TEXAS FARMERS INS. v. SORIANO

REEVES, Chief Justice, concurring.

I reluctantly concur with the majority. Justice Peeples' dissent is persuasive, but I simply do not believe the concept urged in his dissent was preserved in the trial court.

BIERY, Justice, concurring.

The opinion of July 22, 1992, is withdrawn and the following is substituted.

To say that this case has caused reasonable minds to differ during the many months of its pendency is a classic understatement. In this intermediate appeal, the case is now in the following posture:

(a) I concur with the result affirming the actual damagejudgment and disagree with the dissent's analysis of the elements of the cause of action for the reasons stated below.

(b) I agree the judgment should be reformed to delete double recovery of pre-judgment interest.

(c) I agree that a remittitur of a portion of the exemplary damage judgment should be suggested; however, I would suggest that $4,750,000 of the $5,000,000 exemplary damage award is a reasonable remittitur, leaving $250,000 in exemplary damages.

With reference to the threshold question of preservation of error, I agree that Rule 279 of the Texas Rules of Civil Procedure provides for preservation of a no evidence point by motion for judgment not withstanding the verdict. Thus, while alleged error on the no evidence point may have been preserved, the argument, analysis and out of state authorities utilized by the dissent emerged for the first time in this case on appeal. The trial judge had no opportunity to consider, respond, and rule on the theory utilized by the dissent. It would seem axiomatic that, before a trial judge is said to have committed reversible error in the handling of a case, the trial judge ought to have the opportunity to correct any error by being privy to the same arguments, analysis, and authorities used by an appellate court to support its finding of reversible error. See Cecil v. Smith, 790 S.W.2d 709, 715 (Tex.App. — Tyler 1990), rev'd on other grounds, 804 S.W.2d 509, 510 (Tex. 1991); Intermarket U.S.A. v. C-E Natco, 749 S.W.2d 603, 606 (Tex.App. — Houston [1st Dist.] 1988, writ denied); W.H. McCrory Co. v. Contractors Equip. Supply Co., 691 S.W.2d 717, 721 (Tex.App. — Austin 1985, writ ref'd n.r.e.); see also TEX.R.APP.P. 52(a).

I. ELEMENTS OF CAUSE OF ACTION IN UNDERINSURANCE CASE.

Given the hard facts of Farmers predicament of too many serious claims and not enough coverage, and conflicting evidence about what offers and counter-offers were communicated among the various attorneys and parties, I may not have reached the same conclusion as did the fact finding jury. The granting of a new trial also may have been a preferable option but that power and discretion is vested in the trial judge who has viewed the live proceedings, not in appellate judges who review a cold, one-dimensional record. As accurately stated by the majority, we are not at liberty to substitute our opinion about the facts if there is legally and factually sufficient evidence to support the verdict.

I note also the conflicting expert opinion evidence, e.g. Guy Allison's testimony that Farmers was not negligent and David Hockema's testimony that Farmers was negligent.

The dissent contends the no evidence point should be sustained because Soriano did not prove the Lopez settlement was made in bad faith. While the legal analysis of the dissent is seductive in extricating Farmers from this particular judgment, I cannot agree with the breadth of the proposed holding which would have the jury focus only on the tree (the settlement of the Lopez claim) and not look at the forest (the reasonableness or unreasonableness of Farmers handling of the entire claims process). As I understand Texas law, the duty of good faith and fair dealing is owed by the carrier (Farmers) to the insured (Soriano). In order for the factfinder to weigh whether there was a breach of the duty to the insured, it necessarily must be allowed to take into account all relevant factors and relationships.

Since our original opinion of July 22, 1992, a relatively new concept has been proposed which, had it been applied here, may have ameliorated some of the "hard facts make bad law" aspects of this case. Although not argued by Farmers, and therefore not applicable, the emerging idea of "comparative bad faith" is a logical extension of the notion that the factfinder, in its search for truth, should be able to look at the whole forest and not just a few of the trees. This should include a view of the insured's conduct as well as the insurer's cause of action. See James Wm. Walker, Comparative Bad Faith — Its Time Has Come in Texas, 55 TEX.B.J. 792 (1992).

As conceded by the dissent, there is no Texas authority directly on point in this type of underinsurance case. Further, the out of state authorities relied upon may or may not be factually on point. On the other hand, it appears that the trial judge was following the closest law available in submitting the case similarly to the submission in Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656 (Tex. 1987). In compliance with TEX.R.CIV.P. 277, the trial judge broadly asked whether a breach of the duty of good faith and fair dealing occurred. As stated previously, the trial judge did not have the benefit, either at the issue submission stage, or the judgment n.o.v. stage, of the new law proposed by the dissent. While I agree that there are distinguishing factors between the usual Stowers case and an underinsurance case, the ultimate issue still remains whether the carrier breached its duty to the insured. I believe the law to be better served if the factfinder looks at all the relevant evidence surrounding the insurer/insured relationship and not focus only on one isolated part of the relationship.

To the extent that the dissent can be interpreted to say there ought to be some way for an insurer to protect itself from bad faith claims in this type of underinsurance situation, I agree. Even though interpleading of the funds would not discharge the carrier of its responsibility to provide a defense and otherwise remain involved until the disposition of the claims, it would certainly be per se evidence of good faith intentions and would negate any inference that the carrier was trying to increase its profits by not paying the full amount of coverage. This type of rule, it seems to this author, would be a far less radical change in Texas law than that proposed by the dissent, and would continue to allow the jury to look at the whole and not focus merely on some of the parts of the insurer/insured relationship.

Even if the concept of interpleader as a per se negation of bad faith was to evolve into a common law rule in Texas or become statutory law, the evidence is undisputed in this case that Farmers was advised by its counsel to do just that and steadfastly refused. Clearly, the jury seemed to understand this distinction when it made a negative finding of negligence on the part of attorney Auforth, who gave the advice to interplead to Farmers, versus the positive findings of breach of good faith and fair dealing as to Farmers, which refused to follow their own attorney's advice.

The dissent also bases its proposed new law, in part, on the fear that a carrier might get "set up." I would simply note that there is absolutely no evidence, nor even an allegation, of any conspiracy or attempt to "set up" in this case. See e.g., Metromedia Long Distance, Inc. v. Hughes, 810 S.W.2d 494, 495-98 (Tex.App. — San Antonio 1991, writ denied).

Finally, if Texas law was to revert to inquiry by the jury about narrow parts (e.g. the Lopez settlement) of the picture as proposed by the dissent, the case, at the very least, should be remanded so that the trial judge, counsel and parties could try the case under the new rules.

II. EXEMPLARY DAMAGES.

Concerning the issue of constitutional due process as it relates to the exemplary damage award, the dissent contends that Texas procedures do not comply with due process requirements; however, the United States Court of Appeals for the 5th Circuit has found that Texas post-trial review procedures do meet the procedural due process requirements established by Haslip. Glasscock v. Armstrong Cork Co., 946 F.2d 1085 (5th Cir. 1991). The Texas Supreme Court has not addressed the constitutional due process issue since the United States Supreme Court's pronouncement in Pacific Mut. Life Ins. Co. v. Haslip, ___ U.S. ___, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991). Initially, I note that the Texas Supreme Court in Pennington v. Singleton, 606 S.W.2d 682 (Tex. 1980), addressed the constitutional due process issue of excessive fines as it related to the Deceptive Trade Practices Act. Justice McGee, speaking for the Court, held that "the states possess a wide latitude of discretion in the matter of imposing fines, and 'their enactments transcend the limitation only where the penalty prescribed is to severe and oppressive as to be wholly disproportionate to the offense and obviously unreasonable.' " Id. at 690, citing St. Louis, Iron Mountain S. Ry. Co. v. Williams, 251 U.S. 63, 66-67, 40 S.Ct. 71, 73, 64 L.Ed. 139 (1919). In 1986 and 1987, the Texas Supreme Court addressed the standard of review for remittitur in punitive damage cases, overruled the abuse of discretion standard of Flanigan v. Carswell, 159 Tex. 598, 324 S.W.2d 835, 839 (1959) and substituted the factual sufficiency standard of Larson v. Cactus Util. Co., 730 S.W.2d 640, 641-42 (Tex. 1987) and Pope v. Moore, 711 S.W.2d 622, 623-24 (Tex. 1986). Recently, several Texas intermediate appellate courts have addressed the issue of due process in relation to punitive damage awards and unanimously have found no constitutional violation. K-Mart Corp. v. Pearson ex rel. Ramos, 818 S.W.2d 410, 417 (Tex.App. — Houston [1st Dist.] 1991, no writ); Fibreboard Corp. v. Pool, 813 S.W.2d 658, 687 (Tex.App. — Texarkana 1991, no writ); Bard v. Charles R. Myers Ins. Agency, Inc., 811 S.W.2d 251, 253 (Tex.App. — San Antonio 1991, writ granted); State Farm Mut. Auto Ins. Co. v. Zubiate, 808 S.W.2d 590, 603-04 (Tex.App. — El Paso 1991, writ denied). I also note that, although not applicable to this case because it was pending before passage, the Texas legislature has addressed the question of standards for recovery of exemplary damages and limitations thereon in abrogation of common law concepts, in TEX.CIV.PRAC. REM.CODE ANN. §§ 41.001 et seq. (Vernon Supp. 1992).

