Marcus Hernandez and Diane Hernandez v. Truck Insurance Exchange and Team Health, Inc.

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-17-00046-CV
MARCUS HERNANDEZ AND APPELLANTS
DIANE HERNANDEZ
V.
TRUCK INSURANCE EXCHANGE APPELLEES
AND TEAM HEALTH, INC.
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FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY
TRIAL COURT NO. 342-283463-16
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OPINION
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I. Introduction
In this issue of first impression, which presents a legal scenario unlikely to
be repeated, we are asked to decide whether the supreme court’s opinion in
Phillips v. Bramlett (Phillips I), 288 S.W.3d 876 (Tex. 2009), constitutes “a
unicorn crossbow,” i.e., an item theoretically useful, but of no practical value, 1 to
a personal injury plaintiff when the defendant surgeon surrenders his potential
Stowers claim back to his malpractice insurer after a jury verdict in the plaintiff’s
favor exceeds the statutory cap on physician liability under article 4590i of the
revised civil statutes. 2 Bound by supreme court precedent, we reverse the trial
court’s judgment, which dismissed Appellants’ claim for want of jurisdiction in
favor of Appellees Truck Health Insurance (Truck) and Team Health, Inc. (Team),
and remand this case to the trial court for further proceedings.
II. Background
In November 2001, Marcus Hernandez Jr. died from massive blood loss
following a liver biopsy. Almost two years later, Appellants, Marcus’s parents,
filed a wrongful death action against both Dr. Hitesh B. Yagnik, M.D. and the
hospital where their son died. See Yagnik v. Hernandez, No. 02-11-00510-CV,
2013 WL 1668304, at *1 (Tex. App.—Fort Worth Apr. 18, 2013, pet. denied)
(mem. op.). The hospital settled prior to the first trial, which resulted in a hung
jury, and on retrial a different jury awarded $2,679,000 to Appellants, which—
1
We discovered this gem of a phrase in Appellants Marcus and Diane
Hernandezes’ summary judgment response, in which they argued that summary
judgment against them would render Phillips I irrelevant.
2
Article 4590i was repealed and replaced effective September 1, 2003,
three days after Appellants filed their medical malpractice claim. See Act of May
30, 1977, 65th Leg., R.S., ch. 817, § 11.02, 1977 Tex. Gen. Laws 2039, 2052,
repealed by Act of June 1, 2003, 78th Leg., R.S., ch. 204, § 10.09, 2003 Tex.
Gen. Laws 847, 884.
2
after the trial court applied the statutory caps on medical negligence damages
and accounted for the hospital’s settlement—resulted in a judgment of
$1,818,601.63 against Yagnik, from which he appealed. Id. Yagnik then
released Truck, one of his insurance carriers, from any liability arising from its
failure to settle the underlying lawsuit in exchange for Truck’s agreement to post
his supersedeas bond on appeal and to pay the resulting judgment if the trial
court’s judgment was affirmed on appeal.
We affirmed the trial court’s judgment in 2013. Id. After the supreme court
denied Yagnik’s petition for review and motion for rehearing, our mandate issued
on May 5, 2014.
Over a decade after they filed their original lawsuit, but less than two years
after we affirmed the trial court’s judgment and issued our mandate, Appellants
sued Yagnik’s insurance carriers 3 for the negligent failure to settle a claim within
the insurance policy limits—traditionally known as a common law Stowers
action 4—seeking to collect the difference between the almost $2.7 million jury
verdict and the amount of the trial court’s judgment. 5
3
Appellants sought recovery from not only Appellees but also Farmers
Insurance Exchange, Team Health Holdings, Inc., and Texas Medical Liability
Trust. They dismissed their claims against Farmers Insurance Exchange, Team
Health Holdings, Inc., and Texas Medical Liability Trust without prejudice in 2016.
In its brief in this court, Team states that it “does not concede that it was or is an
insurer or owed any . . . dut[ies]” to Appellants or to Yagnik.
4
A Stowers action—so named for G.A. Stowers Furniture Co. v. American
Indemnity Co., 15 S.W.2d 544, 547–48 (Tex. 1929)—is based on an insurer’s
common law tort duty to its insured to settle within policy limits when reasonably
3
Truck filed a plea to the jurisdiction, arguing that Appellants lacked
standing to bring a direct action, 6 and Team filed a motion for summary judgment
on the same basis. In support of their claim, Appellants expressly relied upon the
supreme court’s Phillips I opinion, asserting that the holding in Phillips I
authorized them to bring their Stowers claim as a direct action.
Team also argued in its motion that because Appellants’ Stowers claim
was filed after article 4590i was repealed and replaced by civil practice and
remedies code chapter 73 in 2003, there could be no Stowers liability against the
insurers beyond the amount of the capped damages. 7
prudent to do so. See Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236
S.W.3d 765, 776 (Tex. 2007). The duty is not activated by a settlement demand
unless three prerequisites are met: (1) the claim against the insured is within the
scope of coverage, (2) the demand is within policy limits, and (3) the terms of the
demand are such that an ordinarily prudent insurer would accept the demand,
considering the likelihood and degree of the insured’s potential exposure to an
excess judgment. Id. Appellants alleged in their pleadings that they had made
several Stowers settlement demands, received by the insurers, for a settlement
amount within Yagnik’s insurance policy limits and that each demand had been
rejected.
