UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 95-20043
AMERICAN NURSES FOR NURSES, INC.,
dba Stat Medical Services,
Plaintiff-Appellee
Cross-Appellant,
VERSUS
NATIONAL UNION FIRE INSURANCE CO.
OF PITTSBURGH, PA.,
Defendant-Appellant,
and
COTTERELL, MITCHELL & FIFER, INC.,
Defendant-Appellant
Cross-Appellee.
Appeal from the United States District Court
For the Southern District of Texas
(CA-H-92-2029)
JULY 8, 1996
Before KING, DeMOSS, and STEWART, Circuit Judges.
PER CURIAM:*
*
Pursuant to Local Rule 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in Local Rule 47.5.4.
National Union Fire Insurance Company (National Union) and
Cotterell, Mitchell & Fifer, Inc. (CMF) appeal from the district
court's final judgment awarding plaintiff-appellee Stat Medical
Services (Stat Medical) $1,177,000 in compensatory and exemplary
damages for statutory violations of the Texas Deceptive Trade
Practices Act (DTPA) and article 21.21 § 16 of the Texas Insurance
Code. Stat Medical filed a cross-appeal challenging the district
court’s order imposing discovery sanctions. After an exhaustive
review of the record, unaided by the disingenuous briefing of this
case by all attorneys involved, we reverse the district court’s
liability finding as to Nation Union, affirm the liability finding
as to CMF, and affirm the district court’s order imposing discovery
sanctions on Stat Medical.
I. FACTS & PROCEDURAL HISTORY
A. The Policy and its Effective Date
Stat Medical operates a temporary employment agency that
provides nursing staff to hospitals and other medical facilities.
Stat Medical's customers generally require proof of professional
liability insurance before contracting for nursing services. CMF
is an insurance broker authorized to solicit professional liability
insurance policies for National Union through National Union's
managing agent, Smith, Bell & Thompson (SBT).
2
On April 7, 1989, Stat Medical's co-owner Catherine Herridge
contacted CMF employee Mary Ann Clark to obtain professional
liability insurance. Herridge explained that immediate coverage
was required to satisfy existing contracts for nursing services.
Clark told Herridge that the insurance could be bound as soon as
CMF received a check in the amount of $1,143.00 and Stat Medical's
completed application. On April 13, 1989, Herridge completed the
application and wrote a check to CMF in the amount of $1,143.00.1
Herridge testified that she requested an April 13 effective date.
SBT received Stat Medical's application on April 19, 1989 and,
according to its usual practice, issued a quotation letter on April
20.2 Shortly thereafter, Stat Medical received a certificate of
insurance from CMF evidencing professional liability insurance
placed with National Union in the amount of $1,000,000. The policy
number was listed as "TBD" (to be determined). The certificate
bore an "issue date" of April 17, 1989, and contained the following
disclaimer:
THIS CERTIFICATE IS ISSUED AS A MATTER OF
INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE
CERTIFICATE HOLDER. THIS CERTIFICATE DOES NOT
AMEND, EXTEND OR ALTER THE COVERAGE AFFORDED BY THE
POLICIES BELOW.
1
Although it is not clear how the application and premium
check were delivered to CMF, Stat Medical's check cleared the bank
on which it was drawn on May 3, 1989.
2
SBT generally made policies effective from the date it
received notice that the customer accepted the premium stated in
SBT's quotation letter.
3
On June 16, 1989, SBT sent CMF an invoice for unpaid premium
in the amount of $57. The invoice identified the policy number as
2159, with an effective date of April 25, 1989. Stat Medical
claims that CMF sent other renewal notices and certificates
throughout 1989 that identified April 25 as the effective date for
the National Union policy.
National Union actually issued the policy with an effective
date of May 24, 1989. Nothing in the record suggests that National
Union was involved in either the application process or the
issuance of any documentation that incorrectly identified the
policy date. Stat Medical received a copy of the policy in July
1989. Herridge testified that she noticed the May 24 effective
date of the policy, but she instead relied upon the correspondence
from CMF indicating an April 25 effective date for the policy.
