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At a Glance:
Autry v. Dearman
August 8, 1996
933 S.W.2d 182
Published Opinion

Autry v. Dearman

Court of Appeals of Texas,

Houston (14th Dist.).

Sandra A. AUTRY, as Receiver of Texas Employers’ Insurance Association, Appellant,


William T. DEARMAN, Individually and d/b/a William T. Dearman & Associates, Appellees.

No. 14–94–00661–CV.


Aug. 8, 1996.


Rehearing Overruled, Nov. 7, 1996.

Attorneys & Firms

*186 Loren R. Smith, Houston, for appellant.

B. Todd Wright, Houston, for appellees.



ANDERSON, Justice.

This appeal concerns a workers’ compensation carrier’s subrogation rights to a third-party settlement pursuant to former article 8307 of the Revised Civil Statutes. After a work-related injury, Jesse Villegas (“Villegas”) received compensation and medical benefits from Texas Employers’ Insurance Association (now in receivership and referred to collectively with its receiver, Sandra A. Autry, as “TEIA”), which provided workers’ compensation insurance for Villegas’s employer. The attorney representing Villegas, appellees, William T. Dearman, Individually and d/b/a William T. Dearman & Associates (“Dearman”), obtained a settlement of a personal injury suit. After a judgment non obstante veredicto (JNOV) that TEIA take nothing in its suit against Dearman to enforce its subrogation rights to the third-party settlement, TEIA brings this appeal in twelve points of error. We affirm.

While working for a landscaping company in March 1987, Villegas was bitten by a dog owned by Yolanda Brown. He sustained injuries to his hand and also claimed he injured his back when he fell. Through September 1987,1 TEIA paid Villegas a total of $7,478.32 in compensation and medical benefits for these injuries.

Dora Oliva, the attorney handling Villegas’s compensation claim, referred the personal injury claim to Dearman, who filed suit in June 1988 against Brown for damages. Brown, through her insurance company, Republic Insurance Company (“Republic”), settled the suit for $7,500 in March 1989. Dearman retained $4,215.10 in attorney’s fees and expenses from the settlement funds, out of which a $1,250 referral fee was paid to Oliva. Villegas received the balance of the settlement funds in the amount of $3,284.90. Villegas acknowledged receipt of the settlement funds on April 3, 1989, and the court entered an agreed judgment dismissing the cause on May 20, 1989.

TEIA contends that it did not discover that a third-party settlement had been reached until April 11, 1990 when its representative contacted the district clerk’s office and was informed of the agreed judgment. TEIA then made demand on Dearman and Republic for satisfaction of its subrogation rights. Dearman never responded, but Republic settled with TEIA for $3,739.16, half of the total benefits paid. TEIA sued Dearman on March 2, 1992, claiming conversion, *187 breach of contract, fraud, and other causes of action. In his defense, Dearman denied he knew TEIA had paid compensation to Villegas. This contention was hotly disputed by TEIA at trial. In addition, Dearman asserted he was entitled to one-third of the recovery as attorney’s fees pursuant to the workers’ compensation statute. TEIA stipulated that Dearman was entitled to an offset in the amount paid by Republic.

The case was tried to a jury. The trial court refused to submit questions on fraud, constructive fraud, money had and received, unjust enrichment, or breach of contract. Instead, the trial court determined that conversion was the applicable cause of action. The jury answered four questions in favor of TEIA, finding that Dearman had knowledge of TEIA’s subrogation rights on April 29, 1988, before he settled the third-party suit. The trial court disregarded the jury’s answers, however, and granted Dearman’s motion for judgment, which asserted, inter alia, that the two-year statute of limitations barred TEIA’s conversion action brought three years after the third-party settlement. TEIA appeals from the take-nothing judgment, complaining that the trial court refused to submit all of its causes of action and erroneously found its claims barred by limitations.