5
Appellants sought more than $1.3 million as the “difference between the
statutory physician’s cap and the jury verdict,” as well as exemplary damages for
the insurers’ gross negligence during the pendency of the underlying medical
malpractice lawsuit.
6
Truck filed a memorandum of law in support of its plea to the jurisdiction
that it labeled alternatively as a motion for summary judgment.
7
When article 4590i was repealed and replaced by civil practice and
remedies code chapter 73, effective September 1, 2003, the law was changed to
limit insurers’ liability under a common law Stowers claim to that of the insured.
Compare Act of May 30, 1977, 65th Leg., R.S., ch. 817, § 11.02(c), 1977 Tex.
Gen. Laws 2039, 2052, 2064, repealed by Act of June 1, 2003, 78th Leg., R.S.,
4
The trial court dismissed Appellants’ claims against Truck and Team for
lack of subject matter jurisdiction after granting Truck’s plea to the jurisdiction
and granting in part Team’s summary judgment motion “to the extent that the
motion was based upon Plaintiffs’ lack of standing to pursue a direct statutory
Stowers cause of action against Team Health, Inc.” In its order, the trial court
stated that in light of its ruling that it lacked jurisdiction over the Stowers lawsuit
due to Appellants’ lack of standing, it expressly made no ruling on any of the
other grounds for summary judgment in Appellees’ motions.
III. Discussion
In four issues, Appellants argue that the trial court erred by concluding that
they lacked standing because they have a direct Stowers cause of action and
because their claims are not barred by settlement (under an equitable
subrogation theory) or capped by the 2003 statute. 8
ch. 204, § 10.09, 2003 Tex. Gen. Laws 847, 884, with Tex. Civ. Prac. & Rem.
Code Ann. § 74.303(d) (West 2017).
8
The trial court’s order dismissing Appellants’ claim was based solely on
their lack of standing to bring a direct statutory Stowers claim under article 4590i,
section 11.02(c), but we nonetheless reach the remaining arguments because to
do otherwise would likely require a subsequent appeal, wasting scarce judicial
resources both in this court and in the trial court. See Denton Cty. Elec. Co-op.,
Inc. v. Hackett, 368 S.W.3d 765, 773 n.9 (Tex. App.—Fort Worth 2012, pet.
denied) (reaching substantive legal issues instead of remanding for remedy of
flawed order’s technical error); see also City of Gladewater v. Pike, 727 S.W.2d
514, 518 (Tex. 1987) (noting the equitable maxim that a court should not require
the doing of a useless thing).
5
A. Standards of Review
Whether a trial court has subject matter jurisdiction is a question of law that
we review de novo. Tex. Bay Cherry Hill, L.P. v. City of Fort Worth, 257 S.W.3d
379, 387 (Tex. App.—Fort Worth 2008, no pet.) (citing Tex. Dep’t of Parks &
Wildlife v. Miranda, 133 S.W.3d 217, 226 (Tex. 2004); Tex. Nat. Res.
Conservation Comm’n v. IT-Davy, 74 S.W.3d 849, 855 (Tex. 2002)). Standing is
implicit in the concept of subject matter jurisdiction, and whether a party has
standing to maintain suit is a question of law. Everett v. TK-Taito, L.L.C., 178
S.W.3d 844, 850 (Tex. App.—Fort Worth 2005, no pet.) (citing Tex. Ass’n of Bus.
v. Tex. Air Control Bd., 852 S.W.2d 440, 443 (Tex. 1993)); see IT-Davy, 74
S.W.3d at 855.
The plaintiff has the burden to plead facts affirmatively showing that the
trial court has jurisdiction, and we construe those pleadings liberally in favor of
the pleader, look to the pleader’s intent, and accept as true the factual allegations
in the pleadings. Tex. Bay Cherry Hill, L.P., 257 S.W.3d at 387. If a plea to the
jurisdiction challenges the existence of jurisdictional facts, we consider relevant
evidence submitted by the parties when necessary to resolve the jurisdictional
issues raised, as the trial court is required to do, taking as true all evidence
favorable to the nonmovant and indulging every reasonable inference and
resolving any doubts in the nonmovant’s favor. Id. at 387–88 (citing Miranda,
133 S.W.3d at 228; Bland ISD v. Blue, 34 S.W.3d 547, 555 (Tex. 2000)). If the
evidence creates a fact question regarding the jurisdictional issue, then the trial
6
court cannot grant the plea to the jurisdiction, and the fact question will be
resolved by the factfinder. Id. at 388 (citing Miranda, 133 S.W.3d at 227–28;
Bland, 34 S.W.3d at 555). If the relevant evidence is undisputed or fails to raise
a fact question on the jurisdictional issue, however, the trial court rules on the
plea to the jurisdiction as a matter of law. Id. (citing Miranda, 133 S.W.3d at
227–28; Bland, 34 S.W.3d at 555).
We also review a summary judgment de novo. See Travelers Ins. Co. v.
Joachim, 315 S.W.3d 860, 862 (Tex. 2010). We consider the evidence
presented in the light most favorable to the nonmovant, crediting evidence
favorable to the nonmovant if reasonable jurors could, and disregarding evidence
contrary to the nonmovant unless reasonable jurors could not. Mann Frankfort
Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We
indulge every reasonable inference and resolve any doubts in the nonmovant’s
favor. 20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008).
