The Jury Charge in Insurance Cases: The PJC and Beyond

Mark L. Kincaid

Kincaid & Horton, L.L.P. 114 West 7th Street, Ste. 1100

Austin, Texas 78701 512/499-0999

512/499-0816 fax

South Texas College of Law CLE 16th Annual Texas Insurance Law Symposium

January 19-20, 2012 Houston, Texas

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THE JURY CHARGE IN FIRST PARTY CASES

Mark L. Kincaid & Michael W. Huddleston

I. Introduction

This paper offers forms and a practical discussion of the principles that apply when drafting questions and instructions to submit the most common issues in first party insurance cases. Topics covered include breach of contract, unfair and deceptive practices, good faith and fair dealing, fraud, and negligence, as well as agency, defenses, and damages.

II. General Principles

There really is no way to discuss Texas jury charges without at least mentioning the ongoing debate over the extent to which questions should be broadly worded – the “broad form” called for by Tex. R. Civ. P. 277 – or should be “granulated” – that is, broken down into separate elements. A full discussion is beyond the scope of this paper, but a few general comments are called for.

In an insurance case with implications for how all jury questions are submitted, the Texas Supreme Court held it was reversible error to submit a single question that included both valid and invalid legal theories. Crown Life Insurance Co. v. Casteel, 22 S.W.3d 378, 388 (Tex. 2000). In Casteel the plaintiff-insurance agent submitted one liability question with instructions taken from the DTPA, which required “consumer” status, and instructions from the Insurance Code, which do not require consumer status. The court held that the agent could sue as a “person” under the Insurance Code, but not as a “consumer” under the DTPA. The single question submitting liability under both statutes was harmful error, the court held, because there was no way to tell if the agent won on a valid or invalid theory.

Thus, Casteel requires a step away from broad form questions, at least to the extent of separately submitting different liability theories. Then, in Harris County v. Smith, 96 S.W.3d 230 (Tex. 2002), the court extended the Casteel rationale to require separate submission of damage elements when some elements were not supported by the evidence.

While the Texas Supreme Court decisions vary in how the principle is applied, the court nevertheless continues to assert its commitment to “broad form” questions. For example, even though the majority in Harris County v. Smith held it was reversible error not to submit damage elements separately – requiring a step away from broader damage questions – the majority denied any “retrenchment from our fundamental commitment to broad-form submission.” The court continued:

This Court began moving toward modern broad-form practice in 1973, when we amended Texas Rule of Civil Procedure 277 to abolish the requirement that issues be submitted separately and distinctly, thereby granting trial courts the discretion to submit issues broadly. Over the years, we have repeatedly expressed our general preference for broad-form submission. . . . Our current rule, amended in

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1988, more strongly reflects our preference for broad-form questions, mandating that the “court shall, whenever feasible, submit the cause on broad-form questions.” TEX. R. CIV. P. 277.

When properly utilized, broad-form submission can simplify charge conferences and provide more comprehensible questions for the jury. . . . But we recognize that it is not always practicable to submit every issue in a case broadly. As Professors Muldrow and Underwood observe, “broader is not always better.” . . . For example, we have suggested that broad-form submission may not be feasible when the governing law is unsettled. . . . In such an instance, submitting alternative liability standards permits the appellate court to settle the law and render the correct judgment. Similarly, it would be contrary to judicial economy to insist on broad-form submission when a specific objection raises substantial concern that a particular theory of liability will infect the proposed broad-form question with error. . . . And in a case such as this one, asking the jury to record its verdict as to each element of damages when there is doubt as to the legal sufficiency of the evidence will permit the losing party to preserve error without complicating the charge or the jury’s deliberations.

Whether a granulated or broad-form charge is submitted, the trial court’s duty is to submit only those questions, instructions, and definitions raised by the pleadings and the evidence. . . .

96 S.W.3d at 235-36 (citations omitted).

It seems the prevailing rule is still that questions should be submitted as broadly as possible, but sometimes what is “possible” may not be very “broad.”

Another principle to bear in mind is that just because something is a correct legal statement – or because it appears in a reported decision – doesn’t mean it belongs in the jury charge. As Chief Justice Pope explained in Lemos v. Montez:

This court’s approval and adoption of the broad issue submission was not a signal to devise new or different instructions and definitions. We have learned from history that the growth and proliferation of both instructions and issues come one sentence at a time. For every thrust by the plaintiff for an instruction or an issue, there comes a parry by the defendant. Once begun, the instructive aids and balancing issues multiply. Judicial history teaches that broad issues and accepted definitions suffice and that a workable jury system demands strict adherence to simplicity in jury charges.

680 S.W.2d 798, 801 (Tex. 1984). Often, less belongs in the charge, and more should be left for arguments to the jury.1

1 For additional discussion of the history, evolution, and current status of the broad form versus granulated issue debate, see Christopher W. Martin, Jury Charge Landmines in Insurance Cases: Beyond the PJC, in STATE BAR OF TEX. 4TH ANN. ADVANCED INSURANCE LAW COURSE 22-4 TO 22-6 (2007), and Charles R. “Skip” Watson,

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As will be discussed below, much of the debate between policyholder and carrier lawyers regarding the charge revolves around the extent to which controlling legal rules should be submitted to the jury. Some of these “rules” are used as a part of appellate review. Some involve the core issue to be submitted to the jury. Separating them is difficult, especially since the reviewing court must judge evidentiary sufficiency from the perspective of the sufficiency of the evidence to support the question, with instructions, actually submitted. Tension is added to this debate by the general jury charge rule barring the use of legally correct statements in instructions that “tilt or nudge” and thus amount to a comment on the weight of the evidence. Acord v. General Motors Corp., 669 S.W.2d 111 (Tex. 1984). In Acord, the instruction at issue was rendered superfluous by prior judicial rulings as to the pertinent jury inquiries in a products liability case. Thus, while the instruction was legally correct, it involved a “balancing of factors” approach, which had previously been rejected as a proper role for a products liability jury.

Pattern questions and instructions exist for many of the theories that are likely to come up in insurance litigation. See State Bar of Texas, Texas Pattern Jury Charges – Business, Consumer, Insurance & Employment (2006). The relevant provisions are found in:

• PJC 101.1 to 101.41 – Contracts.

• PJC 102.14 to 102.22 – Unfair Insurance Practices.

• PJC 102.7 – Unconscionable Conduct.

• PJC 103.1 – Good Faith and Fair Dealing.

• PJC 105.1 to 105.4 – Fraud.

• PJC 110.1-.14, 110.19-20, 110.34-.42, and 110.43 – Damages and Attorneys’ Fees.

Several courts have approved jury instructions based on these forms. See Certain Underwriters at Lloyd’s Subscribing to Policy No. WDO-10000 v. KKM, Inc., 215 S.W.3d 486, 489 (Tex. App.–Corpus Christi 2006, pet. denied); Riggs v. Sentry Insurance, 821 S.W.2d 701 (Tex. App.–Houston [14th Dist.] 1991, writ denied); Bard v. Charles R. Myers Insurance Agency, Inc., 811 S.W.2d 251, 259 (Tex. App.–San Antonio 1991, no writ).

As we will discuss, some of the Pattern Jury Charge forms are more helpful than others.

Another resource with a wealth of form instructions spanning a broad array of insurance issues is the Appleman on Insurance treatise. See 22 & 22A John A. Appleman & Jean Appleman, Insurance Law & Practice §§ 12851 - 14469 (Lexis Law Pub. 1979 & Supp. 2007). Another recently published source to consider is L. Murphy, A. Downs, & J. Levin, ABA Property Insurance Litigator’s Handbook, sec. 11.00 et seq. (2007).

Jr., The Future of Jury Submission in Insurance Cases, in STATE BAR OF TEX., 1999 ULTIMATE INSURANCE SEMINAR J-3 TO J-7 (1999).

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III. Breach of Contract

A. General Contract Questions

The basic format in the Texas Pattern Jury Charges to submit a breach of contract is to ask, as needed, whether the parties had an agreement and whether one or both of the parties failed to comply with the agreement. See PJC 101.1 and 101.2. Defenses are submitted by asking whether the failure to comply was “excused” and then instructing on excuses, such as the plaintiff’s material breach, anticipatory repudiation, waiver, estoppel, duress, mistake, etc. See PJC 101.21-101.42. For example, using this format, a set of questions in an arson case might ask:

QUESTION 1: Did Paul Payne and Insurer Inc. agree that Payne’s home would be insured for damage caused by fire?

QUESTION 2: Did Insurer Inc. fail to comply with the agreement? You are instructed that Insurer Inc. failed to comply with the agreement if it failed to pay for the damage caused by the fire.

QUESTION 3: Was Insurer Inc.’s failure to comply excused? For its failure to comply to be excused, Insurer Inc. must show that the fire in question was intentionally caused by any act, design, or procurement on the part of Paul Payne?2

This format may not be well-suited for many, if not most, suits on insurance contracts. There is seldom a dispute over the existence of the agreement. The policy is almost always admitted and in evidence. The insurer’s refusal to pay is often undisputed.

A fairly generic breach of contract question, unadorned by instructions on the contract terms passed muster in State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 451 (Tex. 1997). In Nicolau, a suit over the insurer’s failure to pay for foundation damage, the jury was asked the following question.

