Court of Appeals of Texas, Dallas.

STATE & COUNTY MUTUAL FIRE INSURANCE CO., Appellant,

v.

CIGNA INSURANCE CO. of Texas, Appellee.

No. 05-94-01229-CV.

|

July 6, 1995.

Before OVARD, BARBER and JAMES, JJ.

BARBER, Justice.

OPINION

*1 Cigna Insurance Company of Texas (Cigna) sued State and County Mutual Fire Insurance Company (State & County) seeking recoupment of worker’s compensation benefits Cigna paid to Bertha Scott and claiming State & County violated article 21.21, section sixteen of the Texas Insurance Code. The parties filed cross-motions for summary judgment. The trial court granted Cigna’s motion and denied State & County’s motion. In one point of error, State & County asserts the trial court erred in granting Cigna’s motion for summary judgment and denying its own motion for summary judgment. State & County argues the trial court erred in awarding Cigna: (1) attorney’s fees because there was a genuine issue of material fact as to the amount Cigna was due; (2) relief under article 21.21 of the Texas Insurance Code because Cigna did not have standing and because there was no evidence showing State & County violated the insurance code; and (3) $2500 in actual damages on its subrogation claim.

We affirm the trial court’s judgment to the extent it awarded Cigna $2500 on the subrogation claim. We reverse the trial court’s judgment awarding Cigna relief under article 21.21 of the insurance code and render judgment that Cigna take nothing on its article 21.21 claim.

FACTUAL AND PROCEDURAL BACKGROUND

Bertha Scott, while in the course and scope of her employment, was involved in an automobile accident with Robert Plunk. Cigna was the workers’ compensation carrier for Scott’s employer. State & County insured Plunk. Cigna paid Scott $4076 on her workers’ compensation claim.

Scott also made a claim against Plunk asserting he was negligent.¹ State & County, through an adjusting firm and one of its employees,² entered into settlement negotiations with both Cigna and Scott to settle their respective claims.

State & County settled with Scott for $2500. In affidavit testimony, State & County asserts that the $2500 was paid in settlement of Scott’s claims “above and beyond the interest of Cigna.” Scott executed a general release of all claims in favor of Plunk.

State & County and Cigna were not able to settle. Cigna filed suit against State & County pursuant to section 4.05(f) of the Workers’ Compensation Act seeking subrogation to the amount Cigna paid to Scott. See Act of December 11, 1989, 71st Leg., 2d C.S., ch. 1, § 4.05(f), 1989 Tex. Gen. Laws 1, 33, repealed by Act of May 12, 1993, 73rd Leg., R.S., ch. 269, § 5(2), 1993 Tex. Gen. Laws 987, 1273, codified at Texas Labor Code § 417.002(a) (Vernon pamph. 1995).³ Cigna also asserted that State & County knowingly violated article 21.21, section sixteen of the insurance code. Pursuant to the article 21.21 claim, Cigna sought treble damages and attorney’s fees. State & County did not assert release as a defense to Cigna’s subrogation claim.

Cigna and State & County filed cross-motions for summary judgment. The trial court denied State & County’s motion. It granted Cigna’s motion and awarded Cigna $2500 in actual damages on the subrogation claim and $5000 in additional damages for violation of article 21.21, section sixteen of the insurance code. The trial court also awarded Cigna $2625 in attorney’s fees under the article 21.21 claim.

STANDARD OF REVIEW

*2 In reviewing a summary judgment, we apply the following standards: (1) the movant for summary judgment has the burden of showing there is no genuine issue of material fact and that it is entitled to judgment as a matter of law; (2) in deciding whether there is a genuine issue of material fact precluding summary judgment, we take the evidence favorable to the non-movant as true; and (3) we indulge every reasonable inference in favor of the non-movant and resolve any doubts in its favor. Nixon v. Mr. Property Management Co., 690 S.W.2d 546, 548-49 (Tex. 1985). A fact is established as a matter of law if ordinary minds cannot differ as to the conclusion to be drawn from the evidence. See Triton Oil & Gas Corp. v. Marine Contractors Supply, Inc., 644 S.W.2d 443, 447 (Tex. 1982); Zep Mfg. Co. v. Harthcock, 824 S.W.2d 654, 657-58 (Tex. App.-Dallas 1991, no writ).

