White Lion Holdings. L.L.C. and Bernard Morello v. Insgroup, Inc. D/B/A Agia Agricultural Ins. Agency Scottsdale Ins. Co., and U.S. Risk Underwriters, Inc. ( 2019 )

Opinion issued December 31, 2019
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-18-00851-CV
———————————
WHITE LION HOLDINGS, L.L.C. AND BERNARD J. MORELLO,
Appellants
V.
INSGROUP, INC. D/B/A AGIA AGRICULTURAL INS. AGENCY, Appellee
On Appeal from the 268th District Court
Fort Bend County, Texas
Trial Court Case No. 06-DCV-148721
MEMORANDUM OPINION
White Lion Holdings, L.L.C. purchased an insurance policy from Scottsdale
Insurance Company. There were two intermediaries involved in the transaction:
U.S. Risk and Insgroup, Inc.1 White Lion did not receive the coverage it believed
was contractually due, and it, along with its sole member and manager, Bernard J.
Morello, (collectively referred to as White Lion) sued all three entities. U.S. Risk
settled with White Lion. Scottsdale also settled with White Lion. Scottsdale and
White Lion executed a settlement release in 2008. White Lion went to trial against
the only remaining defendant, Insgroup, in 2018.
After White Lion rested, Insgroup moved for a directed verdict, arguing that
it was included in the release White Lion executed 10 years earlier. The trial court
granted the motion, dismissed the jury, and entered judgment in Insgroup’s favor.
White Lion appeals, arguing that the trial court erred in concluding that the release
with Scottsdale also released White Lion’s claims against Insgroup.
We reverse.
Standard of Review
A trial court may direct a verdict for a defendant when a plaintiff fails to
present evidence raising a fact issue essential to its right of recovery or when the
evidence conclusively proves a fact that establishes the defendant-movant’s right
1
Many insurance transactions involve one or more intermediaries. See Michael
Sean Quinn, “Agents” and “Brokers”: Texas Statutory Definitions and Rule-
Entailing Characterizations, 8 J. TEX. INS. L. 2, 2 (Fall 2007). The intermediaries
may be referred to as agents, brokers, producers, or other titles. See id.; see also
May v. United Servs. Ass’n of Am., 844 S.W.2d 666, 669 n.8 (Tex. 1992)
(discussing insurance agents and brokers who sell insurance); Spring v. Walthall,
Sachse & Pipes, Inc., No. 04-05-00228-CV, 2005 WL 2012669, at *1 (Tex.
App.—San Antonio 2005, no pet.) (noting that insurance producers also sell
insurance).
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to judgment as a matter of law. Prudential Ins. Co. of Am. v. Fin. Review Servs.,
Inc., 29 S.W.3d 74, 77 (Tex. 2000). In reviewing the grant of a directed verdict, we
follow the standard of review for assessing legal sufficiency of the evidence. S.V.
v. R.V., 933 S.W.2d 1, 8 (Tex. 1996); see generally City of Keller v. Wilson, 168
S.W.3d 802 (Tex. 2005). We consider the evidence in the light most favorable to
the non-movant. Tex. Emp’rs Ins. Ass’n v. Page, 553 S.W.2d 98, 102 (Tex. 1977);
Mikob Props., Inc. v. Joachim, 468 S.W.3d 587, 594 (Tex. App.—Dallas 2015,
pet. denied). We can consider any reason why the directed verdict should have
been granted, even if not stated in the party’s motion. Gomer v. Davis, 419 S.W.3d
470, 476 (Tex. App.—Houston [1st Dist.] 2013, no pet.).