We are mindful, however, of Transportation Ins. Co. v. Moriel, 814 S.W.2d 144 (Tex.App. — El Paso 1991, writ granted).

See also, Jane Webre, Due Process Constraints on Punitive Damage Awards: Are There Any?, 55 TEX.B.J. 14 (1992), an excellent review of the current state of punitive damage law.

Turning to the punitive damage award of $5,000,000 in this case, I am struck by the anomalous factual background which was the genesis of the litigation leading ultimately to the multi-million dollar award: an insured (Soriano) carrying minimum insurance coverage commits grossly negligent and reckless conduct causing great tragedy to the Medina and Lopez families; these circumstances were then laid in the lap of Farmers which, as found by the jury, was in breach of its duty of good faith and fair dealing to Soriano. Based on the jury verdict, Farmers is punished and Soriano benefits, from the catastrophe created by Soriano. But for the assignment of Soriano's claim against Farmers to the Medinas, we would have an even more "Alice in Wonderland" result of Soriano becoming a multimillionaire notwithstanding his own recklessness. Distilled to its lowest monetary sum, a $5,000 dispute ($20,000 total insurance coverage minus $15,000, the amount remaining for the Medina claims after settling the Lopez claim) has now mushroomed to a $6,000,000 judgment, inclusive of interest.

In spite of Soriano's calamitous conduct which began this litigation journey, our higher duty to the rule of law requires that we (a) remember this case does not involve Soriano's conduct and (b) are bound to follow existing Texas precedent.

In applying the Kraus factors a number of Texas appellate courts have concluded that exemplary damage awards required remittitur. Ultimately, whether we apply Kraus or Haslip, the final decision on how much, if any, to remit involves judging the reasonableness of the exemplary damages. For example, in State Farm Mut. Auto. Ins. Co. v. Zubiate, 808 S.W.2d at 593-94, the insureds brought an action against their automobile insurer alleging breach of good faith and fair dealing. Following a jury trial, judgment was entered in favor of the plaintiffs for $165,000 for mental anguish, and $15 million as exemplary damages. Id. at 596. Finding the evidence was not sufficient to support the amount of the punitive damage award, the court of appeals ordered a remittitur in the amount of $14,340,000 stating:

[w]e therefore find that the award of $660,000.00 as punitive damages under the evidence of this case would be fair, proper and reasonable yet consistent with the intent of purposes of allowing recovery of such damages. . . .

Id. at 606 (emphasis added).

In Plaza Nat'l Bank v. Walker, 767 S.W.2d 276, 277 (Tex.App. — Beaumont 1989, writ denied), several depositors brought an action against a bank, alleging breach of contract, fraud, conversion and violations of the Consumer Protection Deceptive Trade Practices Act. Following a jury trial, judgment was entered in favor of the plaintiffs for $400.00 for actual damages and $20,000 as exemplary damages. In ordering a remittitur of $10,000, the court of appeals found:

[a]t the request of Appellant, the court gave a thorough definition which included

the requirements of exemplary damages. Of course, exemplary damages must also be reasonably proportioned to the amount of actual damages. The reasonableness of any particular award is to be measured on a case by case basis. We think that the award of $20,000 is excessive by $10,000.

Id. at 278 (emphasis added) (citations omitted). In Underwriters Life Ins. Co. v. Cobb, 746 S.W.2d 810, 817-18 (Tex.App. — Corpus Christi 1988, no writ), the court of appeals determined that:

[t]he amount of exemplary damages awarded must be rationally related to actual damages, and this relationship is a tool to aid the court in determining, depending on the facts of each case, whether the award was excessive. Other factors to be considered in determining the reasonableness of exemplary damages are the nature of the wrong, the character of the defendant's conduct, the degree of the defendant's culpability, the situation and sensibility of the parties, and the extent to which the conduct offends the public sense of justice and propriety.

(emphasis added) (citations omitted). After reviewing the evidence as it related to the criteria set forth above, the court restated the general rule that "exemplary damages must bear a reasonable relationship to the actual damages suffered," and ordered a reduction of $500,000 in the plaintiffs' $1 million exemplary damage award. Id. at 819 (emphasis added).

In Interfirst Bank Dallas, N.A. v. Risser, 739 S.W.2d 882, 886-87 (Tex.App. — Texarkana 1987, no writ), the beneficial owners of stock in a closely held corporation sued a bank trustee alleging a breach of trust in selling the stock below fair market value. A judgment was entered in favor of the plaintiffs for $1 million in actual damages and $10 million as exemplary damages. Id. at 887-88. The court of appeals noted:

[e]xemplary damages must be reasonably proportioned to actual damages, but there can be no set formula for the ratio between the amount of actual and exemplary damages. This determination must depend upon the facts of each particular case. . . . In the present case, the exemplary damages amount to approximately 7 1/2 times the actual damages, which does not violate the reasonable relationship test.

Id. at 909. Chief Justice Cornelius, in a concurring opinion, went on to state:

[i]n judging the reasonableness of punitive damages, we consider the nature of the wrong, the character of the conduct involved, the degree of the wrongdoer's culpability, the situation and sensibilities of the parties and the extent to which the conduct offends a public sense of justice and propriety.

Id. (citation omitted). After considering the five factors set forth above, as well as "the amount of exemplary damages which is necessary and proper to serve the purposes of punishment and deterrence" the court found the amount of $10 million exemplary damages to be excessive, ordered a remittitur of $7,321,250, and reformed the judgment of the trial court to $2,678,750. Id.

In Preston Carter Co. v. Tatum, 708 S.W.2d 23, 23 (Tex.App. — Dallas 1986, writ ref'd n.r.e.), the potential buyer of real estate sued an agent for breach of an agency agreement and fiduciary duty. Following a jury trial, the court entered judgment for the plaintiffs for actual damages and exemplary damages. Id. at 23-24. The court of appeals affirmed as to the sum of actual damages and reversed and rendered as to other damages and ordered a remittitur to preserve the ratio between reduced actual damages and exemplary damages. The plaintiffs appealed. Id. at 24. The Texas Supreme Court remanded for recalculation of exemplary damages. On remand, the court of appeals held that exemplary damages of $300,000 was excessive and should have been reduced to $75,000, following the appellate reduction of compensatory damages from $165,000 to $40,000. The court stated:

[a]n award of exemplary damages rests largely in the discretion of the jury and

will not be set aside as excessive unless the amount is so large as to indicate that it is the result of passion, prejudice, or corruption, or that the evidence has been disregarded. The supreme court has declared, however, that verdicts are not always right and, if uncontrolled, will in some cases lead to oppression. Excessiveness may be indicated when the jury has probably considered improper items of alleged compensatory damages in assessing exemplary damages. Here it is probable that in assessing exemplary damages of $300,000 the jury considered the improper and highly speculative conclusions presented by [plaintiff] in an effort to recover elements of damages now held to be improper. Accordingly, . . . we conclude that a reasonable award of exemplary damages would be no more than $75,000 and that the award of $300,000 is excessive by $225,000.

Id. at 25 (emphasis added) (citations omitted).

The amount of remittitur of exemplary damages was also addressed by the court of appeals in Ford Motor Co. v. Durrill, 714 S.W.2d 329, 333 (Tex.App. — Corpus Christi 1986), vacated upon agr., 754 S.W.2d 646 (Tex. 1987), a wrongful death and survival action based on a products liability claim. The trial court reduced the jury's award of $6,861,663 in actual damages to $2,300,000 and the jury's award of $100 million in exemplary damages to $20 million. On appeal, the defendant complained of the lack of evidence to support the $20 million award as remitted by the trial court. Id. at 343. In deciding that a further remittitur was warranted, the court of appeals stated:

[i]t has been said that the ratio between the actual damages and the exemplary damages should be reasonably proportional. However, the rule of reasonable proportionality does not, by, itself, fix a particular ratio. . . .

Id. at 346 (emphasis added) (citations omitted). After reviewing the defendant's conduct, degree of culpability and the extent to which the defendant's conduct offended a public sense of justice and propriety, the court determined that the verdict, even as remitted by the trial court still "shock[ed] [the] conscience;" and found that a reasonable remittitur was in order. Id. at 347.

In Texas Nat'l Bank v. Karnes, 711 S.W.2d 389, 391 (Tex.App. — Beaumont), rev'd in part, 717 S.W.2d 901 (Tex. 1986), the cosigner of a note and her husband brought suit against a bank for removing money from their savings account after repossession of a vehicle securing the note. The trial court entered judgment for the plaintiffs in the amount of $3,474.41 for actual damages and $50,000 as exemplary damages. The court of appeals found that "some exemplary damages" were proper and reasonable, but reduced the $50,000 punitive damages award to $20,000. Id. at 396-97. The Texas Supreme Court subsequently reversed and vacated the exemplary damage award because no actual damages were found based on a tort cause of action. 717 S.W.2d at 902.