We may consider only the grounds expressly set forth in the motion for summary judgment and the issues of fact expressly set forth in the response thereto. McConnell v. Southside Indep. Sch. Dist., 858 S.W.2d 337, 341-343 (Tex. 1993). However, the nonmovant’s failure to respond cannot supply by default the summary judgment proof necessary to establish movant’s entitlement to judgment. Id. at 342.

When two parties file motions for summary judgment and one is granted and the other denied, “we review the cross-motions for summary judgment by determining all legal questions presented.” Guynes v. Galveston County, 861 S.W.2d 861, 862 (Tex. 1993). Under such circumstances, we may render the judgment the trial court should have rendered, “including rendering judgment for the other movant.” Jones v. Strauss, 745 S.W.2d 898, 900 (Tex. 1988). The parties still bear the burden of establishing their entitlement to judgment as a matter of law. Guynes, 861 S.W.2d at 862.

TEXAS INSURANCE CODE ARTICLE 21.21, SECTION SIXTEEN

State & County contends the trial court erred in awarding Cigna recovery for violation of article 21.21, section sixteen. State & County argues that Cigna did not have standing to pursue the claim. It also asserts there was a genuine issue of material fact as to whether it violated the insurance code.

A. Applicable Law

Article 21.21, section sixteen of the Texas Insurance Code provides:

Any person who has sustained actual damages as a result of another’s engaging in an act or practice declared in Section 4 of this Article or in rules or regulations lawfully adopted by the Board under this Article to be unfair methods of competition or unfair or deceptive acts or practices in the business of insurance or in any practice defined by Section 17.46 of the Business & Commerce Code, as amended, as an unlawful deceptive trade practice may maintain an action against the person or persons engaging in such acts or practices.

Tex. Ins. Code Ann. art. 21.21, § 16(a) (Vernon Supp. 1995). The Texas Supreme Court recently held that third parties do not have standing to assert claims under article 21.21, section sixteen. Allstate Ins. Co. v. Watson, 876 S.W.2d 145, 147-50 (Tex. 1994).; accord Transport Ins. Co. v. Faircloth, 38 Tex. Sup. Ct. J. 424, 425-26 (Mar. 30, 1995). The court reasoned that the obligations of article 21.21, section sixteen are “engrafted onto the contract between the insurer and insured and are extra-contractual in nature.” Watson, 876 S.W.2d at 149.

*3 A third party claimant has no contract with the insurer or the insured, has not paid any premiums, has no legal relationship to the insurer or special relationship of trust with the insurer, and in short has no basis upon which to expect or demand the benefit of the extra-contractual obligations imposed under article 21.21 with respect to their insureds.

Id. The court, absent explicit directive from the legislature, declined to construe article 21.21, section sixteen, or existing case law, to provide a cause of action to third-party claimants. See id at 150.

B. Application of Law to Facts

Cigna was not State & County’s insured. Cigna was a third party to the insurance contract between State & County and Plunk. As a third party, Cigna did not have standing to assert a cause of action against State & County under insurance code article 21.21, section sixteen. We sustain State & County’s point of error to the extent it complains the trial court erred in awarding Cigna relief pursuant to article 21.21, section sixteen of the insurance code.

We reverse the trial court’s judgment awarding Cigna recovery of actual damages, additional damages, and attorney’s fees for violation of article 21.21, section sixteen. The record establishes as a matter of law that Cigna had no standing. Accordingly, we render judgment that Cigna take nothing on its claim against State & County for violation of article 21.21, section sixteen.

RECOVERY UNDER THE WORKERS’ COMPENSATION ACT

State & County asserts the trial court erred in granting Cigna relief under the Texas Workers’ Compensation Act. State & County argues that Cigna: (1) did not prove the amount of its damages, (2) should have sued Plunk to enforce its subrogation rights, and (3) did not prove Plunk was negligent. State & County does not argue that Cigna was unable to recover against it directly under the Workers’ Compensation Act.

