Ranger County Mutual Insurance Co. v. Guin , 30 Tex. Sup. Ct. J. 159 ( 1987 )

WALLACE, Justice.

This case concerns the liability of an insurance company for negligence in the handling of a claim against its insured. Pursuant to a jury verdict the trial court rendered judgment for the plaintiff insureds. The insurer appealed and the court of appeals affirmed the judgment of the trial court. 704 S.W.2d 813. We affirm the judgment of the court of appeals.

Billy Wayne Peden, as owner of a dump truck, was the named insured under an insurance policy issued by Ranger County Mutual Insurance Company. The policy limits were $10,000/$20,000/$10,000. John Wesley Guin, as an independent contractor, operated the truck to haul for various entities including Peden’s employer, Texas Bitulithic Company. Guin, while hauling sand for G. & G. Construction Company, was involved in a collision with a truck owned by Eagle Trucking Company and operated by Robert Fitch. The Peden truck struck the Eagle truck broadside causing Fitch to incur serious injuries including a broken neck and a broken leg. Guin was also injured in the collision. Property damage to the Eagle truck and resulting consequential damages were in excess of $37,000.

Peden and Guin filed suit against Fitch and Eagle Trucking Company for property damage to Peden’s truck and personal injury damage incurred by Guin. Fitch and Eagle Trucking Company cross-claimed for personal injury damages to Fitch and property damages to Eagle’s truck. Fitch and Eagle later included Texas Bitulithic Company and G. & G. Construction Company as third-party defendants.

The jury found Guin’s negligence to be 100% of the cause of the collision. They assessed actual damages to Fitch in the amount of $216,232.25 and property damages to Eagle in the amount of $47,000.

Claiming that Ranger could have settled this claim within the policy limits, Peden and Guin subsequently brought this suit against Ranger under the “Stowers Doctrine.” Based upon a jury verdict, the trial court rendered a judgment of $175,000 actual damages and $50,000 punitive damages for Peden and a like amount for Guin, for a total judgment of $450,000.

The dispositive issues before us are: (1) whether the basis for a “Stowers Doctrine” suit is limited to the insurer’s refusal to settle in response to an unconditional offer to settle all claims against the insured within the policy limits and (2) whether there was legally sufficient evidence to support the jury verdict. The trial court submitted the case to the jury based upon the following Special Issue:

SPECIAL ISSUE NO. 1

Do you find from a preponderance of the evidence that the Defendant, RANGER COUNTY MUTUAL INSURANCE COMPANY, was negligent in the manner in which it handled the claim and lawsuit asserted against its insureds, BILLY WAYNE PEDEN and JOHN WESLEY GUIN?

Answer: “We do” or “We do not.”

ANSWER: “We do.”

“NEGLIGENCE” as used in this special issue means the failure to exercise that degree of care and diligence which an ordinarily prudent person would exercise in the management of his own business. If an ordinarily prudent person in the exercise of ordinary care, as viewed from the standpoint of the insured, would have settled the case, but the defendant failed or refused to do so, then the defendant is negligent. The duty to settle implies the duty to negotiate.

You are instructed that the Defendant, RANGER COUNTY MUTUAL INSURANCE COMPANY, by the nature of its insurance contract with its insureds, BILLY WAYNE PEDEN and JOHN WESLEY GUIN, assumed the responsibility to act as the exclusive and absolute agent of the insured in all matters pertaining to the questions in litigation and, as such agent, the Defendant is held to that degree of care and diligence which an ordinary prudent person would exercise in the management of his own business.

You are further instructed that when an insurance company hires an attorney, pursuant to an insurance contract, to represent an insured in litigation, then that attorney is deemed, under the law, to be the sub-agent of the insurance company. As such, the insurance company is as responsibile to the insured for the conduct of the sub-agent with reference to the litigation as the insurance company is for its own conduct. Therefore, the insurance company is liable to the insured for damages caused to the insured, if any, by the negligence, if any, of the sub-agent in conducting the affairs of the insured with reference to the litigation.

Where an insurance company acts as the agent of its insureds in the defense of a claim for monetary damages, it is bound under the law to give the rights of its insureds at least as great consideration as it does its own.

You are further instructed that under the law of Texas, an insurance carrier is required to exercise ordinary care in considering whether an offer of settlement should be accepted and whether it should offer the liability limits of its insurance policy but it is not necessarily a failure to exercise ordinary care merely because its decision proves to be wrong by reason of a jury verdict; in other words, the duty to exercise ordinary care leaves room for an error in judgment, without negligence necessarily resulting therefrom.

Ranger, in multiple points of error, contends that a “Stowers Doctrine” case can be based only upon an insurer’s failure to settle a claim against the insured when the claimant offers to settle within the policy limits and fully release the insured from all liability. As authority for this position, Ranger relies on G.A. Stowers Furniture Co. v. American Indemnity Co., 15 S.W.2d 544 (Tex.Comm’n App.1929, holding approved). Peden and Guin also rely on Stowers as authority for their contention that an insurer is liable to the insured for negligent handling of the claim.