Moreover, in Jim Walters Homes, Inc. v. Reed, 703 S.W.2d 701, 703 (Tex.App. — Corpus Christi 1985), aff'd in part, rev'd in part, 711 S.W.2d 617 (Tex. 1986), homeowners brought an action against a housing contractor for violations of the Texas Deceptive Trade Practices Act, breach of contract, breach of express and implied warranties and gross negligence. The trial court entered judgment for the plaintiffs in the amount of $11,884 in actual damages and $500,000 exemplary damages. Id. at 704. The exemplary damages were reduced by the trial court to $450,000. The court of appeals reduced this amount to $225,000, stating "although this conduct is reprehensible, we do not believe that it is of a character that warrants an award of exemplary damages in this amount." Id. at 707. The Supreme Court of Texas later reversed the award of exemplary damages, as no actual damages were found based upon a tort cause of action. 711 S.W.2d at 618.

Finally, in Texaco, Inc. v. Pennzoil Co., 729 S.W.2d 768, 784 (Tex.App. — Houston [1st Dist.] 1987, writ ref'd n.r.e.), cert. dism'd, 485 U.S. 994, 108 S.Ct. 1305, 99 L.Ed.2d 686 (1988), a prospective stock buyer brought suit alleging tortious interference with a contract for stock purchase-merger. The court of appeals found that punitive damages of $3 billion were excessive and, under New York state court decisions, ordered a remittitur of $2 billion dollars. The court found:

[c]onsidering the type of action, the conduct involved, and the need for deterrence, we are of the opinion that the punitive damages are excessive and that the trial court abused its discretion in not suggesting a remittitur. . . . There is a point where punitive damages may overstate their purpose and serve to confiscate rather than to deter or punish. In this case, punitive damages of one billion dollars are sufficient to satisfy any reason for their being awarded. . . .

Id. at 866.

Whether applying Kraus, Haslip, or the language from the appellate court opinions cited above, the final decision of whether to order a remittitur and in what amount ultimately involves the essence of judging: coming to a reasonable conclusion based upon careful consideration of the law and facts in a particular case.

Applying these standards to the specific facts here, I agree with the dissent that there is no evidence in the record that Farmers profited from its settlement with Lopez for $5,000. There is evidence of $53,000,000 in premiums earned by Farmers during a given year; however, there is apparently no evidence of its profit margin and, indeed, Farmers quickly offered its entire $20,000 policy limits, for which very little premium likely was paid, soon after the accident. There is no evidence that the conduct complained of was concealed or that Farmers had engaged in similar conduct in the past. Further, concerning the situation and sensibilities of the parties, as pointed out above, it was Soriano, not Farmers, whose conduct created the tragedy in the first instance. Finally, my sense of justice and propriety is simply not offended to the extent of $5,000,000 by Farmers' conduct. While I am not prepared to say that there is no evidence which would justify exemplary damages, I do note the deposition testimony of Farmers representative read into the record can be interpreted in two ways. On the one hand, the jury could have interpreted it as an expression of contempt and defiance of a jury award of exemplary damages, i.e. "We don't care what the jury says, we will behave as we please." On the other hand, it could be interpreted as a good faith opinion that "we didn't do anything wrong." Even giving deference to the apparent negative interpretation by the jury, I cannot agree that Farmers conduct, taken as a whole, necessitates $5,000,000 in punishment.

Accordingly, I concur in the result affirming the actual damage award, reforming the judgment to delete a double recovery of pre-judgment interest and would suggest a remittitur of the exemplary damage award in the amount of $4,750,000.

PEEPLES, Justice, dissenting.

I disagree with the majority on three main issues. (1) I disagree about the circumstances in which an underinsured tortfeasor can recover an excess judgment from his insurer when he did not purchase enough insurance coverage to compensate for the multiple deaths and injuries that his negligence caused. Here, in contrast to the usual Stowers and bad-faith suit, early in the litigation the insurer offered to pay policy limits to settle the claims against its insured, but those limits were inadequate to settle all the claims. I disagree with the majority's apparent definition of the bad faith cause of action in an underinsurance case, an issue of first impression in Texas. (2) I would hold that as a matter of law the facts do not justify exemplary damages, and that the procedures followed in this case do not satisfy due process. (3) Finally, I dissent from the majority's approval of the damage issue, in which the court instructed the jury to award the full amount of the excess judgment (less payments made), even though the original plaintiffs had given Soriano (the original defendant) a covenant not to execute, which reduced or eliminated his damages.

G.A. Stowers Furniture Co. v. American Indem. Co., 15 S.W.2d 544 (Tex.Comm'n App. 1929, holding approved).

The majority affirms the liability part of Soriano's judgment against his insurer, appellant Farmers. The judgment includes $520,777 in actual damages and $5 million in exemplary damages; the majority affirms the actual damages and $1 million of the exemplary damages. The judgment rests on the theory that Farmers' $5000 settlement with one of two sets of claimants was improper. That settlement reduced the available insurance coverage from $20,000 to $15,000, which the second set of claimants would not accept. I would adopt the rule followed by virtually every authority in this country which has considered the elements of proof required, and hold that the record does not contain legally sufficient evidence of a bad-faith cause of action in this underinsurance context. I would therefore reverse and render judgment that Soriano take nothing from Farmers.

The facts in this litigation are worth restating. On a rainy morning in September 1978, Soriano negligently caused a wreck on the highway while speeding and trying to pass a truck in a no-passing zone on a hill. He had not slept for the previous 24 hours, having just returned from an all-night journey into Mexico. Soriano's car met the Medina family's car head-on in their lane, killing Mrs. Medina and injuring her husband and two children. The impact also killed Soriano's 18-year-old passenger, Adolfo Lopez. Farmers soon offered its entire $20,000 policy limits to the Medinas, who declined to take it, preferring to hire a lawyer and to investigate whether Soriano had other assets. The Medina survivors and the Lopez family later brought separate suits against Soriano, which were consolidated in 1980 and brought to trial in 1981. Before the trial began, the Lopez family "Stowerized" Farmers by offering to settle for $5000. Farmers settled with them for $5000 and promptly offered the remaining $15,000 to the Medinas, who refused it. The jury found Soriano negligent and awarded the Medinas $172,000. This court affirmed the judgment. Soriano v. Medina, 648 S.W.2d 426 (Tex.App. — San Antonio 1983, no writ).

Soriano had coverage of $10,000 per person and $20,000 per occurrence.

Soriano then assigned his excess-judgment action against Farmers to the Medinas; in return, they signed a covenant not to execute against Soriano and agreed not to press the pending criminal charges against him (which included charges of involuntary manslaughter and DWI). Acting on behalf of the Medinas, Soriano brought this suit against Farmers. Soriano contended that Farmers breached its duty to exercise due care in settling claims against him, the insured; Farmers used $5000 of its $20,000 coverage to settle the lesser Lopez claim instead of using all $20,000 to settle the more substantial Medina claim. The jury found that Farmers was negligent in its handling of the Medina claim and that it breached its duty of good faith and fair dealing. Over Farmers' objection the court refused to ask the jury directly about Farmers' care or good faith in settling the Lopez claim, which also threatened Soriano with a judgment in excess of his policy limits.

On rehearing Farmers asks us to take judicial notice that Soriano did not really assign all of his rights to the Medinas. Farmers has presented a property settlement agreement (filed one day after the trial judge overruled Farmers' motion for new trial in this case) showing that Soriano and his former wife stated that they would share any proceeds from this case against Farmers 50-50. The document does not reveal how much of the proceeds from the Farmers litigation they would receive, but that they would split it equally.
Under TEX.R.CIV.EVID. 201(f) and TEX.R.APP.P. 55(c), I would take judicial notice of the instrument and supplement the record with it because it helps portray more completely how this bad faith case was structured.

I. ELEMENTS OF CAUSE OF ACTION IN UNDERINSURANCE CASE.

Farmers contends that Soriano had to obtain a jury finding that the Lopez settlement was unreasonable when viewed on its own without reference to the Medina claim.

Farmers argues that it acted properly in accepting the Lopez family's reasonable $5000 settlement offer, which reduced its per-occurrence limits to $15,000, and that it then discharged its duty to Soriano by promptly offering the remaining $15,000 coverage to the Medinas.

I agree with Farmers that the law required Soriano to establish that the Lopez settlement was made in bad faith, and that it is not enough to show that the Medina claims were more serious than that of the Lopez family, and that all the coverage should have been devoted to them. I would hold that because there is no evidence that the Lopez settlement was made in bad faith, when viewed by itself, there is no proof of a cause of action.