QUESTION: Did State Farm breach the insurance contract with Ioan and Liana Nicolau which breach was a proximate cause of damage, if any, to Ioan and Liana Nicolau?

Nicolau v. State Farm Lloyds, 869 S.W.2d 543, 549 ((Tex. App.–Corpus Christi 1993), affirmed, 951 S.W.2d 444 (Tex. 1997). The insurer argued that the trial court should have submitted instructions that tracked the disputed insurance provisions. The supreme court held that instructions about the specific terms of the insurance contract were not necessary. 951 S.W.2d at 451. The supreme court recognized that Rule 277 “affords the trial court considerable discretion in deciding what instructions are necessary and proper in submitting issues to the jury.” Id. The supreme court noted that the policy itself was in evidence, and the relevant exclusions were

2 Questions 1 and 2 are based on PJC 101.01 and 101.02. Question 3 is based on PJC 101.21, and the instruction is based on Lundy v. Allstate Insurance Co., 774 S.W.2d 352, 353 (Tex. App.–Beaumont 1989, no writ).

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presented to the jury in an exhibit and were discussed at length. The meaning of the terms was not disputed. Id. at 542.

Another similarly broad form question was approved in National Fire Ins. Co. v. Valero Energy Co., 777 S.W.2d 501 (Tex. App.–Corpus Christi 1989, writ denied), where the jury was asked:

QUESTION: Did a loss occur [that] was covered and payable under the policy?

777 S.W.2d at 506.

In other cases, when the policy language is less clear or where the meaning is in dispute, it may make sense to submit that language. This approach of submitting the precise contractual language to the jury was used in National Union Fire Insurance Co. v. Hudson Energy Co., 811 S.W.2d 552 (Tex. 1991). The jury was asked questions essentially as follows:

QUESTION 1: Was the aircraft not in flight piloted by other than a pilot or pilots designated in the declarations?

QUESTION 2: At the time of the loss, was the plane not in flight piloted by a pilot lacking proper certificate, qualifications, and rating?

Id. at 554. As cumbersome as this language was, it did fairly track the contract language. Deviating from the actual policy language risks altering the meaning, especially with more convoluted policies.3

A different, very broad, approach was taken in Certain Underwriters at Lloyds v. KKM Inc., 215 S.W.3d 486, 489-90 (Tex. App.–Corpus Christi 2006, pet. denied). The questions were as follows:

QUESTION 1 (UNDER THE INSURANCE POLICY IN QUESTION): Do you find, based upon a preponderance of the evidence, that KKM, Inc. d/b/a Strand Surplus, should recover against Certain Underwriters of Lloyd’s London Subscribing to Policy WDO-10000?

QUESTION 2 (EXTENT OF COVERAGE): Do you find, based upon a preponderance of the evidence that KKM, Inc. d/b/a Strand Surplus’ coverage under the insurance policy in question should be limited to the part of the building which actually fell to the ground, or that coverage should extend to all damages and losses caused by the collapse?

ANSWER “A” or “B” below:

3 The first question submitted an exclusion. See Hudson, 811 S.W.2d at 554. At the time, it was proper to ask the question in the negative. This placed the burden of proof on the insured to show the loss was not excluded. Now, under Tex. Ins. Code § 554.002, the insurer would have the burden to establish the exclusion applied, so the question would be modified to delete the “not.”

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A. Limited to the part of the building which actually fell to the ground.

B. Coverage should extend to all damages and losses caused by the collapse.

The court held that the jury’s answers to these questions established the insurer’s liability for breach of contract. Id. at 490.

A single question with several instructions may not be adequate, because of the shifting burden of proof. In an insurance case, the insured has the burden to show the loss is covered; the insurer has the burden to show the loss is excluded; and then the insured again has the burden to show the loss fit within an exception to the exclusion. See Telepak v. United Services Auto. Ass’n, 887 S.W.2d 506, 507 (Tex. App.–San Antonio 1994, no writ). In Telepak, the loss was excluded, unless the insureds could show that an exception to the exclusion applied. The homeowner’s policy excluded losses “caused by settling, cracking, bulging, shrinkage, or expansion of foundation, walls, floors, ceilings, roof structures, walks, drives, curbs, fences, retaining walls, or swimming pools.” This exclusion did not apply to “Accidental discharge, leakage or overflow of water or steam from within a plumbing, heating or air conditioning system or a domestic appliance[.]” Telepak, 887 S.W.2d at 507. The court submitted only the exception, as follows:

QUESTION: Do you find that the damage to the Telepaks’ residence was caused by an accidental discharge, leakage or overflow of water from within an air conditioning system?

Id. at 506.

Another way to approach the covered-excluded-exception submission might be as follows:

QUESTION: What amounts of damages to the house, if any, were caused by the following?

You should only assign percentages to those you find caused the damages.

a. Settling, cracking, bulging, shrinkage, or expansion of the foundation? _____%

b. Accidental discharge, leakage, or overflow of water from within a plumbing system? _____%

This question is patterned after the proportionate responsibility question in PJC 110.32, but it both finds and allocates causation. Also, the instruction deletes parts that would be inaccurate. The jury would not be instructed that the percentages had to total 100% unless the evidence dictated that result. In some cases, the jury might find that neither proffered event caused any damage. Likewise, an instruction that the answer had to be stated in whole numbers wouldn’t necessarily be accurate. For example, engineers might identify parts of the house that

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were affected by each cause and testify to a percentage of causation that contained decimal places.

The preceding question combines causation and allocates the percentages. You might go a step further and have a single question that combined causation, allocation, and damages.

QUESTION: What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Paul Payne for his damages, if any, that that were caused by the accidental discharge, leakage, or overflow of water from within a plumbing system?

Answer in dollars and cents, if any. $_______________________

This question is roughly based on the contract damages question found in PJC 110.2. This suggested version leaves out the excluded cause, because the jury doesn’t really need to find damages attributable to an excluded cause, except to deduct them from the total amount sought by the plaintiff. Asking the jury to figure excluded damages might cause them to get stuck on an immaterial question. The insurer can argue to the jury that amounts caused by the excluded event should not be included in the award.

The preceding question is similar to the approach taken in Hill v. State Farm Lloyds, 79 Fed. App’x 644 (5th Cir. 2003) (per curiam). The district court first asked, “Did a plumbing leak or leaks cause any or all of the damage to Plaintiff Junior Hill’s home?”4 A second question asked what amount of money, if any, would compensate Hill for the costs of tearing out and replacing the parts of his home necessary to repair his plumbing system. The district court also instructed the jury on which party had the burden of proof.5

If there is doubt about the proof supporting any part of the damages, the different elements should be broken out with separate spaces for answers. See Pattern Jury Charge 110.2 Comment (Elements of damages submitted separately), citing Harris County v. Smith, 96 S.W.3d 230, 233-34 (Tex. 2002).

4 Our esteemed colleague, Chris Martin, argues that the “any or all” language was erroneous, because the insurer had introduced evidence of conditions other than plumbing leaks that caused damage to the dwelling. See Christopher W. Martin, Jury Charge Landmines in Insurance Cases: Beyond the PJC, in STATE BAR OF TEX. 4TH ANN. ADVANCED INSURANCE LAW COURSE 22-8 (2007).

5 The district court instructed the jury:

In this case the Plaintiff claims that the damages to his home were caused in whole, or in part, by plumbing leaks; the Plaintiff has the burden to prove this claim by a preponderance of the evidence. You are hereby instructed that damages which result from plumbing leaks are covered by the insurance policy issued by State Farm Lloyds. The Defendant denies that the damages to Plaintiff’s home were caused in whole, or in part, by plumbing leaks. Rather, the Defendant claims that the damages were caused in whole, or in part, by other factors which are excluded from coverage under the terms of the insurance policy. The Defendant has the burden to prove, by a preponderance of the evidence, that the Plaintiff’s damages are excluded from coverage.

79 Fed. App’x at 646.

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B. Instructions About Specific Terms

Instructions about the specific terms of the insurance contract may not be necessary. State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 451 (Tex. 1997). For example, in Nicolau, a suit over the insurer’s failure to pay for foundation damage, the supreme court held that the trial court did not err by refusing to give instructions about the specific terms of the insurance policy. Id. Significantly, the policy itself was in evidence, and the relevant exclusions were presented to the jury in an exhibit and were discussed at length. Further, the meaning of the terms was not disputed. Id. at 542.

The defense perspective is quite different. Agreeing to a generic “breach of contract” question without instructions as to specific terms, particularly exclusions relied upon. risks waiving the ability to assert policy defenses as to which the carrier has the burden of proof. In the hurricane related litigation. the first question most carriers seek to pose is whether there was a direct physical loss due to the event in question. Then the charge turns to whether particular exclusions are pertinent or not. The jury’s answers to these questions establish whether the carrier was right or wrong in denying or delaying payment. It is also confusing to the jury to be asked a generic question about breach without any specification of the defenses.

