State Farm Lloyd's Insurance Company v. Ashby AAA Automotive Supply, Inc.

96-01 >n
AFFIRMED in part, REVERSED in part, RENDERED in part, AND REMANDED.
Opinion issued August 28, 1995.
FILED
IN SUPREME COURT
OF TEXAS
JUL - 5 1996
JOHN T. ADAMS. Clerk
Ry Deputy jn ^g
Qltfurt of Appeals
iHfty Itstrtrt of Qkxas at Salias
No. 05-92-01354-CV
STATE FARM LLOYD'S INSURANCE COMPANY, Appellant
V.
ASHBY AAA AUTOMOTIVE SUPPLY CO., INC. AND JOE BEN ASHBY, JR.,
INDIVIDUALLY, Appellees
On Appeal from the 298th Judicial District Court
Dallas County, Texas
Trial Court Cause No. 89-13647-M
OPINION
Before Chief Justice Thomas1 and Justices Ovard and Barber
Opinion By Justice Barber
Ashby AAA Auto Supply, Inc. (Ashby, Inc.) sued State Farm Lloyd's Insurance
Company (State Farm) alleging damages from fire loss under a policy issued by State Farm
1The Honorable LindaThomas was on the original panel at the time this cause was submitted for decision. Justice Thomas
was sworn in as Chief Justice on January 1, 1995.
We affirm in part and reverse and render in part. We overrule Ashby, Inc.'s cross-
points of error. We remand this cause to the trial court for entry of judgment consistent
with this opinion.
BACKGROUND
Ashby was president, and the sole shareholder, of Ashby, Inc. State Farm insured
Ashby, Inc. The policy covered Ashby, Inc.'s really, the building's contents, and losses from
business interruption.
In the early morning hours of June 27, 1989, a fire occurred at Ashby, Inc. The
building and some of its contents were damaged in the fire. There was also an interruption
in Ashby, Inc.'s business activities.
State Farm began its investigation the morning of the fire. Phil Maxey, the State
Farm agent from whom Ashby, Inc. purchased theinsurance policy, inspected the scene that
morning. Todd Rutledge, a State Farm adjuster, and a fire damage expert inspected the
building that afternoon. Rutledge instructed Ashby to make an inventory ofthe damage and
not to move anything. Based on his observations at the scene, Rutledge formed the opinion
that the fire had four points of origin.
Rutledge requested a fire report from the Addison Fire Department. Based on the
Addison Fire Department's report, Rutledge called Fire and Loss Analysis, Inc. on June 28
and requested an analysis of the cause and origin of the fire. He also returned Ashby's call
regarding business interruption loss. Rutledge informed Ashby that State Farm would need
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Ashby, Inc.'s income tax returns for the last two or three years in order to begin adjusting
the business interruption loss. Rutledge also ordered Ashby, Inc.'s credit report in order
to determine if there were any liens against the property or the contents because the
lienholders would also be insured by the policy.
On June 30, Fire and Loss Analysis, Inc. called Rutledge and told him that it had
determined that the fire was intentionally set, that it would submit a report, and that
samples had been sent to a lab.
Rutledge met with Ashby on July 5. He gave Ashby nonwaiver and blanket
authorization forms to sign. Ashby brought six pages of inventory and gave them to
Rutledge. Ashby advised Rutledge that he would check with his lawyer aboutthe nonwaiver
form and that he would set a time for State Farm to take his recorded statement the
following week. During this meeting, Rutledge informed Ashby that the initial report
indicated the fire had been intentionally set. Rutledge also told Ashby that State Farm
could not proceed with the claim until the nonwaiver form was signed.
State Farm received Fire and Loss Analysis, Inc.'s report on July 7. The report
concluded that the fire was intentionally set with gasoline at five different points of origin.
Rutledge met with Ashby that day. Ashby signed the blanket authorization but said that he
would have totalk with his attorney again about signing the nonwaiver form. Later that day,
Ashby advised Rutledge that he had given Ashby, Inc.'s lawyer Rutledge's number.
Rutledge called Ashby, Inc.'s lawyer. Ashby, Inc.'s lawyer would not allow Ashby to sign
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the nonwaiver form.2 Rutledge met with Ashby on July 10. He again told Ashby that
because the nonwaiver form was not signed, a reservation of rights letter would have to be
sent and this would result in delay. Rutledge gave the file to his supervisor to send a
reservation of rights letter. Ashby, Inc.'s attorney called Rutledge and stated that he would
advise Ashby not to sign the nonwaiver form. The attorney also threatened to file a bad-
faith claim because of the delay.
Ashby went to State Farm's office on July 13 to give his statement. Ashby told
Rutledge that he had not received the reservation of rights letter. Rutledge informed Ashby
that State Farm could not proceed until Rutledge received the green card back (showing
The nonwaiver form provided as follows:
Reason(s) for executing this request:
1) There is a question as to whether the cause and origin of the loss was accidental in
nature.
2) It is questionable whether there has been a loss sustained by a peril insured against.
For the reasons stated above, STATE FARM LLOYDS COMPANY may have no
obligation to defend orindemnify the undersigned for claims arising outof anaccident or
occurrence on or about 6/27/89 at or near 15201 Addison Rd.
The undersigned request(s) and authorize(s) the Company to investigate,
negotiate, settle, deny, or defend any claim arising out of such accident or occurrence as
it deems expedient. Such action shall notwaive any right theCompany may have to deny
any obligation under the policy contract, and shall not waive any rights ofthe undersigned.
Ashby did not execute the nonwaiver form. However, he did return it to State Farm with the following notation on the back:
Todd,
I am not signing this because, on advice of attorney, because (sic) it isnot provided for
in the policy. I will, of course, cooperate in every other way pursuant to the policy.
/s/ Joe Ben Ashby, Jr.
President
AAA Auto Supply, Inc.
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delivery of the letter) from the reservation of rights letter. Ashby, Inc.'s lawyer again called
complaining of the delay and recommending that State Farm pay the business interruption
claim "or else."
Rutledge and his supervisor discussed paying Ashby, Inc. an advance. State Farm
paid Ashby, Inc. a $2000 advance on July 14. Ashby advised State Farm that he had
received the reservation of rights letter and made an appointment for his recorded statement
to be taken on July 17.
On July 17, Ashby gave his recorded statement at State Farm's office. The next day,
Ashby picked up proof of loss claim forms from State Farm. On July 20, Rutledge
contacted an analyst to find out what documents he needed to determine the business
interruption loss. The analyst told Rutledge that he needed tax returns, eighteen months
of sales records, and the last physical inventory before the fire occurred.
Rutledge and Ashby talked on July 24. Ashby asked for another advance due to
business interruption. Rutledge asked Ashby for more information and told him that State
Farm had a list of questions that needed answers. Rutledge provided the list of questions
to Ashby the next day. Rutledge also interviewed Ashby's neighbors and on July 25,
searched the courthouse records for suits involving Ashby.
Ashby returned the questions, with answers, on August 1. He also told Rutledge that
he would have a contractor out on August 3 to estimate the damage to the building.
Rutledge told Ashby to advise him as to the estimate and that State Farm would have its
own estimate done.
On August 2, Rutledge requested information regarding Ashby, Inc.'s financial status
from Chrysler and Addison Bank. He also requested a credit report on Ashby.
Additionally, Rutledge contacted a law firm to discuss obtaining Ashby's statement under
oath.
On August 3, Ashby advised Rutledge that Ashby, Inc.'s contractor would examine
the property the next day. Rutledge contacted Southwest Business Investigators to arrange
anappointment to discuss thefile. Rutledge also met with his supervisor who instructed him
to conduct a thorough review of courthouse records and check on Ashby's wife's business.