And as has frequently been iterated by this court and our supreme court,
we review issues of statutory construction de novo, and in construing statutes,
our primary objective is to give effect to the legislature’s intent, relying on the
plain meaning of the text unless a different meaning is supplied by legislative
definition or is apparent from the context or the plain meaning leads to absurd
results. Jack Cty. Appraisal Dist. v. Jack Cty. Hosp. Dist., 484 S.W.3d 228, 231–
32 (Tex. App.—Fort Worth 2016, no pet.) (referencing CHCA Woman’s Hosp.,
L.P. v. Lidji, 403 S.W.3d 228, 231 (Tex. 2013), and Tex. Lottery Comm’n v. First
7
State Bank of DeQueen, 325 S.W.3d 628, 635 (Tex. 2010)). We read statutes as
a whole and interpret them to give effect to “every sentence, clause, and word”
so that no part thereof will be rendered superfluous. Id. at 232 (quoting City of
San Antonio v. City of Boerne, 111 S.W.3d 22, 29 (Tex. 2003)).
B. Applicable Law
We first review the pertinent statutes and cases, in addition to the law on
standing, for context for the parties’ arguments in the trial court and in their
appellate briefs.
1. Article 4590i, section 11.02(c)
Former section 11.02(c) provided that the statutory cap on physician and
other healthcare provider liability would not limit the liability of any insurer “where
facts exist[ed] that would enable a party to invoke the common law theory of
recovery commonly known in Texas as the ‘Stowers Doctrine.’” 9 Act of May 30,
1977, 65th Leg., R.S., ch. 817, § 11.02(c), 1977 Tex. Gen. Laws 2039, 2052,
2064, repealed by Act of June 1, 2003, 78th Leg., R.S., ch. 204, § 10.09, 2003
Tex. Gen. Laws 847, 884.
9
The factors that trigger a common law Stowers claim are a claim against
the insured within the scope of insurance coverage, a settlement demand within
policy limits and with reasonable terms, and a failure to settle that results in an
excess judgment against the insured. See Mid-Continent Ins. Co., 236 S.W.3d at
776 (“Stowers is the only common law tort duty in the context of third party
insurers responding to settlement demands.”). Appellants argue that these
factors are the trigger for strict liability to apply under section 11.02(c).
8
2. Civil Practice & Remedies Code Section 74.303(d)
The Stowers exception in section 11.02(c) was not carried forward when
article 4590i was repealed. Rather, section 11.02(c) was replaced by civil
practice and remedies code section 74.303, which expressly provides that an
insurer can use the statutory physician’s cap to limit its liability. See Act of
June 1, 2003, 78th Leg., R.S., ch. 204, § 10.01, sec. 74.303(d), 2003 Tex. Gen.
Laws 847, 874–75 (current version at Tex. Civ. Prac. & Rem. Code Ann.
§ 74.303(d) (West 2017)). Section 74.303(d) states, “The liability of any insurer
under the common law theory of recovery commonly known in Texas as the
‘Stowers Doctrine’ shall not exceed the liability of the insured.” Tex. Civ. Prac. &
Rem. Code Ann. § 74.303(d).
3. 2003 Enabling Statute
The 2003 enabling provision states that most of chapter 204’s effective
date would be September 1, 2003, 10 and that it would not apply to actions filed
prior to that date:
[e]xcept as otherwise provided in this section or by a specific
provision in an article [not applicable here], this Act applies only to
an action filed on or after the effective date of this Act. An action
filed before the effective date of this Act, including an action filed
before that date in which a party is joined or designated after that
10
Certain provisions of chapter 204 not at issue here had other effective
dates—article 17 (“Limitations in Civil Actions of Liabilities Relating to Certain
Mergers or Consolidations”), for example, had an immediate effective date
subject to certain voting conditions, and some of the other articles would apply to
actions filed on or after July 1, 2003. See Act of June 1, 2003, 78th Leg., R.S.,
ch. 204, §§ 17.01, 23.02(a)–(c), 2003 Tex. Gen. Laws at 892, 898–99.
9
date, is governed by the law in effect immediately before the change
in law made by this Act, and that law is continued in effect for that
purpose.
Act of June 1, 2003, 78th Leg., R.S., ch. 204, § 23.02(a), (d), 2003 Tex. Gen.
Laws 847, 898–99. In addition to health care liability claims, chapter 204
addressed the reform of “certain procedures and remedies in civil actions,”
including, among other things, class actions, settlement, venue, forum non
conveniens, proportionate responsibility, products liability, interest, appeal bonds,
seat belt evidence, claims against governmental employees or volunteers,
damages, and the liability of volunteer fire departments and volunteer fire
fighters. See id. arts. 1–22, 2003 Tex. Gen. Laws at 847–98. However, it did not
directly address Stowers other than to limit insurers’ liability to the physician cap
as it pertained to common law claims. That is, the new legislation ranged broadly
over a number of topics but neither expressly identified whether a statutory
Stowers cause of action had been created under former article 4590i nor whether
such a cause of action was revoked by article 4590i’s repeal and the enactment
of chapter 74 of the civil practice and remedies code.
