Opinion
Civil Action No: SA-04-CA-231-XR.
November 5, 2004
ORDER
On this date, this Court considered the Bankruptcy Court's Judgment in favor of TEXAS MEDICAL LIABILITY TRUST (TMLT) that DONNA RAE GIBBONS-MARKEY (MARKEY) take nothing. Markey appeals the judgment and both parties have filed briefs. After reviewing the Bankruptcy Court's Judgment and Findings and Rulings, and the briefs submitted by each party, this Court AFFIRMS the Bankruptcy Court's decision.
I. Factual Background
A. The Muzquiz Case and Default Judgment
On or about August 1, 1994, Patricia Muzquiz (Muzquiz) received nasal surgery from the Appellant, Donna Gibbons-Markey, M.D. (Markey). Muzquiz alleged she was injured from the procedure. On April 11, 1996, as required by Texas statute, Muzquiz sent Markey written notice that a claim would be filed. A lawsuit was later filed as Patricia Muzquiz v. Donna Gibbons, M.D., Cause No. 96-CI 11065, in the Judicial District for Bexar County, Texas on August 1, 1996. Service of the petition allegedly occurred on August 25, 1996.
Markey never responded or answered the Muzquiz lawsuit. On September 30, 1996, Muzquiz was awarded a default judgment in the amount of $173,200.00 for medical expenses, lost wages, and pain and suffering among other damages. On February 21, 1997, Muzquiz filed and sent Plaintiff's First Set of Interrogatories and First Request for Production in Aid of Judgment. On May 20, 1997, Plaintiff filed and sent, by certified mail, a Motion to Compel Markey to respond to the interrogatories. On May 21, 1997, Markey replied, by letter, that she received the Motion to Compel but was confused claiming that she had received no prior notices of any claim or lawsuit. Muzquiz then sent an Order to Compel Production in Aid of Judgment and Answers to Interrogatories on August 1, 1997. The order stated that contempt proceedings would take place against Markey if she did not respond within 10 days. Markey did not respond to the Order.
Apparently, on August 8, 1997, either Markey or Muzquiz's attorney contacted Markey's insurer, Texas Medical Liability Trust (TMLT) about Muzquiz's claim. On August 12, 1997, Markey sent a letter to TMLT regarding Muzquiz's claim and enclosed the Order to Compel. TMLT thereafter informed Markey that she failed to timely notify them of Muzquiz's claim and Markey failed to comply with the notice provisions of her insurance policy.
Markey then employed an attorney and filed for a Bill of Review. She contends that she was never served with process in the Muzquiz action. Service was supposedly effected at 9:00am on August 30, 1996, at 540 Madison Oak Drive, suite 526, in San Antonio, Texas. Markey asserts in an affidavit that she was not served that day and has never had an office at that address. Her office is located at 540 Madison Oak Drive, suite 190. Markey eventually settled the Bill of Review with Muzquiz for $7,500 and the default judgment was set aside.
B. Markey Lawsuit filed against TMLT
After the default judgment was set aside, TMLT did undertake Markey's defense and was ultimately successful in procuring a dismissal of the suit. Subsequently, Markey demanded that TMLT reimburse her for the $7500 Bill of Review settlement payment and the $39,123 in attorney's fees incurred in connection with the Bill of Review. TMLT refused and Markey filed a lawsuit against TMLT in state court. Soon thereafter, Markey filed Chapter 7 bankruptcy and the TMLT case was removed to the Bankruptcy Court.
C. The Bankruptcy Court Decision
The Bankruptcy Court found that: (1) Markey did not receive notice of the petition in August 1996; (2) Markey received Interrogatories in Aid of Judgment in February/March of 1997 and a Motion to Compel Judgment in May of 1997; (3) TMLT was first notified of the claim on August 8, 1997; and (4) TMLT was prejudiced by the passage of time due to Markey's delayed notification. As a matter of law the Bankruptcy Court determined that: (1) TMLT did not have an obligation to file a Bill of Review on behalf of Markey; and (2) Markey had a duty to notify TMLT upon receipt of notice of the suit.
D. Appeal to this Court
Markey complains that the Bankruptcy Court erred when it held that "TMLT had no legal or contractual duty to [Markey] from a default judgment taken against her without service. . . ." Further, she contends that the Bankruptcy Court did not find that TMLT was prejudiced by Markey's actions or conduct.