B. Stat Medical's Coverage Claim and the Defense of the Moddle Suit
Predictably, a claim arose between the time Stat Medical
submitted its application for insurance and the policy’s effective
date of issuance. On May 5, 1989, Louise Moddle died at McAllen
Medical Center while under the care of one of Stat Medical's
nurses. Ten months later, on March 14, 1990, McAllen Medical
Center notified Stat Medical of a potential malpractice claim.
Stat Medical forwarded the notice to CMF, but received no response
from CMF, SBT or National Union.
4
On August 23, 1990, Stat Medical sent CMF a second notice of
potential liability on the Moddle claim.3 On September 24, 1990,
National Union informed Stat Medical that Moddle's death predated
the policy's effective date and, therefore, any claim relating to
her death was not covered by the policy. Stat Medical responded by
faxing National Union the CMF certificate of insurance bearing an
"issue date" of April 17, 1989. On October 11, 1990, National
Union again denied the claim and refused to defend Stat Medical
against Moddle’s claims. National Union advised Stat Medical that
April 17 was merely the certificate's "issue date," and did not
signify that coverage was in effect on that date.
On March 11, 1991, Moddle's estate and family sued McAllen
Medical Center and the attending physicians in state court (the
Moddle suit). The Moddle suit defendants filed a third-party
action against Stat Medical for contribution and indemnity based on
a negligent nursing care claim. In 1992, Stat Medical
independently settled the Moddle suit for approximately $21,000.
C. The Current Suit against CMF and National Union
On May 8, 1992, Stat Medical filed this suit against CMF, SBT
and National Union in Texas state court, alleging breach of
contract, negligence/gross negligence, fraud, violations of the
Texas Deceptive Trade Practices Act (DTPA), and violations of the
3
There is no allegation that National Union was notified of
the potential claim filed by Stat Medical before August 1990.
5
Texas Insurance Code.4 In addition to the $21,000 settlement, Stat
Medical claimed $21,573.81 in attorney fees and $7,910.29 for out-
of-pocket expenses incurred while defending the Moddle suit. Stat
Medical also sought damages for loss of business, reputation and
credit. In July 1992, National Union removed the case to federal
court based on diversity jurisdiction.
D. Discovery Disputes and Sanctions
After a scheduling conference, the district court entered an
order imposing a discovery deadline of September 15, 1993. In late
July 1993, shortly before the discovery deadline, Stat Medical
began to develop its damage theory by deposing Stat Medical co-
owner Abu-Awad. Abu-Awad offered testimony that National Union's
failure to provide coverage for and defend the Moddle claim had
caused Stat Medical to lose a bid on a six-hospital contract to
provide nursing services. Abu-Awad identified the six hospitals
and produced Stat Medical accounting records relating to its past
business with the six hospitals. In August 1993, co-owner Herridge
was deposed and offered similar testimony.
On September 9, 1993, Stat Medical supplemented its responses
to the defendants' interrogatories by naming 21 additional
witnesses, including the custodians of record for the six hospitals
identified by Abu-Awad's deposition testimony. Stat Medical also
4
SBT was subsequently dismissed and is not a party to the
appeal.
6
requested subpoenas for the deposition of several of those
witnesses. On September 10, Stat Medical notified the defendants
of its intent to depose four of these individuals on September 14
and 15.
On September 13, 1993, CMF moved for protection and sanctions.
The district court granted CMF's motion, finding that Stat
Medical's responses were not timely and that it had intentionally
concealed the names of persons with facts relevant to the lawsuit.
The district court ordered Stat Medical not to depose the four new
witnesses. The district court, however, permitted Stat Medical to
call those witnesses at trial. Thereafter, Stat Medical included
these same witnesses in the joint pretrial order entered October 1,
1993, without objection by the defendants.