When a claim for workers’ compensation is made, the insurance carrier is subrogated to the rights of the injured employee and may enforce the liability of the person who caused the injury.2 section 6a of article 8307 are as follows:

Recovery from third person; subrogation; attorney’s fees. (a) If 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.... 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 his legal beneficiaries the liability of said other person, and in case the recovery is for a sum greater than that paid or assumed by the association to the employee or his legal beneficiaries, then out of the sum so recovered the association shall reimburse itself and pay said costs and the excess shall be paid to the injured employee or his beneficiaries. However, when the claimant is represented by an attorney, and the association’s interest is not actively represented by an attorney, the association shall pay such fee to the claimant’s attorney not to exceed one-third (1/3) of said subrogation recovery or as may have been agreed upon between the claimant’s attorney and the association or in the absence of such agreement the court shall allow a reasonable attorney’s fee to the claimant’s attorney for recovery of the association’s interest which in no case shall exceed thirty-three and one-third percent (33 1/3%) payable out of the association’s part of the recovery....

* * * * * *

(c) 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....

Act of May 17, 1985, 69th Leg., R.S., ch. 326, § 1, 1985 Tex. Gen. Laws 1387, repealed by Act of December 11, 1989, 71st Leg., 2nd C.S., ch. 1, § 16.01(10), 1989 Tex. Gen. Laws *188 1, 114 (hereinafter referred to as article 8307).3

Under the act, an injured employee who proceeds against a third-party tortfeasor is not precluded from claiming against the employer’s compensation carrier. Fort Worth Lloyds v. Haygood, 151 Tex. 149, 246 S.W.2d 865, 869 (1952).

When a compensation carrier pays compensation to an injured employee, the carrier has a statutory right to reimbursement out of the “first money” recovered in a subsequent suit against a third-party tortfeasor. Bridges v. Texas A & M Univ. Sys., 790 S.W.2d 831, 833–34 (Tex.App.—Houston [14th Dist.] 1990, no writ).4

In its first four points of error, TEIA attacks the trial court’s refusal to submit questions on fraud, constructive fraud, money had and received, and unjust enrichment. In point of error six, TEIA complains that the court erred in refusing to submit its question on breach of contract. However, TEIA failed to support its sixth point of error with any legal authority. A point of error not supported by authority is waived. Trenholm v. Ratcliff, 646 S.W.2d 927, 934 (Tex.1983).

Rule 278 requires trial judges to submit requested questions to the jury if the pleadings and any evidence support them. Exxon Corp. v. Perez, 842 S.W.2d 629, 631 (Tex.1992).

Under the facts of this case, we hold that TEIA’s claim is one for conversion. Conversion is the wrongful exercise of dominion and control over another’s property in denial of, or inconsistent with, his rights. Prewitt and Sampson v. City of Dallas, 713 S.W.2d 720, 722 (Tex.App.—Dallas 1986, writ ref’d n.r.e.).

When a third-party tortfeasor pays a settlement or judgment to an employee who has been receiving workers’ compensation benefits, the tortfeasor5 and the employee are jointly and severally liable to the compensation carrier for its entire subrogation claim. Prewitt and Sampson, 713 S.W.2d at 722. Even though TEIA could have obtained full reimbursement from Republic, Brown’s insurance carrier, it chose instead to settle for one-half of Republic’s liability.

The right of subrogation exists only by virtue of the workers’ compensation statute. Article 8307, section 6a requires a written agreement for an attorney to act on behalf of the carrier in protecting its subrogation rights, in relevant part as follows:

In any case where the claimant’s attorney is also representing the subrogated association, a full written disclosure must be made to the claimant, prior to actual employment by the association as an attorney, and acknowledged by the claimant, and a signed copy of the same furnished to all concerned parties and made a part of the file in the Industrial Accident Board. A copy of the disclosure with authorization and consent, shall also be filed with the claimant’s pleadings prior to any judgment tendered and approved by the court.

Thus, TEIA could not have relied on any offer by Dearman to represent it or protect its rights unless there was such a written agreement approved by Villegas. There was none.

We hold that TEIA’s claims of fraud, breach of contract, and its quasi-contract claims cannot succeed as a matter of law. First, there was no contractual relationship between Dearman and TEIA. Secondly, TEIA’s rights are statutory. We decline to impose a fiduciary duty on Dearman to notify TEIA of the third-party settlement, as TEIA urges, where no such duty is required under the statute.