A. Preservation of Error.

The majority holds that Farmers waived this argument by not properly objecting to the charge. In truth, Farmers preserved the issue for review in this court in two separate ways.

The majority is incorrect in saying Farmers' argument about the elements of the cause of action is unassigned. In addition to preserving the error in the trial court, Farmers assigned it in this court: its points of error and argument are adequate, and its brief contained photocopies of several of the cases cited in this dissent.

First, Farmers objected to the court's failure to submit an issue or instruction on the reasonableness of the Lopez settlement. During the charge conference, Farmers' attorney said this about jury question one:

MR. LEON (counsel for Farmers): . . . [T]he problem I have with special issue number 1 is, it doesn't address the central issue of this lawsuit and that is the settlement of the Lopez claim. It only addresses the settlement of Maria Medina and Carlos Medina.

THE COURT: Okay.

MR. LEON: And nowhere in the charge does it address the central issue of this case that we spent five days on that and that is the settlement of the Lopez claim where the expert testimony has been on and all that.

Later during his formal objections, Farmers' attorney repeated his objection to the court's failure to ask the jury anything about the Lopez settlement in question one:

MR. LEON: . . . The entire case with respect to how the claims handling was handled and all the [expert] opinions address the issue of whether or not the Lopez claim should have been settled or not. [At this point counsel referred briefly to the evidence.] That's what the evidence is. And to submit the issue as stated is contrary to the evidence and contrary to the pleadings and the theory that this case has been tried on. For those reasons the Defendant, Texas Farmers Insurance Company, objects to the submission of special issue number 1.

Farmers' first point of error in this court complains of the court's refusal to ask about the Lopez settlement. Farmers did not waive this error.

Second, Farmers also properly preserved this no-evidence attack on the verdict and judgment by moving to disregard the answers to questions one and three, and also by moving for judgment n.o.v. Those motions preserve error without regard to objections to the charge. See Cecil v. Smith, 804 S.W.2d 509, 510-11 (Tex. 1991); Aero Energy, Inc. v. Circle C Drilling Co., 699 S.W.2d 821, 822 (Tex. 1985). An objection to the charge is not a predicate for preserving a no-evidence point by motion to disregard or motion for judgment n.o.v. "A claim that the evidence was legally or factually insufficient to warrant the submission of any question may be made for the first time after verdict, regardless of whether the submission of such question was requested by the complainant." TEX.R.CIV.P. 279. See also TEX.R.CIV.P. 301 (authorizing post-verdict motions for judgment n.o.v. and to disregard jury answers).

In Aero Energy the court said: "No evidence points must be preserved through one of the following procedural steps in the trial court: (1) a motion for instructed verdict; (2) a motion for judgment notwithstanding the verdict; (3) an objection to the submission of the issue to the jury; (4) a motion to disregard the jury's answer to a vital fact issue; (5) a motion for new trial." 699 S.W.2d at 822 (emphasis added). Cecil v. Smith reaffirmed this principle. 804 S.W.2d at 510-11.

A no-evidence point should be sustained when the record discloses a complete absence of a vital fact. Cecil v. Smith, 804 S.W.2d at 510 n. 1; Juliette Fowler Homes, Inc. v. Welch Associates, Inc., 793 S.W.2d 660, 666 n. 9 (Tex. 1990). In my view there is no evidence of the elements of a cause of action — as the out-of-state authorities define it and as Texas should define it — and the trial court should have granted judgment n.o.v. It is true that if I am correct about the law, the court should have submitted the case with different jury instructions. But that does not affect Farmers' right to move to disregard answers or to move for judgment n.o.v. The majority is simply incorrect in saying that Farmers could not urge for the first time after verdict that there is not legally sufficient evidence of all the elements of a cause of action. The majority and perhaps Justice Biery seem concerned that my research has gone a bit beyond what was presented to the trial court. There is, of course, no legal rule that restricts the objecting party or the court of appeals to the legal authorities that were cited to the trial court. The fact is that Farmers preserved its arguments; it properly objected to the charge, moved for judgment n.o.v. and to disregard jury answers, and brought forward the same complaints to this court by point of error and argument.

B. Cause of Action in Underinsurance Case.

This case differs from the usual Stowers case in two ways: the adequacy of the insurance coverage purchased, and the insurer's willingness to offer that coverage in settlement. (1) In the ordinary Stowers case, the insured bought enough insurance to pay the settlement demands of the persons he injured; here Soriano did not buy enough insurance to settle the two wrongful death claims and the three personal injury claims against him. (2) In the ordinary Stowers case the insurer was not willing to pay its policy limits to settle and thereby avoid exposing its insured to an excess judgment; here Farmers was willing to pay its full coverage to settle but that amount was not enough to settle all claims.

In a case similar to our own, the court made essentially the same point: "Most 'bad faith' cases involve an insurance company's refusal to accept an offer of settlement within the available policy limits — a state of affairs (unlike this one) where the interests of the carrier and insured are clearly opposed." Voccio v. Reliance Ins. Co., 703 F.2d 1, 2 (1st Cir. 1983).

This distinguishes the case from Ranger County Mutual Insurance Co. v. Guin, 723 S.W.2d 656 (Tex. 1987), which was not an underinsurance case. There the supreme court upheld a broad-form jury submission about negligent "handling" of a claim, which the trial court in this case clearly used as a pattern. The court in Guin approved the jury charge "in a case of this type." Id. at 660. Guin involved an ordinary Stowers situation of adequate insurance. Broad-form submission contemplates that instructions (and the proof required to show negligence and bad faith) will vary when the substantive law that sets the standard of care varies — as it should when the case involves underinsurance and not a refusal to offer adequate insurance coverage.

Soriano does not contend that the Lopez settlement was made in bad faith when viewed alone. He argues that it was unreasonable because the Medina cases were more serious and posed a greater threat to him. In his view, an insurer can be held liable even though the first settlement was reasonable and entered in good faith when viewed apart from the exposure in the second case. The premise of his lawsuit is that an insurer must assess the proportionate merits of each claimant that its insured injured, and settle the cases accordingly. If its assessment is later considered wrong by a court, the insurer is liable beyond the policy limits.

But Soriano's theory is contrary to the universal rule that a liability insurer can settle with some claimants in good faith even though the settlement may exhaust the insurance fund or so deplete it that a subsequent judgment creditor is unable to collect his judgment in full from the remaining insurance coverage. See Annotation, Basis and Manner of Distribution Among Multiple Claimants of Proceeds of Liability Insurance Policy Inadequate To Pay All Claims in Full, 70 A.L.R.2d 416, 417 (1960); 8A APPLEMAN, INSURANCE LAW AND PRACTICE § 4892 (1981); S. ASHLEY, BAD FAITH ACTIONS — LIABILITY AND DAMAGES § 4:18 (1984); 15A COUCH ON INSURANCE § 56:35 (1983 rev.); 3 R. LONG, THE LAW OF LIABILITY INSURANCE §§ 21.01-21.06; Voccio v. Reliance Ins. Co., 703 F.2d 1, 3 (1st Cir. 1983); Harmon v. State Farm Mut. Automobile Ins. Co., 232 So.2d 206, 207-208 (Fla.Ct.App. 1970); Haas v. Mid America Fire Marine Ins. Co., 35 Ill. App.3d 993, 343 N.E.2d 36, 38 (1976); Castoreno v. Western Indem. Co., 213 Kan. 103, 515 P.2d 789, 792-95 (1973); Holtzclaw v. Falco, Inc., 355 So.2d 1279, 1283-87 (La. 1978) (opinion on rehearing); Liguori v. Allstate Ins. Co., 76 N.J. Super. 204, 184 A.2d 12, 15-17 (1962); Negron v. Eveready Ins. Co., 53 A.D.2d 815, 385 N.Y.S.2d 87, 88 (1976); Duprey v. Security Mut. Cas. Co., 22 A.D.2d 544, 256 N.Y.S.2d 987, 989 (1965); Alford v. Textile Ins. Co., 248 N.C. 224, 103 S.E.2d 8, 13 (1958); Scharnitzki v. Bienenfeld, 368 Pa. Super. 610, 534 A.2d 825, 827 (1987).

The settlement with one claimant reduces the policy limits by the settlement amount:

Occasionally, liability insurers have in good faith settled with some claimants and by so doing have reduced the available insurance proceeds to an amount inadequate to pay, in full, judgments subsequently obtained by other claimants. In such cases, the courts have generally held that the insurer was liable to the judgment creditors only for the amount that its total liability exceeded the settlements made.

Annotation, supra, 70 A.L.R.2d at 423. Farmers was entitled to rely on this rule.

We have not been cited any cases adopting and applying the comparative-seriousness rule that Soriano urges and the majority implicitly adopts. In fact, in most of the cases cited the claimant sought only a pro rata share of the available insurance money; here the Medinas sought all of it. The general rule means that the jury must focus on whether the first settlement was made in bad faith — not whether there was bad faith generally in handling all the claims against the insured. If the jury fails to find that the insurer made the first settlement in bad faith, then the amount of that settlement payment is subtracted from the per-occurrence policy limits, and the reduced amount becomes the policy limits for the remaining claims.

