allstate-indemnity-company-and-allstate-property-and-casualty-insurance ( 2007 )

Reversed and Rendered and Memorandum Opinion filed December 13, 2007

Reversed and Rendered and Memorandum Opinion filed December 13, 2007.

In The

Fourteenth Court of Appeals

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NO. 14-06-00436-CV

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ALLSTATE INDEMNITY COMPANY AND ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY, Appellants

V.

HADLEY MEDICAL CLINIC, HAMPTON MEDICAL CLINIC, IMPERIAL VALLEY MEDICAL CLINIC, AND SOUTHWEST HOUSTON PHYSICIAN CENTER, Appellees

On Appeal from the County Civil Court at Law No. 1

Harris County, Texas

Trial Court Cause No. 830807

M E M O R A N D U M   O P I N I O N

Appellants, Allstate Indemnity Company and Allstate Property and Casualty Insurance Company, appeal from a judgment favoring appellees, Hadley Medical Clinic, Hampton Medical Clinic, and Imperial Valley Medical Clinic.^[1] Appellees, healthcare providers who treated individuals purportedly injured in automobile collisions with drivers insured by appellants, sued appellants claiming to be third-party beneficiaries of settlement agreements between appellants and the individual patients.  A jury found that appellees were indeed third-party beneficiaries of the agreements, that appellants breached the agreements, and that appellants were estopped (quasi-estoppel) from denying appellees= third-party-beneficiary status.  Based on the verdict, the trial court entered judgment favoring appellees for a total of $35,728.22 (including pre-judgment interest and attorney=s fees), plus post-judgment interest.

In three issues, appellants contend that:  (1) the evidence is legally and factually insufficient to support the finding that appellees were third-party beneficiaries of the settlement agreements; (2) the trial court erred in submitting the third-party-beneficiary issue to the jury because it was a matter for the court to decide; and (3) the evidence is legally and factually insufficient to support the finding that appellants were estopped from denying appellees= third-party-beneficiary status.  Because the evidence is legally insufficient to support the jury verdict that (1) appellees were third-party beneficiaries and (2) appellants were estopped from denying appellees= third-party-beneficiary status, we reverse and render judgment that appellees take nothing.

I.  Background

As stated above, appellees treated patients who were purportedly involved in automobile accidents with drivers insured by appellants.  At the time of treatment, appellees required the patients in question to sign Aassignments of rights@ that granted certain rights to appellees, including the Aright to any cause of action . . . against any insurance company@ for damages, at least to the extent of the incurred medical bills.  Each of these assignments also included a section titled ADemand for Payment,@ which was addressed A[t]o any insurance company providing benefits or damages of any kind to [patient(s)] for treatment rendered by the doctor/clinic/healthcare provider named above.@  This section further purported to instruct insurers to Apay in full the bill for services rendered,@ to make checks payable to both the patient and the healthcare provider, and to mail the checks to the healthcare provider=s attorney=s office.

Although it appears unlikely from the evidence at trial that appellants ever received the assignments themselves, the evidence strongly supports the conclusion that appellants received letters from appellees referencing the assignments and excerpting key language about the assignment of rights and Demand for Payment. The appellants subsequently settled the patient=s claims by drafting checks payable solely to the patients and delivering the checks directly to the patients.  In conjunction with the settlements, appellants required that the patients sign releases.  As will be discussed in greater detail below, of the eight patients on whom the judgment was based, three signed one particular form of release, three signed another form of release, and for two of the patients, no release was admitted into evidence.  Appellees argue, however, that the jury could have inferred from the existence of the settlement checks and the other releases that the two remaining patients had indeed signed releases.

Appellees sued appellants alleging that because they (appellees) were third-party beneficiaries of the settlement agreements, appellants breached the agreements by failing to pay appellees directly for the health care provided to the patients.  In the alternative, appellees alleged that appellants were estopped (quasi estoppel) from denying appellees= third-party-beneficiary status, apparently based on appellants= use of appellees= medical bills in calculating how much to pay the patients in settlement of their claims.  The jury found for appellees on both issues (third-party beneficiary and quasi estoppel).^[2]  On appeal, appellants:  (1) attack the sufficiency of the evidence on the third-party beneficiary finding; (2) contend that the court erred in submitting that issue to the jury; and (3) attack the sufficiency of the evidence on the estoppel finding.