In addition, there is no evidence supporting TEIA’s claims of fraud, constructive fraud, money had and received, and unjust enrichment. To be entitled to submission of its fraud and implied contract claims, TEIA was required to establish that it reasonably relied on a misrepresentation or false promise. See, e.g., Seideneck v. Cal Bayreuther Assocs., 451 S.W.2d 752, 755 (Tex.1970) (“when the evidence offered to prove a vital fact is so weak as to do no more than create a mere surmise or suspicion of its existence, such evidence is in legal effect no evidence”). Moreover, TEIA could not have reasonably relied on any alleged representation by Dearman that he would act on its behalf because it did not obtain the required written agreement and the claimant’s consent. We hold TEIA was not denied submission of valid theories of recovery. We overrule TEIA’s points of error one through four.

Conversion, the only applicable cause of action under these facts, is governed by the two-year statute of limitations. TEX. CIV. PRAC. & REM.CODE ANN. § 16.003(a) (Vernon Supp.1996).6 We therefore overrule point of error twelve which contends that TEIA’s claims are not barred because the four year statute governed its fraud, constructive fraud, money had and received, unjust enrichment, and breach of contract claims.7 TEIA also argues that because it seeks reimbursement for its subrogation claim, its suit is an action for debt and is governed by the four-year statute. We disagree. While we recognize that the term “reimbursement” is used in cases involving a compensation carrier’s recoupment of the benefits it paid, the carrier’s suit is not an action for debt. The carrier is the owner of the first money received in the third-party settlement, and when those funds are paid to someone else, they have been converted. Consequently, we overrule TEIA’s point of error eight which asserts that the four-year statute is applicable.8

In points nine through eleven, TEIA argues that limitations does not bar its conversion claims. As noted earlier, Dearman moved the trial court to disregard the jury’s verdict and to enter a take-nothing judgment based on limitations. JNOV is proper when the evidence is conclusive and one party is entitled to prevail as a matter of law, or when a legal principle precludes recovery. Graphilter Corp. v. Vinson, 518 S.W.2d 952, 955 (Tex.Civ.App.—Dallas 1975, writ ref’d n.r.e.).

First, TEIA contends in point of error nine that its claims are not barred because limitations was tolled for one year by its receivership. TEIA filed for receivership on February 1, 1991, and it contends its receiver was given an automatic one-year extension of time to file suit pursuant to Martindale Mortgage Co. v. Crow, 161 S.W.2d 866 (Tex.Civ.App.—El Paso 1941, writ ref’d w.o.m.).

Generally, the appointment of a receiver does not toll limitations. article 21.28 does not toll limitations. We overrule point of error nine.

TEIA complains in point of error ten that its claim did not arise until it made demand on Dearman for reimbursement and its demand was refused in April 1990. It cites the rule that where initial possession is lawful, an action for conversion does not commence until demand is made for return of the property and its return is refused. See Fort Worth Lloyds, 246 S.W.2d at 869. Thus, because any conversion by Dearman was completed when funds were disbursed from the settlement between Brown and Villegas in April 1989, no demand was required. We overrule point of error ten.

In point of error eleven, TEIA argues that the trial court erred in finding its cause of action barred because limitations did not begin until it discovered the third-party settlement. TEIA contends limitations did not begin until it learned in April 1990 that Dearman converted the funds, and it timely filed suit within two years in March 1992. While this argument initially may appear facially valid, it cannot withstand careful scrutiny in light of the facts and the applicable law.

The traditional rule in Texas is that a cause of action accrues and the limitations period begins to run as soon as the claimant suffers some injury, regardless of when the injury becomes discoverable. Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex.1990).