There are sound reasons for the general rule, which permits the insurer to settle some claims even if that makes settlement with other claimants more difficult, or impossible. To begin with, the insurer has a duty to the insured to use care in handling all claims against him. An insurer that rejects any reasonable settlement offer within its policy limits — such as the Lopez $5000 offer — risks a Stowers suit. See Voccio v. Reliance Ins. Co., 703 F.2d at 3 (had carrier refused to settle with first claimant, insured might have faced two excess-judgment suits rather than one, or suit by first claimant instead of second); Davis v. Liberty Mut. Ins. Co., 412 F.2d 475, 480-81 (5th Cir. 1969) (Wisdom, J.) (insurer should settle some claims if it cannot settle all of them because of underinsurance; insurer that rejected first claimant's offer held liable for excess judgment). "[A] few cases at least suggest that an insurer cannot escape liability for bad faith by arguing that it rejected one claimant's reasonable policy limits settlement offer to conserve a fund to settle with other claimants." ASHLEY, supra, § 4:18, at 49. In other words, if Farmers had not settled with Lopez, and Lopez had gotten a judgment for more than $10,000, Soriano would have had a Stowers suit against Farmers for failure to settle within its policy limits with Lopez. Apparently the majority is not prepared to say otherwise, which means that Farmers would have faced an excess-judgment suit regardless of whether it had settled with the Medinas first, with the Lopezes first, or with neither.

The general rule is also sound because it facilitates settlements. The law favors settlements. See Scurlock Oil Co. v. Smithwick, 724 S.W.2d 1, 4 (Tex. 1986); McGuire v. Commercial Union Ins. Co., 431 S.W.2d 347, 352 (Tex. 1968). And settlements in multi-claimant cases involving underinsurance would be severely curtailed if an insurer acted at its peril by settling one of several claims.

If an underinsured tortfeasor's insurer cannot accept a reasonable settlement offer from one of several claimants, I question whether a reasonable insurer acting in good faith has any safe course of action. The prudent insurer simply cannot wait until all claimants are willing to settle because some of the claimants might never agree about how to split the limited, inadequate insurance money. Indeed, if the insurer waits for each claimant to agree, that might expose the insured to several excess judgments instead of only one. Here, for example, if Farmers had refused to settle with the Lopez family, Soriano would have had to defend two suits instead of one, and Farmers might have faced two excess-judgment suits instead of one. There is no evidence — indeed, no suggestion — that the Medinas would have settled for anything less than the full $20,000. The majority holds that if an insurer does not pay all its policy limits to the most seriously injured group of claimants (as determined by a jury years later), it can be held liable for any excess judgment that they recover.

In recent years, lectures at continuing legal education programs have offered advice on how to "set up" the insurance carrier. The majority's opinion permits such set-ups to happen in many cases, and lawyers representing their clients zealously within the bounds of the law will take note. Under the comparative-seriousness rule, in cases of underinsurance involving three or more claimants, any lawyer representing two or more of them could often set up an excess-judgment suit for his clients. In a case of $10,000/20,000 limits, for example, the attorney would simply have to demand the entire $20,000 and refuse to settle for less. If the insurer paid the $20,000 to A and B, there would be no money left for the remaining claimant ( C ), and the insurer would be potentially liable for whatever judgment C recovered. On the other hand, if the insurer paid anything in settlement to C (as Farmers paid to Lopez), A and B could refuse to settle for the remaining coverage (as the Medinas did in this case) and pursue their claims to judgment, eventually bringing an excess-judgment suit after the insured assigned his cause of action to them. Either way — settlement with A and B, or settlement with C — even the most reasonable of insurers would face a possible excess-judgment suit, which it could not win as a matter of law.

The words of Justice Spears, written in a somewhat different context, ring true in this case:

Insurers are now faced with a Hobson's choice. If they settle claims promptly, they are not protected from the later assertion of unknown claims. If they refuse to settle until all injuries are known, then they face potential liability under a bad faith claim.

Williams v. Glash, 789 S.W.2d 261, 266 (Tex. 1990) (Spears, J., dissenting).

Thus the comparative-seriousness rule would inhibit settlements by (1) making it risky for insurers to settle with one but less than all claimants, and (2) motivating multiple claimants faced with an underinsured tortfeasor to jockey for an excess-judgment suit. We must remember that an attorney for claimants seriously injured by an underinsured tortfeasor will cast about for ways to obtain a judgment against someone with assets — here, the carrier. And under our ethical rules can advocates be faulted for trying to structure their lawsuits for full collection, to the extent the cases allow it? The majority suggests that the insurer might avoid this Hobson's choice by interpleading its policy limits into court, for distribution by the court. But the majority does not say that interpleading all the policy limits would end the insurer's liability as a matter of law or end the insurer's duty to protect its insureds' interest. Even if Farmers had interpleaded the $20,000 and the trial court had allowed it, that would not have solved Soriano's underinsurance problem. Farmers' had a duty to try to protect its insured, not simply to interplead and turn things over to the insured. Here the claimants did not simply seek a finite common fund; they sought unliquidated damages from the tortfeasor in excess of the $20,000 fund of insurance coverage. The Medinas wanted all of the fund, and the Lopez family wanted some of it.

Prior to September 1, 1991, Canon 7 stated, "A Lawyer Should Represent a Client Zealously Within the Bounds of the Law." See State Bar Rules, 3 TEX.GOV'T CODE ANN., Title 2, Subtitle G, art. 10, § 9, at 487ff. (Vernon 1988). Effective September 1, 1991, rule 3.01 states, "A lawyer shall not bring or defend a proceeding, or assert or controvert an issue therein, unless the lawyer reasonably believes that there is a basis for doing so that is not frivolous." The comment says, "The advocate has a duty to use legal procedure for the fullest benefit of the client's cause, but also a duty not to abuse legal procedure. The law, both procedural and substantive, affects the limits within which an advocate may proceed." Id. at 154 (Vernon Supp. 1992).

The majority and Justice Biery appear to be incorrect when they state that Farmers' lawyer (Auforth) advised Farmers to interplead the policy limits. In fact, Auforth's letters to Farmers say he is considering advising interpleader and wants to explore it. Auforth's two letters to Farmers on this point say: "We are considering the advisability and/or methods of tendering policy limits into the registry of the court. . . ." and "I wish to explore with you the advisability of stipulating negligence on one count on the part of our insured, tendering policy limits into the registry of the Court. . . ."

Interpleader does not solve that kind of predicament. It accomplishes nothing at all unless there is a settlement or a trial, because the claimants are claiming more than the interpleaded funds. Interpleader does not settle the various tort cases unless all claimants agree on how to distribute the limited funds. And certainly the court could not deny litigants a jury trial and parcel out the interpleaded insurance coverage without a settlement agreement. The claimants have a right not to take the limited insurance money, but instead to take an excess judgment against the insured and try to collect it. Unless there is a settlement, interpleading the policy limits into court simply does not change the fact that there would have to be a trial. The general rule is that after such a trial the court should distribute the limited funds proportionately among the claimants, according to the percentage of damages suffered in comparison to the whole. See COUCH, supra, § 56:35; Annotation, 70 A.L.R.2d at 416, 417, 418-19 (1960 Supp.). Nevertheless, after such a pro rata distribution, the insured would still face several excess judgments instead of one, as in the present case. An insurer that interpleaded its policy limits in a multiple-claimant case, as the majority recommends, was held liable for an excess judgment in Farmers Insurance Exchange v. Schropp, 222 Kan. 612, 567 P.2d 1359 (1977). Interpleader "merely passes the buck from the insurer to the court and provides little protection for the insured." ASHLEY, supra, § 4:18, at 48.

The majority's interpleader discussion might not ring so hollow if it cited authorities for its assumption that interpleader would have removed Farmers' excess-judgment liability. Interpleader simply would not have defeated this excess-judgment suit, unless the Stowers and bad faith rules are to be changed. That is beyond this court's power.

I would apply the general rule to give the insurer considerable — but not unlimited — discretion to decide whether to settle some claims when it cannot settle all of them. I agree that the insurer should not have absolute freedom to settle away the insurance coverage to the detriment of its insured. I would hold that an insured who suffers an excess judgment in a case like this one may hold the insurer liable by establishing that (1) its settlement in the first case, viewed on its own, was made in bad faith, and (2) the settlement caused harm to the insured. See Voccio v. Reliance Ins. Co., 703 F.2d 1, 2-3 (1st Cir. 1983); Haas v. Mid America Fire Marine Ins. Co., 35 Ill. App.3d 993, 343 N.E.2d 36, 38 (1976); Liguori v. Allstate Ins. Co., 76 N.J. Super. 204, 184 A.2d 12, 17 (1962); 8A APPLEMAN, INSURANCE LAW AND PRACTICE § 4892, at 42-45 (1981); 15A COUCH ON INSURANCE § 56:35 (1983 rev.).