The Release and Directed Verdict
After White Lion presented its evidence and rested, Insgroup orally moved
for a directed verdict, relying on the release White Lion executed in connection
with its settlement with Scottsdale a decade earlier. The Scottsdale release states
that, in consideration of the settlement amount, White Lion releases, acquits and
forever discharges
SCOTTSDALE INSURANCE COMPANY, its officers, directors,
shareholders, agents, attorneys, and employees, heirs, assigns, and
members; their affiliated, related, successor, subsidiary and parent
companies and corporations, and their officers, directors,
shareholders, agents, attorneys and employees; and all their insurers,
hereinafter known collectively as the Released Parties, from any and
all claims, demands and causes of action of whatsoever nature,
whether in contract or in tort, and for all other losses and damages of
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every kind or character which have accrued, or may ever accrue, by
reason of the matters or transactions made the basis of this litigation,
including, but not limited to, any and all claims or causes of action
arising out of, or in any way related to, the damages allegedly
sustained by Plaintiffs, White Lion Holdings, L.L.C. and Bernard
Morello, as the result of contractors removing equipment pursuant to
the bankruptcy sale of the former Vision Metals steel plant . . . .
Stated more succinctly, White Lion released Scottsdale and its “agents” from all
claims related to damage caused by contractors removing equipment from White
Lion’s Fort Bend property.
Insgroup made three arguments in support of its motion for directed verdict.
First, it argued that the broad language of the release resulted in the release of all
claims White Lion may have in connection with the Scottsdale insurance policy.
Second, it argued that, by statute, and as a matter of law, Insgroup is an agent of
Scottsdale, citing to Section 4001.051 of the Texas Insurance Code and, therefore,
Insgroup was one of the “Released Parties,” which was defined in the release to
include Scottsdale and its “agents.” Third, it argued that the directed verdict was
mandatory in that Insgroup had pleaded release as an affirmative defense and
White Lion had not amended its pleading to assert a defense to that affirmative
defense, relying on Ellis v. Woods, 453 S.W.2d 509 (Tex. App.—El Paso 1970, no
writ).
White Lion made two arguments in response. First, it argued that Insgroup
waived its affirmative defense by litigating the case for 10 years without arguing
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the release insulated it from liability, not providing any context or argument in its
pleadings that raised release as an affirmative defense, and seeking relief, including
attorney’s fees, although the release—if Insgroup actually was a party to it—would
have prevented such a claim between parties to the release. White Lion argued that
the law does not support ambush tactics such as these.
Second, White Lion argued that the conduct of the parties makes clear that
Insgroup was not a released party. White Lion noted that, after the Scottsdale
settlement, Scottsdale sought and obtained a severance so that a judgment could be
entered resolving White Lion’s claims against it. According to White Lion, a
severance would not have been needed if the only remaining defendant—
Insgroup—was also released when Scottsdale settled. White Lion pointed out that
Insgroup did not seek dismissal at the time of the release, did not oppose the
severance, and never took any steps to indicate to the parties or to the trial court
that it considered itself covered by the release, except amending its answer to
plead, without context, the affirmative defense of release.
Insgroup responded by reurging its points about the release language being
broad, the Insurance Code designating it as Scottsdale’s agent as a matter of law,
and the failure of White Lion to plead any defense to release.
At that point, the trial court granted the directed verdict, stating, “It is very
clear in my mind that this was a full and complete release.” About a month later,
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the trial court entered a final take-nothing judgment in Insgroup’s favor. The
judgment states that Insgroup argued that the release was dispositive of White
Lion’s claims against it and moved for a directed verdict, that the trial court
considered Insgroup’s argument and White Lion’s response, and that the trial court
granted the directed verdict.
The Appeal Presents a Question of Law
Insgroup was the defendant in the trial court. A directed verdict in its favor
was proper only if Insgroup established a right to judgment as a matter of law.
Prudential Ins. Co., 29 S.W.3d at 77. In other words, there had to be legally
insufficient evidence to permit recovery against it. See S.V., 933 S.W.2d at 8. This
presents a question of law. See City of Keller, 168 S.W.3d at 822.
On appeal, Insgroup argues that it is entitled to an affirmance of the trial
court’s judgment, regardless of merit, because White Lion requested only a partial
reporter’s record on appeal and failed to include in its request a statement of points
or issues to be presented. See TEX. R. APP. P. 34.6(c) (permitting a party to present
a partial reporter’s record if the party includes in the request a statement of the
points or issues to be presented on appeal). Insgroup argues that, “[b]y failing to
request the complete reporter’s record, White Lion has made it impossible for the
Court to review all evidence presented . . . [and] forfeited appellate relief.” We
disagree.