Rutledge went to the property on August 4 to inspect the building and its contents
for damages. All of the contents were gone. According to Ashby, the contents of the
building had been thrown away. State Farm asserted the contents were disposed ofwithout
its knowledge or consent. Ashby, Inc.'s contractor did not show up that day. Rutledge did
not complete his estimate that day because he was uncertain whether the heating or
electrical system had been damaged. Rutledge decided to wait until electricity was restored
to the building before completing his estimate.
Ashby delivered a contractor's estimate of repair costs to State Farm on August 8.
Rutledge told Ashby that the estimate was not satisfactory because it was a lump sum
estimate as opposed to an itemized one. Ashby delivered a breakdown of repair expenses
the following day. On August 11, the contractor completed a more detailed estimate;
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however, State Farm did not think the estimate was sufficiently itemized. Rutledge's
estimate of the damage to the building, excluding electricity, was $13,000. In contrast, the
contractor estimated the damage to be $75,000.
On August 14, State Farm received Ashby, Inc.'s banking records. The records
showed four overdrafts during the months of May and June.
On August 24, Rutledge and his supervisor metwith Ashby. They advised Ashby that
they needed a CPA to verify the statements of monthly expenses and income for the twelve
months prior to the fire in order to adjust the business interruption loss. They also advised
Ashby that the advances which had beenmade thus far were with respect to content losses.
Ashby, Inc. received another advance that day.
With one exception discussed below, there was no adjusting activity between August
24 and early October. During this period of time, Rutledge was on emergency storm duty
and vacation. On August 27, State Farm received an extensive report prepared by a third
party investigation service. While the report suggested further areas to investigate, it
concluded that "[a]s of this report no evidence exists from which to implicate the insured
and/or a third party in the intentional setting of the fire event."
On October 3, State Farm's analyst called Rutledge and advised him that Ashby
failed to show up for a meeting. Rutledge tried to contact Ashby twice on October 4, but
was unsuccessful. Ashby called State Farm on October 5 and indicated that he wanted to
meet on October 6.
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On October 17, State Farm reviewed the file and determined that while the insured
may have had the means and opportunityto set the fire, it could not find sufficient evidence
of motive. State Farm decided to move toward settlement, and Rutledge was instructed to
advise Ashby of State Farm's decision.
Rutledge attempted to call Ashby on October 19 and November 6, 7, 9, and 12.
Calls were placed to Ashby's home and place of business. Rutledge was unable to contact
Ashby. Rutledge did not write Ashby. On November 20, 1989, State Farm received suit
papers. Prior to the time suit was filed, State Farm had made advances to Ashby, Inc.
totaling $16,500.
State Farm did not deny coverage prior to the time that Ashby, Inc. filed suit.
However, State Farm discovered information after suitwas filed which it believed supported
an arson claim. An arson issue was submitted to the jury. The jury answered the issue
adversely to State Farm.3
Three theories of recovery were submitted to the jury: (1) contractual damages--
what Ashby, Inc. was owed under the terms of the policy; (2) failure to attempt in good
faith to effectuate a prompt, fair, and equitable settlement of the claim once liability had
become reasonably clear in violation of the insurance code and the Texas Deceptive Trade
State Farm does not challenge the jury's arson response on appeal.
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Practices-Consumer Protection Act;4 and (3) breach of the common-law duty of good faith
and fair dealing. Separate damage issues were submitted with respect to each theory.
With respect to contractual damages, thejuryawarded Ashby, Inc. $80,000 for repair
of the building to restore it to its use and occupancy prior to the fire; $90,000 as the
replacement cost of the contents that were damaged or destroyed in the fire; and $20,000
for business interruption loss. For breach of Texas Insurance Code article 21.21-
2(b)/DTPA, the jury awarded $75,000 for "lost investment in land and improvements;"
$50,000 for loss of credit; $75,000 for lost past corporate profits; and $25,000 for loss of
future corporate profits. The jury found that State Farm did not knowingly engage in acts
or omissions constituting a breach of the insurance code/DTPA. The jury awarded Ashby,
Inc. $10,000 for breach of the common-law duty of good faith and fair dealing. The jury
found that the breach of the common-law duty of good faith and fair dealing was not
committed knowingly. The jury found that thirty-three and one-third percent ofthe actual
damages was the reasonable and necessary amount of Ashby, Inc.'s attorneys' fees.
The trial court entered judgment for Ashby, Inc. for $408,500 in actual damages.5
The trial court added $136,166.67 as attorneys' fees to the amount ofactual damages. The
4Certain violations of the insurance code also constitute violations ofthe Deceptive Trade Practices Act. See Tex. Ins. Code
Ann art 21.21, §16(a) (Vernon Supp. 1995); Tex. Bus. &Com. Code Ann. §17.41-.63 (Vernon 1987 &Supp. 1995) (DTPA); see
also Vail v. Texas Farm Bureau Mut. Ins. Co., 754 S.W.2d 129, 134 (Tex. 1988) (lack of good faith in investigation and
processing of claim actionable); Allied Gen. Agency, Inc. v. Moody, 788 S.W.2d 601,604 (Tex. App.-Dallas 1990, writ denied)
(lack of good faith in settling claim actionable under DTPA).
5 The parties stipulated that State Farm was entitled to a$16,500 offset representing the amounts it advanced to Ashby, Inc.
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trial court awarded prejudgment interest at ten percent per annum from November 12,1990
through December 20, 1991 on the actual damages and attorneys' fees. The trial court's
judgment awarded postjudgment interest at ten percent per annum on all actual damages,
attorney's fees, and prejudgment interest. Pursuant to the jury's findings, the trial court
made conditional awards of attorneys' fees for appeals.
BREACH OF THE INSURANCE CODE/DTPA AND
THE COMMON-LAW DUTY OF GOOD FAITH AND FAIR DEALING
In its first four points of error, State Farm asserts there was no evidence or
insufficient evidence to support the jury's findings that it breached the insurance code/DTPA
and the common-law duty of goodfaith applicable to insurers and that it failed to promptly
and fairly resolve the claim. These arguments were properly preserved through State Farm's
motion for directed verdict (no evidence arguments) and motion for new trial (factual
insufficiency arguments). See Cecil v. Smith, 804 S.W.2d 509, 510-11 (Tex. 1991).
A. Standards of Review
When reviewing State Farm's no evidence points, we will consider only the evidence
and inferences that tend to support the finding and disregard all evidence and inferences to
the contrary. Responsive Terminal Sys., Inc. v. Boy Scouts ofAm., 11A S.W.2d 666, 668 (Tex.
1989). We must consider the evidence in the light most favorable to the verdict. See
Havner v. E-Z Mart Stores, Inc., 825 S.W.2d 456, 458 (Tex. 1992). It is not within our
power to second guess the fact finder unless only one inference can be drawn from the
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evidence. Id. at 461. If there is more than a scintilla of evidence to support the finding, the
no evidence challenge fails. See Stafford v. Stafford, 726 S.W.2d 14, 16 (Tex. 1987).
Evidence is more than a scintilla if it furnishes some "reasonable basis for differing
conclusions by reasonable minds as to the existence of the vital fact." Kindred v. ConlChem,
Inc., 650 S.W.2d 61, 63 (Tex. 1983). However, the quantum of evidence necessary to
overcome a no evidence challenge is not necessarily enough evidence to support a verdict.
Rather, it is merely enough evidence to warrant submission of the issue to the jury. See id.
The Texas Supreme Court has given us further instructions in performing a no
evidence review of insurance bad-faith claims.
[W]e believe that when a court is reviewing the legal
sufficiency of the evidence supporting a bad faith finding, its
focus should be on the relationship of the evidence arguably
supporting the bad faith finding to the elements of bad faith.