The insurance policy in Stowers contained provisions very similar to the Ranger policy in this case. It gave the insurer the right to take complete and exclusive control of the investigation, negotiation and defense of the claim. The policy limited the insurer’s duty to a defense of the insured and payment of any judgment up to the policy limits.

We held in Stowers that an insurer which, under the terms of its policy, assumes control of a claim, investigates the claim and hires an attorney to defend the insured, becomes the agent of the insured and the attorney becomes the sub-agent of the insured. We further held in Stowers that an insurer is held to that degree of care and diligence which an ordinary prudent person would exercise in the management of his own business. If an insurer refuses an offer of settlement when it appears that an ordinary prudent person in the insured’s situation would have settled, the insurer may be held liable for damages. Stowers, 15 S.W.2d at 547.

When Ranger undertook to defend Peden and Guin, it became their agent. Ranger hired attorney Otto Ritter to represent Pe-den and Guin, so Mr. Ritter became their sub-agent. Any negligence on the part of either Ranger or Mr. Ritter would support a suit by Peden and Guin for damages. An insurer’s duty to its insured is not limited to the narrow boundaries contended by Ranger, rather it extends to the full range of the agency relationship. In this case, that includes investigation, preparation for defense of the lawsuit, trial of the case and reasonable attempts to settle.

There is no contention that Ranger was negligent in investigation or trial of the Fitch/Eagle lawsuit. Peden and Guin contend that Ranger failed to advise them of any settlement offer, and failed to offer its policy limits despite its awareness that the liability factors were adverse and there was a probability that the jury verdict would exceed policy limits.

There is evidence from Ranger’s employees in charge of this claim file that their attorney was given no authority to settle the property damage claim in excess of $37,000 even though their limit was only $10,000 and there was a high probability that they would lose on the liability issue. There is evidence to support the contention that Ranger authorized its attorney to offer only the $10,000 personal injury limits of its policy, and nothing for property damage, when it was aware of the very serious injuries incurred by Fitch, that the liability factors favored Fitch and that a jury verdict would very likely exceed the policy limits. Mr. Ritter testified that he did offer the policy limits before judgment. His testimony was corroborated by two lawyers in his law firm. His testimony was contradicted by Peden, Guin, their wives, and the two lawyers representing them. This presented a fact question which the jury found adverse to Ranger.

Eagle and Fitch made the following offer to settle during trial:

We hereby offer to settle the claim of Robert Fitch for personal injuries against Bill Peden and G. & G. Construction and agree not to collect any judgment against Johnny Guinn (sic) for the total settlement sum of $19,500.00. We further offer to settle on the same terms and basis for $19,500.00 for property damage to the Eagle Trucking Company vehicle. This will finally settle the claim of Robert Fitch together with the Workmen (sic) Compensation carrier’s subro-gation claim and Eagle Trucking’s property damage claim. The above offer is based on your representation that the insurance policies involved have limits of 10/20/10. If limits are otherwise, we offer to settle for such limits less $500.00. We will settle with either defendant separately for one-half of the above offer.

Ranger contends this settlement offer of Fitch and Eagle was conditional in that it offered only to release Peden and not to collect any judgment against Guin. The court of appeals held this to be an unconditional offer to settle. We need not reach that point. The evidence was contradictory as to whether Mr. Ritter advised Peden and Guin of the offer or explained it to them. His failure to do so would support a finding of negligence. The jury found negligence, which was the controlling issue. The finding was supported by the evidence, so the question of an unconditional offer was merely evidentiary.

Mr. Ritter, although hired by Ranger, also represented Peden in his claim for property damage and Guin in his claim for personal injury against Fitch and Eagle. There is evidence that he refused to offer the $10,000 personal injury limit to Fitch unless Eagle agreed to pay Peden and Guin something on their claim. The jury was entitled to consider that evidence in making their determination of Ranger’s negligence. There is ample evidence to support the jury verdict of negligence.

Ranger further contends that the instructions accompanying Special Issue No. 1 were inadequate in that they did not outline the legal criteria for handling claims and lawsuits. This contention is erroneous. The instructions given by the trial court properly explained the basis upon which the jury could find negligence in a case of this type. The instructions also properly limited the jury to the evidence before them and cited the pertinent law. The conduct of an ordinary prudent person in the exercise of ordinary care does not require further definition.

Ranger contends that at most it merely breached its contract and there is no basis for an award of exemplary damages. A negligent breach of an agency relationship constitutes an independent tort for which an action for damages will lie. This point of law has been well-settled •since this Court’s holding in Williams v. O’Daniels, 35 Tex. 542 (1871).

In reviewing Ranger’s no evidence points attacking the jury’s finding of gross negligence, we are guided by our opinion in Burk Royalty Co. v. Walls, 616 S.W.2d 911 (Tex.1981). We look to evidence of the mental state of the defendant to determine if there was a conscious disregard of the rights of the injured party. The testimony of Ranger’s claim personnel and its claim file, as set out in detail in the court of appeals opinion, is some evidence of the requisite mental state of Ranger to support exemplary damages. We have carefully re-examined all of Ranger’s points of error and find none of them to be valid.

The judgment of the court of appeals is affirmed.

GONZALEZ, J., filed a dissenting opinion in which SPEARS, J., joined.