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“The appellate record consists of the clerk’s record and, if necessary to the
appeal, the reporter’s record.” TEX. R. APP. P. 34.1 (emphasis added). When a
contention amounts to a strict question of law, a reporter’s record is not necessary.
See In re J.A.B., 13 S.W.3d 813, 815 (Tex. App.—Fort Worth 2000, no pet.).
Moreover, the release was attached to pleadings filed with the trial court and is in
the clerk’s record. Cf. Sam Houston Hotel, L.P. v. Mockingbird Restaurant, Inc.,
191 S.W.3d 720, 721 (Tex. App.—Houston [14th Dist.] 2006, no pet.) (noting that
reporter’s record was required in that case because issues required reference to
evidence admitted at trial).
Because White Lion presents a question of law regarding whether its release
with Scottsdale also released its claims against Insgroup and because the release
was part of the clerk’s record on appeal, we reject Insgroup’s argument that it is
entitled to affirmance regardless of the merits.
Pleading a Defense to an Affirmative Defense
Insgroup argues that White Lion may not defend against Insgroup’s
affirmative defense of release because White Lion failed to amend its pleading to
assert any defense to the claimed release. Insgroup argues by analogy that a
plaintiff must plead the discovery rule in response to a defendant’s pleading of the
affirmative defense of statute of limitations. See TEX. R. CIV. P. 94; Woods v.
William M. Mercer, Inc., 769 S.W.2d 515, 518 (Tex. 1988) (“A party seeking to
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avail itself of the discovery rule must therefore plead the rule, either in its original
petition or in an amended or supplemented petition in response to defendant’s
assertion of the defense as a matter in avoidance”).
Here, though, White Lion admits it signed a release as part of its settlement
with Scottsdale and that the release identified certain released parties. What White
Lion disputes is that the release has any relevance to the status of White Lion’s
claims against Insgroup given that Insgroup was not identified by name or
sufficiently descriptive text as a released party.
The rule on affirmative defenses requires that “[i]n a pleading to a preceding
pleading, a party shall set forth affirmatively” any matter “constituting an
avoidance or affirmative defense.” TEX. R. CIV. P. 94. According to the Texas
Supreme Court, an affirmative defense is “[a] defendant’s assertion of facts and
arguments that, if true, will defeat the plaintiff’s or prosecution’s claim, even if all
the allegations in the complaint are true.” Zorrilla v. Aypco Constr. II, LLC, 469
S.W.3d 143, 155–56 (Tex. 2015) (quoting affirmative defense, Black’s Law
Dictionary (10th ed. 2009)). An avoidance “derives from the historic English
common-law pleas of ‘confession and avoidance’” and means “a plea in which a
defendant admits allegations but pleads additional facts that deprive the admitted
facts of an adverse legal effect.” Id. at 156 (quoting confession and avoidance,
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Black’s Law Dictionary (10th ed. 2009)); see Godoy v. Wells Fargo Bank, N.A.,
575 S.W.3d 531, 536 (Tex. 2019) (quoting same).
White Lion’s position is not an affirmative defense or a matter of avoidance
that would invoke Rule 94’s requirement to raise defensive matters. Cf. Godoy,
575 S.W.3d at 536; Zorrilla, 469 S.W.3d at 156. It is, instead, a simple rejection of
the proposition that Insgroup was a released party.
Insgroup had the burden to establish its affirmative defense. See Campbell v.
Abrazo Adoption Assocs., No. 04-07-00093-CV, 2007 WL 3271608, at *3 (Tex.
App.—San Antonio Nov. 7, 2007, pet. denied) (mem. op.) (citing Keck, Mahin &
Cate v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692, 699 (Tex.
2000)). White Lion was not required to amend its petition to hold Insgroup to that
burden.