On December 7, 1993, Stat Medical attempted to amend the joint
pretrial order by designating a "newly discovered witness." CMF
again filed for protection and sanctions. The district court again
granted CMF's motion, finding that Stat Medical's continued abuse
of the discovery process and its violation of the district court's
earlier discovery order justified precluding Stat Medical from
offering any evidence "related to the loss of business, loss of
profits and loss of business goodwill." However, at trial, the
district court reconsidered and allowed Abu-Awad to testify about
the impact of the Moddle lawsuit on Stat Medical’s business and
creditworthiness. Further, the issue of damage to business and
credit reputation was submitted to the jury. On cross-appeal, Stat
7
Medical argues that it did not abuse the discovery process and that
the district court's orders constituted an abuse of discretion.
E. Jury Findings and Judgment
The jury found that National Union and CMF knowingly engaged
in unfair and deceptive acts or practices which caused damages to
Stat Medical. The jury also found that CMF engaged in
unconscionable conduct and failed to comply with a warranty. The
court entered judgment on the jury’s award of $250,000 in
compensatory damages and $425,000 in punitive damages. The court
then imposed joint and several liability on National Union and CMF
for $250,000; several liability against National Union for
$500,000; several liability against CMF for $427,000; pre- and
post-judgment interest; and $150,000 in attorneys’ fees ($125,000
for the trial and $25,000 for any appeal).
II. Analysis
A. National Union's Liability
National Union appeals from the district court's final
judgment, arguing primarily that the evidence was insufficient to
support the jury's finding that it violated the Texas Insurance
Code. We agree.
Stat Medical claims that it was misled by insurance agent CMF
employee Clark, and by various documentation received from CMF,
8
into believing that its professional liability insurance coverage
went into effect in April 1989. In fact, the effective date of the
insurance policy was May 24, 1989. Further, nothing in the record
indicates that National Union was involved in any way with the
application process, or that National Union issued any documenta-
tion to Stat Medical that did not correctly identify the policy
effective date as May 24, 1989. National Union cannot be held
liable for wrongfully refusing to defend or for refusing coverage
because no party disputes that no coverage existed. National Union
had a reasonable basis, as well as a factually accurate and
sufficient basis, for refusing to provide coverage for Stat
Medical's claim.
Moreover, National Union cannot be held liable on a theory of
vicarious liability. Stat Medical made a strategic trial decision
to hold each defendant liable for its own separate and independent
conduct. Stat Medical, therefore, failed to establish any agency
relationship between CMF and National Union, and it did not include
any questions on the issue of agency in its proposed jury
instructions. Even in its post-trial motions, Stat Medical
disclaimed any reliance on an agency theory to support the verdict.
Thus, Stat Medical’s argument to this Court that the district court
determined as a matter of law that CMF was National Union's agent,
and that there was no need for a jury issue on the question of
agency, is disingenuous, to say the least.
9
The district court did not find that CMF was National Union's
agent as a matter of law, nor would such a determination have been
proper. The district court denied National Union's motion for
summary judgment on the agency issue because there was a genuine
fact issue about the relationship.
Article 21.02 of the Texas Insurance Code generally defines
agents and lists various acts for which a party “shall be held to
be the agent of the company for which the act is done, or the risk
taken, as far as relates to all liabilities, duties, requirements
and penalties set forth in this chapter.” TEX. INS. CODE ANN. art.
21.02 (Vernon Supp. 1996). Article 21.02 further states that
agents are not authorized “to orally, in writing, or otherwise
alter, amend, modify, waive, or change a term or condition of an
insurance policy or application for an insurance policy.” Id.
Therefore, absent a showing of actual or apparent authority given
by National Union to CMF to modify the terms of the policy or the
policy issuance date, CMF’s authority was limited to accepting and
forwarding insurance applications. See e.g., Maccabees Mut. Life
Ins. Co. v. McNiel, 836 S.W.2d 229, 232 (Tex. App.--Dallas 1992, no
writ); Guthrie v. Republic Nat'l Ins. Co., 682 S.W.2d 634, 636-37
(Tex. App.--Houston [1st Dist.] 1984, writ ref'd n.r.e.). After
reviewing the record, we hold that the undisputed evidence at trial
showed that CMF had neither actual nor apparent authority to issue
10
a certificate evidencing coverage or to bind coverage for National
Union.