When instructions are given, they should follow the terms in the policy. See Mutual Life Ins. Co. of New York v. Steele, 570 S.W.2d 213, 217 (Tex. Civ. App.–Houston [14th Dist.] 1978, writ ref’d n.r.e.). It is error to submit an instruction that doesn’t sufficiently follow the contract language. See Aetna Life Ins. Co. v. McLaughlin, 380 S.W.2d 101, 106 (Tex. 1964); New York Underwriters Ins. Co. v. Coffman, 540 S.W.2d 445, 450 (Tex. Civ. App.–Fort Worth 1976, writ ref’d n.r.e.); Hartford Fire Ins. Co. v. Christianson, 395 S.W.2d 53, 62 (Tex. Civ. App.–Corpus Christi 1965, writ ref’d n.r.e.).

C. Ambiguity

When an insurance contract is ambiguous, the court must construe the contract in favor of the insured, as a matter of law, so there is not a question for the jury. The standard Pattern Jury Charge instruction for breach of contract would not be suitable for an insurance case, because when a court determines that a non-insurance contract is ambiguous, that creates a fact question on the parties’ intent, which should be submitted to the jury with appropriate instructions. See PJC 101.8 & Comment.6

There are some insurance cases where courts have approved instructions telling the juries that ambiguities are construed against the drafter. These cases involved ambiguities in whether certain facts fit within policy language. For example, in Bellefonte Underwriters Ins. Co. v. Brown, 663 S.W.2d 562 (Tex. App.–Houston [14th Dist.] 1983), aff’d in part, rev’d in part, 704 S.W.2d 742 (Tex. 1986), the issue was whether the insured could delegate his duty to maintain the building’s sprinkler system, without thereby losing coverage under a clause in the fire policy. In this context, the court of appeals held that the trial court did not err by instructing the jury that the insured “could delegate his duty to maintain the system without suffering the consequences 6 Because of the well-settled rule that ambiguities are construed in favor of coverage, it may even be proper for the court to instruct the jury that an insurer did not have a reasonable basis to deny a claim, if the insurer relied on language the court found ambiguous.

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of a failure to do so by the delegatee and that any ambiguities in the policy were to be strictly construed against the drafter of the policy.” 663 S.W.2d at 578.

In International Insurance Co. v. RSR Corp., 426 F.3d 281, 295-96 (5th Cir. 2005), discussed below, the question was whether notice by the EPA was a “claim” sufficient to trigger coverage. The Fifth Circuit found the word “claim” ambiguous and thus approved the trial court’s instruction that, in construing the meaning of the term, the jury could consider evidence of the meaning the parties had given it, and evidence of the surrounding circumstances.

It seems in both Bellefonte and RSR, the courts should have simply concluded as a matter of law that the facts fit within the interpretation of the insurance policies that would provide coverage. Carriers will object to submissions of purely legal questions, such as the proper interpretation of the policy. The rule of strict construction is one to be applied by the court. The risk of such submissions is that they involve (a) a potential comment on the weight of the evidence, (b) confusion of the jury, and (c) submission of a legal as opposed to a fact issue.

D. Court’s Construction of Terms

If the court has construed the meaning of a contract term, the jury should be given an instruction with that interpretation. See PJC 101.7.

An example of this approach was approved in International Insurance Co. v. RSR Corp., 426 F.3d 281 (5th Cir. 2005). An insured lead smelter sought coverage for environmental cleanup costs. The insurer denied coverage, arguing there was no “claim.” The policy provided coverage for damages imposed on the insured “in respect to which a claim has been made against or other due notice has been received by the insured during the Policy Period.” The dispute was whether the EPA had asserted a “claim” sufficient to invoke coverage when it issued a press release and then later added the insured to a list of priority cleanup sites and gave notice that it might initiate actions against the responsible parties. The Fifth Circuit concluded that the district court properly defined “claim,” instructed the jury on that definition, and submitted to the jury whether the EPA notice was a “claim.”

The term was not adequately defined in the policy, so the court applied the meaning that favored the insured. The district court instructed the jury:

[T]he term “claim” means an assertion by a third party, that in the opinion of the third party, the insured is liable to it for damages within the risks covered by the policy, whether or not there is reason to believe that there actually is liability. An insured’s mere awareness of a potential claim is not a claim. A claim does not require the institution of formal proceedings.

426 F.3d. at 290. The Fifth Circuit held this was an ordinary meaning of the term that was most favorable to the insured. Id. at 292.

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It is critical to use motions for summary judgment to insure a pre-trial determination of the meaning of the policy. At the very least, such issues need to be resolved prior to void dire and the presentation of evidence.

E. Concurrent Causation

Most policyholders try to short-circuit the submission of concurrent causation questions by asking what damages were solely caused by the event in question. This is insufficient in light of the fact that the policy has contrasting provisions regarding situations where causes combine. Some provisions act as a form of typhoid exclusion, negating all coverage if the excluded cause is in any way a cause of damage. Other provisions allow coverage for the covered portion, if shown by the insured. Thus, many carriers are taking the approach noted below to dealing with these issues:

QUESTION 1: Do you find that Plaintiffs’ residence suffered an accidental direct physical loss to any of the listed items below? Answer “Yes” or “No” as to each. 1. Exterior brick façade __________ 2. Windows __________ 3. Interior sheetrock __________ If you have answered “Yes” to any subpart of Question No. 1, then answer the corresponding subpart of Question No. 2. Do not answer as to any subpart as to which you have answered “No” in answering Question No. 1.

QUESTION 2: What caused the accidental direct physical loss, if any, you have found in answer to Question 1? Answer “Yes” or “No” as to each item as to which you have answered “Yes” to Question 1. Answer “Yes” or “No” in each and every column for such item(s). You are instructed that “Excluded Cause(s) I” consists of any one or more of the following:

a. wear, tear, marring, scratching, inherent vice, latent defect or mechanical breakdown; or

b. settling, cracking, shrinking, bulging, or expansion of pavements, patios, walls, floors, roofs or ceilings; or

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c. defect, weakness, inadequacy, fault or unsoundness in any property due to:

(1) Design, specifications, workmanship, construction, grating, compaction; or

(2) Materials used in construction or repair; or

(3) Maintenance. You are further instructed that Excluded Cause(s) II consists of any one or more of the following:

a. Earth movement, meaning the sinking, rising, shifting, expanding or contracting of earth, all whether combined with water or not; or

b. Neglect, meaning neglect of the insured to use all reasonable means to save and preserve property at and after the time of the loss, or when property is endangered.

You are further instructed that [the insurer] has the burden of proof as to whether a loss was caused by either Excluded Cause(s) I (Column 2), or Excluded Cause(s) II (Column 3). Column 1 Column 2 Column 3

Hurricane Excluded Excluded Rita Cause(s) I Cause(s) II 1. Exterior brick façade __________ __________ __________ 2. Windows __________ __________ __________ 3. Interior sheetrock __________ __________ __________

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IV. Unfair Insurance Practices Submitting questions for unfair insurance practice under Tex. Ins. Code section 541.151 is much more straightforward. The Pattern Jury Charges provides forms that track the statute on the more common causes of action. See PJC 102.14 – 102.21. As the Pattern Jury Charges notes:

The supreme court has held that jury submission in this type of case should follow the statutory language as closely as possible but may be altered somewhat to conform to the evidence of the case. Spencer v. Eagle Star Insurance Co. of America, 876 S.W.2d 154, 157 (Tex. 1994); Brown v. American Transfer & Storage Co., 601 S.W.2d 931, 937 (Tex. 1980). Material terms, however, should not be omitted or substituted. See Transport Insurance Co. v. Faircloth, 898 S.W.2d 269, 273 (Tex. 1995). . . .

PJC 102.15 – 102.21 Comment (Use of statutory language). Basic questions in a case involving a misrepresentation and unfair settlement practices would be submitted as follows:

QUESTION: Did Insurer Inc. engage in any unfair or deceptive act or practice that caused damages to Paul Payne?

“Unfair or deceptive act or practice” means any of the following:

• Making or causing to be made any statement misrepresenting the terms, benefits, or advantages of an insurance policy;

• Misrepresenting to Paul Payne a material fact or policy provision relating to the coverage at issue;

• Failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim when Insurer Inc.’s liability had become reasonably clear; or

• Making any misrepresentation relating to an insurance policy by:

(a) making any untrue statement of a material fact; or

(b) failing to state a material fact that is necessary to make other statements not misleading, considering the circumstances under which the statements are made; or

(c) making any statement in such a manner as to mislead a reasonably prudent person to a false conclusion of a material fact.

PJC 102.14-102.21. These subparts submit violations listed in Tex. Ins. Code sections 541.060 and 541.061. Other prohibitions exist, and the instruction can be tailored to fit them, in an appropriate case. The statute has many different prohibitions that overlap. To avoid confusing

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the jury, it makes sense to select only a few definitions – or even a single one – that best fit(s) the case.

There are some questions that may require a preliminary finding by the court. Subsection 541.061(4) prohibits making a misstatement of law, and subsection 541.061(5) prohibits failing to disclose legally required information. The PJC Committee is of the view that the trial court would need to first determine what the legal requirements were. See PJC 102.19 Comment (Use of statutory language).