The evidence presented, viewed in the light most favorable to
the prevailing party, must be such as to permit the logical
inference that the insurer had no reasonable basis to delay or
deny payment of a claim, and that it knew or should have
known it had no reasonable basis for its actions. The evidence
must relate to the tort issue of no reasonable basis for denial or
delay in payment of a claim, not just to the contract issue of
coverage. This is nothing more than a particularized
application ofour traditional no evidence review. This focus on
the evidence and its relation to the elements of bad faith is
necessary to maintain the distinction between a contract claim
on the policy, and a claim of bad faith delay or denial of that
claim, which arises from the tort duty we imposed on insurers
in Arnold and Aranda.
Lyons v. Millers Casualty Ins. Co., 866 S.W.2d 597, 600 (Tex. 1993) (citation omitted). First
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we must determine whether the insurer had a reasonable basis for delaying or denying the
claim. See National Union Fire Ins. Co. v. Dominguez, 873 S.W.2d 373, 376 (Tex. 1994).
Then applying the "traditional rules of legal sufficiency, "we determine whether the insured
presented evidence showing that the insurer lacked a reasonable basis for denying or
delaying the claim. See id.
In reviewing factual insufficiency points, we review all of the evidence in the record,
including any evidence contrary to the verdict. Plas-Tex., Inc. v. U.S. Steel Corp., 772
S.W.2d 442, 445 (Tex. 1989). We will set aside a jury's finding on the basis of a factual
insufficiency or greatweight and preponderance pointonly ifwe determine that the evidence
is factually insufficient or so against the great weight and preponderance of the evidence as
to be manifestly unjust, shocking to the conscience, or clearly demonstrating bias. Ames v.
Ames, 776 S.W.2d 154, 159 (Tex. 1989), cert, denied, 494 U.S. 1080 (1990); see also
Pilkington v. Komell, 822 S.W.2d 223, 230-31 (Tex. App.-Dallas 1991, writ denied). Ifwe
are inclined to reverse on the basis of a factual insufficiency or great weight and
preponderance point, we must "detail the evidence relevant to the issue in consideration and
clearly state why the jury's finding is factually insufficient or is so against the great weight
and preponderance as to be manifestly unjust; why it shocks the conscience; or clearly
demonstrates bias." Pool v. Ford Motor Co., 715 S.W.2d 629, 635 (Tex. 1986).
Additionally, we must set forth in what regard the contrary evidence greatly outweighs the
evidence in support of the verdict. Id. If we sustain a factual insufficiency or great weight
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and preponderance point, we can only remand the case. "Our present Constitution
empowers the courts of appeals to 'unfind' facts, even if they cannot 'find' them." Id. at
634. We cannot substitute our interpretation of the evidence for that of the jury even if a
different answer could be reached on the evidence. See Herbert v. Herbert, 754 S.W.2d 141,
144 (Tex. 1988).
B. Applicable Law
An insurer breaches its common-lawduty of good faith and fair dealing when it fails
to promptly and equitably pay the insured's claim when liability becomes reasonably clear.
Aranda v.Insurance Co. of N.Am., 748 S.W.2d 210, 212-13 (Tex. 1988); Allied Gen. Agency,
Inc. v. Moody, 788 S.W.2d 601, 604 (Tex. App.-Dallas 1990, writ denied). It is the
insured's burden to show (1) the insurer did not have a reasonable basis for denying or
delaying payment of the benefits of the policy and (2) the insurer knew or should have
known that it had no basis for denying or delaying payment. Aranda, 748 S.W.2d at 213;
Caserotti v. State Farm Ins. Co., 791 S.W.2d 561, 566 (Tex. App.-Dallas 1990, writdenied).
The first element of this test requires an objective
determination of whether a reasonable insurer under similar
circumstances would have delayed or denied the claimant's
benefits. The second element balances the right of an insurer
to reject an invalid claim and the duty of the carrier to
investigate and pay compensable claims.
Aranda, 748 S.W.2d at 213. Insurers have the right to deny invalid or questionable claims
without liability for an erroneous denial ofa claim; however, insurers that breach the duty
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of good faith and fair dealing may be subject to liability for their tortious conduct. Id.
The threshold of bad faith is reached when a breach of
contract is accompanied by an independent tort. Evidence that
merely shows a bona fide dispute about the insurer's liability on
the contract does not rise to the level of bad faith. Nor is bad
faith established if the evidence shows the insurer was merely
incorrect about the factual basis for its denial of the claim, or
about the proper construction of the policy. . . . To the
contrary, an insured claiming bad faith must prove that the
insurer had no reasonable basis for denying or delaying payment
of the claim, and that it knew or should have known that fact.
Transportation Ins. Co. v. Model, 879 S.W.2d 10, 17-18 (Tex. 1994) (citations omitted).
C. Application of Law to Facts
Question numbers five and seven addressed State Farm's settlement of the claims
with Ashby, Inc.6 Question numbers nine and ten dealt with State Farm's breach of the
QUESTION NO. 5: Do you find that the insurance company failed to attempt in good
faith to effectuate a prompt, fair and equitable settlement of the claims submitted by the
insured when liability had become reasonably clear? Answer "Yes" or "No".
ANSWER: Yes
You are instructed: An insurance company owes a duty of good faith and fair
dealing to itsinsureds. A breach of the insurance company's duty exists when (1) there
is an absence of a reasonable basis for denyingor delaying payment of the benefit of the
policy and (2) the insurance company knew orshown have known that there was not a
reasonable basis for denying the claim or delaying payment of the claim.
If you have answered Question No. 5 "Yes" then answer Question No. 6,
otherwise proceed to Question No. 9.
QUESTION NO. 7: Do you find that the acts or omissions which you found inQuestion
No. 5 were a producing cause of damage to the insured? Answer "Yes" or "No".
ANSWER: Yes
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implied covenant of good faith and fair dealing.7 State Farm contends the evidence is
legally and factually insufficient to support the jury's answers to these questions.
1. No Evidence
Based upon its investigation of the fire scene and reports received from third parties,
State Farm had reason to investigate the possibility of arson. The fire started in the early
morning hours, the building was locked and there was no sign of forced entry, there was
evidence that accelerants were involved, and there were multiple points of origin of the fire.
Thus, initially, State Farm had a reasonable basis to delay payment of the claim while it
conducted its investigation. However, State Farm also knew that Ashby, Inc. could not
operate its business until the building was repaired and its contents replaced. Thus, State
Farm was also aware that it was important to Ashby, Inc. that the investigation be
QUESTION NO. 9: Do you find that the insurance company breached the implied
covenant of good faith and fair dealing in thebusiness of insurance withtheinsured? You
are instructed that in connection with Question No. 9, breach of an implied covenant of
good faith and fair dealing in the business of insurance means that: (1) there isa contract
between the insurer and the insureds; (2) the insurerdenied the insured's claim or delayed
in payment; (3) there was absence of a reasonable basis for the insurer's denying or
delaying payment of the insured's claim; and the insurer knew orshould have known there
was not a reasonable basis for denying or delaying payment of the claim. Answer "Yes"
or "No".
ANSWER: Yes
If you have answered Question No. 9"Yes" then answer Question 10; otherwise
proceed to Question No. 14.
QUESTION NO. 10: Do you find that the insurance company's breach, if any, of the
implied covenant of good faith and fair dealing with itsinsured was the proximate cause
of anydamages, if any, sustained by the insured? Answer "Yes" or "No".
ANSWER: Yes
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completed quickly and the claim adjusted promptly.
Prior to the time suit was filed by Ashby, Inc., State Farm never denied the claim.
On October 17, 1989, State Farm determined that it had no reasonable basis for denying
the claim because it could not find a motive or link between Ashby, Inc. and the fire. State
Farm completed its arson investigation by August 27, 1989, when it received a third party's
report indicating that it could not link Ashby, Inc. to the fire. The report did suggest some
further areas of investigation; however, State Farm did not pursue any of them during the
claim adjusting period. Thus, State Farm cannot claim that its arson investigation was a
reason to delay resolution of Ashby, Inc.'s claim after August 27, 1989.
