Opinion
NO. 01-15-00117-CV
01-31-2017
LEAGUE CITY, Appellant v. TEXAS WINDSTORM INSURANCE ASSOCIATION, Appellee
On Appeal from the 10th District Court Galveston County, Texas
Trial Court Case No. 12CV0053
MEMORANDUM OPINION
League City sued Texas Windstorm Insurance Association ("TWIA") for breach of contract, violations of the Insurance Code, and breach of the duty of good faith and fair dealing in connection with the handling of Hurricane Ike claims. Although the jury found in favor of League City on its causes of action, it also found in favor of TWIA on its affirmative defenses. The trial court rendered a take-nothing judgment in favor of TWIA, and League City appealed. TWIA filed a cross-appeal challenging pretrial discovery sanctions.
Because TWIA's affirmative defenses negated League City's causes of action, the trial court correctly entered a take-nothing judgment. Furthermore, the challenge to the interlocutory sanctions order is moot because that order merged into the amended final judgment, which assessed costs of court but did not identify any separate award of sanctions. Accordingly, we affirm.
Background
Hurricane Ike struck the Houston area on September 13, 2008. League City had insurance from Texas Windstorm Insurance Association, covering 140 buildings or structures which were separately listed in the policy declarations. The policy covered "direct physical loss to the covered property caused by windstorm or hail unless the loss is excluded in the Exclusions." Each item had its own deductible, above which TWIA was obligated to pay for covered losses up to the limits of liability.
Although there were only 140 covered structures, they were assigned numbers ranging from 1 to 188 because some previously included structures had been removed from coverage for the relevant policy period.
The policy required League City to provide "prompt written notice" of a loss, including "a description of the property involved." The City also was required to "keep an accurate record of repair expenses" and to provide access to the damaged property and copies of pertinent records upon request. TWIA was required to acknowledge receipt of the notice of loss promptly, to begin an investigation, to request additional information from the insured as needed, and to inform the insured whether the claim would be paid, had been denied, or required more information to enable a decision to be made.
Two days after Hurricane Ike struck, League City sent TWIA a "First Notice of Loss" claims reporting form, which described the loss and damage simply as "Wind Damage to Various Locations." TWIA responded with a "Claim Notice Acknowledgement and Assignment," describing the loss as "Hurricane Ike Damage" and listing each item included in the policy, the applicable limit of liability, coinsurance, the deductible, and a description. TWIA's representative at trial testified that this form was an acknowledgment of receipt of League City's notice and a statement of policy coverage. It did not identify any specific claim.
TWIA assigned Paul Gauthier, an employee of Specialty Group Inc., as the adjuster for this claim. While League City continued assessing its damages, Gauthier created a spreadsheet listing all the structures covered by the insurance policy. About two weeks after the hurricane, League City employees Paula Orise and Alison Smith met with Gauthier, and they agreed to use the spreadsheet to identify and communicate claimed damages. League City also submitted receipts and contractor repair estimates.
Around the same time, Gauthier toured the areas of known damage with League City's facilities manager, Tony Meyer. Gauthier learned that most of the wind damage was minor, with the exception of City Hall, which had sustained significant damage. Gauthier investigated and took more than 500 pictures, but he did not enter each building, make drawings, or climb on any rooftop.
In November 2008, Gauthier told TWIA that League City was still determining which structures had been damaged. With the exception of City Hall, which eventually required replacement of external cladding, his assessment was that the damage to many locations would not exceed the deductible. By May 2009, League City had identified the damaged structures and sent Gauthier the completed spreadsheet and supporting information, including repair estimates and contractor invoices. But, as Gauthier informed TWIA, much of what League City reported related to structures or locations which were not covered by the windstorm policy.
In June 2009, TWIA paid League City $200,000 as an advance for repairs to City Hall. Two months later, a TWIA claims supervisor admonished Gauthier for allowing the file to "drag on" and directed him to determine a reasonable settlement offer within two weeks, based on his own calculations and estimates. About two weeks after that, TWIA paid League City $304,747.40, which represented payment for losses relating to some properties, including City Hall, a gazebo, a community center, a museum storage building, and a fire station. TWIA did not pay for losses relating to other properties damaged in amounts less than the deductibles, including the library, council chambers, and the Civic Center.
About a month later, Gauthier sent League City a closing letter, in which he stated that TWIA had instructed him to close the claim but that a supplemental claim could be filed "once repairs are completed, and all claim documentation is submitted to TWIA." The closing letter included a table summarizing payments that TWIA had made for each covered structure. TWIA had not paid for depreciation to City Hall or for any losses that were below the deductible or not covered by the policy.
In May 2010, TWIA paid League City $4,026.95 for additional expenses incurred to repair the fire station. TWIA later extended the time for League City to make a claim for depreciation to City Hall. In October 2011, TWIA sent League City a letter detailing the final adjustment of its claim for repairs to City Hall. Although the actual cost of repairs was $1,036,392.00, only $749,510.24 had been approved because the policy did not cover asbestos abatement which had been required as part of the cladding replacement. TWIA also paid $256,425.69 for depreciation to City Hall. TWIA never sent League City a denial-of-coverage determination in regard to any Hurricane Ike claims.
League City did not request any additional payments pursuant to the windstorm policy until it sued TWIA for breach of contract, violations of the Texas Insurance Code, and breach of the duty of good faith and fair dealing. The City alleged that TWIA failed to affirm or deny coverage within a reasonable time. It further alleged that although TWIA "paid for a portion of the damage to the City Hall building," it "ignored" or improperly inspected "numerous additional structures," failed to pay the full policy proceeds, and failed to provide "full coverage" for damages sustained due to a covered occurrence. The City's pleadings did not identify which of the 140 covered structures sustained an uncompensated windstorm loss in excess of the policy deductible.