II.  Third-Party Beneficiaries

In their first issue, appellants attack the legal and factual sufficiency of the evidence to support the jury=s finding that appellees were third-party beneficiaries of the settlement agreements between appellants and the various patients.  We begin by considering the legal sufficiency of the evidence on this issue.  In doing so, we utilize the usual standards of review, considering the evidence in the light most favorable to the verdict and indulging every reasonable inference that would support it.  See City of Keller v. Wilson, 168 S.W.3d 802, 809-23, 827-28 (Tex. 2005).

The legal rules governing third-party beneficiaries are well-established, as recently recited by the Texas Supreme Court:

First, there is a presumption against conferring third‑party‑beneficiary status on noncontracting parties.  In deciding whether a third party may enforce or challenge a contract between others, it is the contracting parties= intent that controls.  The intent to confer a direct benefit upon a third party must be clearly and fully spelled out or enforcement by the third party must be denied.  Incidental benefits that may flow from a contract to a third party do not confer the right to enforce the contract.  A third party may only enforce a contract when the contracting parties themselves intend to secure some benefit for the third party and entered into the contract directly for the third party=s benefit.  To qualify as one for whose benefit a contract was made, the third party must benefit more than incidentally; he must be either a donee or creditor beneficiary.  A person is a donee beneficiary if the performance promised will come to him as a pure donation.  If performance will come to satisfy a duty or legally enforceable commitment owed by the promisee, then the third party is considered a creditor beneficiary.

S. Tex. Water Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007) (internal quotation marks and citations omitted).

Generally, the question of whether a particular party is a third-party beneficiary to a contract is treated as a matter of contract interpretation; thus, it should only go to a jury if the contract is deemed to be ambiguous.  See MCI Telecomms. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 651 (Tex. 1999) (AOur analysis of the third-party beneficiary issue requires us to interpret the contract . . . .  When a contract is not ambiguous, the construction of the written instrument is a question of law for the court.@); Pratt-Shaw v. Pilgrim=s Pride Corp., 122 S.W.3d 825, 829 (Tex. App.CDallas 2003, no pet.) (containing similar language and analysis).  Here, there appears to have been neither argument from the parties below nor an explicit ruling from the court as to whether the settlement agreements in question were ambiguous.  Although in their second issue on appeal, appellants contend that the trial court erred in submitting the third-party beneficiary issue to the jury and not deciding the matter itself, appellants cite no portion of the record wherein this argument was preserved below.  Our review of the record has likewise revealed no such preservation.

Appellants also did not object to the language used in the charge.  Because appellants did not object to the charge and did not argue below that the third-party-beneficiary issue was one for the judge and not the jury, we shall review the sufficiency of the evidence in light of the charge as given.  See Osterberg v. Peca, 12 S.W.3d 31, 55 (Tex. 2000).  The charge given to the jury instructed on the third-party-beneficiary question only as follows:  AA party suing [as] a third party beneficiary must show: 1) it is not privy to the written agreement; 2) the agreement was actually made for its benefit and that; [sic] 3) the contracting parties intended it to benefit by the agreement.@^[3]  Appellants make no arguments regarding the first element presented in the charge (that appellees were not privy to the contracts in question), but they do contend that there was no evidence to support the finding that the agreements were made for appellees= benefit or that the contracting parties intended appellees to benefit from the settlement agreements.

Appellees= theory of the case is that because evidence demonstrated the patients= and appellants= awareness of the assignments of rights to appellees at the time they entered into the settlement agreements (as evidenced by the letters sent by appellees referencing and excerpting the assignments), the use of the term Aassigns@ in the releases necessarily referred to appellees.  Thus, according to appellees, the parties to the settlement agreements must have intended to confer a direct benefit upon them.  As mentioned above, of the eight patients on whom the judgment was based, three signed one particular form of release, three signed another form of release, and there is only inferential evidence that the remaining two signed any form of release.  One of the releases signed by three of the patients contained the following language:

[I]n consideration of [a sum certain], receipt whereof is hereby acknowledged, for myself and for my heirs, personal representatives and assigns, I do hereby release and forever discharge [the insured driver] and any other person, firm or corporation charged or chargeable with responsibility or liability, their heirs, representatives and assigns, from any and all claims, demands, damages, costs, expenses, loss of services, actions and causes of action, arising from any act or occurrence up to the present time and particularly on account of all personal injury, disability, property damages, loss or damages of any kind already sustained or that I may hereafter sustain in consequence of an accident that occurred on [a specific date at a specific location].