The second element requires proof that if the insurer had settled with the first tortfeasor for a smaller, more reasonable amount, the second tortfeasor would have accepted the money remaining:

Before one of several claimants may recover damages for the insurer's bad faith in settling with other claimants, the plaintiff must prove that the insurer's settlement decisions actually caused harm to the plaintiff. If the plaintiff would not have settled for anything less than the full policy limits, then the insurer's decision to settle with another claimant could not have harmed the plaintiff if the insurer, even acting in good faith, would still have settled with the other claimant for some amount greater than zero.

ASHLEY, supra, § 4:18, at 51 (citing Voccio v. Reliance Ins. Co., 703 F.2d at 3-4). The evidence in this case is that even if Farmers had settled with the Lopez family for a nominal amount (perhaps $500, or less), the Medinas would not have settled for the remainder. They wanted all $20,000.

To summarize, in cases involving multiple claimants and inadequate insurance, the comparative-seriousness rule would frustrate settlements and promote trials in two ways. It would encourage claimants to insist that all the policy limits be paid to them and to position themselves for an excess-judgment suit. It would also make settlements risky for insurers in cases of underinsurance and multiple claimants because whenever the insurer settled with one claimant, the other could always bring an excess-judgment suit. The rule would also place added burdens on the legal system. With insurers unable to settle multiple claims safely, and with multiple claimants motivated by the law to solve their underinsurance problem by jockeying for an excess-judgment suit, the underlying tort suit would often proceed to trial and judgment, followed by an additional round of excess-judgment litigation.

For the reasons stated, I think the general rule followed in other states and confirmed in the treatises is sound, and I would apply it.

C. Application of Rule to this Record.

Applying the rule to the record before us, I note that Soriano sought to show only that the Medina claims were more serious than the Lopez claim; he did not produce evidence that the Lopez claim itself was not worth $5000 or that Farmers acted in bad faith in settling with the Lopez family. There is evidence that the value of the Medina cases exceeded that of the Lopez case, but no evidence that the Lopez settlement was made in bad faith under the no-evidence standard of review stated in Garza v. Alviar, 395 S.W.2d 821 (Tex. 1965).

The majority points out that the Lopez and Soriano families were friends, and that the Lopez family might not have pursued the case to trial if Farmers had not settled with them. But I do not regard friendship of the parties as evidence that Farmers acted in bad faith. The Lopez family was dealing with an insurance company; they knew that Soriano had insurance coverage and that for the first $10,000 he would not pay any judgment.

Nor was the Lopez suit against Soriano a trivial, nuisance-value suit. On the contrary, it was a wrongful-death case in which all the evidence showed conclusively that Soriano hit the Medinas head-on in their lane on a wet two-lane highway while he was passing on a hill and exceeding the speed limit. The Lopez family had pleaded gross negligence, and, to put it mildly, the evidence certainly raised a fact issue on that allegation. There being no evidence of joint enterprise, Soriano's negligence could not be imputed to Lopez simply because he was a passenger. See Shoemaker v. Estate of Whistler, 513 S.W.2d 10 (Tex. 1974); Robinson v. Ashner, 364 S.W.2d 223, 225 (Tex. 1963). There is no evidence that the $5000 settlement by itself was an act of bad faith, and Soriano does not contend that there is. The amounts of reserves that Farmers allocated for each claim do not constitute evidence that the Lopez settlement was negotiated in bad faith. Loss reserves are amounts the board of insurance requires companies to estimate and show on the books as potential liabilities for claims incurred but not yet paid.

There is also no evidence that the Lopez settlement proximately caused any harm to Soriano. There is no suggestion that if Farmers had settled with the Lopez family for a smaller amount — for example, $500 — that the Medinas would have settled for the remainder. On the contrary, all the evidence shows that the Medinas insisted on receiving every bit of the $20,000.

The facts of this case, when coupled with the no-evidence standard of review, illustrate the unfairness of the approach Soriano advocates and the majority apparently adopts. Under the no-evidence standard, we consider only the evidence supporting the verdict and disregard all evidence and inferences to the contrary. See Garza v. Alviar, 395 S.W.2d 821 (Tex. 1965). Administered together, the no-evidence appellate standard and the comparative-seriousness rule would frequently make it impossible for a reasonable insurer acting in good faith to avoid excess-judgment litigation in underinsurance cases involving several claimants.

The majority simply applies the no-evidence standard of review and upholds the liability findings before us. Farmers is held liable for failing to settle with the Medinas because when the majority viewed the evidence favorably to the verdict and disregarded all evidence to the contrary, the evidence is legally sufficient to support the jury's liability findings. There is evidence, viewed favorably to the verdict, that the Medina cases had significantly greater verdict value than the Lopez case.

But if Farmers had followed the option the majority recommends and had settled with the Medinas and turned down the Lopez family's $5000 offer, those same principles — the comparative-seriousness rule and the no-evidence standard — would result in liability. If Farmers had settled with Lopez, the appellate court would be considering completely different evidence, because on appeal we consider the evidence and inferences that support the jury's findings, not the evidence that might have supported contrary findings.

If Farmers had settled with the Medinas, in all likelihood Lopez would have recovered a judgment against Soriano, who would then have assigned to the Lopez family his excess-judgment action against Farmers. If the jury had found the facts in favor of Soriano, under the no-evidence standard we would disregard such evidence as the Lopez-Soriano friendship and the greater value of the Medina cases; instead, under the no-evidence standard we would consider only the evidence that Farmers should have settled with the Lopez family. We would observe that the Lopez family had persisted in their suit from 1979 to 1981, and had pleaded gross negligence. Undoubtedly there would be evidence that the Lopez family's lawyer had told them that they could seek an excess judgment against Soriano, give him a covenant not to execute against his personal assets in return for his excess-judgment action against Farmers, and that Soriano personally would never pay a dime. In other words, under the no-evidence standard we would credit the evidence that the Lopez family was well aware that the case could have been structured (or "set up") for collection from Farmers and that nothing required them to pursue their friend Soriano individually. There would, of course, be evidence that Farmers knew that the Lopez suit threatened Soriano when it refused to settle with the Lopez family and thereby exposed Soriano to an excess judgment.

There is still other evidence that we would review under this scenario, which is the alternative the majority says Farmers should have followed. Lopez lived a short time before he died and undoubtedly experienced some conscious pain and suffering, which added to the special damages of $2400 and other damages his parents claimed for the wrongful death of their 18-year-old son. Soriano's own expert said the Lopez case could possibly have yielded a verdict of $100,000. All this evidence would be legally sufficient to support a jury finding that Farmers was negligent in handling the Lopez claim because it settled the Medina cases instead of the Lopez case. Under the no-evidence standard of appellate review, we would not be able to consider any evidence that the Medina claims were more serious than the Lopez claim, which is the evidence that Soriano stresses in this appeal.

Thus, under the comparative-seriousness rule each of Farmers' two options — settling with the Lopez family, or settling with the Medinas — could have resulted in excess-judgment liability. No matter which set of claimants Farmers settled with, it faced a potential excess-judgment suit in which the evidence raised a fact issue of negligence for the jury, and the jury's decision would be upheld on appeal.

The law properly does not impose this "lose-lose" burden on the insurer. And it does not provide such an easy exit for an insured who caused the problem in the first place by underinsuring and then causing vast damage beyond his insurance coverage. See Steele v. Hartford Fire Ins. Co., 788 F.2d 441, 446 (7th Cir. 1986) (Posner, J.) ("Why an insurer should be thought voluntarily to assume a duty whose faithful fulfillment can only encourage people to underinsure is not clear to us").

I would sustain Farmers' points one through three, reverse, and render a take-nothing judgment. Rendition is proper instead of remand because the trial court omitted an element of the cause of action over Farmers' objection. Texas Dep't of Highways Public Transp. v. Payne, 838 S.W.2d 235, 240-41 (Tex. 1992); Morris v. Holt, 714 S.W.2d 311, 312-13 (Tex. 1986).

II. EXEMPLARY DAMAGES.

Farmers' point ten challenges the legal and factual sufficiency of the finding of $5 million in exemplary damages. Point eleven contends that the exemplary damages award violates due process and equal protection and asks for remittitur. The majority has suggested a remittitur of $4.0 million. Justice Biery suggests $4,750,000. I think that no exemplary damages should be recoverable on these facts, and that in any event existing state and federal standards require that we engage in more searching and meaningful review and that the entire award should fall.

The Supreme Court in Pacific Mutual Life Insurance Co. v. Haslip, ___ U.S. ___, 111 S.Ct. 1032, 113 L.Ed.2d 1 (1991), rejected the notion that exemplary damages are per se unconstitutional. The Court also upheld Alabama's system as consistent with due process. But the court made clear that due process requires genuine review of exemplary damage awards.