The use of multiple subparts with a single answer raises the potential for error if one of the theories is legally invalid or not supported by the evidence, as noted above in the discussion of Crown Life Insurance Co. v. Casteel, 22 S.W.3d 378, 388 (Tex. 2000). Policyholders are prone to submit as many laundry list items as possible, which compounds the danger of reversal under Casteel. If any single theory is unsupported by legally sufficient evidence or is legally inapplicable, then the entire case must be remanded for a new trial. One of the most fruitful attacks of this kind that can be made is for the carrier to urge that proof involves nothing more than a mere breach of contract. In other words, a submission of misrepresentation based claims where the misrepresentation deals with whether the insurer did what it promised to do in the contract is not actionable under either the DTPA or the Insurance Code. The carrier must of course object to the submission of broad form in the setting where legal sufficiency or legal inapplicability is presented as to one or more theories.

To avoid this problem, submit separate lines for answers to each subpart, as follows:

QUESTION: Did Insurer Inc. engage in any unfair or deceptive act or practice that caused damages to Paul Payne?

Answer “yes” or “no”

“Unfair or deceptive act or practice” means any of the following:

(a) Making or causing to be made any statement misrepresenting the terms, benefits, or advantages of an insurance policy;

___________

(b) Misrepresenting to Paul Payne a material fact or policy provision relating to the coverage at issue;

___________

(c) Failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim when Insurer Inc.’s liability had become reasonably clear; or

___________

(d) Making any misrepresentation relating to an insurance policy by:

(1) making any untrue statement of a material fact; or ___________

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(2) failing to state a material fact that is necessary to make other statements not misleading, considering the circumstances under which the statements are made; or

___________

(3) making any statement in such a manner as to mislead a reasonably prudent person to a false conclusion of a material fact.

___________

This same checklist format can be used to submit multiple defendants, by including answer blanks for each defendant.

Additional instructions may be needed if there is a legal issue that the jury otherwise might not be aware of. For example, it is well-established that any ambiguity in an insurance policy will be construed in favor of coverage. A policy is ambiguous if it is subject to more than one reasonable construction. The construction that favors coverage will be adopted, even if the insurer’s interpretation denying coverage is reasonable or even more reasonable. Because of these rules, an insurer would not be reasonable in denying a claim based on ambiguous policy language. However, unaware of these legal principles, a jury might be misled and think that the insurer’s reasonable interpretation meant the claim denial was reasonable.

In such a case, it would be essential for the court to give the jury an instruction to the effect that an insurer’s liability is reasonably clear if there is a reasonable interpretation that allows coverage.

Most likely, the court will have already found coverage, because the question is a legal one, so the jury would need to be instructed that the court found the claim was covered. Obviously, an insurer is not reasonable in failing to pay a claim the court has found is covered, but the jury would not know this without an instruction.

From the defense perspective, debate regarding the meaning of the policy should result in instructions noting that liability is not reasonably clear if there is a good faith legal or factual dispute. For example, if the coverage question is one first impression, then the jury should be told that this conduct does not involve liability that is reasonably clear.

A similar problem arises when an insurance suit is severed and the contract claim is decided first, while the “bad faith” claim is tried second. If the insured has won on the coverage claim, then the jury should be made aware of that fact, to the extent that the insurer was not reasonable, or is no longer reasonable, in denying the claim.

The defense perspective is that merely losing on the contract is insufficient by itself to justify a finding of common law or statutory bad faith. Thus, even if the carrier loses on the coverage debate, the jury will decide, primarily based on expert testimony, as to whether the conduct of the carrier in testing the coverage issue was in good faith or not.

Conversely, if the insured has lost on coverage – but survives summary judgment on any bad faith claims – the jury may need to be instructed that the insurer was right, to the extent that affects the insurer’s liability on the extracontractual claims.

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These kinds of instructions may be essential to obey the mandate of Rule 277 to “submit such instructions and definitions as shall be proper to enable the jury to render a verdict.” However, this may be difficult to accomplish without violation the prohibition in Rule 277 against commenting on the weight of the evidence.

This was the problem in Redwine v. AAA Life Insurance Co., 852 S.W.2d 10 (Tex. App.–Dallas 1993, no writ). The plaintiff sued her insurer for misrepresenting a travel accident insur-ance policy. She contended that the advertisements led her to believe the policy covered serious injuries, while the actual policy language only covered death, loss of limb, or loss of sight. The insurer denied the plaintiff’s claim when her daughter suffered a spinal cord injury and paralysis of her lower limbs caused by an automobile accident. The plaintiff sued for breach of contract, DTPA and article 21.21 violations, fraud, and breach of the duty of good faith and fair dealing. The trial court held as a matter of law that the policy did not cover the claim and thus granted the insurer a directed verdict on Redwine’s breach of contract and duty of good faith and fair dealing causes of action. The trial court instructed the jury as follows:

You are hereby instructed that AAA Life Insurance Company did not breach its fiduciary duty of good faith and fair dealing, or otherwise act in bad faith, by denying Deanne Redwine’s claim under the 365 Travel Accident Policy. You are hereby instructed that Deanne Redwine’s claim pursuant to the injuries received were not covered by the 365 Travel Accident Policy.

Id. at 13. The jury found against the plaintiff on the remainder of her theories.

The court of appeals held that the trial court committed reversible error by commenting on the weight of the evidence with these instructions. The court held that these instructions were unnecessary and improperly suggested to the jury the trial judge’s opinion about the remaining causes of action. Id. at 16.

V. Deceptive Trade Practices

The only useful cause of action given by the Deceptive Trade Practices Act that is not also available when suing under the Insurance Code is a claim for “unconscionable conduct.” See Tex. Bus. & Com. Code §§ 17.45(5) and 17.50(a)(3). Here is the PJC question for unconscionable conduct:

QUESTION: Did Insurer Inc. engage in any unconscionable action or course of action that was a producing cause of damages to Paul Payne?

“Producing cause” means an efficient, exciting, or contributing cause that, in a natural sequence, produced the damages, if any. There may be more than one producing cause.

An unconscionable action or course of action is an act or practice that, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.

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PJC 102.7.

VI. Prompt Payment Violation

There are no pattern jury charges, yet, for the prompt payment of claims statute, Tex. Ins. Code sections 542.051-542.061. The statute imposes about a dozen deadlines for insurers to acknowledge, investigate, accept or reject, and ultimately pay, claims. See generally Mark L. Kincaid & Christopher W. Martin, Texas Practice Guide: Insurance Litigation §§17:1 to 17:47 (West 2006) (available on Westlaw at TXPG-INS).

Often these issues are determined as a matter of law, because the evidence conclusively establishes whether or not the insurer complied. A few of the requirements, however, could give rise to fact questions.

For example, section 542.055(b) allows an insurer to request additional “necessary” information while investigating the claim. A proper request by the insurer will defer other deadlines for the insurer to accept, reject, or pay the claim, until the claimant provides the information. See §§ 542.0546(a), 542.058. Thus, the claimant may contend that the insurer made an unnecessary request that should not postpone the other deadlines. The following suggested question might be suitable.

QUESTION: When did Insurer, Inc. receive all the necessary information that it reasonably requested and required from Paul Payne to pay the claim?

This question should be effective to submit disputes over the timing of the receipt, the necessity and reasonableness of the request, and whether the information really was required for the insurer to pay the claim.

This proposed question paraphrases the statutory language, with some modifications. Section 542.056(a) relating to the deadline to accept or reject the claim, speaks of receiving items “required by the insurer to secure final proof of loss.” In contrast, section 542.058(a) requires payment within sixty days “after receiving all items, statements, and forms reasonably requested and required under Section 542.055[.]” The proposed language attempts to submit the legal concepts without using confusing or redundant terms.

The proposed question focuses on when the insurer received the information from the claimant, because awaiting information from other parties does not extend the deadlines in the statute. See Kincaid & Martin, Texas Practice Guide: Insurance Litigation § 17:45.

VII. Breach of the Duty of Good Faith and Fair Dealing

An insurer owes a common law duty of good faith and fair dealing, which is breached if the insurer denies or delays payment of a claim with no reasonable basis or fails to determine whether there is a reasonable basis. Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). The supreme court expanded the duty to include liability for canceling a

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policy without a reasonable basis. Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 283 (Tex. 1994).

In Universe Life Ins. Co. v. Giles, 950 S.W.2d 48 (Tex. 1997), the supreme court modified the common law liability standard for unreasonably denying a claim. The court adopted the statutory language that now appears in Tex. Ins. Code section 541.060(a)(2)(A). Under that standard, an insurer breaches its duty of good faith and fair dealing by “failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim with respect to which the insurer’s liability has become reasonably clear.” Thus, a breach of the duty of good faith and fair dealing for an unreasonable denial would be submitted in essentially the same language as the statutory cause of action.

The court’s reasoning in Giles also supports adopting the statutory standard for failing to conduct a reasonable investigation, as the proper way to submit a common law claim for breach of the duty of good faith and fair dealing. That standard is found in Tex. Ins. Code section 541.060(a)(7), which prohibits “refusing to pay a claim without conducting a reasonable investigation with respect to the claim.” However, there is no statutory equivalent for the Shelton common-law liability for unreasonably canceling a policy, so the common-law standard still applies. See Union Bankers Ins. Co. v. Shelton, 889 S.W.2d 278 (Tex. 1994).

The Pattern Jury Charges follow this reasoning to suggest the following question:

QUESTION: Did Insurer Inc. fail to comply with its duty of good faith and fair dealing to Paul Payne?

