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Maryland Insurance Company v. Head Industrial Coatings and Services8/31/1995
August 31, 1995
Dissenting Opinion by Justice Bleil
OPINION
This is a bad faith insurance case with liability premised on violations of the Insurance Code. Maryland Insurance Company appeals from a judgement rendered in favor of its insured, Head Industrial Coatings and Services, Inc., and also appeals from a take-nothing judgment rendered against it on its third-party action against Gans & Smith Insurance Agency. The primary issues on appeal involve the existence of a viable cause of action under the Insurance Code for unfair claims settlement practices and bad faith conduct by an insurer on a third-party liability policy, the sufficiency of the evidence to support the jury's determination that Maryland engaged in unfair or deceptive acts, the amount of the jury finding of damages, the effect of a settlement agreement, and the assessment of a statutory interest penalty against Maryland because of its tardy payment of a claim.
Head Industrial Coatings and Services, Inc. is one of two family-owned businesses that together provide vacuuming, sandblasting, and coating services to various industries, including Texas Utilities (TU), that utilize storage tanks and towers. As a prerequisite to working for TU, Head agreed to indemnify TU for any injury claims arising out of services Head performed and to purchase contractual liability insurance coverage to protect TU against claims arising out of work performed by Head at TU facilities.
Head contacted its local insurance agent, Hermes Payne of Gans & Smith Insurance Agency, and purchased a commercial general liability policy with a $500,000 policy limit. Maryland Insurance Company was the insurance carrier. Head intended to purchase contractual liability insurance as part of the policy and communicated this intent to Payne, who is one of the owners of Gans & Smith. There is evidence indicating that Head paid the premiums for a policy that included the contractual liability insurance. Payne committed a clerical error, however, and the policy actually issued to Head did not include the proper endorsement to create such coverage.
The underlying cause of the present litigation is a suit filed in 1989 against TU and Head by Don Nelson, a Head employee, who was injured while working on TU's premises during the time period covered by the insurance policy. The suit papers were forwarded to Maryland's Dallas claims office. Maryland assigned the matter to one of its claims adjusters, Bob Smith, and also employed an attorney to defend Head against Nelson's claims.
In February 1990, TU sent a demand letter to Head, requesting that Head indemnify TU and provide it with a defense in the Nelson suit as agreed, and later filed a cross-claim against Head in the Nelson suit based on contractual indemnity. Head forwarded the demand letter to Smith. Smith consulted an attorney, who correctly opined that TU's cross-claim was not covered under the general commercial liability policy issued to Head. The claims adjuster sent Head a reservation-of-rights letter advising Head of potential coverage problems concerning both Nelson's personal injury claims and any contractual indemnity claims. Head contacted Payne, who assured Head that TU's contractual liability claim was covered.
After receiving a copy of the reservation-of-rights letter, Payne reviewed the file and discovered his error in failing to secure insurance coverage to protect TU. Payne was embarrassed and attempted to contact a friend, Tom Southard, who is the Texas claims manager for Maryland Insurance Company. Payne left a message requesting that Southard call him about a problem with a claim, but did not speci
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