(Emphasis added).

As stated, appellees assert that the first reference to Aassigns@ in this paragraph of the release form evidences the parties= intention to confer a direct benefit upon them.  We do not agree that the language is capable of this interpretation.  To begin with, even assuming appellees were intended to be included in the reference to Aassigns,@ the release says nothing about any payment to the assigns, direct or otherwise.  In fact, the release essentially negates the very idea that appellants were to pay any additional sums or any sums to anyone other than the particular patient-signatory.  In each signed release, the patient acknowledged receipt of a sum certain and in consideration for that specific amount, released all claims for him or herself as well as his or her assigns.  The language, indeed, appears specifically tailored to negate the possibility that appellants could owe any additional sums to the patient or anyone else to extinguish any claims made by or through the patient.^[4]

The other release admitted into evidence and signed by three patients contained the following language:

The undersigned, [patient], (hereinafter referred to as RELEASOR) acknowledges the receipt of [a sum certain] in consideration for the judgment and release in this cause, and RELEASES, QUITCLAIMS AND FOREVER DISCHARGES [appellant, insured driver], their spouse(s), [sic] heirs, executors, assigns, agents . . . from all liability claims . . . demands, damages, costs, expenses, loss of service, actions and causes of action arising from any acts or occurrences up to the present time, and particularly on account of all personal injury, disability, property damage, loss or damages of any kind which have accrued or may accrue to the RELEASOR, RELEASOR=S spouse, heirs, executors, assigns, agents, servants, employees, insurance carriers, and attorneys in consequence of an incident that occurred on [a specific date], which gave rise to this suit . . . .  RELEASOR agrees that this release shall apply to all unknown and unanticipated injuries and damages resulting from the incident, casualty, or event, as well as to those now disclosed which form the basis of this suit.

As further consideration for full and final payment, RELEASOR warrants that RELEASOR has made no assignment of RELEASOR=S claims, or any part of them, to any other person, firm, or corporation other than RELEASOR=S attorneys, and that there are no current or outstanding hospital or other liens in connection with or arising out of the incident made the subject of this suit.

In further consideration for the payment of this sum, RELEASOR hereby agrees to indemnify and hold harmless RELEASED PARTIES against and from any and all claims, demands, causes of action and/or judgments asserted or caused to be asserted against RELEASED PARTIES which any person, firm, or corporation has or may claim by, through or under RELEASOR in connection with the matters made the subject of this lawsuit and release.

(Emphasis added). 

Again, appellees assert that the reference to Aassigns@ in the release language evidences the parties= intention to confer a direct benefit upon them, and again, we do not agree that the language is susceptible of this interpretation.  As with the release form discussed above, by signing this release form, each patient acknowledged receipt of a particular sum and, in consideration for that sum, released all claims on behalf of him or herself and his or her assigns, among others.  Nothing in the release form suggests that any additional sums must be paid to anyone or that payment should be made in any other manner than directly to the patient.  Even assuming that one of the appellees was an assignee of the particular patient, this release form contains no language requiring or even suggesting that a particular appellant had to pay anything to any assignee or appellee.

Furthermore, other language in the release affirmatively contradicts any assertion that a particular appellant was promising to pay any sums directly to any appellee.^[5] The patient-signatory (1) warranted that he or she had made no assignment of any claims, in whole or in part, to anyone other than his or her attorney, and (2) agreed to indemnify and hold harmless the particular appellant against any and all claims that may be made through the patient in connection with the subject auto collision.  These additional terms negate the possibility that the parties may have intended for any third-party beneficiary to have an enforceable right to recover any portion of the settlement proceeds directly from appellants.

Regarding the two patients for whom no release was admitted into evidence, appellees argue that the existence of letters notifying appellants about assignments from these two patients and checks issued to the two patients supports the reasonable inference that the patients each signed releases with the same language or similar language to the other releases that were admitted into evidence.  Assuming appellees= argument is correct, the evidence concerning these two patients fails for the same reasons as the evidence regarding the other patients and the admitted releases.