An insurer fails to comply with its duty of good faith and fair dealing by –

• failing to attempt in good faith to effectuate a prompt, fair, and

equitable settlement of a claim when the insurer’s liability has become reasonably clear;

• refusing to pay a claim without conducting a reasonable investigation

of the claim; or

• canceling an insurance policy without a reasonable basis.

PJC 103.1.

The defense approach to this issue is quite different:

QUESTION: Did [the insurer] breach the duty of good faith?

An insurer fails to comply with its duty of good faith and fair dealing by failing to attempt in good faith to effectuate a prompt, fair, and equitable settlement of a claim when the insurer knew or should have known that its liability had become reasonably clear.

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The existence of a coverage dispute between the Plaintiffs and [the insurer] does not mean that liability under the insurance policy had become reasonably clear. Moreover, a determination that the carrier actually owed coverage, by itself, does not amount to a breach of the duty of good faith.

You are instructed that liability was not become reasonably clear if [the insurer] had a reasonable basis for not paying money in addition to that they each already paid. You are further instructed that liability is not reasonably clear if, at the time [the insurer] denied the claim, a bona fide controversy about the extent of the damage or whether there was coverage for the damage.

Both policyholders and carriers have some difficulty with the issue of whether the use of an instruction regarding the defined points in time for determining whether there was a good faith basis for denial or delay. In Viles v. Security Nat’l Ins. Co., 788 S.W.2d 566, 567-68 (Tex. 1990), the Court held that “[w]hether there is a reasonable basis for denial . . . must be judged by the facts before the insurer at the time the claims was denied.” Certainly, failure to object to a submission that does not limit the time period for the jury’s consideration of the issue opens up the possibility for even litigation conduct to be used to support the verdict.

In State Farm Lloyd’s Insurance Co. v. Ashby AAA Automotive Supply Co., 1995 WL 513363 (Tex. App.–Dallas 1995, writ denied), the carrier actually discovered information post-litigation that supported denial based on arson when prior to suit it had decided that there was insufficient evidence to support denial. The carrier basically completed most of its investigation in late August of 1989. The adjuster was put on emergency storm duty and then went on vacation. When he returned, in October (about a month later), he determined that there was insufficient evidence of a motive to commit arson and decided to settle the case. A serious controversy over the amount to be paid for lost profits and repair costs continued to exist. Attempts were made to contact the insured by phone to discuss settlement, but he was unavailable. The insured then filed suit. The carrier later learned after suit was filed that the insured was impecunious, and thus had a motive for arson, because the carrier had mistakenly believed that he and his wife jointly owned $6 million. It turned out this was the separate property of the wife. The insured had no other substantial assets other than his business, which was profit challenged. The trial in Ashby was not bifurcated. In other words, the contract and the bad faith claims were tried together. As a result, substantial post-litigation information was submitted to the jury, particularly through the insured’s attorney’s testimony regarding attorney’s fees. The carrier did not object to the admission of post-litigation conduct or information. Id. at *10. Moreover, no limiting instruction was sought and no objections were made to the jury charge. Id. The court of appeals held that any error regarding the admission of testimony of post-litigation conduct was waived for the lack of objection and requests for limiting instructions. Nevertheless, the court, in reviewing the sufficiency of the evidence of breach of the duty of good faith, looked exclusively to pre-litigation conduct. The court stated that it was “speculation” to suggest that the jury verdict was based on post-litigation activity. Id. The clear

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message from the court’s opinion is that post-litigation activity and information is simply not relevant in determining whether an improper delay or stringing along by the carrier amounts to bad faith. Id. Had the court determined post-litigation activity could be used, then the court would have had to have considered the substantial additional evidence of arson discovered in the course of litigation, particularly evidence of motive.

VIII. Fraud The Pattern Jury Charges suggests the following form to submit fraud based on a misrepresentation:

QUESTION: Did Insurer Inc. commit fraud against Paul Payne?

Fraud occurs when –

(a) a party makes a material misrepresentation, (b) the misrepresentation is made with knowledge of its falsity or

made recklessly without any knowledge of the truth and as a positive assertion,

(c) the misrepresentation is made with the intention that it should be acted on by the other party, and

(d) the other party relies on the misrepresentation and thereby suffers injury.

“Misrepresentation” means:

• a false statement of fact,

• a promise of future performance made with an intent, at the time the promise was made, not to perform as promised,

• a statement of opinion based on a false statement of fact,

• a statement of opinion that the maker knows to be false, or

• an expression of opinion that is false, made by one claiming or implying to have special knowledge of the subject matter of the opinion.

“Special knowledge” means knowledge or information superior to

that possessed by the other party and to which the other party did not have equal access.

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PJC 105.1 – 105.3E. The Pattern Jury Charges suggests omitting definition subparts that are not applicable to the particular case.

For a claim based on a fraudulent nondisclosure, if the court has found a duty to disclose, Pattern Jury Charges suggests that the definition of fraud be changed to the following:

Fraud occurs when –

(a) a party fails to disclose a material fact within the knowledge of that party, (b) the party knows that the other party is ignorant of the fact and does not

have an equal opportunity to discover the truth, (c) the party intends to induce the other party to take some action by failing to

disclose the fact, and (d) the other party suffers injury as a result of acting without knowledge of the

undisclosed fact.

PJC 105.4.

IX. Negligent Misrepresentation

The Pattern Jury Charges offers this form to submit a claim for negligent misrepresentation:

QUESTION: Did Insurer Inc. make a negligent misrepresentation on which Paul Payne justifiably relied?

Negligent misrepresentation occurs when –

(a) a party makes a representation in the course of his business

or in a transaction in which he has a pecuniary interest, (b) the representation supplies false information for the

guidance of others in their business, and (c) the party making the representation did not exercise

reasonable care or competence in obtaining or communicating the information.

PJC 105.4.

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X. Agency & Vicarious Liability

Of course, when questions ask whether the “Insurer” did something, they are really asking about the conduct of some person acting for the insurer. There are two ways to approach this issue.

One way is to ask whether the entity did a particular act, and instruct the jury that the actions of the entity include the actions of those acting with authority on its behalf. The second approach to holding the entity liable for an individual’s conduct is to ask the jury to decide whether that person was the agent of, and acted with authority on behalf of, the insurer.

PJC 101.4 gives an instruction that may used when there is a question of authority to contractually bind the insurer:

A party’s conduct includes the conduct of another who acts with the party’s authority or apparent authority. Authority for another to act for a party must arise from the party’s agreement that the other act on behalf and for the benefit of the party. If a party so authorizes another to perform an act, that other party is also authorized to do whatever else is proper, usual, and necessary to perform the act expressly authorized. Apparent authority exists if a party (1) knowingly permits another to hold himself out as having authority or, (2) through lack of ordinary care, bestows on another such indications of authority that lead a reasonably prudent person to rely on the apparent existence of authority to his detriment. Only the acts of the party sought to be charged with responsibility for the conduct of another may be considered in determining whether apparent authority exists.

See Thomas Regional Directory Co. v. Dragon Products, Ltd., 196 S.W.3d 424, 427-430 (Tex. App.–Beaumont 2006, pet. denied) (approving PJC instructions).

The Pattern Jury Charges suggest that different instructions may be appropriate to submit the question of vicarious liability for a tort or statutory violation. See PJC 101.4 Comment (When to use); PJC 102.14 Comment (Vicarious liability). Despite this suggestion, the instructions set out above appear consistent with the principles the Texas Supreme Court has approved for holding an insurer liable for the conduct of its agent in Celtic Life Insurance Co. v. Coats, 885 S.W.2d 96, 98-99 (Tex. 1994), and Royal Globe Insurance Co. v. Bar Consultants, Inc., 577 S.W.2d 688, 692-94 (Tex. 1979). Therefore, the instruction in PJC 101.4 may be suitable in non-contract cases as well.

Holding an insurance company vicariously liable under the rules from Celtic and Royal Globe requires two elements. First, the actor must have been the agent of the insurer. Second, the agent must have acted within the scope of his authority. That authority may be actual authority (which may be express or implied), or it may be apparent authority.

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Whether a person was the insurer’s agent seldom is in dispute, because that issue is governed by statute. If the person engaged in one of the listed acts on the insurer’s behalf, he was the insurer’s agent as a matter of law.

“Agent” is now defined in Tex. Ins. Code section 4001.003, while section 4001.051 outlines what constitutes “acting as an agent,” and section 4001.053 further defines who are agents. Based on these statutory definitions, the following question could be submitted to ask whether the person was the insurer’s agent:

QUESTION: Was Don Davis acting as an agent for Insurer Inc.?

“Agent” includes any person who is an authorized agent of an insurer and any other person who performs the acts of an agent, whether through an oral, written, electronic, or other form of communication, by soliciting, negotiating, procuring, or collecting a premium on an insurance contract.

A person is “acting as an agent” for an insurer if he does any of the following acts for the insurer, without regard to whether the act is done at the request of or by the employment of the insurer, broker, or other person. A person is the agent of the insurer for which the act was done if the person:

(1) solicits insurance on behalf of the insurer;

(2) receives or transmits an application for insurance or an insurance policy to or from the insurer;

(3) advertises or otherwise gives notice that the person will receive or transmit an application for insurance;

(4) receives or transmits an insurance policy of the insurer;

(5) examines or inspects a risk;

(6) receives, collects, or transmits an insurance premium;

(7) makes or forwards a diagram of a building;

(8) takes any other action in the making or consummation of an insurance contract for or with the insurer; or

(9) examines into, adjusts, or aids in adjusting a loss for or on behalf of the insurer.

