supposedly flawed construction of the policy. In
any event, OneBeacon’s arguments on prior knowledge do not turn on sufficiency of the
evidence—they turn solely on policy interpretation, a question of law that was litigated
throughout the district court proceedings. Therefore, we apply de novo review here. Baisden,
693 F.3d at 498.
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absurd. Indeed, OneBeacon concedes that the exclusion requires some
modification, it simply disagrees with the district court’s approach. 7
The exclusion in the context of this policy must be directed at a
“wrongful act” reasonably likely to lead to a malpractice claim. Under the
undisputed facts of this case, at the relevant time of December 20, 2006, the
evidence supports the conclusion that Wooten’s “wrongful acts,” had they been
rectified, would not have resulted in the sanctions that ensued and, thus, would
not have supported the kind of recovery that the policy insured against
(recovery for malpractice). At this point, he was merely under an order to
provide discovery. Such discovery orders are lamentably par for the course in
litigation and even Wooten’s opponent, Golub, agreed that had Wooten
complied before Golub filed the motion in February 2007, death penalty
sanctions, which were very rare, would not have resulted. Wooten would not
receive the motion seeking or the order granting Golub’s request for death
penalty sanctions from the magistrate judge until February and July 2007,
respectively. Furthermore, evidence was presented that Wooten could likely
have cured his mistake almost until the date of the magistrate court’s July
2007 hearing. In the face of this evidence, OneBeacon, which bears the burden
of proving an exclusion applies, cannot prevail as a matter of law on a contrary
view. Crose v. Humana Ins. Co., 823 F.3d 344, 348 (5th Cir. 2016).
For these reasons, we affirm the district court’s orders denying
OneBeacon’s motion and renewed motion for judgment as a matter of law
based on the policy’s prior-knowledge exclusion.
7 OneBeacon never sought a jury question on its own version of the “prior-knowledge”
exclusion, thus its only basis to prevail here is if it is correct that the exclusion applies as a
matter of law, assuming all facts and inferences in Welch’s favor.
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B.
OneBeacon next challenges the district court’s ruling that DISH’s June
14, 2011, letter offering to settle its claims against the Welch Firm in exchange
for a settlement within policy limits was a valid Stowers demand. Specifically,
OneBeacon contends the letter was not a valid Stowers demand because it did
not offer to release Wooten, who was also an insured under the policy.
Under Stowers, in certain circumstances, insurers may be liable for
negligently failing to settle within policy limits claims made against their
insureds. Tex. Farmers Ins. Co. v. Soriano, 881 S.W.2d 312, 314–15 (Tex.
1994); G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 547 (Tex.
Comm’n App. 1929, holding approved). The Stowers duty is activated by a
settlement demand when “three prerequisites are met: (1) the claim against
the insured is within the scope of coverage, (2) the demand is within the policy
limits, and (3) the terms of the demand are such that an ordinarily prudent
insurer would accept it, considering the likelihood and degree of the insured’s
potential exposure to an excess judgment.” Am. Physicians Ins. Exch. v.
Garcia, 876 S.W.2d 842, 849 (Tex. 1994). The demand must also offer to
release fully the insured in exchange for a sum equal to or less than the policy
limits. Id. at 848–49.
OneBeacon argues that to be a “true” Stowers demand, the offer to settle
must offer to release all insureds (here the Welch Firm and Wooten). The
Texas Supreme Court has not spoken directly on this issue. However, we have.
In Travelers Indemnity Co. v. Citgo Petroleum Corp., 166 F.3d 761, 764 (5th
Cir. 1999), we held that, when faced with a settlement demand over a policy
with multiple insureds, an insurer fulfilling its Stowers duty “is free to settle
suits against one of its insureds without being hindered by potential liability
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to co-insured parties who have not yet been sued.” 8 In coming to this
conclusion, we were persuaded by the Texas Supreme Court’s decision in
Soriano. Citgo, 166 F.3d at 765 (citing Soriano, 881 S.W.2d at 314–16). 9
Instead of following Citgo, OneBeacon urges us to follow a recent Texas
appellate decision in which the court found no valid Stowers demand where
only the insured employer and not the employee (an additional insured) would
have been released. Patterson v. Home State Cty. Mut. Ins. Co., No. 01-12-
00365-CV, 2014 WL 1676931, at *10 (Tex. App.—Houston [1st Dist.] Apr. 24,
2014, pet. denied) (mem. op.). 10 However, in that case, the insured employer
had explicitly indicated to its attorney that it “did not want ‘any settlement
8 See also H.R. Mgmt. Co. v. Zurich Ins. Co., 137 F.3d 1350, 1998 WL 92301, at *3 (5th
Cir. 1998) (not designated for publication) (stating that “under Texas law,” an insurer “had
to settle” with certain co-insured’s claimants “as long as the settlement fit the American
Physicians criteria.”).