Further, National Union cannot be held vicariously liable in
this case. When National Union raised the agency issue just prior
to submitting the case to the jury, the district court stated to
all parties that Stat Medical had exercised its right to submit the
case without reliance on any theory of agency liability. Neither
Stat Medical nor CMF objected. CMF also failed to request a jury
finding on the issue of its relationship to National Union.
Further, CMF has not appealed the district court's failure to
submit an issue on agency. We conclude, therefore, that the case
was tried without reliance on a theory of vicarious liability
against National Union. There is insufficient evidence and no jury
finding to support imposition of such liability.
Stat Medical and CMF next argue that National Union failed to
preserve error on this issue because its Rule 50 motion, made at
the close of Stat Medical's case, was not renewed at the close of
all evidence. We are not convinced that National Union's technical
noncompliance with Rule 50 precludes our review. "This circuit has
excused a defendant's technical noncompliance caused by a failure
to renew a motion for directed verdict where the purposes of Rule
50(b) have been satisfied." Villanueva v. McInnis, 723 F.2d 414,
417 (5th Cir. 1984) (collecting cases).
11
Rule 50(b) serves two purposes: (1) it enables the trial court
to re-examine the sufficiency issue if the jury returns a verdict
against the movant and (2) it alerts the non-movant to the problem
of insufficiency before the issue is submitted to the jury. Id.
Although National Union did not formally move for judgment as a
matter of law a second time prior to jury submission, in the charge
conference National Union did ask that the case be taken from the
jury based on the insufficiency of evidence supporting its
liability. As a result, both the court and opposing counsel had
adequate notice of, and were squarely confronted with, National
Union's contention that the evidence was insufficient to support
liability. See also Villanueva, 723 F.2d at 417-18 (discussing
cases); 9A CHARLES A. WRIGHT & ARTHUR R. MILLER, FEDERAL PRACTICE AND
PROCEDURE §2537, at 338-44. We have also held “that `when the trial
court reserves its ruling on the defendant's motion for a directed
verdict and the only evidence introduced after the motion is not
related to the motion, the defendant's failure to renew his motion
should not preclude a judgment n.o.v. in his favor.’" Purcell v.
Seguin State Bank and Trust Co., 999 F.2d 950, 956 (5th Cir. 1993)
(quoting Miller v. Rowan Cos., Inc., 814 F.2d 1021, 1025 (5th Cir.
1987)).
In the present case, little evidence was presented after
National Union's initial motion for judgment as a matter of law.
Each defendant called a single witness, and there was virtually no
12
testimony that would have impacted the district court's earlier
denial of National Union's motion. For these reasons we excuse
National Union's technical noncompliance with Rule 50.
In summary, there is insufficient evidence to support the
jury's determination that National Union violated the Texas
Insurance Code. Accordingly, the jury's finding that National
Union committed the violation "knowingly," and the district court's
post-verdict imposition of penalty damages against National Union
in the amount of $500,000, cannot stand. Neither Stat Medical nor
CMF may rely upon a theory of vicarious liability to hold National
Union liable for the jury's findings against CMF. Thus, we
conclude that the judgment of damages against National Union must
be reversed in its entirety.
B. CMF's Liability
CMF appeals only the district court’s January 17, 1995, order
denying its motions to vacate or modify the judgment. In two
separate motions to modify the judgment, CMF made two arguments:
one challenging the district court's award of penalty damages
against both CMF and National Union on the basis of a single
finding of actual damages, and one related to the statute of
limitations. We address each of these arguments in turn.