Obviously, you should leave out subparts not raised by the evidence. There are also exceptions in the statutes that might be included, when raised by the evidence.

The more contentious issue is usually whether the agent acted within the scope of his authority. In Celtic, the insurer was held liable based on the jury finding that the agent “had

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authority to explain, on Celtic’s behalf, the benefits of the insurance policy.” 885 S.W.2d at 98. The insurer was not excused from liability by the finding that the agent did not have authority to make misrepresentations. Id.; see also Austin Fire Ins. Co. v. Sayles, 157 S.W. 272, 273 (Tex. Civ. App.–Fort Worth 1913, writ ref’d) (court properly rejected instruction that would have misled jury by suggesting insurer had to expressly authorize agent’s act).

A proper question to submit the issue of the agent’s authority, along with the PJC 101.4 instructions, might read as follows:

QUESTION: Did Don Davis have authority to explain, on Insurer Inc.’s behalf the benefits of the insurance policy. [Or insert other conduct at issue.]

“Authority” includes actual authority and apparent authority.

Actual authority for Don Davis to act for Insurer, Inc. must arise from Insurer Inc.’s agreement that Don Davis act on behalf and for the benefit of Insurer, Inc. If Insurer, Inc. authorized Don Davis to perform an act, then Don Davis was also authorized to do whatever else was proper, usual, and necessary to perform the act expressly authorized. Apparent authority exists if Insurer, Inc. (1) knowingly permitted Don Davis to hold himself out as having authority or, (2) through lack of ordinary care, bestowed on Don Davis such indications of authority that lead a reasonably prudent person to rely on the apparent existence of authority to his detriment. Only the acts of Insurer, Inc. may be considered in determining whether apparent authority exists.

In Bellefonte Underwriters Ins. Co. v. Brown, 663 S.W.2d 562, 586 (Tex. App.–Houston [14th Dist.] 1983), aff’d in part, rev’d in part, 704 S.W.2d 742 (Tex. 1986), the court of appeals held that it was proper to instruct the jury on the meaning of “insurance agent” and “implied” or “apparent” authority, because those were technical terms, and the trial court submitted widely-accepted definitions of the terms. Presumably, the instructions set out above would be acceptable.

XI. Damages

A. In General

The Pattern Jury Charges has general forms for submitting damages in contract actions and suits for statutory violations and torts. Each damage question is predicated on a finding of liability. See PJC 110.1. The question for contract damages in PJC 110.2 is as follows:

QUESTION: What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Paul Payne for his damages, if any, that resulted from such failure to comply?

Consider the following elements of damages, if any, and none other.

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[Insert appropriate instructions.] Do not add any amount for interest on damages, if any. Answer separately in dollars and cents for damages, if any.

(a) [Element A] sustained in the past. _______________

(b) [Element A] that, in reasonable

probability, will be sustained in the future. _______________

(c) [Element B] sustained in the past. _______________

(d) [Element B] that, in reasonable

probability, will be sustained in the future. _______________

This format can be adapted to the particular damages recoverable under the contract and any consequential damages. The “failure to comply” language would need to be modified if the underlying liability question did not use that verbiage. The pattern has the benefit of avoiding the Casteel problem, by separating out different elements of damages.

From the carrier perspective, the Pattern Charge is unhelpful. The policy states that what is owed under the contract is the “actual cash value.” Carriers will typically seek a charge that tracks the contract language, as with the following question and instructions:

QUESTION: Find the actual cash value at the time of the loss, if any, caused solely by [the event] that has not already been paid by [the insurer]: You are instructed that “actual cash value” means the value of the part of the property at the time of the loss. “Actual cash value” is determined by deducting depreciation from the cost of repair and replacement with similar construction and for the same use. Do not include in your answer the actual cash value of any loss found by you in answer to Question 2 to have been caused in part by an Excluded Cause(s) II (Column 3). Do not include in your answer any amount that you find Plaintiffs could have avoided by the exercise of reasonable care. Do not include in your answer any amount for damage to property that occurred after the initial loss due to the Plaintiffs’ failure, if any, to protect the property from further damage.

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In answering the following questions, answer each question separately. Do not increase or reduce the amount in one answer because of your answer to any other question about damages. Do not speculate about what any party’s ultimate recovery may or may not be. Any recovery will be determined by the court when it applies the law to your answers at the time of judgment. Do not add any amount for interest on damages, if any.

Answer in dollars and cents, if any.

1. Exterior brick façade __________

2. Windows __________

3. Interior sheetrock __________ As you will note, the instructions include several policy conditions involving the treatment of the property.

For unfair insurance practices a similar pattern question is found in PJC 110.13, which asks:

QUESTION: What sum of money, if any, if paid now in cash, would fairly and reasonably compensate Paul Payne for his damages, if any, that were caused by such unfair or deceptive act or practice?

Consider the following elements of damages, if any, and none other.

[Insert appropriate instructions. See examples in PJC 110.9.]

In answering questions about damages, answer each question separately. Do not increase or reduce the amount in one answer because of your answer to any other question about damages. Do not speculate about what any party’s ultimate recovery may or may not be. Any recovery will be determined by the court when it applies the law to your answers at the time of judgment. Do not add any amount for interest on damages, if any.

Answer separately in dollars and cents for damages, if any.

[Separate lines for damages, as above.]

Similar forms are given for damages resulting from breach of the duty of good faith and fair dealing (PJC 110.14), fraud (PJC 110.19), and deceptive trade practices (PJC 110.8). To avoid error when submitting different elements that potentially overlap, PJC recommends the following instruction:

Consider the following elements of damages, if any, and none other. You shall not award any sum of money on any element if you have otherwise, under some

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other element, awarded a sum of money for the same loss. That is, do not compensate twice for the same loss, if any.

See, e.g., PJC 110.14 Comment (Elements considered separately).

In 1995 the Legislature limited DTPA recovery to “economic damages” caused by the violation. Economic damages are defined as “compensatory damages for pecuniary loss, including cost of repair and replacement.” Further, “the term does not include exemplary damages or damages for physical pain and mental anguish, loss of consortium, disfigurement, physical impairment, or loss of companionship and society.” Tex. Bus. & Com. Code § 17.45(11). In a DTPA case, you should not submit non-economic damages, other than mental anguish. If you are seeking mental anguish damages, you should have separate answer lines for economic damages and mental anguish. That way if the jury does not find that the defendant acted “knowingly,” you still have a separate finding for your economic damages.

Depending on the facts of your case, it may make sense to further separate out different parts of your economic damages – such as cost of repair, difference in value, etc. – to aid the jury in relating the question to your proof.

If you are bringing suit under article 21.21, you may still recover your “actual damages,” not just “economic damages.” Hence, why submit a DTPA violation if your conduct fits under article 21.21?

B. Policy Benefits

The most common actual damages are the policy benefits themselves. In certain cases under chapter 541 of the Insurance Code, the amount of policy benefits wrongfully withheld is an element of damages caused by the defendant’s conduct, as a matter of law. Vail v. Texas Farm Bur. Mut. Ins. Co., 754 S.W.2d 129, 136 (Tex. 1988). The supreme court in Vail rejected the insurer’s argument that damages for an unfair settlement practice had to be something more than the amounts due under the policy. The court held that damages for a wrongful refusal to pay are at least equal to the policy benefits, as a matter of law. The court reasoned:

The fact that the Vails have a breach of contract action against Texas Farm does not preclude a cause of action under the DTPA and article 21.21 of the Insurance Code. Both the DTPA and the Insurance Code provide that the statutory remedies are cumulative of other remedies . . . It is well settled that persons without insurance are allowed to recover based on false representations of cover-age, . . . and that an insurer may be liable for damages to the insured for its refusal or failure to settle third-party claims . . . It would be incongruous to bar an insured – who has paid premiums and is entitled to protection under the policy – from recovering damages when the insurer wrongfully refuses to pay a valid claim. Such a result would be in contravention of the remedial purposes of the DTPA and the Insurance Code.

Id. at 136.

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But policy benefits are not always damages as a matter of law. In Twin City Fire Ins. Co. v. Davis, 904 S.W.2d 663 (Tex. 1995), the court held that policy benefits could not serve as independent tort damages resulting from the insurer’s breach of its duty of good faith and fair dealing, which were necessary to support exemplary damages. Other cases have also concluded that policy benefits are not necessarily damages as a matter of law. See Seneca Resources Corp. v. Marsh & McLennan, Inc., 911 S.W.2d 144 (Tex. App.–Houston [1st Dist.] 1995, no writ); Beaston v. State Farm Life Ins. Co., 861 S.W.2d 268 (Tex. App.–Austin 1993), rev’d on other grounds, 907 S.W.2d 430 (Tex. 1995).

The defense view is that policy benefits are not recoverable under either the DTPA or the Insurance Code. Carriers typically rely on Provident American Ins. Co. v. Castaneda, 988 S.W.2d 189, 194-95 (Tex. 1998) (holding that failure to investigate in violation of statutory mandates did not cause loss of the policy benefits).