We cannot agree that White Lion was required to amend its pleading to deny
that Insgroup could meet its burden to establish its affirmative defense, with the
penalty of an automatic take-nothing judgment for failure to do so. See Godoy, 575
S.W.3d at 536 (concluding that party was not required to amend pleading in
response to legal argument and noting that court will “reject form-over-substance
requirements that favor procedural machinations over reaching the merits of a
case.”). Having rejected Insgroup’s procedural arguments, we will review the legal
issue presented.
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A Party is Not Released Unless
Adequately Identified in the Release
One of the arguments Insgroup made to the trial court was that the broad
language in the release effectively released any conceivable claim White Lion
might have related to the Scottsdale insurance policy. This argument contravenes
the rule established in McMillen v. Klingensmith, 467 S.W.2d 193 (Tex. 1971), as
later interpreted in Duncan v. Cessna Aircraft Co., 665 S.W.2d 414, 419–20 (Tex.
1984).
Before McMillen and Duncan, Texas followed the common-law doctrine
referred to as the “unity of release rule.” Duncan, 665 S.W.2d at 419. Under that
rule, a release of one tortfeasor operated as a release of all tortfeasors. See id. Over
time the harshness of the rule and its perverse incentives on nonsettling defendants
led to its rejection. See McMillen, 467 S.W.2d at 196; Duncan, 665 S.W.2d at 422;
see also Philadelphia Indem. Ins. Co. v. SSR Hospitality, Inc., No. 08-CV-680-
JRN, 2010 WL 11506976, at *6 & n.17 (W.D. Tex. Nov. 1, 2010) (order).
The Texas Supreme Court rejected the rule in McMillen. 467 S.W.2d at 196.
A new rule was announced: “a release of a party or parties named or otherwise
specifically identified fully releases only the parties so named or identified, but no
others.” Id.
There are several important interests that were furthered by abolishing the
“unity of release” rule and, instead, requiring specific identification of nonsettling
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tortfeasors who would thereafter benefit from the release. Duncan, 665 S.W.2d at
422. First, doing so would “encourage both partial and full settlements.” Id.
Second, it would “avoid unfairly depriving injured Texas residents of their full
satisfactions.” Id. Third, it would “avoid providing an incentive to tortfeasors to
delay or to stay out of early settlement negotiations.” Id. Fourth, it would “ensure
that Texas claimants do not inadvertently lose their valuable rights against
unnamed and perhaps unknown tortfeasors by settling with only one of the
wrongdoers.” Id. The new rule was adopted in recognition that a “nonsettling
tortfeasor should not fortuitously escape compensating his Texas victim simply
because of settlement arrangements that did not encompass him or his conduct and
to which he contributed nothing.” Id.
As a result, under McMillen and Duncan, a nonsettling tortfeasor—like
Insgroup—cannot claim the protection of a release unless “the release refers to him
by name or with such descriptive particularity that his identity or his connection
with the tortious event is not in doubt.” Id. at 420; see Schomburg v. TRW Vehicle
Safety Sys., Inc., 242 S.W.3d 911, 914 (Tex. App.—Dallas 2009, pet. denied).
There is no longer unity of release in Texas; for Insgroup to benefit from the
Scottsdale release, it must show that it was either referred to by name or “with such
descriptive particularity” that its inclusion in the release “is not in doubt.” Id.
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Whether a release refers to a tortfeasor with descriptive particularity so as to
leave no doubt is reviewed do novo. See Schomburg, 242 S.W.3d at 914–15; Atl.
Lloyds Ins. Co. v. Butler, 137 S.W.3d 199, 218 (Tex. App.—Houston [1st Dist.]
2004, pet. denied).
Insgroup Did Not Establish as a Matter of Law that it was a
Released Party as to Non-Insurance Code Claims
Insgroup’s argument to the trial court why it was a released party as a matter
of law relied on Insurance Code section 4001.051(b). That section provides that,
regardless “whether the act is done at the request of or by the employment of an
insurer, broker, or other person, a person is the agent of the insurer for which the
act is done or risk is taken for purposes of the liabilities, duties, requirements, and
penalties provided by this title, Chapter 21, or a provision listed in Section
4001.009,” if the person does any of nine enumerated acts, including “(1) solicits
insurance on behalf of the insurer; (2) receives or transmits other than on the
person’s own behalf an application for insurance or an insurance policy to or from
the insurer; . . . (4) receives or transmits an insurance policy of the insurer; . . .