The jury found that CMF violated the DTPA and that the
violation was committed "knowingly." The jury also found that
13
National Union violated the Insurance Code and that the violation
was committed "knowingly." Two damage issues were submitted. In
the first, the jury awarded $250,000 in actual damages caused by
the conduct of both CMF and National Union. In the second, the
jury awarded $425,000 in penalty damages based on the conduct of
CMF only. There was no damage issue submitted for penalty damages
against National Union. The district court awarded an additional
$500,000 in penalty damages against National Union based on Stat
Medical's post-trial motion.
CMF then moved to amend the judgment, arguing that under Texas
law the actual damage award of $250,000 could not be used as the
basis for both the $425,000 award against CMF and the $500,000
award against National Union. CMF contended that Stat Medical was
required to make an election of remedies. In the absence of such
an election, CMF argued that the district court was bound to reform
the judgment to limit plaintiff’s award to the highest possible
recovery. Based on this reasoning, CMF argued that the entire
liability award for actual and penalty damages should be assessed
against National Union because the penalty award against National
Union was higher than the penalty award against CMF. Thus, the
judgment should have been imposed against National Union for
$750,000 ($250,000 in actual damages plus $500,000 in penalty
damages).
The district court summarily rejected this argument, which
serves as the linchpin of CMF's contentions on appeal. Of course,
14
the fatal weakness in this position is that, as we held above,
there is no evidentiary basis for holding National Union liable and
no basis for the separate award of $500,000 punitive damages
assessed by the trial court. Having concluded that the award of
both actual and penalty damages against National Union must be
reversed on sufficiency grounds, there remains only one penalty
damage award and CMF is now faced with shouldering the entire
burden.
Further, CMF failed to appeal the final judgment and does not
challenge the sufficiency of the evidence. Moreover, CMF did not
move for judgment as a matter of law or otherwise object on
sufficiency grounds at any time. These mistakes preclude our
review of the excessiveness of the damage award as to CMF.
Next, CMF briefly raises the argument that Stat Medical's
claim was barred by the applicable statute of limitations. CMF
first raised the statute of limitations argument in its motion for
summary judgment. The district court denied the motion on the
ground that a fact issue remained about when Stat Medical actually
discovered the alleged misrepresentations. CMF failed to raise the
statute of limitations again, either formally or informally, until
after trial. CMF then attempted to revive this affirmative defense
in post-trial motions for judgment as a matter of law and to amend
the judgment. As such, the record contains no evidence relating to
the statute of limitations defense. “We can only review the record
15
and do not take evidence to supplement or contradict it.” Roberts
v. Wal-Mart Stores, Inc., 7 F.3d 1256, 1258 (5th Cir. 1993).
It is clear that we cannot review the district court's summary
judgment determination, because the case has been fully tried on
the merits. See Black v. J.I. Case Co., 22 F.3d 568 (5th Cir.),
cert. denied, 115 S. Ct. 579 (1994). Furthermore, CMF's Rule 50
motion and other motions filed after the verdict are untimely and
similarly ineffective to preserve the error. “When the defendant
fails to renew the motion for judgment as a matter of law at the
close of all the evidence, our inquiry is limited to `whether there
was any evidence to support the jury’s verdict, irrespective of its
sufficiency, or whether plain error was committed which, if not
noticed, would result in a manifest miscarriage of justice.’” Mac
Arthur v. University of Tex. Health Center Tyler, 45 F.3d 890, 896
n.8 (5th Cir. 1995) (quoting Coughlin v. Capitol Cement Co., 571
F.2d 290, 297 (5th Cir. 1978)). Consequently, we may conduct a
review solely for determining whether a manifest miscarriage of
justice exists in this case.
From the record, it appears CMF's decision to ignore the
statute of limitations issue may have been purposeful. In the
order denying CMF's motion for summary judgment, the district court
determined that the discovery rule applied to toll the statute of
limitations, and found that there was a fact issue about when Stat
Medical discovered or should have discovered the wrong. CMF, which
16
sought to benefit from this affirmative defense, then had the
burden to try the issue or obtain a finding allowing relief in its
favor. The strategy appeared to be to hide behind the log until
after trial and then argue that Stat Medical bore the burden of
proof under the discovery rule. The log, in this case, provides no
hiding-place from a failure to preserve error.