Appellees additionally cite several cases in which courts held that third parties mentioned in releases were intended third-party beneficiaries and thus could enforce the terms of the release in any action against them by the releasor.  See Pratt-Shaw, 122 S.W.3d at 830-31; Temple Eastex, Inc. v. Old Orchard Partners, Ltd., 848 S.W.2d 724, 730 (Tex. App.CDallas, writ denied); Derr Constr. Co. v. City of Houston, 846 S.W.2d 854, 860 (Tex. App.CHouston [14th Dist.] 1992, no writ). These cases, however, do not support appellees= position.  In each of the cited cases, the release in question expressly granted a specific benefit to a clearly identified third party, i.e., the third party was released from any liability to the releasor.  See Pratt-Shaw, 122 S.W.3d at 830-31; Temple Eastex, 848 S.W.2d at 730; Derr Constr., 846 S.W.2d at 860.  Here, as discussed above, even to the extent that appellees were included in the releases (via Aassigns@), it was in the context of the patients= waiver of appellees= rights to sue as the patients= assignees.  The releases do not affirmatively convey any rights on appellees.  The suggestion that  appellees might have received payment derived from settlement funds paid by appellants to the patients would render appellees, at most, incidental beneficiaries, not intended beneficiaries.  See MCI Telecomms. v. Tex. Utils. Elec. Co., 995 S.W.2d 647, 650 (Tex. 1999) (holding that any benefit to the third party under the contract at issue was merely incidental and did not evidence a clear intent of the parties to contract for the direct benefit of that third party); see also restatement (Second) of Contracts '' 302, 315 (1981) (defining intended and incidental beneficiaries and explaining that incidental beneficiaries possess no right to enforce the contract against the promisor or the promisee).^[6]

There is no evidence that the settlement agreements were entered into for appellees= benefit or that appellants and the patients intended for appellees to benefit from the agreements.  Therefore, we hold that there is no evidence to support the jury=s finding that appellees were third-party beneficiaries of the agreements.  Accordingly, we sustain appellants= first issue.  Because of our holding on this first issue, we need not consider appellants= second issue, in which appellants argue that the trial court erred in submitting the third-party-beneficiary issue to the jury.

III.  Quasi Estoppel

In their third issue, appellants attack the legal and factual sufficiency of the evidence to support the jury=s finding that appellants were barred by the doctrine of quasi-estoppel from denying appellees= third-party-beneficiary status.  Again, we consider the legal sufficiency of the evidence first and apply the usual standards of review.  See City of Keller, 168 S.W.3d at 809-23, 827-28.

The doctrine of quasi-estoppel precludes a party from asserting, to another=s disadvantage, a right inconsistent with a position previously taken by the party.  Lopez v. Munoz, Hockema & Reed, L.L.P., 22 S.W.3d 857, 864 (Tex. 2000); Steubner Realty 19, Ltd. v. Cravens Road 88, Ltd., 817 S.W.2d 160, 164 (Tex. App.CHouston [14th Dist.] 1991, no writ). The doctrine applies when it would be unconscionable to allow a party to maintain a position inconsistent with one in which it acquiesced or of which it accepted a benefit.  Lopez, 22 S.W.3d at 864; Steubner Realty 19, 817 S.W.2d at 164.  Thus, quasi‑estoppel prevents a party from accepting the benefits of a transaction and then subsequently taking an inconsistent position to avoid corresponding obligations or effects.  Eckland Consultants, Inc. v. Ryder, Stilwell Inc., 176 S.W.3d 80, 87 (Tex. App.CHouston [1st Dist.] 2004, no pet.). The trial court tracked these principles in the charge, and no objections were made thereto.

Appellees= theory of quasi-estoppel is that appellants (1) took an inconsistent prior position in that they accepted medical records from appellees and used them in settlement negotiations with the patients, and (2) derived a benefit from the earlier position because they were able to induce more favorable settlement terms by using the bills during negotiations.  Regarding the allegedly inconsistent prior position, even if appellees are factually correct that appellants used the bills in calculating settlement amounts, it is difficult to see how receiving and using medical records in negotiations would be inconsistent with denying that appellees were third-party beneficiaries to the later-signed settlement agreements.^[7]

Appellees imply that by receiving the records and using them to settle the cases, appellants essentially admitted that they were liable for paying the medical bills.  We disagree.  Settling a case generally does just that:  it resolves the issues between the parties without admission of culpability, fault, or liability.  See Henson v. S. Farm Bureau Cas. Ins. Co., 17 S.W.3d 652, 654 (Tex. 2000) (holding that the fact of settlement alone did not establish fault).  Here, both release forms in the record contain specific language denying that in settling, appellants were admitting to any liability for damages.  Thus, settling the cases did not constitute an admission that appellants (as insurers of particular drivers) were liable for the medical bills, much less that appellees were intended third-party beneficiaries of the settlement agreements.  The evidence demonstrates at most that appellants simply relied upon the amount of the bills in making their settlement calculations.