When in doubt, the better approach is to plead, prove, and get a jury finding on policy benefits as damages. See PJC 110.14 Comment (Policy benefits). Unless both the amount of benefits and their causation as damages are conclusively established, you should submit this element of damages to the jury. If the damages are unliquidated, you need a jury finding on the amount anyway. If causation is disputed, it makes more sense to submit causation to the jury than to take the risk that your case will be viewed like Twin Cities and the others and unlike Vail. The risk of submitting policy benefits as an element of damages is that the jury may find that they are not damages or may conclude that the conduct did not cause these damages. See Beaston, 861 S.W.2d at 277-78.

C. Mental Anguish

Mental anguish damages may not be recovered under the DTPA or article 21.21 unless a knowing violation is shown. DTPA § 17.50(b); Boyles v. Kerr, 855 S.W.2d 593 (Tex. 1993); State Farm Life Insurance Co. v. Beaston, 907 S.W.2d 430, 435-36 (Tex. 1995). This requirement does not change how you submit the damage question; it simply requires that you have an additional finding that the defendant acted knowingly. A finding that the defendant acted “knowingly” also supports treble damages.

Once this threshold is met, the plaintiff must show “a high degree of mental pain and distress” that is “more than mere worry, anxiety, vexation, embarrassment, or anger.” Parkway Co. v. Woodruff, 901 S.W.2d 434, 444 (Tex. 1995). An award of mental anguish damages will be upheld “when the plaintiffs have introduced direct evidence of the nature, duration, and severity of their mental anguish, thus establishing a substantial disruption in the plaintiffs’ daily routine.” This evidence may come from the claimants’ own testimony, testimony of third parties, or testimony of experts, and is more likely to provide the fact finder with adequate details to assess mental anguish claims. See also Saenz v. Fidelity & Guar. Ins. Underwriters, 925 S.W.2d 607 (Tex. 1996) (applying standards to insurance case).

While these are the applicable legal standards for recovering mental anguish, it may not be necessary or proper to include any of them as jury instructions, given that “mental anguish” is not a technical term.

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The carrier approach is to ask for more detailed instructions complying with the Parkway standards. The Texas Supreme Court has directed that damage awards for mental anguish be closely scrutinized because of the subjective nature of the claim. Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 54 (Tex. 1997). Conclusory testimony of emotion is not sufficient to support a finding of compensable mental anguish. Gunn Infiniti, Inc. v. O’Byrne, 996 S.W.2d 854, 861 (Tex. 1999); Latham v. Castillo, 972 S.W.2d 66, 70 (Tex. 1998). Rather, to recover damages for mental anguish the plaintiff must introduce direct evidence of the nature, duration, and severity of the mental anguish sustained or present evidence of a high degree of mental pain and distress that is more than mere worry, anxiety, vexation, embarrassment, or anger. Parkway Co. v. Woodruff, 901 S.W.2d 434, 444 (Tex. 1995). In either event, the evidence must show that the alleged mental anguish was more than an emotional reaction and that it resulted in a substantial disruption of the plaintiff’s daily life. Fifth Club, Inc. v. Ramirez, 196 S.W.3d 788, 797 (Tex. 2006); Bentley v. Bunton, 94 S.W.3d 561, 606 (Tex. 2002); Saenz v. Fid. & Guar. Ins. Underwriters, 925 S.W.2d 607, 614 (Tex. 1996); id. In other words, there must be evidence of adequate details to support the mental anguish claim and, without such evidence, the evidence is legally insufficient. Parkway, 901 S.W.2d at 444.

Accordingly, carriers typically seek submission of more detailed instructions, which include the harsher standards reflected in the case-law:

QUESTION: What sum of money, if paid now in cash, would fairly and reasonably compensate Plaintiffs, for the mental anguish, if any, that resulted from the conduct, if any, of State Farm Lloyds? You are instructed that “mental anguish” means a high degree of mental pain and distress that results in a substantial disruption of daily life. It is more than an emotional response or mere worry, anxiety, vexation, embarrassment, or anger. You shall consider the nature, duration, and severity of the mental anguish sustained.

In answering questions about damages, answer each question separately. Do not increase or reduce the amount in one answer because of your answer to any other question about damages. Do not speculate about what any party’s ultimate recovery may or may not be. Any recovery will be determined by the court when it applies the law to your answers at the time of judgment. Do not add any amount for interest on damages, if any.

Answer in dollars and cents, if any. 1. Mental anguish in the past __________

2. Mental anguish, that in reasonable probability, will occur in the future __________

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D. “Treble” or Additional Statutory Damages

To seek additional damages under Tex. Ins. Code section 541.152, submit this question:

If your answer to Question 1 is “Yes,” then answer the following question. Otherwise, do not answer the following question.

QUESTION: Did Insurer Inc. engage in any such conduct knowingly?

“Knowingly” means actual awareness, at the time of the conduct, of the falsity, deception, or unfairness of the conduct in question or actual awareness of the conduct constituting a failure to comply with a warranty. Actual awareness may be inferred where objective manifestations indicate that a person acted with actual awareness.

In answering this question, consider only the conduct that you have found resulted in damages to Paul Payne.

The defense perspective is that this definition is incomplete in light of the decision of the Supreme Court in St. Paul Surplus Lines Ins. Co. v. Dal Worth Tank Co., 974 S.W.2d 51, 53-54 (Tex. 1998). In that case, the Court explained that the “actual awareness” required to find an act was committed “knowingly” under the DTPA, “does not mean merely that a person knows what he is doing; rather, it means that a person knows that what he is doing is false, deceptive, or unfair. In other words, a person must think to himself at some point, ‘Yes, I know this is false, deceptive, or unfair to him, but I'm going to do it anyway.’”

The Court elaborated that “knowingly” lies on a continuum between “gross negligence” and “intentional acts” and that “‘actual awareness’ is more than conscious indifference to another's rights or welfare.” Id. at 54 (emphasis added) (quoting Luna v. Northstar Dodge Sales, Inc., 667 S.W.2d 115, 117-18 (Tex. 1984)). In short, the evidence must show that the defendant knew that he or she was harming the plaintiff. Id. Accordingly, some carriers request the following “knowingly” instruction:

“Knowingly” means actual awareness of the falsity, unfairness, or deceptiveness of the act or practice on which a claim for damages under Subchapter D is based. “Actual awareness” does not mean merely that a person knows what he is doing; rather, it means that a person knows that what he is doing is false, deceptive, or unfair. In other words, a person must think to himself at some point, “Yes, I know this is false, deceptive, or unfair but I'm going to do it anyway.” Actual awareness may be inferred if the objective manifestations indicate that a person acted with actual awareness.

Policyholders typically object to this instruction as a “tilt or nudge” or comment on the weight instruction.

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Under the 1995 DTPA amendments, you can only recover “economic damages” for a violation of the statute. If the jury finds the defendant acted knowingly, you can also recover mental anguish damages, and the jury can award additional damages up to three times the amount of economic damages. To treble the whole amount, the jury has to find that the defendant acted intentionally. This creates a pretty complicated set of questions for the jury.

You have to ask the jury whether the violation occurred, what economic damages were caused, what mental anguish was suffered, whether the defendant acted “knowingly,” whether the defendant acted “intentionally,” whether the jury wants to award additional damages based on the finding of knowing misconduct, and whether the jury wants to award some more additional damages based on the finding of intentional conduct. A jury may be confused, because the definitions of “knowingly” and “intentionally” are similar.

The term “knowingly” is defined as meaning actual awareness of the falsity or unfairness of the conduct. The definition of “intentionally” essentially tracks the other definition and adds the element that the defendant also had a “specific intent that the consumer act in detrimental reliance.” Compare § 17.45(9), with § 17.45(13). This creates the risk that the jury will be confused at best, and will think that the plaintiff is being greedy at worst.

To streamline the charge and to avoid some of these problems, it may make sense for the plaintiff to omit “knowingly” and just submit a question on “intentional” conduct. If the jury answers yes to that question, the Plaintiff can then recover additional damages for all of the economic damages and mental anguish damages found by the trier of fact. This requires the plaintiff to assume the slightly greater burden by showing that the defendant intended for the consumer to act in detrimental reliance. The additional burden may be offset by the benefit of having a more streamlined charge.

This aggravation does not occur under chapter 541. Pre-1995, the statute provided that a finding of knowing misconduct entitled the plaintiff to automatic treble damages. Post-1995, a finding of knowing misconduct allows discretionary trebling of all actual damages. There is no separate “intentional” standard for recovery of mental anguish damages.

Although no case yet explicitly requires it, it is a good idea to instruct the jury on the factors to consider in awarding discretionary additional (“treble”) damages. Giving the jury specific factors to consider satisfies constitutional concerns associated with punitive damages and, by analogy, with additional statutory damages. See Transportation Insurance Co. v. Moriel, 879 S.W.2d 10, 29-30 (Tex. 1994). These factors have been approved for reviewing the propriety of an award of DTPA additional damages. Haynes & Boone v. Bowser Bouldin, Ltd., 896 S.W.2d 179, 183 (Tex. 1995) (remanding treble damage award to court of appeals for review in light of “Kraus” factors). Factors to consider in awarding additional damages, if any, are:

• the nature of the wrong,

• the character of the conduct involved,

• the degree of culpability of the defendant,

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• the situation and sensibilities of the parties concerned,

• the extent to which the conduct offends a public sense of justice and propriety,

• the net worth of the defendant.

