American Nurses v. Natl Union Fire Ins, et

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this opinion should not be published and is not precedent except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