II. Standard of Review
Districts courts have authority to hear appeals from final judgments and orders of bankruptcy courts within the same judicial district. 28 U.S.C. § 158(a)(1). A bankruptcy court's findings of fact are reviewed under the clearly erroneous standard. In Re Dota, 288 B.R. 448, 452 (S.D. Tex. 2003). The district court reviews issues of law and mixed questions of fact and law de novo. Id.
III. Analysis
TMLT's insurance agreement with Markey states, in relevant part, as follows:
D. INSURED'S DUTIES IN THE EVENT OF OCCURRENCE, CLAIM OR SUIT
1. Upon the Named Insured becoming aware of any event to which this insurance may apply as an insured occurrence, written notice shall be given by or for such insured to the Trust's Claim Department as soon as practicable. Such notice shall contain particulars sufficient to identify such event and such insured involved and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the name and address of each person injured and of available witnesses.
2. If a lawsuit is served upon or is received by the Named Insured or by anyone on such insured's behalf, such insured shall: (1) immediately notify the Trust's Claim Department by telephone of the service or receipt of such lawsuit papers; . . . If a claim or notice of a claim is communicated to the Named Insured, as distinguished from service of lawsuit papers, such insured shall immediately notify the Trust's Claim Department by telephone and deliver to the Trust's Claim Department every such communication or notice of claim,. . . .
* * *
4. Unless the Trust is prejudiced by the failure of the Named Insured to comply with any applicable provision of this policy, such failure shall not bar any liability of the Trust. A default judgment resulting from the failure to notify the Trust of a claim or lawsuit or from the failure to give either telephone notice or to deliver lawsuit papers to the Trust's Claim Department, as required in paragraph D2 above, shall constitute prejudice regardless of the liability facts and/or the amount of alleged damages.
The Bankruptcy Court found, and no party contests, that as of February/March of 1997, Markey was notified that Muzquiz had previously filed a lawsuit against her. It is further uncontested that a default judgment was entered on October 14, 1996. Finally, it is uncontested that Markey did not place TMLT on notice of any lawsuit until, at the earliest, August 8, 1997.
Markey relies upon St. Paul Mercury Indem. Co. v. Valdosta Mill. Co., 253 F.2d 667 (5th Cir. 1958), for her argument that an insurance carrier has a duty to its insured to set aside a default judgment. In St. Paul, the insured was advised in December 1948 by one of its retailer customers that some horses had been injured allegedly from consuming feed manufactured by the insured. The insured immediately notified his insurance agent of the claim. On June 22, 1949, the owner of the horses filed suit against the insured, and on December 5, 1949, a default judgment was entered. The insured first learned of the suit and judgment on or about Sept. 11, 1950, when it received a letter demanding payment of the judgment. The insured notified his insurance carrier of the September 11 letter on Sept. 21, 1950. On December 5, 1949, a judgment by default was entered against plaintiff in the suit in the amount of $11,996.67. Id. at 667, n. 1. The St. Paul court found that the insured timely notified his carrier, and the insurance carrier was obligated to attempt to set aside the default judgment and defend its insured. Id. at 669.
The facts in this case differ greatly from St. Paul. The insured in St. Paul, prior to a lawsuit being filed, notified his insurance agent immediately upon becoming aware of an occurrence. Further, within ten days of becoming aware that a default judgment had been taken against him he again notified his carrier. In this case, the Bankruptcy Court found that Markey became aware of a default judgment in February/March of 1997. She failed to notify her insurance carrier until August 8, 1997. Markey failed to comply with the notice provisions in paragraphs D1 and D2, and the Bankruptcy Court so found stating Markey "had a duty to notify the insurance company immediately and send them a copy of whatever she received."
Given that the Bankruptcy Court correctly found that Markey failed to comply with notice provisions of the policy, the question then becomes does such failure to provide timely notice excuse TMLT from taking action to set aside the default judgment.
TMLT argues that paragraph D4 contractually establishes that it was prejudiced by Markey's conduct. TMLT, however, relies upon the second sentence of that paragraph and that sentence is not applicable in this case. The default judgment in this case did not result from any failure to notify the Trust of a claim. The Bankruptcy Court found, and no party has challenged, that Markey received notice of the claim after default had been entered.