In addition, no party can assign the failure to give an
instruction as error unless that party objects to the instructions.
FED. R. CIV. P. 51. Rule 51 thus imposes a burden on both parties
to come forward with issues that need to be submitted to the jury
or considered by the court prior to submission. We conclude,
therefore, that CMF failed to preserve error on this issue.
Because CMF failed to preserve error on its statute of limitations
defense, and because its only other point on appeal must fail
because the penalty damages against National Union are not
supported by sufficient evidence, we affirm the district court's
award of actual and penalty damages against CMF.
C. Stat Medical's Cross-Appeal
Stat Medical asks this Court to remand the case for trial on
breach of contract, negligence and fraud claims that it contends
(without explanation) are supported by the evidence excluded from
trial. Stat Medical also challenges the district court's exclusion
of evidence relating to the loss of an exclusive nursing services
17
contract with six hospitals. The court’s exclusion of this
evidence began as a discovery dispute.
Shortly before the discovery deadline of September 15, 1993,
and over a year after the case was filed, Stat Medical attempted to
develop its damages theory. This theory was premised on business
losses and other intangible losses allegedly due to the defendants’
conduct in this case. Six days before the discovery deadline, Stat
Medical supplemented an earlier interrogatory answer by naming 21
new people with relevant knowledge, including the custodians of
records for the six hospitals that allegedly withdrew their
business after the Moddle claim. On September 10, 1993, Stat
Medical noticed four individuals for depositions to occur on
September 14 and 15. On September 15, Stat Medical noticed six
other individuals for depositions by written questions.
In response to CMF's motion for protection and sanctions, the
district court found Stat Medical's late development of its damages
theory to be an abuse of the discovery process. The court ordered
Stat Medical to withdraw its deposition notices and ruled that Stat
Medical could not depose the later designated witnesses for trial.
However, Stat Medical sought and was granted leave to amend its
complaint to add a damage theory based on loss of business and
reputation. In fact, Stat Medical included the previously excluded
witnesses and other evidence relating to its loss of business and
reputation damage theory in the pretrial order.
18
In December 1993, Stat Medical attempted to amend the pretrial
order by adding another witness. CMF again moved for sanctions,
arguing that the new witness was merely a substitute for an earlier
excluded witness and that the district court's order intended to
preclude Stat Medical, not only from deposing the witnesses
pretrial, but from developing its lost contract damages theory at
all. CMF also argued that the inclusion of the Stat Medical’s
witnesses in the pretrial order constituted a violation of the
district court's earlier discovery order. In response, the
district court precluded Stat Medical from introducing evidence on
its loss of business, loss of profits or loss of business goodwill
theories.
At trial, however, the district court reversed itself and
allowed Abu-Awad to testify about the impact on Stat Medical's
business and creditworthiness. Likewise, damage to business and
credit reputation was submitted as an element to the jury. The
district court has broad discretion to exclude evidence when
enforcing its own scheduling orders. Edwards v. Cass County,
Texas, 919 F.2d 273, 275 (5th Cir. 1990). We find no abuse of
discretion in this case.
CMF also contends that the district court erred by applying
the Texas prejudgment interest statute. CMF raises this argument
for the first time on appeal. “We consider an issue raised for the
first time on appeal only if it presents a purely legal question
19
and failure to address it would result in grave injustice.” Kelly
v. Foti, 77 F.3d 819, 822 (5th Cir. 1996). CMF has not shown that
our refusal to consider its argument that the district court
erroneously applied prejudgment interest will result in grave
injustice.
III. CONCLUSION
For the foregoing reasons, we REVERSE the district court's
judgment to the extent that it is premised upon National Union's
liability. We AFFIRM the district court's judgment to the extent
it is premised upon CMF's liability. Further, we find no error in
the district court's discovery orders, and AFFIRM those rulings.
20