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Judgment Denying Fees and Subrogation Reversed

Posted in Opinions & Judgments

In Osborne v. Jauregui, Inc., a dispute over a defectively built home,a divided panel of the Third Court of Appeals has reversed and remanded the trial court’s judgment declining to award the plaintiffs attorney’s fees and denying an intervening insurer’s subrogation claim.

Plaintiffs sued the architect/builder and several subcontractors, alleging DTPA violations and other causes of action.  Their homeowners insurer (State Farm) intervened to assert subrogation rights for benefits previously paid.  Plaintiffs settled with all defendants except the builder, against whom they proceeded to trial and obtained an $835,158 jury verdict.  After applying a dollar-for-dollar credit for the $1,260,500 in settlement proceeds, the trial court refused to award attorney’s fees under the DTPA, denied State Farm’s subrogation claim, and rendered a take-nothing judgment. Plaintiffs and State Farm appealed.

The appellate court first concluded that plaintiffs were "prevailing parties" entitled to attorney’s fees under the DTPA, even though the settlement credit negated the jury’s damage award.  Noting a split of authority on this issue, the court distinguished this case on the basis that it did not involve prior payments by the same defendant against whom plaintiffs had gone to trial.  Because plaintiffs prevailed against the lone remaining defendant, who had not contributed to the settlement, they were entitled to fees.  The court remanded for calculation of the appropriate amount.

Addressing State’ Farm’s issues, the court of appeals acknowledged the Texas Supreme Court’s recent decision in Fortis Benefits v. Cantu, which held that contract-based subrogation rights trump equitable considerations.  Although the court of appeals criticized the positions State Farm took in the litigation and noted that State Farm did not allocate the settlement proceeds to losses covered by insurance payments, it nevertheless reversed and remanded the subrogation issue so that the trial court could review the contractual subrogation language under Fortis Benefits and determine whether the policy or equitable principles control.

Justice Puryear dissented, citing his belief that plaintiffs were not prevailing parties in light of the one-satisfaction rule and thus are not entitled to attorney’s fees.  Applying Fortis Benefits, Justice Puryear further concluded that the insurance contract governed the subrogation issue and that State Farm was entitled to subrogation against the settlement funds.

This is a very interesting case.  When the dust settles, I expect the supreme court will give it a close look.

  • http://www.stephenslegal.com R. Gary Stephens

    In an Erisa context Mills v. London Grove Township gives some hope.
    In a huge win for lawyers representing children injured in auto accidents, a federal judge has ruled that an ERISA insurer has no right to enforcement of a lien for medical expenses when the minor’s settlement funds are placed in a “special-needs trust.”
    In his nine-page opinion in Mills v. London Grove Township, Senior U.S. District Judge John P. Fullam held that since the child’s father is the ERISA beneficiary, any lien from the insurer, ACS Recovery Services, would not “come into existence” until the father received funds.
    But since the settlement funds were being sent directly to the child’s special-needs trust, Fullam said, the receipt of the funds by the father would never occur.
    Consequently if the plan language allows recovery from the insd. and the recipient of the insurance payment is other than the insd., i. e. a child in his household-no recovery under Mills.