State Farm didvirtually nothing from August 24 through October 3, 1989. Evidence
in the record indicates that State Farm actively refused to deal with Ashby, Inc. during this
period. Rutledge, the adjuster assigned to Ashby, Inc.'s case, was on storm duty and
vacation during this period oftime. Ashby, Inc. presented expert testimony that such a long
period of time with no activity was unreasonable.
After October 17, State Farm attempted to contact Ashby, Inc. by phone, through
Ashby, several times. Most of the calls were placed to one ofAshby's places of residence
during business hours. One call was placed to Ashby's place of business on a Sunday
morning. State Farm never tried to contact Ashby through his attorney, relatives, or friends
even though it had the necessary information to do so. State Farm did not try to contact
Ashby, Inc. by mail. State Farm had earlier rejected Ashby's offer to sign for a reservation
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!j«;-rf:.'^y«iv--;«SW"*'*v^«^.^!^:«*^i.'j
of rights letter in its office, electing rather to send the letter by mail with the consequent
delay in handling the claims. The responsible adjuster offered no explanation for failure to
contact Ashby, Inc. by mail other than that he did not think of using the alternative means.
Ashby, Inc. presented expert testimony that State Farm's efforts to contact it were
unreasonable.
Evidence was presented at trial indicating that Ashby, Inc. had done everything that
State Farm had asked it to do during the adjusting period. Evidence was also presented
showing that State Farm never made a complete or adequate determination during the
adjusting period of what it thought Ashby, Inc. was entitled to under the policy.
State Farm knew Ashby, Inc. could not conduct its business until the building was
repaired and its contents replaced. It also knew Ashby, Inc. was incurring expenses even
though it was not open for business.
The arson investigation did not delay resolution of the claim after Ashby, Inc. did
everything that was asked ofitin a timely fashion. State Farm failed to complete its analysis
of the loss within the time limits set forth in the insurance policy. Even though Ashby, Inc.
requested it to do so, State Farm never made an offer to Ashby, Inc. From the foregoing
facts, the jury could have reasonably concluded that State Farm was "stringing along" a
distressed insured in bad faith in an effort to force an inequitable settlement and that the
delay proximately caused Ashby, Inc. injury. The evidence supported the existence of an
independent tort, as found by the jury, above and beyond any breach of contract.
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We overrule State Farm's first and third points of error.
2. Insufficient Evidence
State Farm had a reasonable basis for investigating arson. This matter was hardly
disputed at trial. After August 27, State Farm cannot rely on arson as a reason for delaying
resolution of the claim. At trial, State Farm claimed that Ashby, Inc.'s actions, such as not
signing the waiver letter, delayed resolution of the claim. However, all of the asserted
deficiencies on Ashby, Inc.'s part were rectified by the end of July. State Farm's bad faith
expert could not identify a single specific action which Ashby, Inc. did or did not do that
resulted in delay of resolution of the claim. The responsible adjuster indicated that Ashby,
Inc. did everything it was asked to do.
Except for testimony thatits adjuster was onvacation andstorm duty between August
27, 1989 and October 3, 1989, State Farm gave no explanation as to why there was no
activity regarding the claim during that period. State Farm presented no evidence showing
that it did not have the resources to assign someone else to the claim during this period.
State Farm's expert conceded that a month without activity on a file would work a hardship
on an insured.
State Farm retained an analyst to examine Ashby, Inc.'s inventory loss and business
interruption loss on July 20, 1989. By October 19, the analyst was "almost finished" with
his report. State Farm received the report in early November. The analyst's report was
incomplete when it was transmitted to State Farm. It noted that there were a number of
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&.'^wM^*^»^**?*"
public records which could and should be obtained that would assist the analysis. No
explanation was provided as to why the analyst did not obtain the documents or why State
Farm did not obtain the documents. At no time during the claim adjusting period did State
Farm attempt to obtain such documents even though it knew they were material to
evaluating Ashby, Inc.'s loss.
State Farm asserts that Ashby, Inc.'s "destruction" of the contents of the store
delayed resolution of the claim because State Farm was denied the opportunity to recover
salvage value and accurately assess the loss. On the day of the fire, State Farm told Ashby,
Inc. not to touch anything. More than a month later, on August 4, State Farm went to the
store to examine the inventory. By that time, the inventory had been removed. There is
nothing in the record showing that State Farm ever told Ashby, Inc. why the inventory had
to remain. Evidence was presented from which the jury could have concluded State Farm
knew or should have known that some or all of the contents of the store were being
removed prior to the time it went to examine them.
Ashby, Inc. filed its sworn proof ofloss by August 20, 1989. Ashby, Inc.'s insurance
policy provided in relevant part that:
The amount of loss for which this Company may be
liable shall be payable sixty days after proof of loss, as herein
provided, is received by the Company and ascertainment ofthe
loss is made either by agreement between the insured and this
Company expressed in writing or by the filing with this
Company of an award as herein provided.
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Even though its investigation was completed by the end of August, State Farm did not make
the determination that it could not maintain an arson defense until October 17, a mere two
days before the sixty-day period contemplated by the policy expired. At best, State Farm
was less than diligent in its efforts to contact Ashby, Inc. after October 17 to discuss
settlement. More importantly, State Farm was never prepared to discuss settlement with
Ashby, Inc. during the adjusting period. State Farm had not thoroughly inspected the
building to determine whether the electrical or heating/air conditioning system needed
repair. State Farm's evaluation ofAshby, Inc.'s business interruption and lost profits claims
was never completed. From the evidence presented at trial, the jury could have concluded
that State Farm's failure to adequately and completely evaluate Ashby, Inc.'s claims within
the time periods contemplated by the insurance policy was the product of State Farm's bad
faith and lack of diligence.
State Farm did make partial payments totaling $16,500 during the adjusting period.
However, this was a fraction ofthe total coverage afforded by the policy and a mere portion
of the undisputed amount of the loss.
From the evidence presented at trial, the jury could have concluded that (1) State
Farm was not diligent in evaluating its arson claim and Ashby, Inc.'s damages; (2) State
Farm failed to use adequate efforts to contact Ashby, Inc. in October and November; (3)
State Farm's failure to work the claim and communicate with Ashby, Inc. between August
24 and October 3 was unreasonable; and (4) during the adjusting period, State Farm was
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never prepared to fairly discuss or dispute Ashby, Inc.'s claim because its investigation was
spotty and incomplete. State Farm also knew that Ashby, Inc. could not operate until the
building was repaired and inventory replaced. From the foregoing, the jury could have
concluded that State Farm attempted to take advantage of a distressed insured by delaying
resolution of the claimwithoutadequate justification. There wasfactually sufficient evidence
to support the jury's findings that State Farm acted in bad faith and unreasonably delayed
resolution of the claim to Ashby, Inc.'s detriment.
In its brief, State Farm conjectures that the jury's findings were predicated upon
conduct which occurred after Ashby, Inc. filed suit. State Farm asserts that it is being
penalized for litigating its defense to the claim. Evidence ofpostsuit activity was introduced
without objection or request for an instruction limiting the jury's consideration of it. State
Farm did not object to the charge on the basis that it was improper for the jury to consider
postsuit activities in determining whether there was unreasonable delay or bad faith. Thus,
State Farm failed to preserve error, if any. See Tex. R. App. P. 52(a). Further, the error,
if any, was harmless. As discussed above, there was sufficient evidence of presuit activity
to support the jury's findings. State Farm's argument that the jury's verdict was based on
postsuit activity is speculation and is unsupported by the record.
We overrule State Farm's second and fourth points of error.