4. Phillips v. Bramlett (Phillips I), 288 S.W.3d 876 (Tex. 2009).
Six years after the 2003 enactment, the supreme court construed article
4590i’s Stowers exception in medical malpractice actions in a novel way. In a 5–
4 split decision, the court held that the Stowers exception functions in a manner
akin to equitable subrogation, “put[ting] the injured third party in the shoes of the
insured to the extent the cap eliminates the insured’s incentive to enforce the
10
insurer’s duty to settle with reasonable care.” 288 S.W.3d at 882. The court
explained that when insurance coverage was below the cap, the Stowers-
exception claim could be shared by the insured physican and injured third party
because both would potentially have excess claims, but when insurance
coverage rose above the cap, 11 the physician would be fully protected, so only
the injured third party would have the incentive to pursue the statutory Stowers
exception claim. Id.
Pursuant to this construction, the supreme court instructed that a judgment
against a physician should conform to the physician cap and that a subsequent
suit would be available against the insurer under the section 11.02(c) Stowers
exception. Id. at 882; see id. at 884–85 (O’Neill, J., dissenting) (critiquing the
majority’s analysis as incorrectly construing “the statute to grant the plaintiff in the
underlying malpractice suit a claim for equitable subrogation against the insurer
who is negligent in refusing to settle” and as incorrectly relying on the idea that
the legislature “must have intended to tie Stowers liability against physicians’
insurers to the jury’s verdict rather than the court’s judgment”).
The court revisited this issue again in a subsequent appeal that addressed,
among other things, whether postjudgment interest should be calculated from the
date of the trial court’s first judgment or the date of the judgment that the trial
court entered following the supreme court’s remand. Phillips v. Bramlett
11
The court construed the “where facts exist” portion of former section
11.02(c) to refer to the jury’s verdict for purposes of determining whether excess
liability existed for a Stowers claim. Id. at 881 n.6.
11
(Phillips II), 407 S.W.3d 229, 231 (Tex. 2013) (observing that “[w]hen the life
cycle of a judgment extends beyond an initial appeal, courts often face unique or
unsettled jurisdictional and procedural issues”). In Phillips II, the court observed
that the determination necessary to trigger the Stowers exception to article
4590i’s damages cap is whether “[f]acts exist to enable a party to invoke the
common law theory of recovery known as the ‘Stowers Doctrine.’” Id. at 232 n.5.
However, the court declined to address whether the facts “could support a
subsequent Stowers claim against Phillips’s insurer,” observing that the issue
was not before it. Id. It nonetheless stated that as to Phillips I, “this language in
our opinion relates to how trial courts should apply section 11.02 of former article
4590i in the first instance: ‘both the statutory cap and its exception can be
applied as written by conforming the judgment against the physician to section
11.02(a)’s cap and reserving for another case any suit against the insurer under
section 11.02(c)’s Stowers exception.’” Id. at 238 n.7 (quoting Phillips I, 288
S.W.3d at 882).
5. Bramlett v. Medical Protective Co. of Ft. Wayne (Bramlett I), 855 F.
Supp. 2d 615 (N.D. Tex. 2012).
In 2012, Judge Sidney A. Fitzwater, a federal district court judge,
interpreted Phillips I. Bramlett I, 855 F. Supp. 2d at 615–16. In his opinion, he
noted that Phillips I was “at times difficult to comprehend,” having “perplexed four
dissenting justices as to its reasoning and effect.” Id. at 621. Nevertheless, after
studying the language and reasoning of the Phillips I majority opinion, he
12
concluded that it could “only reasonably be understood as interpreting § 11.02(c)
to grant an injured third party a direct cause of action against the physician’s
insurer” when facts exist “that would allow a party to invoke the Stowers
doctrine.” Id. at 621–22, 625. 12 Thus, an injured third party would be allowed “to
recover from the insurer the difference between the jury verdict and what would
otherwise have been recoverable” under the physician liability cap. Id. at 622,
625. Judge Fitzwater reasoned that because the supreme court’s focus was on
maintaining incentives for reasonable settlement, it had made certain that the
insurer would have an incentive to reasonably settle, regardless of whether
insurance coverage was above or below the cap, “[b]y interpreting § 11.02(c) as
creating a direct cause of action for injured third parties when Stowers facts
exist.” Id. at 623.
Judge Fitzwater went on to observe that while the supreme court
analogized to equitable subrogation, the section 11.02(c) exception claim did not
function like an equitable subrogation claim because, whereas an equitable
subrogation claim only allows a third party to recover to the same extent as the
party into whose shoes he steps, “there will be instances in which there is no
claim for the injured third party and the insured physician to ‘share’.” Id. at 623–
24 (quoting Phillips I, 288 S.W.3d at 882). Viewed as a direct action, the
statutory Stowers exception claim provided the physician a common law Stowers
12
While we are not bound by Judge Fitzwater’s decision, we find his
reasoning compelling.
13
claim for his excess liability up to the physician liability cap and provided the
injured third party a claim for the difference between the physician liability cap
and the jury verdict. 13 Id. at 624. To recover on the claim, the injured third party
would have to prove that the physician’s insurer breached its Stowers duty. 14 Id.
at 624 n.16.