9 In Soriano, an insured named Soriano negligently crashed into and killed Medina,
as well as Soriano’s own passenger, Lopez. 881 S.W.2d at 313. The driver was insured by
Farmers for $20,000. Id. Upon receipt of a settlement offer from the Lopez family, Farmers
settled with them for $5,000 and offered the remaining $15,000 to the Medina family. Id.
The Medinas rejected the offer and demanded the original policy limit of $20,000. Id. The
Texas Supreme Court ultimately rejected the argument that Farmers violated its Stowers
obligation by settling the claim with the Lopez family for $5,000 and thereby reducing the
amount available for a settlement with the Medinas. Id. at 314–17. The Supreme Court
“conclude[d] that when faced with a settlement demand arising out of multiple claims and
inadequate proceeds, an insurer may enter into a reasonable settlement with one of the
several claimants even though such settlement exhausts or diminishes the proceeds available
to satisfy other claims.” Id.
Like in Citgo, the instant situation differs from the facts of Soriano in that here,
OneBeacon faced multiple insureds rather than a claimant and an insured. In Citgo, we
rejected the same argument OneBeacon makes here to distinguish Soriano that “an insurer
owes a higher duty to its insured than it does to claimants.” Citgo, 166 F.3d at 765-68.
10 We are not bound by decisions from Texas courts of appeals. See Rogers v. Corrosion
Prods., Inc., 42 F.3d 292, 295 (5th Cir. 1995) (“The decisions of lower courts should be given
some weight, but they are not controlling where the highest state court has not spoken on
the subject.”). “To determine Texas law, we look to the decisions of the state’s highest court,
or in the absence of a final decision by that court on the issue under consideration, we ‘must
determine . . . how the state’s highest court would resolve the issue if presented with it.’”
Citigroup Inc. v. Fed. Ins. Co., 649 F.3d 367, 371 (5th Cir. 2011) (quoting Holt v. State Farm
Fire & Cas. Co., 627 F.3d 188, 191 (5th Cir. 2010)).
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demands to be accepted that didn’t involve a release of all of the claims against
both [the employer and the employee.]’” Id. We conclude that the district court
did not err in holding that DISH’s July 14, 2011, letter demanding policy limits
in exchange for a full release of its claims against the Welch Firm was a valid
Stowers demand which OneBeacon rejected.
C.
Next, OneBeacon challenges the jury’s award of additional damages on
the ground that OneBeacon “knowingly” violated Section 541.060 of the Texas
Insurance Code, contending that the district court erred in permitting this
issue to go to the jury.
Chapter 541 of the Texas Insurance Code forbids an insurer from “failing
to attempt in good faith to effectuate a prompt, fair, and equitable settlement
of . . . a claim with respect to which the insurer’s liability has become
reasonably clear.” TEX. INS. CODE § 541.060(a)(2)(A). To have acted
“knowingly,” OneBeacon must have acted with actual awareness of the falsity,
unfairness, or deceptiveness of the act that made it liable under Chapter 541.
See St. Paul Surplus Lines Ins. Co., Inc. v. Dal-Worth Tank Co., Inc., 974
S.W.2d 51, 54 (Tex. 1998). “‘Actual awareness’ does not mean merely that a
person knows what he is doing; rather, it means that a person knows that what
he is doing is false, deceptive, or unfair. In other words, a person must think
to himself at some point, ‘Yes, I know this is false, deceptive, or unfair to him,
but I’m going to do it anyway.’” Id. at 54–55.
OneBeacon contends that it declined to settle the DISH claim because it
believed that the prior-knowledge exclusion in the policy precluded coverage
for the loss resulting from Wooten’s malpractice. To the extent it was wrong
about coverage, OneBeacon argues that its mistake was reasonable because
even the district court concluded that the (patently overbroad) prior-knowledge
exclusion, as written, would preclude coverage.
