Ulico Cas. Co. v. Allied Pilots Ass'n

262 S.W.3d 773

ULICO CASUALTY COMPANY, Petitioner, v. ALLIED PILOTS ASSOCIATION, Respondent.

No. 06-0247.

Supreme Court of Texas.

Argued April 11, 2007.

Delivered August 29, 2008.

Donald Colleluori, Stephen D. Howen, Figari & Davenport, LLP, Dallas TX, for Petitioner.

J. Lyndell Kirkley, B. Daniel Berryman, Kirkley Broiles & Berryman, L.L.P., R. David Broiles, Cagle & Broiles, Fort Worth TX, for Respondent.

Wade Caven Crosnoe, Thompson Coe Cousins & Irons, L.L.P., Austin TX, for Amicus Curiae Complex Insurance Claims Litigation Association.

Justice JOHNSON delivered the opinion of the Court.

In this case we consider whether an insurer's contractual coverage under a claims-made policy can be expanded by the doctrines of waiver and estoppel to cover a risk not otherwise within the policy coverage: a suit against the insured that was not reported until after the policy expired. We hold that if an insurer's actions prejudice its insured, the insurer may be estopped from denying benefits that would be payable under its policy as if the risk had been covered, but the doctrines of waiver and estoppel cannot be used to re-write the contract of insurance and provide contractual coverage for risks not insured.

I. Background

Ulico Casualty Company issued a claims-made liability policy to the Allied Pilots Association (APA). The policy specified that it was effective from August 25, 1998 through August 25, 1999 and provided coverage, as relevant to this matter, for

all Loss which such Insured shall become legally obligated to pay on account of any claim made against the Insured during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act committed, attempted, or allegedly committed or attempted by such Insured before or during the Policy Period, and reported to [Ulico] ... during the Policy Period or the Extended Reporting Period, if elected.

The policy defined "loss" to include defense costs. The policy required that, as a condition precedent to APA's rights under the policy, APA "give to [Ulico] written notice during the Policy Period or the Extended Reporting Period, if elected, of any claim made against [APA] for a Wrongful Act." The policy provided that if Ulico cancelled or refused to renew it, APA could have an extended period of twelve months beyond the policy expiration date in which to report claims made against it— an Extended Reporting Period (ERP)— based on acts committed by APA within the policy period, provided APA paid an additional premium of fifty percent of the annual premium. The ERP section also provided that if APA terminated the policy or declined to renew, then Ulico could, "[i]f requested, at its sole discretion, grant an Extended Reporting Period."

APA paid premiums for and Ulico issued two written endorsements, each amending the policy and providing for an extension of the Policy Period. The endorsements first changed the policy period from August 25, 1998 to September 25, 1999, and then to October 25, 1999. On October 4, 1999, twenty-one days before the amended policy period expired, APA was served with a suit styled Allen v. American Airlines, Inc. APA forwarded the Allen suit papers to its insurance broker and to the law firm of James & Hoffman, its regular outside litigation counsel. James & Hoffman undertook defense of APA. Ulico was not notified of the suit until APA's agent forwarded notice of suit on November 5, 1999.¹

In December 1999, Ulico's claims analyst, Sheila Bowers, informed APA by letter that the claim was being reviewed and that APA would be notified of Ulico's coverage decision. Referencing the Ulico policy, she advised APA that no defense fees, costs, charges, or expenses may be incurred or settlements made without Ulico's prior written consent. In March 2000, Bowers sent APA's counsel a letter stating that the policy provided for defense costs, but Ulico was expressly reserving all its rights to deny coverage. She enclosed litigation management forms, attorney evaluation forms, and a form for the attorney's time forecast. James & Hoffman did not respond to Bowers's letter. In April 2001, Bowers wrote the law firm another letter which stated that pursuant to the reservation of rights letter of March 1, 2000, "Ulico has agreed to reimburse [APA] for reasonable and necessary defense expenses." In May 2001, the firm responded and enclosed its billings of approximately $635,000 for defending APA in the suit. At that point, the law firm had defended the suit and filed a motion for summary judgment on behalf of APA without any reports to or further contact with Ulico. Neither APA nor its defense firm had sought Ulico's approval for any actions or for authorization to incur expenses in defense of the lawsuit. The trial court granted summary judgment in APA's favor in September, and an appeal by the Allen plaintiffs was dismissed.

