USAA Texas Lloyds Insurance Co. v. Menchaca

Justice Boyd (opinion here); Justice Green (dissent here); Chief Justice Hecht (concurrence here.)

As reported in this blog last April (available here), a unanimous Texas Supreme Court articulated “five distinct but interrelated rules that govern the relationship between contractual and extra-contractual claims in the insurance context” and remanded to the trial court for a new trial. USAA Texas Lloyds Insurance Co. v. Menchaca, No. 14-0721, 2017 WL 1311752 (Tex. Apr. 7, 2017). After granting a motion for rehearing, the Court reached the same result, but while maintaining agreement “on the legal principles and rules announced” in the previous opinion, the justices splintered on “the procedural effect of those principles in this case.”

As a reminder, Gail Menchaca sued when USAA determined the damages from Hurricane Ike were less than the deductible under Menchaca’s homeowner’s policy. At trial, the jury found (1) USAA did not fail to comply with the terms of its policy; (2) USAA did refuse to pay the claim without conducting a reasonable investigation; and (3) the amount USAA “should have paid” for Menchaca’s damages was $11,350. The trial court disregarded the jury’s answer to the first question, and awarded Menchaca $11,350 plus attorney’s fees. The court of appeals affirmed. Applying its newly articulated rules, the Court reversed the judgment, but remanded for a new trial because the parties and the courts had labored under an “obvious and understandable confusion” over the applicable law.

USAA, supported by several amici, filed a motion for rehearing, which the Court granted in December 2017. On April 13, 2018, the Court withdrew its initial opinion and issued three separate opinions reflecting different configurations of justices on the issues. Justice Boyd, writing for the Court and joined by six other justices, reiterated the five rules articulated in 2017, as well as the holding that the lower courts had improperly disregarded the jury’s answer to Question 1. A majority agreed the case should be remanded, but for different reasons. Justice Green, joined by two others, would have rendered judgment for USAA. Chief Justice Hecht concurred in the result, and joined portions of Justice Boyd’s and Justice Green’s opinions (creating two pluralities). Justice Johnson did not participate, and Justice Blacklock concurred in the judgment without joining any of the opinions.

Justice Boyd’s plurality found there was a fatal and irreconcilable conflict between the jury’s answers to Questions 1 and 3, because in Question 1 the jury found USAA had complied with its obligations under the policy, and in Question 3 the jury found USAA’s statutory violation caused Menchaca to lose policy benefits she should have received. Only two justices agreed with Justice Boyd’s position that the Court could not resolve the conflict because neither party had objected before the jury was dismissed.

Justice Green’s plurality likewise found a conflict between Questions 1 and 3, but concluded that the parties’ failure to object before the jury was dismissed did not prevent the court from resolving the conflict, where USAA had preserved the issue by raising it in post-verdict motions. Only two justices, however, agreed with Justice Green that a take-nothing judgment should be entered because Menchaca had not “met her burden to prove and obtain findings that USAA’s statutory violation had caused her to lose benefits that USAA owed under the policy.”