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CONDUCT OF ASHBY, INC.'S COUNSEL
In its fifth point of error, State Farm asserts the trial court erred in not granting a
mistrial and/or its motion for new trial because (1) Ashby, Inc.'s lead counsel testified as
a material fact witness and expert witness beyond the issue of attorney's fees; and (2) the
conduct ofAshby, Inc.'s counsel prior to and during trial violated the rules of professional
conduct.
A. Standard of Review
Generally, the granting or denying of a motion for mistrial is reviewed on an abuse
of discretion standard. See Ussery v. Gray, 804 S.W.2d 232, 237 (Tex. App.-Fort Worth
1991, no writ) (disqualification of attorney); Mendoza v. Ranger Ins. Co., 753 S.W.2d 779,
781 (Tex. App.-Fort Worth 1988, writ denied) (jury selection). A trial court's grant or
denial of a motion for new trial is also reviewed under an abuse of discretion standard.
Champion Int'l Corp. v. Twelfth Court of Appeals, 762 S.W.2d 898, 899 (Tex. 1988) (per
curiam); Fluty v. Simmons Co., 835 S.W.2d 664, 666 (Tex. App.-Dallas 1992, no writ).
B. Attorney Testifying as Fact Witness
The substance ofState Farm's complaint is that the trial court failed to properly limit
the scope of Ashby, Inc.'s counsel's testimony. Atrial court's rulings on the admission or
exclusion of evidence are reviewed under an abuse of discretion standard. Coker v.
Burghardt, 833 S.W.2d 306, 309 (Tex. App.-Dallas 1992, writ denied); see also Ginsberg v.
Fifth Court of Appeals, 686 S.W.2d 105, 108 (Tex. 1985) (holding admission of evidence
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rests largely within the discretion of the trial court). Failure to request the court to instruct
the jury to disregard inadmissible evidence results in waiver of any error stemming from the
admission of the evidence. State Bar v. Evans, 114 S.W.2d 656, 658 n.6 (Tex. 1989) (per
curiam).
Ashby, Inc.'s counsel testified at great length at trial. His testimony often went
beyond the issue of the reasonableness of his attorney's fees. He testified as to his opinions
regarding State Farm's lack of good faith and his course of dealings with State Farm prior
to and after suit was filed.
State Farm made numerous objections to Ashby, Inc.'s counsel's testimony. Most
of the objections were sustained. On appeal, State Farm does not complain of a single
instance inwhich the trial court failed to sustain a specific objection to such testimony. State
Farm does not argue that counsel's allegedly improper testimony was such that it presented
incurable error that could not be corrected through instruction to the jury to disregard it.
The gravamen of State Farm's complaint on appeal is that Ashby, Inc.'s counsel's testimony
was heard and considered by the jury.
On appeal, State Farm argues that the trial court erred in overruling its motions for
new trial/mistrial because Ashby, Inc.'s counsel should have been disqualified because he
testified to matters outside attorney's fees. State Farm does not dispute that said counsel
could properly testify as to attorney's fees. See Tex. Disciplinary R. Prof. Conduct
3.08(a)(3) (1994), reprinted in Tex. Gov't Code Ann. tit. 2, subtit. Gapp. A(Vernon Supp.
-25-
1995). We have reviewed Ashby, Inc.'s counsel's testimony and agree it extended beyond
the issue of attorney's fees. However, State Farm does not identify any instances where the
trial court allowed Ashby, Inc.'s counsel to testify outside the issue of attorney's fees over
its specific objection.
Ashby, Inc.'s counsel was entitled to testify at trial as to attorney's fees.8 It was
incumbent upon State Farm to take the necessary steps to limit such testimony to attorney's
fees. Instructions to the jury limiting its consideration of counsel's testimony could have
prevented any unfair prejudice. State Farm failed to take the necessary steps-objecting and
requesting instructions-to minimize the potentially unfairly prejudicial impact of counsel's
testimony. Under these circumstances, we cannot say the trial court abused its discretion
in not granting State Farm's motion for mistrial or motion for new trial.
C. Ashby, Inc.'s Counsels' Behavior Prior to And During Trial
State Farm asserts that Ashby, Inc.'s counsel threatened witnesses and opposing
counsel and ignored the trial court's orders in violation of the Texas Disciplinary Rules of
Professional Conduct. Control of counsel prior to and during trial is a matter lying within
the sound discretion of the trial court, and a reviewing court will not interfere unless it is
clear that the trial court abused its discretion. Wells v. HCA Health Servs., 806 S.W.2d 850,
854 (Tex. App.-Fort Worth 1990, writ denied); Mandril v. Kasishke, 620 S.W.2d 238, 247
8 The facts are distinguishable from Warrilow v. Norrell, 791 S.W.2d 515, 523 (Tex. App.-Corpus Christi 1989, writ
denied), wherein the attorney's testimony comprised approximately 341 pages of 1090 pages (nearly one-third) of the testimony
offered by the plaintiff, the bulk of such testimony apparently being unrelated to attorney's fees.
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(Tex. Civ. App.-Amarillo 1981, writ ref d n.r.e.).
The question of whether Ashby, Inc.'s counsel violated the Texas Disciplinary Rules
of Professional Conduct is not dispositive of any issue before us.
[T]hese rules are not designed to be standards for procedural
decisions. Furthermore the purpose of these rules can be
abused when they are invoked by opposing parties as
procedural weapons. The fact that a rule is a just basis for a
lawyer's self-assessment, or for sanctioning a lawyer under the
administration of a disciplinary authority, does not imply that an
antagonist in a collateral proceeding or transaction has standing
to seek enforcement of the rule. Accordingly, nothing in the
rules should be deemed to augment any substantive legal duty
of lawyers or the extra-disciplinary consequences of violating
such a duty.
Tex. Disciplinary R. Prof. ConductPreamble, Scope § 15 (1994), reprinted in Tex. Gov't
Code Ann., tit. 2, subtit. G app. A (Vernon Supp. 1995) (State Bar Rules art. X, § 9).
The question before us is whether the trial court abused its discretion in denying State
Farm's motion for mistrial and/or motion for new trial because of Ashby, Inc.'s counsels'
conduct.
State Farm has alleged that Ashby, Inc.'s counsel engaged in improper conduct
ranging from leading witnesses to witness tampering in violation ofTexas Penal Code section
35.05. Ashby, Inc.'s counsel disputed these charges and their evidentiary foundation. The
trial court conducted an evidentiary hearing on these matters. From the record before us,
it appears that the evidentiary hearing regarding Ashby, Inc.'s counsels' threatening of
-27-
witnesses was not completed. In some instances, the trial court exonerated Ashby, Inc.'s
counsel. In others, it found his conduct inappropriate.
The trial court took State Farm's complaints about Ashby, Inc.'s counsel seriously.
It sustained many of State Farm's objections and went so far as to threaten Ashby, Inc.'s
counsel with contempt. State Farm's complaint is that the trial court should have gone
further and granted it a mistrial or a new trial. State Farm has not directed us to (1) any
incident absolutely requiring a mistrial/new trial or (2) any authority regarding the incidents
about which it does complain which requires a mistrial/new trial. While we have not
detailed each of the alleged improprieties, we have examined each of them in light of the
attendant circumstances. We conclude the alleged improprieties were not sofundamentally
detrimental to the trial as to necessitate a mistrial.
The trial court was in the best position to evaluate Ashby, Inc.'s counsels' conduct
and its impact on the trial. It took affirmative steps to control Ashby, Inc.'s counsel. Under
these circumstances and onthe basis oftherecord before us, we find no abuse ofdiscretion.
We overrule State Farm's fifth point of error.
UNQUALIFIED EXPERTS
In its sixth and seventh points of error, State Farm asserts the trial court abused its
discretion in allowing John Agnew and Christopher Weil to testify as experts. State Farm's
position is that they were not qualified to render the opinions they did, particularly because
they were not licensed insurance adjusters.