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However, the Welch Firm points to contradictory evidence supporting
the jury’s finding. For example, OneBeacon’s contemporaneous written
explanation for its rejection of DISH’s demand, which made no mention of any
belief that OneBeacon had valid coverage defenses, belies OneBeacon’s current
argument that it relied on the prior-knowledge exclusion. Furthermore,
DISH’s expert testified that OneBeacon’s conduct was not that of a reasonable
insurer acting prudently, but was an instance of prohibited “post-claim”
underwriting, which he defined as occurring when “the insurance company
realizes that they have a problem, and they desperately look for a way to avoid
paying the claim. And what they’ll do is they’ll try to search for a morsel of
evidence that they can conceivably turn into a material misrepresentation,
such as we have here.”
Although OneBeacon can point to evidence that it believed it had
coverage defenses in order to rebut the suggestion that OneBeacon knowingly
engaged in false, deceptive, or unfair practices, the jury was free to disregard
that evidence and credit the testimony of DISH’s expert. The evidence does
not point so strongly and overwhelmingly in OneBeacon’s favor that reasonable
jurors could not have reached a different conclusion. See Flowers, 247 F.3d at
235. Accordingly, the district court did not err in entering judgment on the
jury’s award of additional damages on the ground that OneBeacon “knowingly”
violated Section 541.060 of the Texas Insurance Code.
D.
OneBeacon next challenges the jury’s award of $8 million in past and
future lost profits to the Welch Firm. Specifically, OneBeacon argues that
there was no competent evidence for the jury to come to this conclusion.
In its Rule 50(b) motion, OneBeacon moved for renewed judgment as a
matter of law on the Welch Firm’s lost profits claim. As to this claim, however,
OneBeacon did not move for judgment as a matter of law before the jury’s
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verdict in its Rule 50(a) motion. We have held that a party cannot “renew” a
motion it never made. In re Isbell Records Inc., 774 F.3d 859, 868–69 (5th Cir.
2014); Flowers, 247 F.3d at 238 (“If a party fails to move for judgment as a
matter of law under Federal Rule of Civil Procedure 50(a) on an issue at the
conclusion of all of the evidence, that party waives both its right to file a
renewed post-verdict Rule 50(b) motion and also its right to challenge the
sufficiency of the evidence on that issue on appeal.”). 11 We have also held that
we lack power to address a claim not properly raised in a Rule 50(b) motion.
See McClendon v. Big Lots Stores, 749 F.3d 373, 374–75 (5th Cir. 2014) (not
designated for publication) (collecting cases concerning the failure to make a
Rule 50(b) motion on a ground raised in a Rule 50(a) motion and concluding
that a failure to make a proper Rule 50(b) motion precludes review on appeal).
Thus, we conclude that this issue is not properly before us. 12
E.
In its cross-appeal, the Welch Firm challenges the district court’s denial
of its motion for entry of judgment for failing to include the jury’s award for
exemplary damages based on gross negligence in the final judgment. At the
11 The Welch Firm objected to the “renewed” motion on this ground, so it did not forfeit
this point. See Decorte v. Jordan, 497 F.3d 433, 438 (5th Cir. 2007) (noting that a litigant
must raise in the district court its opponent’s failure to link a Rule 50(b) motion to arguments
raised in an earlier Rule 50(a) motion).
12 Even if we were to apply plain error review as urged by OneBeacon, we would
conclude that the challenge fails. OneBeacon argues that the Welch Firm failed to prove
causation of lost profits “with reasonable certainty.” However, the “reasonable certainty”
standard under Texas law of lost profits deals with the amount of damages, not causation.
Texas Instruments v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994) (recovery
of lost profits is allowed where loss of profits is the “natural and probable consequences of the
act or omission complained of;” however, “the amount of the loss must be shown by competent
evidence with reasonable certainty.” (citations omitted)). OneBeacon argues that DISH
would not have continued to use the Welch Firm regardless of OneBeacon’s actions on the
Stowers demand. There was evidence to the contrary, and the amount of lost profits was
shown with reasonable certainty. OneBeacon’s argument would thus fail under plain error
review.
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conclusion of trial, the jury rendered a finding that OneBeacon committed a
violation of Chapter 541 knowing that its conduct was false, deceptive, and
unfair. It also found that OneBeacon’s refusal to settle DISH’s malpractice
claim against the Welch Firm constituted “gross negligence.” The jury
assessed damages for each of these violations separately, finding $7.5 million
in additional damages for “knowingly” violating Chapter 541 and $5 million in
common law exemplary damages for the grossly negligent Stowers violation.