TEIA argues that discovery of its cause of action is a fact question which should have been submitted to the jury. The party seeking to use the discovery rule must plead the rule, and in a trial on the merits, must prove and secure findings on the issue, or the discovery rule is waived. Willis v. Maverick, 760 S.W.2d 642, 647 (Tex.1988) (holding that proper submission of discovery rule question must include “should have discovered” element).10

TEIA’s argument and authorities under its points alleging application of the discovery rule do not comport with its submitted question, however. It contends in its reply brief that it is entitled to deferral of accrual of its cause of action because Dearman was under a duty to disclose the third-party settlement, but fraudulently concealed the facts giving rise to the cause of action from TEIA, citing Republic Supply Co. v. French Oil Co., 392 S.W.2d 462, 464 (Tex.Civ.App.—El Paso 1965, no writ).

As with the discovery rule, it was TEIA’s burden to plead and secure findings on fraudulent concealment. See Seibert v. General Motors Corp., 853 S.W.2d 773, 778 (Tex.App.—Houston [14th Dist.] 1993, no writ). In addition, we have already found no evidence supporting TEIA’s allegations of fraud in this case. We hold TEIA cannot prevail on its fraudulent concealment claim.

We now turn to application of the discovery rule apart from any fraudulent concealment. Generally, the period of limitations for conversion begins to run at the time of the unlawful taking. Id. at 415. In our view, the distinguishing feature of Hofland is its application of the discovery rule to conversion cases where possession was initially lawful. Here, because Dearman had no right to the first money received until TEIA was paid, his possession was never lawful and his conversion was complete when funds were disbursed to him in 1989. Thus, we decline to follow the rationale in Hofland.

The discovery rule is a limited exception to strict compliance with the statute of limitations. Computer Assocs., 918 S.W.2d at 456.

In considering whether to permit application of the discovery rule exception to the statute of limitations in TEIA’s conversion action, we review the evidence relevant to the discoverability of the claim. TEIA knew Villegas was pursuing his claim against the third-party tortfeasor, and it knew the identity of the attorneys representing both Villegas and the third party, as well as the *194 third party’s insurance carrier and adjuster. While a carrier is not required to intervene in the suit, its failure to do so is a factor that may be considered in evaluating its efforts to secure notice of the settlement. Cf. Computer Assocs., 918 S.W.2d at 457 (declining to permit application of discovery rule exception, noting that plaintiff could have discovered theft of trade secret computer source codes by using document control logs).

In Computer Associates, the Court held that trade secret misappropriation is capable of detection within the time allotted for bringing such suits. Id. To determine whether TEIA’s injury due to conversion was inherently undiscoverable so as to delay the accrual date of its cause of action, we will examine the methods of discovery readily available to TEIA using reasonable diligence. The discovery rule suspends the accrual date of a cause of action until the injured party knew of, or in the exercise of reasonable diligence should have learned of, the injury giving rise to the cause of action.11 TEIA completed the payment of benefits to Villegas during September 1987, and chose not to pursue its own action for recoupment against Brown, the tortfeasor, implicitly relying on Villegas to seek such relief, and assuming a role as an observor, monitoring the courts for information on any cause of action he might file. By early June 1988, this monitoring would have revealed the lawsuit filed by Dearman, and presented TEIA with the option to either intervene, or continue monitoring the proceeding. Pursuit of either choice by TEIA would have provided information on a timely basis about the disposition of their funds paid by the third party. Dearman’s conversion in April 1989, when he disbursed the settlement, was capable of detection through reasonable diligence by TEIA.

Moreover, the record reflects that TEIA knew of, and actively utilized, various methods to detect litigation affecting its interest. By letter dated April 29, 1988, Rick Whitaker, a senior claims adjuster at TEIA during the events at issue in this case, formally notified Crawford & Crawford, Republic’s adjuster, of TEIA’s subrogation claim for the total amount of benefits paid. No similar notice to Dearman is in evidence. Records from TEIA’s files indicated it periodically monitored the case, although its representatives testified that Dearman’s office frequently failed to return calls or respond to requests for information. Curiously, Whitaker noted on one of his activity reports dated August 22, 1989 that he contacted the district clerk’s office and was told, incorrectly, no suit had been filed by Villegas. However, that same report also bears the cause number of the third-party action and notes May 20, 1989 as the date of the agreed judgment. Despite these indications that TEIA had clear knowledge of the agreed judgment between Brown and Villegas during the summer of 1989, TEIA nevertheless contends it ultimately discovered the settlement of the suit on April 11, 1990, when Whitaker again contacted the district clerk’s office and the adjuster for the third party’s insurance carrier.