Haslip 's fact-specific approach has been summarized as follows:

Haslip made it clear that a punitive damages award with a four-to-one ratio to compensatory damages awarded by [1] a well-instructed jury, [2] reviewed post-trial by the trial court, and [3] given a thorough appellate review would satisfy due process. But the court's fact-specific opinion did not give much guidance as to what procedures would violate due process. Would the Haslip procedures have satisfied due process if the award had a 10-to-one punitive to compensatory damages ratio? Or if there had been post-trial but not appellate review? Or if the jury instruction had failed to enumerate all of the policy considerations in an award of punitive damages? The court prescribes a case-by-case analysis that does not answer those questions.

Jane Webre, Due Process Constraints on Punitive Damage Awards: Are There Any?, 55 TEX.B.J. 14, 18-19 (1992) (emphasis added).

I think the Texas procedures for reviewing exemplary damage awards — certainly as applied by the majority — do not satisfy Haslip. I would interpret existing precedents to require genuine appellate review of the reasonableness of exemplary damage awards. In Alamo National Bank v. Kraus, 616 S.W.2d 908 (Tex. 1981), the court directed that appellate review proceed along these lines:

Exemplary damages must be reasonably proportioned to actual damages. There can be no set rule or ratio between the amount of actual and exemplary damages which will be considered reasonable. This determination must depend upon the facts of each particular case. Factors to consider in determining whether an award of exemplary damages is reasonable include (1) the nature of the wrong, (2) the character of the conduct involved, (3) the degree of culpability of the wrongdoer, (4) the situation and sensibilities of the parties concerned, and (5) the extent to which such conduct offends a public sense of justice and propriety.

Whether the amount of damages awarded by the jury is excessive is a question of fact. . . .

Id. at 910 (citations omitted).

Under Kraus there is no set ratio; the facts of each case must be evaluated, using the Kraus factors. The supreme court has recently stressed that the reasonable relationship rule is "merely a tool" to aid in determining whether the damages are reasonable, which requires consideration of the Kraus factors. Wright v. Gifford-Hill Co., 725 S.W.2d 712, 714 (Tex. 1987). The reviewing court is to use the Kraus factors in determining whether the exemplary damages are reasonably related to the actual damages. See Tatum v. Preston Carter Co., 702 S.W.2d 186, 188 (Tex. 1986).

It would make no sense to conduct a factual-sufficiency review for evidence of the Kraus factors. For one thing, each factor does not have to be present. Kraus refers to its list as "[f]actors to consider in determining whether an award of exemplary damages is reasonable," not elements that must be proved in every case. It seems clear from Haslip that our courts must conduct independent review under Kraus and possibly using other factors mentioned in Haslip, not merely factual sufficiency review.

Haslip said several things that suggest real and meaningful review is required as a matter of federal due process. The Haslip Court began by indicating its concern about unbridled punitive damages:

Under the traditional common-law approach, the amount of the punitive award is initially determined by a jury instructed to consider the gravity of the wrong and the need to deter similar wrongful conduct. The jury's determination is then reviewed by trial and appellate courts to ensure that it is reasonable. . . . . . . .

. . . We note again our concern about punitive damages that "run wild." . . .

One must concede that unlimited jury discretion — or unlimited judicial discretion for that matter — in the fixing of punitive damages may invite extreme results that jar one's constitutional sensibilities. . . .

___ U.S. at ___, ___, 111 S.Ct. at 1042, 1043, 113 L.Ed.2d at 18, 20 (emphasis added). The Court then reviewed Alabama's procedures and upheld the award. But it upheld the award because Alabama has post-trial and appellate procedures for review that Texas does not have.

First, the court reviewed the Alabama jury instructions, which are similar to our own. "As long as the discretion is exercised within reasonable constraints, due process is satisfied." Id. at ___, 111 S.Ct. at 1044, 113 L.Ed.2d at 21. The majority seems to think this ends the appellate Haslip analysis, but that ignores the rest of the Court's opinion in Haslip.

Second, the court emphasized Alabama's post-trial procedures, which stand in stark contrast to the lack of post-trial review in this case. Trial courts in Alabama must state reasons for modifying or not modifying the jury award. They are told to consider several listed factors, not simply to defer to the jury if the evidence is factually sufficient or if the evidence seems to satisfy the vague Kraus factors. See Haslip, ___ U.S. at ___, 111 S.Ct. at 1044, 113 L.Ed.2d at 21. The Alabama procedure "ensures meaningful and adequate review by the trial court." Id. In contrast, there is no indication that the trial judge reviewed this verdict for reasonableness under Kraus or even for factual sufficiency. On the contrary, the trial court overruled Farmers' post-trial motions in a perfunctory two-sentence order. The trial judge can hardly be faulted for not making findings of fact about the reasonableness of the exemplary damages because the trial occurred before Haslip and the Texas rules do not contemplate findings of fact and conclusions of law on issues submitted to a jury. See TEX.R.CIV.P. 296.

"On this day the court heard the posttrial motions filed by the defendant, Texas Farmers Insurance Company. After considering the defendant's motion for judgment notwithstanding the verdict, motion to disregard jury findings, motion for new trial or for suggestion of remittitur, and motion to modify, correct, or reform the judgment, the Court OVERRULES those motions."

Third, the Alabama Supreme Court itself undertakes further review. "By its review of punitive awards, the Alabama Supreme Court provides an additional check on the jury's or trial court's discretion. It first undertakes a comparative analysis. . . . It then applies the detailed substantive standards it has developed for evaluating punitive awards." Id. at ___, 111 S.Ct. at 1045, 113 L.Ed.2d at 21-22. "This appellate review makes certain that the punitive damages are [1] reasonable in their amount and [2] rational in light of their purpose to punish what has occurred and to deter its repetition." Id. The Court then summarized Alabama's appellate standards, which seem to me more useful and concrete than the Texas Kraus factors:

(a) whether there is a reasonable relationship between the punitive damages award and the harm likely to result from the defendant's conduct as well as the harm that actually has occurred; (b) the degree of reprehensibility of the defendant's conduct, the duration of that conduct, the defendant's awareness, any concealment, and the existence and frequency of similar past conduct; (c) the profitability to the defendant of the wrongful conduct and the desirability of removing that profit and of having the defendant also sustain a loss; (d) the "financial position" of the defendant; (e) all the costs of litigation; (f) the imposition of criminal sanctions on the defendant for its conduct, these to be taken in mitigation; and (g) the existence of other civil awards against the defendant for the same conduct, these also to be taken in mitigation.

Id.

These appellate standards, said the Court, have a real impact. "The application of these standards, we conclude, imposes a sufficiently definite and meaningful constraint on the discretion of Alabama fact finders in awarding punitive damages. The Alabama Supreme Court's post-verdict review ensures that punitive damages awards are not grossly out of proportion to the severity of the offense and have some understandable relationship to compensatory damages. . . . These standards have real effect when applied by the Alabama Supreme Court to jury awards." Id., at ___, 111 S.Ct. at 1045, 113 L.Ed.2d at 22 (emphasis added).

At the end of its opinion, the Haslip Court restated that the punitive damages award did not deny due process because Pacific Mutual "had the benefit of the full panoply of Alabama's procedural protections": adequate jury instructions, post-verdict hearing and fact findings by the trial court, and review under specified standards by the Alabama Supreme Court. Id. at ___, 111 S.Ct. at 1046, 113 L.Ed.2d at 23 (emphasis added).

The Court then said,

We are aware that the punitive damages award in this case is more than 4 times the amount of compensatory damages. . . . While the monetary comparisons are wide and, indeed, may be close to the line, the award here did not lack objective criteria. We conclude, after careful consideration, that in this case it

does not cross the line into the area of constitutional impropriety.

Id.

Unlike the appellate review in Alabama, our courts generally do not make a comparative analysis, and this court has not made any real review. Although the reduction of $4,000,000 may seem significant, I find no reason why Farmers should be punished at all. This court has done better than most Texas appellate courts, but it cannot be seriously argued that post-verdict review in Texas approaches that of Alabama. Consider the perfunctory analyses of the courts of appeals in Commonwealth Lloyds Ins. Co. v. Thomas, 825 S.W.2d 135, 149 (Tex.App. — Dallas 1992, writ filed); Dearing Inc. v. Spiller, 824 S.W.2d 728 (Tex.App. — Fort Worth 1992, writ filed); Transmission Exchange Inc. v. Long, 821 S.W.2d 265, 272-73 (Tex.App. — El Paso 1991, writ denied); Investment Prop. Management, Inc. v. Montes, 821 S.W.2d 691, 697 (Tex.App. — El Paso 1991, no writ); LaCoure v. LaCoure, 820 S.W.2d 228 (Tex.App. — El Paso 1991, writ denied); Corpus Christi Teachers C.U. v. Hernandez, 814 S.W.2d 195 (Tex.App. — San Antonio 1991, no writ); Bard v. Charles R. Myers Ins. Agency, 811 S.W.2d 251 (Tex.App. — San Antonio 1991, writ granted); Owens v. Watson, 806 S.W.2d 871 (Tex.App. — Corpus Christi 1991, writ denied); Cheek v. Humphreys, 800 S.W.2d 596 (Tex.App. — Houston [14th Dist.] 1990, writ denied); Beacon Nat'l Ins. v. Reynolds, 799 S.W.2d 390 (Tex.App. — Fort Worth 1990, writ denied); Lawson-Avila Constr. v. Stoutamire, 791 S.W.2d 584 (Tex.App. — San Antonio 1990, writ denied); Miles Homes Div'n, Insilco Corp. v. Smith, 790 S.W.2d 382 (Tex.App. — Beaumont 1990, writ denied).