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A. Applicable Law
Whether a witness is allowed to testify as an expert witness is a matter of judicial
discretion. Prellwitz v. Cromwell, Truemper, Levy, Parker &Woodsmale, Inc., 802 S.W.2d
316, 317 (Tex. App.-Dallas 1990, no writ). A trial court's determination will not be
disturbed on appeal unless the record shows "it clearly abused its discretion." Id.
The party offering an expert witness has the burden of establishing the expert's
qualifications. Id. A purported expert's qualifications can be established through a
predicate showing "knowledge, skill, experience, training or education." Tex. R. Civ. Evid.
702. However, a witness who is to give an expert opinion about the standard of care within
a particular licensed profession must ordinarily be licensed in that same profession. See
Prellwitz, 802 S.W.2d at 317 (architects and mechanical engineers); see also Bilderback v.
Priestley, 709 S.W.2d 736, 740 (Tex. App.-San Antonio 1986, writ ref'd n.r.e.) (op. on
reh'g) (doctors); Tijerina v. Wennermark, 700 S.W.2d 342, 347 (Tex. App.-San Antonio
1985, no writ) (lawyers), disapproved on other grounds, Cosgrove v. Grimes, 114 S.W.2d 662
(Tex. 1989) (op. on reh'g); Johnson v. Hermann Hosp., 659 S.W.2d 124, 126 (Tex. App.-
Houston [14th Dist.] 1983, writ ref'd n.r.e.) (nurses). But see State v. Taylor, 721 S.W.2d
541, 551 (Tex. App.-Tyler 1986, writ refd n.r.e) (appraiser who was not licensed real
estate broker but who had more than nine years' experience as an independent real estate
appraiser, was a member of the International Institute of Appraisers and the National
Association of Appraisers, and had experience in making appraisals for banks and
-29-
condemning authorities was qualified to rendervalue anddamages opinions in condemnation
proceeding).
Individuals who adjust insurance claims must be licensed as agents under Texas law.
See Tex. Ins. Code Ann. art. 21.02, § 2(a) (Vernon Supp. 1995) (defining "agent" to include
those who adjust claims); Tex. Ins. Code Ann. art. 21.07 (Vernon Supp. 1995) (requiring
agents to be licensed); Tex. Ins. Code Ann. art. 21.07-4, § 2(a) (Vernon 1981) (specifically
requiring adjusters to be licensed); 28 Tex. Admin. Code § 19.602 (West 1992-93) (Texas
Department of Insurance) (types of adjuster's licenses authorized). In order to be licensed,
an adjuster must (1) demonstrate to the licensing board that he has "experience or special
education or training ... ofsufficient duration and extent to make him competent to fulfill
the responsibilities of an insurance adjuster" and (2) he must pass an examination. Tex. Ins.
Code Ann. art. 21.07-4, § 7 (Vernon 1981). Attorneys are exempted from the licensure
requirement to the extent they may perform adjusting activities in the course of their
practice of law. See Tex. Ins. Code Ann. art. 21.02 (Vernon Supp. 1995); Tex. Ins. Code
Ann. art. 21.07-4, § l(l)(b)(l) (Vernon Supp. 1995).
B. Application of Law to Facts
Agnew and Weil expressed their opinions that State Farm had breached the duty of
good faith and fair dealing. State Farm complains that Agnew and Weil were not qualified
to testify as expert witnesses, and the trial court erred in allowing them to testify as such.
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Ashby, Inc. offered John Agnew as an expert on attorney's fees and bad-faith claims
practices. Agnew was licensed to practice law in 1970. He did not hold an adjuster's
license. He had engaged in a mixed plaintiff/defendant trial practice. He had represented
insurance carriers on coverage questions and exposure regarding bad-faith claims. He had
handled some lawsuits involving fires. Apart from his activities as a lawyer, he had never
been a claims manager or done anything with respect to adjusting claims from the insurer's
point of view.
Ashby and Ashby, Inc. offered Christopher Weil as a rebuttal witness and elicited
testimony regarding interpretation ofthe subject insurance policy. Weil is an attorney. He
had significant experience in the litigation of fire insurance policies.
Whether a witness is allowed to testify asan expert iswithin the discretion of the trial
court. Prellwitz, 802 S.W.2d at 317. The trial court's determination will not be reversed
except for abuse of discretion. Based on the information before the trial court, we conclude
the trial court did not abuse its discretion in allowing Agnew and Weil to testify as expert
witnesses. An attorney who has been involved in handling insurance cases may be more
qualified to testify as an expert concerning bad-faith claims than a licensed adjuster with
limited expertise in the area. We overrule State Farm's sixth and seventh points of error.
TESTIMONY REGARDING JOE BEN ASHBY, JR.'S TRUTHFULNESS
In its eighth point of error, State Farm asserts the trial court erred in allowing Ashby,
Inc.'s arson expert to testify regarding Mr. Ashby's truthfulness. On appeal, State Farm
-31-
asserts that the investigator's testimony violated the exclusive province of the jury and was
admitted in violation of Texas Rule of Civil Evidence 702. At trial, State Farm objected to
the testimony arguing that the testimony was beyond the witness's designated expertise.
Ashby, Inc. called John L. Henning, III as an expert witness on arson investigation
and the fire at issue in this case. Henning had extensive experience as a fire and arson
investigator in the public and private sectors. He had investigated suspected arsons for a
number of insurance companies, including State Farm. Henning testified that evaluating
witnesses' veracity was part of his experience and training. Henning's qualifications to
render opinions regarding the fire in issue and arson are not disputed.
State Farm did not make the objections at the trial court level it now asserts on
appeal. Therefore, it failed to preserve the arguments for appeal. See Tex. R. App. P.
52(a). We overrule State Farm's eighth point of error.
DAMAGES
In its ninth and tenth points of error, State Farm attacks the legal and factual
sufficiency of the evidence to support some of the damages recovered by Ashby, Inc.9 State
State Farm complains specifically of the jury's answers to question number eight. Question eight asked the following:
QUESTION NO. 8: What sura of.money, if any, paid now in cash, would fairly and
reasonably compensate the insured for its damages incurred as a result of the acts or
omissions that you found inQuestion No. 5? You are toconsider each element ofdamage
separately, so as not to include damages for an element in any other element. Answer
separately indollars and cents, if any, with respect toeach item.
(a) Lost investment in land and improvements.
ANSWER: $75,000.00
(continued...)
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Farm also argues, although indirectly, that some of the damages awarded to Ashby, Inc. are
barred by the single satisfaction rule.
A. Injury to Realty
1. Applicable Law
The type of compensation to be awarded a property owner for damage to his
property depends on the type of injury in issue. Kraft v. Langford, 565 S.W.2d 223, 227
(Tex. 1978). Permanent injuries to property, other than chattels, give rise to damages
measured by the value of the property before and after the injury. Id. Damages for
temporary injuries are measured as the amount necessary to place the owner in the position
hewas in prior to the injury. Id. When an injury to realty is repairable, the proper measure
of damages is the cost of repair. Hollingsworth Roofing Co. v. Morrison, 668 S.W.2d 872, 876
(Tex. App.-Forth Worth 1984, no writ); see also General Supply &Equip. Co. v. Phillips,
490 S.W.2d 913, 919 (Tex. Civ. App.-Tyler 1972, writ refd n.r.e.) (cost of repair is
generally measure of damages for injury to realty). Generally, an injury which can be
terminated or which is short in duration is temporary. Kraft, 565 S.W.2d at 227. The
'(...continued)
(b) Loss of credit.
ANSWER: $50,000.00
(c) Past loss of corporate profits[.]