The district court held that it could include only one of the two awards in the
final judgment, because “both claims related to essentially the same series of
actions and the ultimate refusal to settle.”
Under the one satisfaction rule, Texas law limits recovery to one
satisfaction per injury. Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 7
(Tex. 1991), modified on other grounds in Tony Gullo Motors I, L.P. v. Chapa,
212 S.W.3d 299, 311 (Tex. 2006). Therefore, Texas law may force plaintiffs to
elect the recovery they prefer if they receive a jury verdict with more than one
assessment of damages. Kish v. Van Note, 692 S.W.2d 463, 467–68 (Tex. 1985).
However, when “awards of additional damages and punitive damages [are]
based upon separate jury findings and upon different acts,” a plaintiff may be
entitled to both such damages. Berry Prop. Mgmt., Inc. v. Bliskey, 850 S.W.2d
644, 665–66 (Tex. App.—Corpus Christi 1993, writ dism’d by agr.); see also
Tompkins v. Cyr, 202 F.3d 770, 787 n.11 (5th Cir. 2000); Birchfield v.
Texarkana Mem’l Hospital, 747 S.W.2d 361, 367 (Tex. 1987) (holding that
separate awards of exemplary damages require that the verdict include
“separate and distinct findings of actual damages”).
Berry elucidates this distinction. In Berry, Juli Bliskey lived in a
townhome managed by Berry Property Management Incorporated (“Berry”).
850 S.W.2d at 651. An intruder broke into her apartment while she was asleep,
using a key to her unit. Id. The intruder sexually assaulted Bliskey. Id. She
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sued Berry, asserting a negligence claim and a claim under the Texas
Deceptive Trade Practices Act (“DTPA”). Id. Each claim was based on a
different act by Berry: the negligence claim was based on lacking safety
procedures, which allowed the intruder to obtain a copy of Bliskey’s key,
whereas the DTPA claim was based on Berry’s failure to provide Bliskey with
a statutorily-required night latch for her door. Id. at 654, 658. The jury
awarded Bliskey compensatory damages resulting from Berry’s negligence and
from Berry’s deceptive conduct under the DTPA. Id. at 664. In addition, it
awarded Bliskey common law exemplary damages, as well as additional DTPA
damages. Id.
The court of appeals determined that the one satisfaction rule applied
and allowed Bliskey to receive only one recovery for her compensatory damages
because she only suffered one injury. Id. at 666. However, because “Berry
engaged in two different acts” the court of appeals held that “the trial court did
not err in awarding Bliskey both common law exemplary damages and
statutory additional damages.” Id. at 665.
The Welch Firm argues that, like in Berry, the jury found that
OneBeacon violated two claims—Chapter 541 and the common law Stowers
doctrine—such that it is entitled to the separate jury awards of both additional
and exemplary damages. In support, the Welch Firm argues each claim entails
distinct forms of culpability and injury.
The Welch Firm’s attempts to distinguish the causes of action and their
damage amounts are unavailing. The Texas Supreme Court has held that a
party bringing a claim under Chapter 541 premised on the failure to settle
must meet the requirements of a Stowers claim. Rocor Int’l, Inc. v. Nat’l Union
Fire Ins. Co., 77 S.W.3d 253, 260–62 (Tex. 2002). Not only do “the two causes
of action have certain overlapping elements,” as the Welch Firm admits, but
also the causes of action are also almost identical. Accepting the Welch Firm’s
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understanding of the law, therefore, would allow for separate additional and
exemplary damage assessments based on claims that almost always involve
identical acts. Furthermore, many of the Welch Firm’s arguments attempt to
distinguish the claims and the jury’s findings. But Berry requires that the
awards be “based upon separate jury findings and upon different acts,” and the
Welch Firm failed to show that OneBeacon’s acts under each claim were
materially different. 850 S.W.2d at 665–66 (emphasis added). As the district
court aptly stated, “[w]hile the jury may have considered some of OneBeacon’s
actions in handling the settlement decision more when assessing the common
law Stowers claim than in assessing the additional damages claim under
Chapter 541, both claims related to essentially the same series of actions and
the ultimate refusal to settle.” Therefore, the district court did not err in
requiring the Welch Firm to choose between additional damages under
Chapter 541 and exemplary damages under Stowers.
AFFIRMED.
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