13
During the hearing on Truck’s and Team’s motions, the trial court also
expressed frustration with regard to the Phillips I opinion and three prior supreme
court opinions—Dairyland County Mutual Insurance Co. of Texas v. Childress,
650 S.W.2d 770 (Tex. 1983), Allstate Insurance Co. v. Watson, 876 S.W.2d 145
(Tex. 1994) (op. on reh’g), and State Farm Mutual Automobile Insurance Co. v.
Matlock, 462 S.W.2d 277 (Tex. 1970) (op. on reh’g)—stating,
Phillips doesn’t overrule Allstate v. Watson; doesn’t -- doesn’t even
address Dairyland; and those are the two instances where you
actually have the issue of whether or not there’s a direct action by a
third-party personal injury claimant against the liability carrier for a
personal injury defendant, whether it be a malpractice or whether it
be a car wreck case, okay?
The only other instance where the Court has actually created
a direct action is State Farm v. Matlock in the uninsured motorist
coverage issue. And that has created a nightmare . . . .
....
. . . And Matlock, the Supreme Court basically, without any
citation to authority, decided, you know, [“]We think it’s probably a
good idea for a direct action, even though Texas doesn’t allow a
direct action in common law personal injury cases.[”] So -- and
that’s been personal pet peeve of mine, shall we say.
14
Truck describes the “inextricable dilemma” for insurers produced by
Phillips I and Bramlett I as follows:
The availability of a direct cause of action necessarily means that the
insurer has a duty to its insured, but would also have a duty to the
tort plaintiff.
14
6. Standing
To establish common law standing, a plaintiff must show both that he has
suffered a distinct injury and that there is a real controversy between the parties
that the judicial declaration sought will actually resolve. Everett, 178 S.W.3d at
850 (citing Brown v. Todd, 53 S.W.3d 297, 305 (Tex. 2001)). But the legislature
may exempt litigants from the common law injury requirement, making the statute
itself the proper analytical framework to determine standing. Id. at 850–51. For
statutory standing to apply, the plaintiff must allege and show how he has been
injured or wronged within the parameters of the statutory language. Id. at 851.
In Everett, we explained that the common law standing rules apply except when
standing is statutorily conferred. Id. at 850; see also Marauder Corp. v. Beall,
301 S.W.3d 817, 820 (Tex. App.—Dallas 2009, no pet.) (“The standing analysis
begins and ends with the statute itself.”).
That duty would necessarily create a “Catch-22” for the insurer
because the interests of its insured and the interests of the tort
claimant are not aligned and cannot be aligned. If a proper Stowers
demand within limits is made, under Bramlett, the insurer would be
forced at that point not only to consider the insured’s interest, but
[also] that of the tort claimant. The insurer then [loses] its incentive
to make any sort of agreement because the agreement would have
to be in the best interest of the insured and the tort claimant against
whom the insurer is defending its insured. If the insurer’s exposure
is above the Stowers exposure, the insurer’s decisions regarding the
defense of its insured are necessarily impacted. The purpose of the
Stowers doctrine in the eighty-eight years of its existence has always
been to protect the insured. The duty to an insured to settle under
Stowers cannot be workable if the insurer must also consider the
interests of the tort claimant and the potential verdict.
15
C. Motions and Responses
In the trial court, Truck argued that Appellants had no standing because
they did not have a direct statutory Stowers cause of action, an assigned
Stowers claim from Yagnik, or a turnover order entitling them to Yagnik’s Stowers
claim. Specifically, Truck argued that a Stowers action may be brought by a
judgment creditor only after a turnover proceeding or a valid assignment and that
otherwise, the judgment creditor lacks standing to sue the insurer because there
is no tort duty of an insurer to a third party, relying on Hernandez v. Great
American Insurance Co. of New York, 464 S.W.2d 91, 94 (Tex. 1971). 15 Truck
labeled as dicta the discussion in Phillips I of an insurer’s potential liability under
the statute, 16 vehemently disagreed with Judge Fitzwater’s Bramlett I opinion,
15
In Great American Insurance Co., a case involving a common law
Stowers claim related to an underlying automobile accident, the supreme court
eliminated the requirement in Texas law that the insured pay some portion of the
judgment against him before bringing suit for reimbursement against the insurer.
464 S.W.2d at 92 (eliminating the prepayment requirement to allow suit from the
time liability is fixed by final judgment). In that case, decided almost 40 years
before Philips I, the supreme court noted, “The tort of the insurer in mismanaging
the defense of the insured in the first case is harmful to the insured alone.” Id. at
94.
16
Judge Fitzwater addressed the dicta argument in Bramlett I,
distinguishing between obiter dictum—a judicial statement made in passing—and
judicial dictum, “which is ‘articulated very deliberately after mature
consideration.’” Bramlett I, 855 F. Supp. 2d at 623 n.14 (quoting Elledge v.