ANSWER: $75,000.00
(d) Loss of corporate profits in reasonable probability in the future.
ANSWER: $25,000.00
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?,^:-^r-.v'.-WX&v.w^
concepts oftemporary and permanent injuries are mutually exclusive, and damages for both
may not be recovered in the same action. Yancy v. City ofTyler, 836 S.W.2d 337, 340 (Tex.
App.-Tyler 1992, writ denied) (op. on reh'g); see also Kraft, 565 S.W.2d at 227.
"The [single] satisfaction rule applies to prevent a plaintiff from obtaining more than
one recovery for the same injury." Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 7 (Tex.
1991). This rule prevents a plaintiff from recovering the same elements of damages for a
given injury even if the wrongful conduct is actionable under different theories. See Mayo
v. John Hancock Mut. Life Ins. Co., Ill S.W.2d 5, 7 (Tex. 1986).
2. Application of Law to Facts
In response to jury question number two, the jury found that the cost ofrepair ofthe
building was $80,000. In response to jury question 8(a), the jury found that Ashby, Inc.
suffered $75,000 in damages as a result of lost investment in land and improvements. State
Farm asserts that as a matter of law, the only properly recoverable damages were the costs
of repair and that Ashby, Inc. cannot recover both elements of damage.
There are two distinct injuries in this case, and only one involves damage to the
realty. Ashby, Inc.'s first injury occurred when the building burned. Under the policy issued
by State Farm, Ashby, Inc. was entitled to recover for damage to the realty, that is, the cost
of repairs.
The second injury occurred after the fire when Ashby, Inc. was forced to sell the land
and improvements at agreatly reduced price. Ashby, Inc. was forced to sell because State
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Farm refused to pay the submitted claims even though the policy covered business
interruption losses. Ashby testified that he sold the land and improvements because he
could not make the payments and feared foreclosure. This was not an injury to the realty.
Based upon the evidence, the jury could have believed Ashby, Inc. was situated on
a very lucrative piece of real estate. Ashby testified he purchased the land for $60,000 and
built a $60,000 shell on it in 1969. Over the years Ashby received several inquiries about
selling or leasing the property, and had rejected one offer to purchase the property for
$650,000.
Ashby further testified that the land was appraised at $434,000 prior to the fire.
There was evidence that the land and building were assessed at a value of $306,910 for
property tax purposes in April 1989. After the fire, Ashby sold the property and building
for $175,000. He characterized the sale as a "fire sale" necessitated by his inability to make
the loan payments.
The jury charge did not define "lost investment in land and improvements."
However, based upon the evidence concerning the value of the property before and after
the fire, the jury could have reasonably concluded that Ashby, Inc. lost its investment in the
land and improvements. We overrule State Farm's ninth point of error to the extent it
complains of a double recovery on the property damage.
-35-
B. Loss of Credit
State Farm asserts that the evidence was legally and factually insufficient to support
the jury's award of $50,000 for loss of credit. State Farm does not challenge the amount
awarded as being excessive.
Loss of credit is a recoverable element of damages in insurance cases such as this.
See Automobile Ins. Co. v. Davila, 805 S.W.2d 897, 908 (Tex. App.-Corpus Christi 1991,
writ denied), disapproved on other grounds, Hines v. Hash, 843 S.W.2d 464 (Tex. 1992).
Damages for loss of credit are not subject to precise determination. See Commonwealth
Lloyd's Ins. Co. v. Thomas, 825 S.W.2d 135, 146-47 (Tex. App.-Dallas 1992), writ granted
without reference to merits, judgment vacated, 843 S.W.2d 486 (Tex. 1993); American Bank
v. WacoAirmotive, Inc., 818 S.W.2d 163, 175 (Tex. App.-Waco 1991, writ denied); Davila,
805 S.W.2d at 908. Because there is no special guide orrule in measuring damages for loss
of credit, the amount of damages awarded is a matter within the discretion of the jury.
American Bank, 818 S.W.2d at 175. "Unless an award of such damages is flagrantly
outrageous, extravagant, and so excessive as to shock the judicial conscience, it should not
be disturbed." Id.
Two of Ashby, Inc.'s creditors testified that Ashby, Inc. had agood credit reputation
with them prior to the fire and that it had suffered since the fire. One creditor testified that
it would no longer sell to Ashby, Inc. on open account. In the absence of a claim of
excessiveness, the foregoing is legally and factually sufficient evidence to support the jury's
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award. We overrule State Farm's ninth and tenth points oferror with respect to the award
for loss of credit.
C. Lost Profits
"Recovery for lost profits does not require the loss be susceptible of exact
calculation." HoltAtherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992). However,
the amount of the loss must be shown by competent evidence and with reasonable certainty.
Id.; DIFW Commercial Roofing Co., Inc. v. Mehra, 854 S.W.2d 182, 187 (Tex. App.-Dallas
1993, no writ). "What constitutes reasonably certain evidence of lost profits is a fact
intensive determination. As a minimum, opinions or estimates of lost profits must be based
on objective facts, figures, or data from which the amount of lost profits can be ascertained."
Heine, 835 S.W.2d at 84.
Evidence of lost income, standing alone, is not evidence of lost profits. Id. The
record must show how the lost profits were calculated. See id.; Frank B. Hall &Co. v.
Beach, Inc., 733 S.W.2d 251, 259 (Tex. App.-Corpus Christi 1987, writ ref'd n.r.e.); Village
Square, Ltd. v. Barton, 660 S.W.2d 556, 559-60 (Tex. App.-San Antonio 1983, writ refd
n.r.e.).
Aparty must show either a history of profitability or the actual
existence of future contracts from which lost profits can be
calculated with reasonable certainty. Texas cases permit
recovery for lost profits in reliance upon routinely kept business
records so long as the evaluation of the business's decreased
profitability is based upon objective facts, figures, and data.
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Mehra, 854 S.W.2d at 187 (citations omitted)
The jury awarded $75,000 for lost past profits and $25,000 for lost future profits.
State Farm asserts that the evidence was legally and factually insufficient to support the
jury's awards of lost profits.10 Ashby, Inc. directs this Court to a variety of evidence it
introduced regarding cost of inventory, income stream, overhead, and a large number of
Ashby, Inc.'s business records.
The record contains some evidence of Ashby, Inc.'s historical profitability or lack
thereof. For many of the years prior to the fire, Ashby, Inc. operated at aloss: 1980 (loss
of approximately $11,000), 1981 (loss of approximately $15,000)u, 1982 (loss of
approximately $54,000), 1983 (loss of approximately $55,000), 1986 (loss of approximately
$36,000), 1988 (net income per books as reflected on 1988 income tax return shows aloss
of $4,667.54). In 1987, Ashby, Inc. had net income per its books as reflected in its 1987
income tax return of $1167.07. Some evidence was introduced indicating that Ashby, Inc.
had aprofit of $2500 during the first six months of 1989. There was also testimony that the
numbers shown on the financial statements for 1989 did not take into account all of the
outstanding liabilities, such as an approximately $1600 to $1700 per month mortgage owed
to Chrysler Corporation.
10 State Farm does not challenge the $20,000 the jury awarded as compensation for the business interruption loss in response
to jury question number four.
11 Some evidence was presented indicating that after depreciation and allowing for business loss carry forward, Ashby, Inc.
may have broken even after taxes in1980 and 1981.
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"Net profits" is defined as "what remains in the conduct of abusiness after deducting
from its total receipts all of the expenses incurred in carrying on the business." Turner v. PV
Int'l Corp., 765 S.W.2d 455, 465 (Tex. App.-Dallas 1988), writ denied per curiam, 778
S.W.2d 865 (Tex. 1989). The supreme court has not sanctioned one particular method for
determining lost profits, nor has the court said the calculation must be reduced to writing
and shown to the jury. The court did, however, state that "once a party has chosen a
particular method for measuring lost profits, they must provide a complete calculation."