XII. Attorneys’ Fees

The pattern question for fees is straightforward and invites little controversy. PJC 110.43 asks:

If you have answered “Yes” to Question _____ [applicable liability question], then answer the following question. Otherwise, do not answer the following question.

QUESTION: What is a reasonable fee for the necessary services of Paul Payne’s attorney in this case, stated in dollars and cents? Answer with an amount for each of the following:

(a) For preparation and trial. ______________ (b) For an appeal to the Court of Appeals. ______________ (c) For an appeal to the Supreme Court of Texas ______________

One modification that may be appropriate is to subdivide the categories further, as the

evidence supports, to reflect the different appellate steps when filing a petition for review, preparing a brief on the merits, and presenting oral argument.

It may be proper to ask the jury to award fees that are segregated between different claims, in a case where segregation of fees is required. See PJC 110.43 Comment (Segregating claims).

Finally, it may be proper to instruct the jury on the factors to consider as outlined in Arthur Andersen & Co. v. Perry Equipment Corp., 945 S.W.2d 812, 817–19 (Tex. 1997).

XIII. Avoiding Attorneys Fees – Excessive Demands

Many carriers are making use of the “excessive demand” doctrine. This doctrine dictates that when the claimant makes “an excessive pre-suit demand and would not take a lesser amount, the claimant is not entitled to attorney's fees expended in litigation thereafter.” Findlay v. Cave, 611 S.W.2d 57, 58 (Tex.1981). “The dispositive inquiry for determining whether a demand is excessive is whether the claimant acted unreasonably or in bad faith.” Id. at 58. Thus, the excessive demand doctrine mandates that fees incurred after the demand is made are not

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reasonable and thus not recoverable. The doctrine does not bar recovery of attorney's fees expended before the excessive demand. Id. The doctrine accordingly limits the amount of fees recoverable. See, e.g., Wayne v. AVA Vending, Inc., 52 S.W.3d 412, 417-18 (Tex. App.–Corpus Christi 2001, review denied). The rule is intended to “temper” the notion that a defendant is responsible for attorneys’ fees in the first instance based upon the failure of the defendant to accept a reasonable offer to settle and thus prevent the need of the claimant to have to pay for the services of an attorney. Id. The excessive demand doctrine protects a party from having to pay attorneys fees due to the inability of the defendant to settle based on an unreasonable demand. Id. (citing Allstate Ins. Co. v. Lincoln, 976 S.W.2d 873, 878 (Tex. App.–Waco 1998, no writ). The rule is a corollary to allowing the recovery of attorneys’ fees. Thus, like the standards governing the determination of whether fees are reasonable and necessary, Arthur Anderson & Co. v. Perry Equipment Corp., 945 S.W.2d 812 (Tex. 1997), the excessive demand rule is applicable to the statutory claims asserted here under the Insurance Code. The excessive demand concept existed prior to the enactment of the Insurance Code provisions at issue. Thus, those provisions were enacted with the legislature’s knowledge of this rule. The legislature took no action in enacting the Insurance Code provisions at issue to in any way indicate the abrogation or inapplicability of this doctrine of reasonableness. The Texas courts have clearly held that this common law rule applies to statutory bases for the recovery of attorney’s fees, such as section 38.001. Findlay, supra note 3, at 58 (applying doctrine to article 2226, the predecessor to section 38.001 of the Texas Civil Practices and Remedies Code). The rule has also been extended to contractual attorneys’ fees provisions which, like the Insurance Code provisions here, provide for the payment of “reasonable attorneys’ fees” if suit is required regarding the duties under the contract. AVA, supra note 6, at 417-18 (“It seems inherently logical that this doctrine should also apply when a demand is made and the right to attorneys fees is based on a provision of the contract.”). Indeed, as will be discussed more fully below, the Beaumont Court of Appeals has expressly held that the rule applied to the predecessor of section 542.060(a). First Texas Prudential Ins. Co. v. Smallwood, 242 S.W. 498, 504 (Tex. Civ. App.–Beaumont 1922, no writ).

In First Texas Prudential Ins. Co. v. Smallwood, 242 S.W. 498, 504 (Tex. Civ. App.–Beaumont 1922, no writ), the Beaumont Court of Appeals addressed whether the excessive demand rule applied to article 4746 of the Texas Revised Civil Statutes, a predecessor statute to section 542.060(a). Article 4746 allowed for the recovery of attorneys fees and a 12% penalty if a carrier if a life, health or accident carrier failed to pay a claim within thirty days of its being presented. The court there held that the excessive demand rule applied, and, as a result, the Plaintiffs was not entitled to either an award of attorneys fees or a statutory penalty, similar to that set forth in section 542.060, explaining:

We cannot believe that it was the intention of our Legislature, by enacting article 4746, to permit a beneficiary in an insurance policy to recover the penalty and attorney's fee specified in the article in all suits where recovery for any amount may be had, regardless of whether the amount of the demand be excessive or not. We find nothing in the language employed in the article which would seem to compel such a construction, and in the absence of such language, we are not inclined to so construe the statute.

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Id. (emphasis added). In support, the Beaumont Court of Appeals noted the reasoning of the Austin Court of Appeals in American National Insurance Co. v. Turner, 226 S.W. 487, 488 (Tex. Civ. App.–Austin 1920, no writ):

“A recovery, for penalty and attorney's fee, cannot be had when complainant makes demand for more than he is entitled to recover. It could never have been the purpose of the Legislature to make the insurance companies pay a penalty and attorney's fee for contesting a claim that they did not owe. Such an act would be unconstitutional. The companies have the right to resist the payments of a demand that they do not owe. When the plaintiff demands an excessive amount, he is in the wrong. The penalty and attorney's fee is for the benefit of the one who is only seeking to recover, after demand, what is due him under the terms of his contract, and who is compelled to resort to the courts to obtain it."

Smallwood, 242 S.W. at 504-505 (emphasis added). This is, of course, consistent with the Texas Supreme Court’s promise, many years later, that even under the duty of good faith “carriers will maintain the right to deny invalid or questionable claims and will not be subject to liability for erroneous denial of a claim.” Aranda v. Insurance Co. of North America, 748 S.W.2d 210, 213 (Tex. 1988). The Beaumont Court of Appeals in Smallwood made very clear that interpreting a statutory provision allowing for a penalty and attorneys fees to apply in the face of an excessive demand would in fact violate the due process and equal protection guarantees of the United States Constitution:

If it was the intention of the Legislature of this state, in enacting article 4746, to provide for a recovery of the penalty and attorney's fee mentioned in all suits on an insurance policy where recovery in any sum might be had, regardless of whether the demand made of the company be more than is due under the contract, then we are inclined to think that the statute would be in conflict with and violative of the Fourteenth Amendment to the Constitution of the United States, which, in effect, prohibits any state legislation which denies to any citizen the equal protection of the law, or the effect of which would be to deprive any citizen of his property without due process of law.

Smallwood, 242 S.W. at 504-505 The court, quoting other authorities, noted:

“The statute in question requires the allowance of attorney's fees, though the claim asserted by the suit is an excessive one. If the amount of attorney's fees required to be allowed to the plaintiff is more than that of the difference between what he claimed and what he recovers, the result is to give him the unconscionable advantage of being able to make it cheaper for the defendant to forego his rights than to assert them. The statute not only undertakes to give to plaintiffs, in the character of suits mentioned, a right not accorded to plaintiffs in other suits, but it discriminates between plaintiffs and defendants in the suits to which it applies, in that the former may resort to litigation at the latter's expense,

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though only a fraction of the amount claimed is recoverable, while the latter is subject to the expense of an attorney's fee, though he is wholly or partially successful in the suit.”

Id. The Smallwood court concluded:

[I]t is our conclusion that it was not the intention of our Legislature to provide for a recovery of the penalty and attorney's fee mentioned in the article, except in the event the plaintiff in the suit shall recover as much as the amount demanded of the insurance company by the written demand provided for in the article. If it should be said that article 4746 is subject to the other construction, and that because it is so, the article would be in violation of the Fourteenth Amendment to the federal Constitution, then we say, following the well-established rule, that it should not receive such construction at the hands of the courts, because the rule is that where a statute is subject to two constructions, one of which would leave the statute valid and enforceable, and the other would make it unconstitutional, then that construction which would give validity to the act should be given the statute, instead of the construction which would destroy the statute.

Id. (emphasis added). As noted, the Smallwood court concluded that an excessive demand barred recovery of both attorneys’ fees and the statutory penalty. Smallwood was followed by the Texarkana Court of Appeals in Franklin Life Ins. Co. v. Greer, 219 S.W.2d 137, 144 (Tex. Civ. App.–Texarkana 1949), aff’d in part, rev’d in part, 221 S.W.2d 857 (Tex. 1949). The court there disallowed recovery of a statutory penalty under former Tex. Ins. Code Ann. section 3.62 because the “demand [made] upon [the insurer] by the interested parties was greatly in excess of the amount found to be due by it.” Thus, the Texarkana Court of Appeals as well has applied the excessive demand rule to Insurance Code provisions allowing attorneys fees and to penalty provisions as well.