Next, we turn to the question of whether appellants derived any benefit from using the medical records in settlement negotiations.  Although arguably, in a general sense, it can be said that appellants benefitted from settling the cases, e.g., from the fact that the one-time potential liability could then be concretely ascertained, there is no evidence that appellants benefitted by receiving the medical bills and using them in calculating settlement amounts.  Without citing supporting evidence, appellees suggest that appellants benefitted because the bills were so reasonable.  Our review of the record reveals no evidence that the bills in question represented relative bargains to the insurance companies. One witness, a former administrator for appellees, testified that sometimes doctors discount bills to encourage patients to pay, but she did not testify that any amounts were deducted from bills involved in the present case or that the bills represented any type of bargain or benefit for the insurance companies.  No other witness testified on any matter related to the reasonableness of the medical bills.^[8]  Finding no evidence to support the jury=s verdict on quasi-estoppel, we sustain appellants= third issue.

Having sustained appellants= first and third issues, we reverse the trial court=s judgment and render judgment that appellees take nothing on their causes of action against appellants.

/s/      Adele Hedges

Chief Justice

Judgment rendered and Memorandum Opinion filed December 13, 2007.

Panel consists of Chief Justice Hedges and Justices Anderson and Seymore.

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^[1]  All claims of plaintiff below and titular appellee Southwest Houston Physician Center were nonsuited prior to trial.  None of the issues on appeal concerns this appellee.

^[2]  The jury was also asked whether appellants intentionally interfered with the contracts between appellees and the patients.  The jury answered these inquiries in the negative.

^[3]  The charge, therefore, omitted several principles explicit in the case law, most notably: (1) the presumption against conferring third-party-beneficiary status, and (2) that the intent to confer a direct benefit must be clearly and fully spelled out in the contract.  See Lomas, 223 S.W.3d at 306.  

^[4]  In his testimony, the former attorney for appellees who drafted the assignments made the focus of this case, acknowledged that Alooking at the face of the release@:  (1) the patient was purporting to accept money on behalf of himself and his or her assigns, (2) the patient was purporting to release any claims of his or her assigns in exchange for the amount received, and (3) the release did not indicate whether any of the money was to go to the assigns.

^[5]  Under well-established rules of contract construction, specific provisions cannot be read in isolation but must be considered in the context of the whole contract.  In re Ford Motor Co., 211 S.W.3d 295, 298 (Tex. 2006); Coats v. Farmers Ins. Exchange, 230 S.W.3d 215, 219 (Tex. App.CHouston [14th Dist.] 2006, no pet.).

^[6]  As described in the Restatement, the quintessential third-party-beneficiary scenario occurs as follows:  AA owes C $100.  For consideration B promises A to pay the debt.  B breaks his contract.  C may sue B and obtain judgment for the amount of the debt.@  restatement (Second) of Contracts ' 302, illus. 1.  In the case before us, the settlement agreements reference direct payments from appellants to the patients but do not mention any payment of debts to third parties.  Indeed, as described in the text above, the releases themselves negate the possibility that appellants were promising to pay anything directly to any third party.

^[7]  As evidence that the bills were used in negotiating settlement, appellees point to language in the releases stating that the parties took into account the damages incurred by each patient in determining the settlement amounts.

^[8]  The true import of the medical bills received by appellants and used to calculate settlement amounts appears to be that they helped the patients establish that they incurred a certain amount of healthcare expenses as a result of the auto collisions.  In other words, if anything, the bills resulted in appellants= paying claims that included medical expenses; whereas, without such documentation, the settlement amounts might have been lower, not higher.  In fact, appellees stated in their brief:  AThe extent of the medical bills, in large part, determined the amount of the settlement.@