Heine, 835 S.W.2d at 85. Pieces of several different methods of calculating lost profits do
not support one complete calculation.
We interpret Heine to mean that once aparty has chosen the method for determining
lost profits, it must include sufficient evidence to show profits with areasonable certainty.
This information would include the existence of known liabilities related to the operation of
the business.
Ashby, Inc.'s evidence of profits did not take into account all known liabilities
associated with running the business. Ashby, Inc. did not present one complete calculation.
We conclude the evidence is legally insufficient to support the award for lost profits.
We sustain State Farm's ninth point of error with respect to lost past and future
profits. We render judgment that Ashby, Inc. take nothing on its claims for lost profits.
-39-
PREJUDGMENT INTEREST ON ATTORNEYS' FEES AND FUTURE DAMAGES
State Farm argues in its eleventh point of error that the trial court erred as a matter
of law in awarding prejudgment interest on attorneys' fees and future damages. State Farm
also asserts a constitutional challenge to such award. We have disallowed Ashby, Inc.'s
recovery of future damages. Prejudgment interest is not recoverable on attorneys' fees
because attorney's fees are not part of the "amount of the judgment." See C&H
Nationwide v. Thompson, 37 Tex. Sup. Ct. J. 1059, 1068 (June 22,1994); Ellis County State
Bank v. Keever, 888 S.W.2d 790, 797 n.13 (Tex. 1994).
We sustain State Farm's eleventh point of error. We reverse the trial court's
judgment to the extent it awarded prejudgment interest on future damages and attorneys'
fees. Because of our disposition of its eleventh point of error, it is not necessary to address
the constitutional arguments urged therein by State Farm.
ASHBY, INC.'S CROSS-POINTS OF ERROR
Ashby, Inc.'s four cross-points of error are directed at the trial court's submission of
a jury issue regarding knowing breach of the insurance code/DTPA12 and its refusal to
treble the damages it recovered under its insurance code/DTPA cause of action. All of
Ashby, Inc.'s complaints turn on whether the trial court erred in granting State Farm's post-
12
QUESTION NO. 6: Do you find that the act or omissions which you found in [QJuestion
No. 5was engaged inknowingly? Answer "Yes" or "No".
ANSWER: No
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verdict trial amendment. Ashby, Inc. essentially concedes that if the trial court did not err
in granting State Farm's trial amendment, its cross-appeal is meritless.
A. Procedural Background
State Farm's original answer contained a general denial. However, its subsequent
answers did not contain a general denial and only asserted arson as a defense. State Farm
candidly admits that its live pleading "failed to deny any of [Ashby, Inc.'s] allegations."
Ashby, Inc. did not object to the lack of ageneral denial or any other deficiency in State
Farm's answer prior to the time the charge was prepared. It did not move for a default
judgment before jury selection or commencement of its case in chief. While it did not object
to the basic liability questions, Ashby, Inc. objected to the court's proposed instruction on
the issue of whether State Farm "knowingly" breached the insurance code/DTPA. Ashby,
Inc. moved for an instructed verdict on the "knowingly" issue, objected to submission of the
issue to the jury, moved for judgment n.o.v. when the jury answered the questions adversely
to it, and moved to disregard the jury's responses. The trial court denied all of Ashby, Inc.'s
motions largely on the ground that the issue was tried by consent.
State Farm sought leave to file apostverdict trial amendment which put "knowingly"
in issue. The trial court granted leave. Ashby, Inc. objected to the posttrial amendment
arguing that it was surprised and prejudiced by the interjection of the "new" issue into the
case.
-41-
B. Applicable Law
The governing law regarding trial amendments was set out by this Court in Whatley
v. City of Dallas, 758 S.W.2d 301 (Tex. App.-Dallas 1988, writ denied).
To determine whether parties have impliedly consented
to trial of an unpleaded cause of action, the trial court must
carefully consider the proceedings as a whole. The trial court
hasbroaddiscretion in determining whether an unpleaded claim
has been tried by implied consent ofthe parties. The trial court
is to exercise that discretion liberally in favor of justice.
However, trial amendments are to be the exception, not the
rule, and should not be allowed in doubtful cases.
Id. at 306 (citations omitted). Alitigant objecting to a trial amendment bears the burden
of showing that the "allowance of such amendment would prejudice him in maintaining his
action or defense upon the merits." Tex. R. Civ. P. 66.
C. Application of Law to Facts
The trial court correctly allowed State Farm's trial amendment and overruled Ashby,
Inc.'s various motions. Ashby, Inc. was aware of the defect before trial started. Ashby, Inc.
asserts that it was prejudiced by the trial amendment because it intended to rely on State
Farm's failure to deny Ashby, Inc.'s "knowingly" allegations with respect to violation of the
insurance code/DTPA. We reject Ashby, Inc.'s argument. Ashby, Inc.'s assertion that while
the question of whether State Farm acted wrongfully was in issue, the question of whether
the allegedly wrongful conduct was committed knowingly was not, is illogical. If a party
denies committing a wrongful act, by unavoidable implication it denies committing the
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wrongful act knowingly. We overrule Ashby, Inc.'s cross-points of error.
ASHBY'S MOTION FOR RULE 84 SANCTIONS
Appellee Joe Ben Ashby, Jr. filed amotion for rule 84 sanctions. See Tex. R. App.
P. 84. As we understand Ashby's argument, he asserts State Farm's appeal as to him
individually must be frivolous and for purposes of delay because State Farm has not
challenged the take-nothing judgment rendered in his favor.13
Ashby was aparty to the underlying litigation. The jury found that Ashby was the
alter ego of Ashby, Inc. In his motion, Ashby asserts State Farm sought to recover its
attorney's fees incurred in defending the "Unfair Claims Practices/Texas Deceptive Trade
Practices claims." Based on the foregoing, we conclude that State Farm did not appeal as
to Ashby without sufficient cause and for purposes of delay. We deny Ashby's motion for
rule 84 sanctions.
DISPOSITION
We affirm that portion of the trial court's judgment awarding Ashby, Inc. $80,000 for
costs of repair to the building; $90,000 for lost inventory; $20,000 for business interruption
loss; $50,000 for loss of credit; $75,000 for lost investment in land and improvements; and
$10,000 as damages for breach of the common-law duty of good faith and fair dealing. We
reverse
that portion of the trial court's judgment awarding damages on Ashby, Inc.'s claims
13 Ashby also complains, at some length, about State Farm's actions at the trial court level. These activities are beyond the
scope of rule 84.
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for lost past corporate profits and lost future corporate profits, and render judgment that
Ashby, Inc. take nothing on those claims. We reverse the trial court's judgment to the
extent that it awarded prejudgment interest on future damages and attorneys' fees. We
render judgment that Ashby, Inc. is not entitled to recover prejudgment interest on future
damages, there being no recovery thereof, or its attorneys' fees. We remand this cause for
recalculation of prejudgment and postjudgment interest because the amount of the judgment
has changed. We also remand this cause for recalculation of attorneys' fees based on the
reduction in Ashby, Inc.'s recovery.14 See Loomis v. Blacklands Prod. Credit Ass'n., 579
S.W.2d 560, 564 (Tex. Civ. App.-Waco 1979, writ ref'd n.r.e.); Petroleum Casualty Co. v.
Canales, 499 S.W.2d 734, 738 (Tex. Civ. App.-Houston [1st Dist.] 1973, writ ref'd n.r.e.).
The trial court shall enter judgment consistent with this opinion.
WILL BARBER
JUSTICE
Thomas, C.J., dissenting opinion
Do Not Publish
Tex. R. App. P. 90
921354F.U05
14 The jury awarded attorney's fees through the trial in an amount of 33 1/3 percent of the total recovery.
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