Friberg-Cooper Water Supply Corp., 240 S.W.3d 869, 870 (Tex. 2007)). That
court concluded, as we do, that the discussion of the Stowers exception claim in
Phillips I was “articulated very deliberately after mature consideration,” that it was
“integral to the court’s reasoning and to its rejection of the interpretations of
§ 11.02 found in Welch [v. McLean, 191 S.W.3d 147 (Tex. App.—Fort Worth
2005) (op. on reh’g), overruled by Phillips I, 288 S.W.3d at 879–81, 883] and
16
and asserted that there is no such thing as a direct Stowers action by a third-
party plaintiff. Accordingly, Truck claimed, because Appellants lacked either a
turnover order or an assignment from Yagnik, they had no standing to bring a
Stowers action, Bramlett I and Phillips I notwithstanding. Truck further argued
that to the extent that Appellants could bring a Stowers claim via the principles of
equitable subrogation, Yagnik’s claim could not be pursued because the excess
judgment against him had been paid upon becoming final in 2014 and Yagnik
had released Truck from any claims he might have had against Truck, leaving
nothing to subrogate.
Team likewise argued that absent an assignment from Yagnik or a
turnover order, Appellants could not “otherwise establish standing to bring a
Stowers action against” it. Team also argued that because Appellants did not file
their current action until January 26, 2016, and because that action was wholly
separate and apart from their underlying claim, Appellants were barred by civil
practice and remedies code section 74.303(d) from pursuing any excess liability
beyond the statutory cap applicable to Yagnik. Thus, according to Team,
Appellants’ judgment had been satisfied such that Appellants had no damages.
Appellants filed a joint response to Truck and Team’s motions in which
they acknowledged that they had no turnover order or assignment from Yagnik
Phillips [v. Bramlett, 258 S.W.3d 158 (Tex. App.—Amarillo 2007), rev’d, Phillips I,
288 S.W.3d at 883]” and that it was therefore obligated to follow the supreme
court’s interpretation of section 11.02(c). See id.
17
but asserted that they had brought their action as a direct statutory Stowers claim
against the insurers pursuant to Phillips I and Bramlett I. Appellants argued that
Truck entered a settlement agreement with Yagnik “in an attempt to circumvent”
Appellants’ right to recovery, pointing out that if Yagnik had no Stowers claim,
then the release he signed with his insurers would fail for lack of consideration.
Appellants also argued that this situation is why the Phillips I court said
that the direct claim was akin to equitable subrogation—not that it actually was
an equitable subrogation claim. See Phillips I, 288 S.W.3d at 882 (“Similarly, the
Stowers exception to the cap is like this right to equitable subrogation. It puts the
injured third party in the shoes of the insured to the extent the cap eliminates the
insured’s incentive to enforce the insurer’s duty to settle with reasonable care.”
(emphasis added)); see also Bramlett I, 855 F. Supp. 2d at 624–25. Their direct-
claim argument went to both Truck’s and Team’s motions.
As to Team’s separate summary judgment argument on 2003’s civil
practice and remedies code chapter 74 enactment (hereinafter, the 2003 statute),
Appellants responded that the underlying suit that gave rise to their direct
Stowers exception claim was filed on August 29, 2003, and was based on events
that occurred before the statute’s September 1, 2003 effective date, preventing
the new statute’s application to their claim. Appellants stated, “It beggars belief
to think the Supreme Court decided Phillips [in 2009] in a way giving rise to a
claim, but that it did not observe such a claim could never be brought because it
would be precluded by the 2003 repeal of the MLIIA,” particularly since a
18
claimant cannot determine whether a Stowers case exists until a jury verdict is
rendered. They pointed to “long-settled law that a Stowers lawsuit need not be
brought until after the suit from which it derives . . . is final,” citing Street v.
Honorable Second Court of Appeals, 756 S.W.2d 299, 301–02 (Tex. 1988) (orig.
proceeding). To rule in Team’s favor on that argument, they argued, would
render the supreme court’s decision in Phillips “a unicorn crossbow—theoretically
useful, but of no practical value.”
Appellants further argued that the 2003 statute did not govern their claim
because Appellees are not health care providers and the claim is not a health
care liability claim. According to Appellants, the 2003 statute governs only health
care liability claims, not Stowers claims, that are filed after September 1, 2003.
And they contended that they had been damaged “the entire amount of the
verdict against the insured that ha[d] not already been paid, plus interest.”
Team replied that the plain language of the 2003 enabling statute
encompassed Appellants’ claim because the statute applies to an “action,” not
just a “health care liability claim,” essentially overruling the supreme court’s 2009
holding in Phillips I for actions filed after September 1, 2003. Team further
argued that Appellants should have brought their Stowers claim in the underlying
action by adding Team to the case once the trial court entered a judgment
applying the healthcare liability caps.
19
D. The Parties’ Arguments
In their first two issues, Appellants argue that the trial court erred by
concluding that they lacked standing because their claim was neither a common
law claim nor an equitable-subrogation-based claim but rather a direct statutory
claim. In their third and fourth issues, Appellants argue that their claims are not
capped by the 2003 statute because that statute is a replacement, not an
amendment, that the 2003 statute has no effect on claims that are not brought
under the common law Stowers doctrine, and that they are therefore entitled to
money damages for the difference between the capped judgment and the verdict.
Truck responds that the trial court properly granted its plea to the
jurisdiction because Appellants have no statutory standing under former article
4590i, section 11.02(c), to bring a Stowers action directly against Truck for
amounts in excess of a judgment that was fully paid. 17 But see Bramlett v. Med.