A. Applicable Law

Section 417.002(a) of the Texas Labor Code provides that “[t]he net amount recovered by a claimant in a third-party action shall be used to reimburse the insurance carrier for benefits, including medical benefits, that have been paid for the compensable injury. “⁴ Tex. Labor Code Ann. § 417.002(a). This section, through its predecessors, has been interpreted to provide that the workers’ compensation carrier is entitled to the “first money” a claimant receives from a third party.⁵ New York Underwriters, Ins. Co. v. State Farm Mut. Auto. Ins. Co., 856 S.W.2d 194, 199 (Tex. App.-Dallas 1993, no writ); Employers Casualty Co. v. Henager, 852 S.W.2d 655, 658 (Tex. App.-Dallas 1993, writ denied). “The employee has no right to any such funds until the carrier is paid in full.” Henager, 852 S.W.2d at 658. The section reduces the employer and public’s insurance burden by preventing the employee from retaining settlement proceeds in addition to compensation benefits. Capitol Aggregates, Inc. v. Great Am. Ins. Co., 408 S.W.2d 922, 924 (Tex. 1966); Henager, 852 s.W.2d 655. A carrier’s right to reduce its liability through recoupment from third party payments to employees “must not be compromised.” American Gen. Fire & Casualty Co. v. McDonald, 796 S.W.2d 201, 204 (Tex. App.-San Antonio 1990, writ denied); see Henager, 852 S.W.2d at 659. “A carrier’s subrogation rights … are so strong that public policy dictates that compromising such rights will support an action for conversion against the injured employee and his attorney.” Henager, 852 S.W.2d at 659; accord Prewitt & Sampson v. City of Dallas, 713 S.W.2d 720, 722-23 (Tex. App.-Dallas 1986, writ ref’d n.r.e.). Agreements which attempt to avoid a carrier’s subrogation interest are ineffective to defeat the carrier’s rights. See Henager, 852 S.W.2d at 659; Insurance Co. of N. Am. v. Wright, 886 S.W.2d 337, 342 (Tex. App.-Houston [1st Dist.] 1994, writ denied); McDonald, 796 S.W.2d at 204-05.

*4 If a third-party tort-feasor and its insurer pay a workers’ compensation claimant money that should go to the compensation carrier, the tort-feasor and its insurer are both liable for the amount of compensation paid by the carrier. See Home Indem. Co. v. Pate, 866 S.W.2d 277, 281 (Tex. App.-Houston [1st Dist.] 1993, writ withdrawn); Travelers Ins. Co. v. Seidel, 705 S.W.2d 278, 281 (Tex. App.-San Antonio 1986, writ dism’d). The right of a workers’ compensation carrier to reimbursement of funds paid to the claimant by third parties is statutory. Pate, 814 S.W.2d at 500-01; Seidel, 705 S.W.2d at 281. The compensation carrier is not required to intervene in order to assert or protect its subrogation interest. Seidel, 705 S.W.2d at 281. Under section 417.002(a), a carrier is entitled to reimbursement if it alleges payments of benefits, proves the amount of benefits paid, and proves recovery on the part of the claimant from a third party. See E.V.R. II Assocs., Ltd v. Brundige, 813 S.W.2d 552, 555 (Tex. App.-Dallas 1991, no writ); see also Tex. Labor Code Ann. § 417.002(a).

B. Application of Law to Facts

Cigna alleged payment of workers’ compensation benefits to Scott, proved the amount of benefits it paid, and proved the amount Scott recovered from Plunk; therefore, it was entitled to reimbursement under section 417.002(a). We do not decide whether State & County could have settled with Scott for her claim in excess of Cigna’s workers’ compensation subrogation interest and thereby obtain a limited release from Scott. That issue is not before us. We do hold that when State & County, with notice of Cigna’s subrogation claim, took a general release from Scott, in whose name Cigna was entitled to subrogate against Plunk, Cigna was not required to make Plunk a party to this suit and obtain findings against him. We limit our holding to this case where Cigna, asserting subrogation and seeking the amount State & County paid to Scott, was entitled to recover that amount from State & County. Accordingly, we affirm the trial court’s judgment to the extent that it awarded Cigna $2500.