"A default judgment resulting from the failure to notify the Trust of a claim or lawsuit or from the failure to give either telephone notice or to deliver lawsuit papers to the Trust's Claim Department, as required in paragraph D2 above, shall constitute prejudice regardless of the liability facts and/or the amount of alleged damages."
Accordingly, the only surviving contractual language in paragraph D4 states: "Unless the Trust is prejudiced by the failure of the Named Insured to comply with any applicable provision of this policy, such failure shall not bar any liability of the Trust."
Contrary to Markey's statement, the Bankruptcy Court did find that TMLT was prejudiced by Markey's conduct. Markey does not appear to directly challenge this finding of fact in this appeal, but this Court interprets Markey's Brief as challenging the Bankruptcy Court's prejudice finding in its global point of error. A bankruptcy court's findings of fact is reviewed under the clearly erroneous standard. The Bankruptcy Court's finding of prejudice was not clearly erroneous. The Texas Supreme Court in Harwell v. State Farm Mutual Ins. Co., 896 S.W. 2d 170 (Tex. 1995) has held that "the failure to notify an insurer of a default judgment against its insured until after the judgment has become final and nonappealable prejudices the insurer as a matter of law." Id. at 174. The default judgment was entered on October 14, 1996. As of February/March of 1997, Markey was aware of the default judgment against her. It is uncontested that Markey did not place TMLT on notice of any lawsuit or default judgment until August 8, 1997, well after the judgment had become final.
"I'm going to find that there was prejudice to them just by the passage of time. When you file an equitable proceeding such as a bill of review, you're subject to equitable defenses such as waiver and laches and estoppel, and prejudice can occur by the mere passage of time."
Markey argues that the default judgment was void for lack of proper service and not "final." Nonetheless, even under the scenario in this case, the failure of Markey to timely notify her insurance carrier of the default judgment prejudiced the insurer. To show herself entitled to a bill of review and a setting aside of the default judgment, Markey must have shown that she was reasonably diligent in seeking a reinstatement of the case as soon as she had learned of the default judgment. See Ruland v. Ley, 135 Tex. 591, 144 S.W. 2d 883, 884 (Tex.Com.App. 1939) (even though there is a four-year limitations period to file a bill of review, a party cannot wait to file such a bill at a time she feels convenient. A party must demonstrate diligence and an unexplained lapse of nearly four months between discovery of a dismissal and the filing of a bill of review, without evidence of diligence justifies a denial of the bill.); Johnson v. W.J. Hancock Paint Wallpaper Co., 336 S.W.2d 468, 469 (Tex.Civ.App.-Fort Worth 1960, writ ref'd n.r.e.). Had Markey immediately informed TMLT of the default in February/March 1997, it may very well have had a duty to seek the bill of review. The Bankruptcy Court, however, found prejudice precisely because of the five month passage of time when Markey finally got around to notifying her insurance carrier on August 8, 1997. Had it not been for Markey's payment of $7,500 to settle the bill of review and set aside the default judgment, the bill could have very well been denied by a court because of her lack of diligence and the unexplained lapse of time.
The Court remains troubled by the little discussion raised in the Bankruptcy Court regarding how the insurance carrier was specifically prejudiced by Markey's conduct. For example, if the carrier had filed a bill of review, and the bill was denied, would it have then obligated itself to payment of the underlying default judgment? As the case is presented here, however, the Bankruptcy Court found prejudice, Markey did not specifically attack that finding, and in any event such a finding is reviewed under a clearly erroneous standard. This Court, based on the above, is unwilling to conclude that the Bankruptcy Court's finding was clearly erroneous. See e.g. MGIC Indemnity Corp. v. Central Bank of Monroe, 838 F. 2d 1382 (5th Cir. 1988) (interpreting Louisiana law and finding that insurer had been prejudiced by merely not been able to select counsel of its choosing and the opportunity to defend, even though a particular prejudice was not shown).
This Court does not address TMLT's additional argument that the insurance agreement does not provide coverage for expenses related to a Bill of Review because that argument was not raised below before the Bankruptcy Court.
IV. Conclusion
The Bankruptcy Court's Judgment in favor of Texas Medical Liability Trust that Donna Rae Gibbons-Markey take nothing is AFFIRMED.