The majority mentions with apparent approval the "passion and prejudice" language of some earlier cases, an appellate standard that Haslip rejected as constitutionally inadequate. In a significant footnote, the Haslip Court said that Alabama's post-trial procedures set it apart from "the Vermont and Mississippi schemes about which Justices expressed concern" in 1988 and 1989. In Vermont an award would be set aside only if it was "manifestly and grossly excessive." In Mississippi an award would be set aside only if "it evinces passion, bias and prejudice on the part of the jury so as to shock the conscience." Id. at ___ n. 10, 111 S.Ct. at 1045 n. 10, 113 L.Ed.2d at 22 n. 10 (emphasis added). In other words, the Supreme Court came very close to saying the Vermont and Mississippi standards are constitutionally inadequate. I think it is improper to cite "passion and prejudice" cases.

Soriano's motion for rehearing seems to assume that appellate review of exemplary damage awards involves mere canvassing of the liability facts. But that kind of review could not satisfy Haslip. Under the Kraus and Haslip factors I note that (1) Farmers did not profit by its settlement with Lopez for $5000; it offered its $20,000 policy limits soon after the accident and again before trial. As mentioned in Haslip, there is simply no wrongful profit to remove or disgorge. (2) Concerning harm to Soriano, there is evidence that he suffered a larger judgment in favor of the Medinas than he would have from the Lopezes. But in view of his underinsurance and the harm that his negligence caused, he would have suffered an excess judgment in any event. And all or most of the existing harm was removed when the Medinas gave him the covenant not to execute. See part 3 of this opinion. (3) Farmers' conduct certainly was not reprehensible or of long duration, nor was it concealed.

The majority also mentions the testimony of Farmers' representative that even if the jury awarded $6 million, Farmers would handle the case the same way. The witness's full answer is "Yes, sir. We would handle it exactly the same way because we did nothing wrong." That is not outrageous conduct that calls for punishment. The statement does not exhibit a defiant, unrepentant attitude about conduct the witness knew was wrong, as the majority seems to conclude.

A punitive award of any amount — even though Farmers offered all its policy limits shortly after the accident, Soriano was not really harmed, and whatever wrong Farmers may have committed was not part of a pattern, done frequently, or concealed — shows vividly how far our system of exemplary damages is out of line with Haslip.

III. DENIAL OF JURY DISCRETION IN ASSESSING DAMAGES.

The majority dismisses Farmers' complaint that the trial court in effect instructed a verdict for Soriano on actual damages. The amount of damages is very much a jury question. To instruct a jury that it must assess a precise amount deprives litigants of a jury trial on that issue.

Special Issue No. 9

What sum of money if now paid in cash would fairly and reasonably compensate Richard R. Soriano for his damages by reason of the trial in Webb County, Texas and the resulting excess judgment?

Take into consideration the following elements of damages and none other.

The difference between the excess judgment taken against Richard R. Soriano with interest to date, and the amount paid by Texas Farmers Insurance Co. toward satisfaction of such judgment.

Answer in dollars and cents, if any.

ANSWER: [$235,479.13]

Mental Anguish in the past.

Answer in dollars and cents, if any.

ANSWER: [zero]

The Medinas gave Soriano a covenant not to execute against him and his assets; in return Soriano assigned to the Medinas his rights against Farmers. The instrument was not introduced, but Soriano testified about it. The majority belittles this testimony, but there was no objection to it, and under the no-evidence standard it raised a fact issue for the jury whether Soriano's damages were the amount of the underlying judgment or something less. Farmers argues that the covenant not to execute minimizes or eliminates whatever damages the judgment causes Soriano, and that the court should have allowed the jury to find an amount less than the face amount of the judgment plus interest.

Soriano testified that he had assigned all his recovery in this case to the Medinas. The testimony continued: "Q. In exchange for which you didn't have to worry about having to pay that judgment off any more. A. Correct."

I disagree with the majority's rejection of that argument for the reasons I expressed in Garcia v. American Physicians Insurance Exchange, 812 S.W.2d 25, 36-42, 45 (Tex.App. — San Antonio 1991, writ granted) (Peeples, J., dissenting). An excess-judgment suit lies to remove whatever harm the judgment causes the insured, Soriano. See Street v. Second Court of Appeals, 756 S.W.2d 299 (Tex. 1988); Hernandez v. Great Am. Ins. Co., 464 S.W.2d 91 (Tex. 1971). Here the covenant not to execute on Soriano's assets removed any harm the judgment caused him. A judgment that cannot be collected certainly does not injure the insured in the amount of the judgment as a matter of law, but that is the effect of the court's instruction in the damage issue. At the least, the court should have allowed the jury to decide whether the covenant reduced Soriano's actual damages.

This seems to be the holding in William M. Mercer, Inc. v. Woods, 717 S.W.2d 391 (Tex.App. — Texarkana 1986), aff'd in part and rev'd in part on other grounds, 769 S.W.2d 515 (Tex. 1988). In Woods the Texarkana court expressed disapproval of the notion that the underlying tort judgment proves damages as a matter of law. 717 S.W.2d at 399-401. It is therefore misleading for the majority to quote the Woods court's summary of Allstate Ins. Co. v. Kelly, 680 S.W.2d 595 (Tex.App. — Tyler 1984, writ ref'd n.r.e.), as though the Woods court agreed with Kelly. See Garcia v. American Physicians Ins. Exch., 812 S.W.2d at 41-42, 45 (Peeples, J., dissenting).

The majority says that juries must be given great discretion in assessing damages, but the charge gave the jury no discretion at all. It required the jury to award the amount of the excess judgment, plus interest, minus payments by Farmers. At the very least, the court should have instructed the jury that it could consider the covenant not to execute in assessing Soriano's damages.

It makes no difference that the covenant not to execute was signed after the original judgment, which always happens. Post-tort events — such as surgery and re-employment, to name just two — can reduce or eliminate one's damages. Here the covenant not to execute eliminated, and certainly reduced, Soriano's damages.

Farmers properly objected to the damage issue on this ground. I would sustain point six and reverse and remand.

It makes no difference that Farmers' objections did not mention the words, "covenant not to execute." In its objection to issue nine, Farmers clearly complained that the court took all discretion from the jury: " Defendant objects to special issue number 9 because the inquiry therein instructs the jury to award damages resulting from an excess judgment. The jury is not given the discretion of awarding an amount less than the excess judgment or zero. It is in effect stating what sum of money, if now paid in cash, would fairly and reasonably compensate Richard Soriano for his damages by reason of a trial in Webb County, Texas. After that the Court instructs the jury to take into consideration the following elements of damages and none other. It specifically says the excess judgment taken against Farmers toward satisfaction of such judgment. There, the Court is instructing the jury to award the judgment minus any amount of credit in that regard." (emphasis added).

* * * * * *

For the reasons stated in section one, I would reverse and render judgment that Soriano take nothing from Farmers for failure to prove an element of the bad faith cause of action (unreasonableness of the Lopez settlement) in this underinsurance case, and also because even if the evidence raised a fact issue the element was omitted from the charge over Farmers' objection. For the reasons stated in section two, under Haslip and Kraus I believe there is no constitutional basis for exemplary damages. For the reasons stated in section three, I would reverse and remand for a new trial in which the jury is not deprived of all discretion to award no damages, or less than the amount of the underlying tort judgment, which cannot be collected from Soriano.

BUTTS, Justice, dissenting.

I join the dissent, agreeing with all three grounds for reversal set out in J. Peeples' dissenting opinion. The case should be reversed on the merits. There is no evidence to support a bad faith claim. The case should be reversed and rendered.

I would add simply as a suggestion that this is an underinsurance case, where the person who recovers for breach of good faith and fair dealing was the sole cause of the tragedy of the deaths and disabilities and, further, was the insured with minimum coverage (through no fault of the insurer). This is an appropriate case for our supreme court to look at the relationship of the insured and insurer as a "two-way street." This is a case where the covenant of good faith and fair dealing should apply to both the insurer and the insured. See Walker, Comparative Bad Faith — Its Time Has Come In Texas, 55 TEX.B.J. 792 (1992).