[or] (8) takes any other action in the making or consummation of an insurance
contract for or with the insurer other than on the person’s own behalf . . . .” TEX.
INS. CODE § 4001.051(b) (emphasis added). Insgroup argued to the trial court that
it was Scottsdale’s agent as a matter of law, thereby mandating that it was covered
by the term “agent” in the release.
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On appeal, White Lion notes that Section 4001.051 was enacted after the
release was executed and argues that it is inapplicable. Insgroup has responded that
the predecessor statute, Insurance Code article 21.02, defined “agents” in
“substantially similar terms.” Article 21.02(a) provided that “[a]ny person who
solicits insurance on behalf of any insurance company . . . or who takes or
transmits other than for himself any application for insurance or any policy of
insurance to or from such company, . . . or who shall receive or deliver a policy of
insurance of any such company, . . . shall be held to be the agent of the company
for which the act is done . . . as far as relates to all the liabilities, duties,
requirements and penalties set forth in this chapter.” TEX. INS. CODE art. 21.02
(effective Sept. 1, 2001 to March 31, 2005) (emphasis added).
Insgroup’s statutory argument ignores limiting language found in both
versions of the statute. An entity that solicits or transmits an insurance policy is the
agent of the insurer only “as far as relates to all the liabilities, duties, requirements
and penalties set forth in” the Insurance Code. Id.; see TEX. INS. CODE
§ 4001.051(b) (using similar terms). The statute does not make Insgroup the agent
of Scottsdale for all purposes.
This limitation within the statute was noted by the Fourteenth Court of
Appeals in Westview Drive Invs., LLC v. Landmark Am. Ins. Co., 522 S.W.3d 583
(Tex. App.—Houston [14th Dist.] 2017, pet. denied). There, an insured argued that
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its broker was the agent of the insurer as a matter of law with regard to the
insured’s fraud claim, citing Section 4001.051(b). Id. at 604. The court rejected the
argument, holding that, by its terms, the Insurance Code provision created an
agency relationship only for purposes of specific statutes, not for purposes of the
common-law fraud claim. Id. (quoting the language “for the purposes of the
liabilities, duties, requirements, and penalties” of particular statutes). Under that
court’s analysis, the Insurance Code does not make an insurance intermediary the
insurer’s agent as a matter of law with regard to non-statutory, common law tort
claims. See id.
We adopt the Fourteenth Court of Appeals’s interpretation and hold that
neither Article 21.02 nor its successor, Section 4001.051(b), establishes Insgroup
as Scottsdale’s agent as a matter of law outside the realm of the enumerated
Insurance Code and Occupations Code provisions. See TEX. INS. CODE
§ 4001.051(b) (designating person as agent of insurer “for purposes of the
liabilities, duties, requirements, and penalties provided by this title, Chapter 21, or
a provision listed in Section 4001.009”); § 4001.009 (listing various Insurance
Code provisions and Chapter 107 of the Occupations Code).
White Lion and Insgroup were mid-trial when the trial court granted the
directed verdict. White Lion’s live petition asserted claims against Insgroup for
negligence, negligent misrepresentation, violations of the Deceptive Trade
14
Practices Act, violations of the Insurance Code, and breach of contract. As a matter
of law, the referenced Insurance Code provisions, on which Insgroup relied in
moving for a directed verdict, do not designate Insgroup as Scottsdale’s “agent” for
purposes of White Lion’s common-law and DTPA claims or its breach-of-contract
claim. See Westview Drive Invs., 522 S.W.3d at 604. The trial court erred in
granting a directed verdict—judgment as a matter of law—against White Lion on
those claims.
Conclusion
We affirm the trial court’s directed verdict as to White Lion’s Insurance
Code violation claim and reverse it as to all other claims. We remand the suit to the
trial court for additional proceedings.
Sarah Beth Landau
Justice
Panel consists of Chief Justice Radack and Justices Landau and Hightower.
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