Protective Co. of Ft. Wayne, Ind. (Bramlett II), No. 3:10-CV-2048-D, 2013 WL
796725, at *7 (N.D. Tex. Mar. 5, 2013) (“MedPro’s payment of the judgment is
not controlling because, if plaintiffs prove their Stowers claim, they are entitled to
recover up to the amount of the jury verdict, not the judgment amount.”). Truck
directs us to insurance code section 541.151 18 and finance code section
17
In its brief, Team adopted Truck’s argument and authorities on this issue.
18
Insurance code section 541.151, “Private Action for Damages
Authorized,” states that a “person who sustains actual damages may bring an
action against another person for those damages” that are caused by the other
person’s engaging in an act or practice that is defined by chapter 541,
20
392.403 19 as examples of statutory grants of standing and to business and
commerce code section 106.008 20 as an example of when standing is not
granted. Team contends that the 2003 statute applies to Appellants’ claims,
which they filed in a separate 2016 lawsuit, and that Appellants have therefore
received the full compensation to which they are entitled under applicable law
with regard to Team.
Appellants counter that the 2003 statute applies to health care liability
lawsuits filed after September 1, 2003, and to common law claims but that the
instant case is not a health care liability lawsuit or a common law claim and that
Appellees’ arguments would require us to ignore both Phillips I and Bramlett I.
E. Analysis
We agree with Appellants that we are not at liberty to ignore Phillips I. And
we also agree with Judge Fitzwater’s characterization of Phillips I as “difficult to
subchapter B as an unfair method of competition or an unfair or deceptive act or
practice in the business of insurance or that is specifically enumerated in
business and commerce code section 17.46(b) as an unlawful deceptive trade
practice if the person bringing the action relied on the act or practice to his
detriment. Tex. Ins. Code Ann. § 541.151 (West 2009).
19
Finance code section 392.403, “Civil Remedies,” states, in pertinent part,
that “[a] person may sue for: (1) injunctive relief to prevent or restrain a violation
of this chapter [on Debt Collection]; and (2) actual damages sustained as a result
of a violation of this chapter,” and if the plaintiff successfully maintains the action,
he or she is also entitled to attorney’s fees reasonably related to the amount of
work performed or costs. Tex. Fin. Code Ann. § 392.403(a)–(b) (West 2016).
20
Business and commerce code section 106.008, “No Private Right of
Action,” states, “This chapter [“Internet Dating Safety Act”] does not create a
private right of action.” Tex. Bus. & Com. Code Ann. § 106.008 (West 2015).
21
comprehend” and “perplex[ing],” Bramlett I, 855 F. Supp. 2d at 621, and find his
analysis instructive. Judge Fitzwater read Phillips I as acknowledging a
legislatively-created direct claim for injured third parties via section 11.02(c). Id.
at 622. Compare Tex. Ins. Code Ann. § 541.151, and Tex. Fin. Code Ann.
§ 392.403, with Dairyland, 650 S.W.2d at 775–76 (stating that “[t]here is no
question in our minds that the compulsory insurance requirement of the Texas
motor vehicle safety laws implies that all potential claimants for damages
resulting from automobile accidents are intended as beneficiaries of the
statutorily required automobile liability coverage” and thus holding that injured
third-party plaintiffs could obtain both damages and attorney’s fees under the
insured’s contract with the insurer). We agree. Because Phillips I acknowledged
a direct claim, and because we are bound by the supreme court’s precedent, we
hold that Appellants’ claims are not barred by Yagnik’s settlement with his
insurers, and we sustain their second issue. 21 See Robinson v. Home Owners
21
Ignoring our precedential constraints as an intermediate appellate court,
Truck directs us to the words of former United States Supreme Court Justice
Felix Frankfurter with regard to statutory construction to remind us that
[Courts] are under the constraints imposed by the judicial
function in our democratic society . . . . [T]he function in construing a
statute is to ascertain the meaning of words used by the legislature.
To go beyond it is to usurp a power which our democracy has
lodged in its elected legislature . . . . A judge must not rewrite a
statute, neither to enlarge nor to contract it.
In re P.D.M., 117 S.W.3d 453, 465 (Tex. App.—Fort Worth 2003, pet. denied)
(Cayce, C.J., dissenting) (quoting Record of the Association of the Bar of the City
of New York 213 (1947), reprinted in Courts, Judges, and Politics 414 (Walter F.
22
Mgmt. Enters., Inc., No. 02-16-00380-CV, 2018 WL 1865799, at *11 (Tex. App.—
Fort Worth Apr. 19, 2018, no pet. h.) (“‘[I]t is not the function of a court of appeals
to abrogate or modify established precedent.’” (quoting Lubbock Cty. v.
Trammel’s Lubbock Bail Bonds, 80 S.W.3d 580, 585 (Tex. 2002))).
Pursuant to this acknowledgment by the supreme court in Phillips I, if
Appellants’ claims are not barred by the 2003 enactment, then Appellants can
sue for damages amounting to the difference between the capped judgment and
the verdict. 22
As interpreted by the supreme court, section 11.02(c) required the facts
that give rise to a common law Stowers claim as a trigger for a statutory Stowers-
based cause of action for “a party,” while section 74.303(d) limits an insurer’s
liability “under the common law [Stowers] theory of recovery” but says nothing
about a statutory cause of action. Accordingly, we agree with Appellants’
Murphy & C. Herman Pritchett, eds., 2d ed.1974)). But in Phillips I, which issued
in 2009, six years after article 4590i was repealed, the supreme court essentially
created a cause of action for third parties injured by medical malpractice by
reading its own analysis into section 11.02(c)’s text, creating a historical hybrid of
sorts—an exceptional case for exceptional circumstances in a manner similar to
its action in Dairyland. Phillips I, 288 S.W.3d at 882; see also Dairyland, 650
S.W.2d at 775–76 (holding all potential claimants for automobile accident
damages are intended beneficiaries of statutorily required automobile liability
coverage).