As in Computer Associates, this case turns on whether the conversion was inherently undiscoverable. See 918 S.W.2d at 458. We conclude that it was not. TEIA had ample opportunity and ability to discover that the third-party suit had settled and funds were disbursed. In fact, it ultimately discovered its cause of action well within the two-year limitations period when it learned that a settlement had been paid, and yet it waited almost two full years before filing suit. We hold that the discovery rule is inapplicable to TEIA’s cause of action for conversion. Therefore, TEIA’s claim was barred because it was not filed until March 1992, more than two years after the settlement funds were disbursed in April 1989, and almost five years after TEIA terminated payment of benefits to Villegas in September 1987. The trial court properly granted JNOV on Dearman’s limitations defense. We overrule point of error eleven.

Having found that the trial court properly determined that limitations barred TEIA’s only cause of action, we have considered *195 TEIA’s other points of error and determined that discussion of these points is not necessary to disposition of the appeal. See TEX.R.APP. P. 90(a). We affirm the judgment of the trial court.



The record reflects TEIA completed its payments to Villegas in 1987, except for one last payment in early 1988.


Generally, rights conferred by subrogation are entirely derivative of the subrogor’s interest, to which the subrogee merely succeeds. Phennel v. Roach, 789 S.W.2d 612, 615 (Tex.App.—Dallas 1990, writ denied).


These provisions are now codified at TEX. LAB.CODE ANN. § 1.001 (Vernon 1996).


In view of our disposition of this appeal, we need not address appellees’ first reply point, which is in the nature of a cross-point, contending that after deducting from the third-party settlement an offset for the settlement paid by Republic, and Dearman’s attorney’s fees and litigation costs, TEIA is not entitled to any funds from that third-party settlement.


At oral submission, counsel for TEIA acknowledged that it could have filed suit against Brown, but that it did not do so.


Section 16.003(a) provides in relevant part:

[A] person must bring suit for trespass for injury to the estate or to the property of another, conversion of personal property, taking or detaining the personal property of another, personal injury, forcible entry and detainer, and forcible detainer not later than two years after the day the cause of action accrues.


Moreover, we note that TEIA’s claims for money had and received and unjust enrichment would be barred by the two-year statute. See Hornblower & Weeks Hemphill, Noyes, Inc. v. Crane, 586 S.W.2d 582, 587 (Tex.Civ.App.—Corpus Christi 1979, writ ref’d n.r.e.) (holding that unjust enrichment is governed by the two-year statute).


TEIA cites two federal cases where the four-year statute of limitations was applied to suits concerning subrogation liens. See Mohamed v. Exxon Corp., 796 S.W.2d 751, 753–54 (Tex.App.—Houston [14th Dist.] 1990, writ denied).


TEX. INS.CODE ANN. art. 21.28, § 4(g) (Vernon Supp.1996) provides in relevant part as follows:

The receiver shall not be required to plead to any suit in which he may be a proper party plaintiff or defendant, in any of the courts of this State until one (1) year after the date of his appointment as receiver, and the provisions of Sections 64.033 ... Civil Practice and Remedies Code, as amended, shall not apply to insolvent insurance companies being administered under this Article.

Section 64.033 of the Civil Practice and Remedies Code provides:

A receiver may bring suits in his official capacity without permission of the appointing court.

TEX. CIV. PRAC. & REM.CODE ANN. § 64.033 (Vernon 1986).


TEIA submitted the following question:

When do you find that TEIA discovered, or in the exercise of due diligence should have discovered, the settlement of the third-party case?

Dearman’s failure to submit a question as to when the cause of action accrued was not error. The question of when a cause of action accrues is one of law for the court. Ponder v. Brice & Mankoff, 889 S.W.2d 637, 641 (Tex.App.—Houston [14th Dist.] 1994, writ denied).


The record in this case does not provide a clear basis for a determination of precisely when TEIA knew that it had suffered an injury from Dearman’s conversion.

End of Document