Ulico filed suit in November 2001 seeking a declaratory judgment that it did not have coverage and did not owe APA's defense costs. APA counterclaimed. At trial, a jury found in response to four liability questions that Ulico (1) granted an ERP during which APA reported the Allen suit, (2) agreed to pay the Allen defense costs separately and apart from the policy, (3) waived its right to assert that the policy did not cover the Allen defense costs, and (4) was estopped from asserting that the policy did not cover the Allen defense costs. The jury found damages of $308,235. On cross-motions for judgment notwithstanding the verdict, the trial court set aside the jury findings that Ulico granted an ERP, that Ulico agreed to pay defense costs separately from the policy, and of damages. The trial court entered judgment in favor of APA on the waiver and estoppel findings for $616,468.55.²

Relying on what has come to be referred to as the Wilkinson exception, see Farmers Texas County Mutual Insurance Co. v. Wilkinson, 601 S.W.2d 520 (Tex.Civ.App.-Austin 1980, writ ref'd n.r.e.), the court of appeals affirmed on the basis of waiver and estoppel. 187 S.W.3d 91. It held that APA's recovery under its waiver and estoppel theories was effectively a recovery under the contract of insurance, thus APA was entitled to recover attorney's fees pursuant to Texas Civil Practice and Remedies Code section 38.001(8). Id. at 108-10. The court remanded the case for a determination of the amount of attorney's fees. Id. at 110.

Ulico asserts that the court of appeals erred in holding it had contractual coverage for the Allen suit based on either waiver or estoppel. Ulico notes that there was no evidence of promissory estoppel or reliance damages. See Wheeler v. White, 398 S.W.2d 93, 97 (Tex.1965). The jury charge did not contain questions as to such damages, and APA lodged no objections to the omission of those questions. APA urges that the trial court erred in disregarding the jury findings that Ulico granted an ERP during which APA gave written notice of the suit, and that Ulico agreed separately from the policy to pay defense costs for the Allen suit. Because its holding on the waiver and estoppel issues was dispositive, the court of appeals did not reach the issues APA urges.

We hold that Ulico's policy coverage was not expanded by either the doctrine of waiver or the doctrine of estoppel so as to bring the Allen claims within the policy coverage. We also hold that the trial court properly disregarded the jury findings that Ulico granted an ERP extending the policy period and that Ulico separately agreed to cover the Allen suit defense costs.

II. Discussion

When Ulico received notice of the Allen suit on November 5, 1999, it did not have a contract of insurance in force with APA. Its policy had terminated as of October 25, 1999. Ulico's liability to APA turns on whether Ulico's actions after it received notice of suit created obligations to APA.

A. Preservation of Error

At the outset we address APA's contention that Ulico failed to preserve error as to jury questions three and four, which submitted waiver and estoppel. APA argues that Ulico waived and invited error as to both doctrines because Ulico submitted the proposed questions which the trial court included in the charge. Referencing Holland v. Wal-Mart Stores, Inc., 1 S.W.3d 91, 94-95 (Tex.1999), Ulico responds that its complaint does not concern the form of the questions, but rather, that (1) the questions should never have been submitted because regardless of the jury's answers, its policy coverage could not be expanded by waiver or estoppel, and (2) there is no evidence to support the jury's answers to either of the questions. Ulico points out that when it requested the jury questions and instructions, it specifically stated that the theories should not be included in the charge, but that it was submitting the questions only because APA's requested questions and instructions were objectionable. Later, at the charge conference, it objected on the grounds that waiver and estoppel "cannot create coverage" where it does not otherwise exist under the policy. Further, Ulico says that it repeatedly and consistently made its position clear to the trial court through motions for summary judgment, directed verdict, and judgment notwithstanding the verdict. We agree with Ulico. Its position was made clear to the trial court and the trial court ruled against it. Ulico's actions were sufficient to preserve error. See id. (holding that the defendant did not invite the trial court's error in awarding attorney's fees that were not recoverable as a matter of law by requesting a limiting instruction and failing to object to submission of the question); see also Alaniz v. Jones & Neuse, Inc., 907 S.W.2d 450, 451-52 (Tex.1995).

B. Waiver and Estoppel

1. The Law

Proceeding to the merits of Ulico's complaints, we note that insurance policies are contracts. Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665 (Tex. 1987). As such, the rights and obligations arising from them and...