22
Truck argues that to rule in Appellants’ favor departs from any traditional
measure of actual liability and creates an inconsistent right in law with regard to
an insurer’s duties. Nevertheless, we are constrained by the supreme court
precedent that binds us. See Bramlett I, 855 F. Supp. 2d at 623 n.14 (explaining
that to the extent the supreme court’s discussion of the statutory Stowers
exception in Phillips I is dicta, it is judicial dicta).
23
contention that these provisions do not match and that section 74.303(d)
therefore has no effect on their claim because section 11.02(c) is a statute-based
Stowers claim, not a common law-based Stowers claim, and we sustain their
third issue.
Further, while as a matter of statutory construction, we must presume that
the legislature “‘is aware of relevant case law when it enacts or modifies
statutes,’” Phillips II, 407 S.W.3d at 241 (quoting In re Allen, 366 S.W.3d 696,
706 (Tex. 2012) (orig. proceeding)), at the time that the legislature enacted
chapter 74 of the civil practice and remedies code to replace former article 4590i,
Phillips I was not yet a glimmer in the eye of Justice Medina, its author, and the
legislature did not have the benefit of the court’s interpretation of section
11.02(c)’s language. Cf. id. (presuming that when the legislature enacted finance
code section 304.005 in 1999, it was aware of the court’s interpretations of the
word “judgment” in the predecessor statute and intended to convey a meaning
consistent with the court’s historic usage). While we presume that statutory
language has been selected and used with care and that every word or phrase in
a statute has been intentionally used with a meaning and a purpose, see Allen,
366 S.W.3d at 706, to apply 2003’s statutory limitation here would render the
supreme court’s opinion a nullity when Phillips I, handed down six years after the
statute was enacted, created a statutory cause of action that relates back to
former article 4590i. See Bramlett I, 855 F. Supp. 2d at 621–22, 625 (interpreting
Phillips I as granting an injured third party a direct cause of action against the
24
physician’s insurer when Stowers facts exist as to a medical malpractice claim
that accrued in 2002). As a lower court, we lack the authority to take such
action. 23
Section 11.02(c) does not specify a limitations period, but our supreme
court has held that when a statute lacks an express limitations period, we must
look to analogous causes of action for which an express limitations period is
available either by statute or by case law. Johnson & Higgins of Tex., Inc. v.
Kenneco Energy, Inc., 962 S.W.2d 507, 518 (Tex. 1998) (op. on reh’g). The
limitations period for a common law Stowers cause of action is two years. Street,
756 S.W.2d at 301. Further, a traditional common law Stowers cause of action
accrues, and limitations begins to run, when the trial court’s power to alter the
judgment has ended and execution on the judgment, if appealed, has not been
superseded, or all appeals have been exhausted. Id. at 301–02 (“Regardless of
whether the judgment is superseded, an insured who so wishes may still wait
until the underlying action has been completely resolved before bringing a
Stowers suit.”); see Bramlett II, 2013 WL 796725, at *6 (observing that while
Texas law permits an insured to bring a common law Stowers action as soon as
there is a jury verdict exceeding policy limits, the claim does not accrue until the
23
The responsibility for reconciling Phillips I with the 2003 statutory scheme
and related public policy implications in this anomalous case (which is unlikely to
be repeated) lies with our supreme court.
25
judgment is final because no valid public policy is served by forcing an insured to
bring an action that may ultimately prove to be unnecessary).
Here, Yagnik appealed the judgment resulting from Appellants’ August
2003 medical malpractice lawsuit, and his insurers superseded it. We affirmed
the judgment in 2013; the supreme court denied petition for review on
November 22, 2013, and denied rehearing of the petition for review on April 25,
2014; and our mandate issued on May 5, 2014. Accordingly, Appellants had until
May 5, 2016, to file their statutory Stowers claim. See Bramlett I, 855 F. Supp.
2d at 621–22, 625; see also Bramlett II, 2013 WL 796725, at *6. They filed their
original petition on January 26, 2016. Because Appellants’ claims are not time-
barred or barred by the September 1, 2003 effective date of the 2003 statute,
Appellants can pursue damages amounting to the difference between the capped
judgment and the verdict, and we sustain their fourth issue.
Based on the supreme court’s holding in Phillips I, as we have analyzed
above, the trial court erred by concluding that Appellants lacked standing.
Accordingly, we sustain their first issue.
26
IV. Conclusion
Having sustained Appellants’ four issues, we reverse the trial court’s
judgment and remand the case for further proceedings.
/s/ Bonnie Sudderth
BONNIE SUDDERTH
CHIEF JUSTICE
PANEL: SUDDERTH, C.J.; GABRIEL and PITTMAN, JJ.
DELIVERED: June 21, 2018
27