DISPOSITION

We sustain State & County’s point of error in part and overrule it in part. We affirm the trial court’s judgment to the extent it awarded Cigna $2500 on the subrogation claim. We reverse the trial court’s judgment awarding Cigna relief under article 21.21, section sixteen of the insurance code, including the awards of additional damages and attorney’s fees. We render judgment that Cigna take nothing on its claim under article 21.21, section sixteen of the insurance code. Because of our disposition set forth above, we do not reach State & County’s other arguments. Tex. R. App. P. 90(a).

*5 * * *

	Footnotes
1		During oral argument, the parties disagreed as to whether Scott filed suit against Plunk. There is nothing in the record before us indicating that suit was filed.
2		The adjusting firm and one of its employees were defendants in the underlying lawsuit. The trial court entered a take nothing summary judgment in favor of the adjusting firm and its employee and no appeal was taken from this portion of the judgment.
3		The claim in issue arose prior to the recodification of the Texas Workers’ Compensation Act into the Texas Labor Code. However, since the recodification did not affect any substantive changes, we will cite the applicable labor code provisions in this opinion. See Act of May 12, 1993, 73rd Leg., R.S., ch. 269, § 6, 1993 Tex. Gen. Laws 987, 1273 (“This Act is enacted under Article III, Section 43, of the Texas Constitution. This Act is intended as a recodification only, and no substantive change in the law is intended by this Act.”).
4		As noted in footnote 3, supra, section 417.002(a) is the recodification of article 8307, section 4.05(f). The predecessor of section 4.05(f) was article 8307, section 6a. See Act of May 10, 1973, 63rd Leg., R.S., ch. 88, § 10, 1973 Tex. Gen. Laws 187, 193-94. Section 6a provided in relevant part that: Where the injury for which compensation is payable under this law was caused under circumstances creating a legal liability in some person other than the subscriber to pay damages in respect thereof, the employee may proceed either at law against that person to recover damages or against the association for compensation under this law, and if he proceeds at law against the person other than the subscriber, then he shall not be held to have waived his rights to compensation under this law…. If compensation be claimed under this law by the injured employee or his legal beneficiaries, then the association shall be subrogated to the rights of the injured employee, and may enforce in the name of the injured employee or of his legal beneficiaries the liability of said other person … If at the conclusion of a third party action a workmen’s compensation beneficiary is entitled to compensation, the net amount recovered by such beneficiary from the third party action shall be applied to reimburse the association for past benefits and medical expenses paid and any amount in excess of past benefits and medical expenses paid and any amount in excess of past benefits and medical expenses shall be treated as an advance against future benefit payments of compensation to which the beneficiary is entitled to recover under the Act. The supreme court has noted that section 6a was “essentially identical” to section 4.05(a). Guillot v. Hix, 838 S.W.2d 230, 231 n.1 (Tex. 1992). Because there are no substantive differences among sections 417.002(a), 4.05(f), and 6a, opinions interpreting and applying the sections are all applicable to the instant case.
5		A compensation carrier also has the right to pursue a third party in the name of a claimant. If a benefit is claimed by an injured employee or a legal beneficiary of the employee, the insurance carrier is subrogated to the rights of the injured employee and may enforce the liability of the third party in the name of the injured employee or the legal beneficiary. If the recovery is for an amount greater than that paid or assumed by the insurance carrier to the employee or the legal beneficiary, the insurance carrier shall: (1) reimburse itself and pay the costs from the amount recovered; and (2) pay the remainder of the amount recovered to the injured employee or the legal beneficiary. Tex. Labor Code Ann. § 417.001(b) (Vernon pamph. 1995). A substantially similar provision has been in effect at all relevant times. See Act of December 11, 1989, 71st Leg., 2d C.S., ch. 1, § 4.05(b), 1989 Tex. Gen. Laws 1, 33; Act of May 17, 1985, 69th Leg., R.S., ch. 326, § 1, 1985 Tex. Gen. Laws 1387, 1387-88.