TWIA sent a letter to League City's attorneys informing them that it had not received any presuit notice of the complaint and the amount of damages claimed. TWIA also wrote: "It is unclear to us specifically what items of loss or damage you claim is owed." Receiving no response to its letter, TWIA answered the lawsuit and demanded an appraisal under the policy. The appraisal process resulted in an award that was not unanimous; TWIA's appraiser refused to join in the determination. The final award was $3,449,755.37, which was the total of $3,224,434.65 for structures, $82,143.04 for fencing, and $143,177.68 for contents.
At trial League City introduced evidence challenging the manner in which Gauthier had adjusted the claim. In particular, League City contended that he failed to assess the windstorm damage independently immediately after the storm. The City posited that if Gauthier had conducted a reasonable investigation, he would have identified the damage to 29 additional structures, determined the dollar value of the amount of loss, and facilitated prompt payment for all of the City's covered losses. To prove that its losses exceeded what TWIA had already paid, League City relied on the appraisal and its supporting documentation as evidence of its damages.
In its defense, TWIA contended that the insurance policy required prompt written notice of loss including a description of the property involved. It also argued that the policy required the insured to keep an accurate record of repair expenses. TWIA's position was that when Gauthier initially inspected the covered structures with League City employees, the extent of the damage was unknown. When the claim was closed, League City was invited to submit for payment any additional Hurricane Ike windstorm damages that it discovered later. TWIA argued throughout the trial that it paid every claim made by League City, which sued without ever providing notice of any additional damage. Thus TWIA never was given an opportunity to pay the additional claims identified in the City's lawsuit. TWIA argued that the City made repairs without forwarding receipts or providing notice of newly discovered windstorm damage, thus preventing it from conducting a reasonable investigation and making a timely payment of any newly discovered damages.
The jury found in favor of League City on its contract claim, finding that TWIA failed to comply with the insurance policy. It also found in favor of League City on its extracontractual claims that TWIA violated the Insurance Code and the duty of good faith and fair dealing. But the jury found in favor of TWIA on the affirmative defenses of lack of notice and, in part, failure to keep repair receipts. In addition, the jury found that TWIA was prejudiced by the lack of prompt written notice and the failure to keep repair receipts.
After the jury's verdict, TWIA filed a motion to disregard certain jury answers, a motion for entry of judgment, and a motion for judgment notwithstanding the verdict (JNOV). The trial court entered judgment, ordering that League City take nothing by its claims. League City filed a post-judgment motion asking the court to disregard the jury answers that favored TWIA and to render judgment in its favor instead. The trial court denied this motion.
Both League City and TWIA have appealed.
Analysis
I. League City's appeal
A. Allegedly disregarded jury findings
League City raises 14 issues on appeal, several of which rely on the premise that the trial court disregarded various jury answers in its favor.
In issues five, six, and seven, League City suggests that the trial court must have disregarded the jury's findings in its favor in order to arrive at the take-nothing judgment that it rendered in this case. League City asserts that this was error. Although TWIA filed a post-trial motion to disregard jury findings and for JNOV, the trial court did not expressly rule on the motion.
After a jury returns its verdict, a trial court must render a judgment that conforms to the pleadings, the nature of the case proved, and the verdict, if any. See TEX. R. CIV. P. 301. The judgment shall be framed so as to give a party all the relief to which it may be entitled either in law or equity. Id. Courts have a "'duty to harmonize jury findings when possible.'" Arvizu v. Estate of Puckett, 364 S.W.3d 273, 276 (Tex. 2012) (quoting Producers Chem. Co. v. McKay, 366 S.W.2d 220, 224 (Tex. 1963)). "The court must reconcile apparent conflicts in the jury's findings, if reasonably possible, in light of the pleadings and evidence, the manner of submission, and the other findings considered as a whole." Indian Beach Prop. Owners' Ass'n v. Linden, 222 S.W.3d 682, 695 (Tex. App.—Houston [1st Dist.] 2007, no pet.) (citing Bender v. S. Pac. Transp. Co., 600 S.W.2d 257, 260 (Tex. 1980)).
In this case, the court's charge included jury questions on TWIA's affirmative defenses of lack of notice and failure to keep repair receipts, both conditions imposed by the insurance policy. A jury finding in favor of League City on breach of contract can be reconciled with the jury's finding in favor of TWIA on its affirmative defenses. See Bender, 600 S.W.2d at 260; Indian Beach, 222 S.W.3d at 695. An affirmative defense does not negate the plaintiff's factual basis for imposing liability; rather it supplies an independent reason why, if proven by the defendant, the plaintiff cannot recover. See Zorrilla v. Aypco Constr. II, LLC, 469 S.W.3d 143, 155-56 (Tex. 2015). Thus the jury could have found that TWIA breached the contract of insurance by failing to pay for damages caused by windstorm, while also finding that League City failed to give TWIA prompt written notice of the loss including a description of the property involved for one or more of the structures scheduled in the policy. Indeed this was the crux of the parties' dispute at trial—with TWIA contending that it had no notice of the additional damages and loss for which it had been sued and League City taking the position that TWIA would have known about the losses if it had adjusted the claim properly.
In light of the affirmative-defense findings, we conclude the trial court could have rendered a take-nothing judgment without disregarding the jury's other findings.
B. TWIA's affirmative defenses
As affirmative defenses, TWIA argued that it was prejudiced by League City's failures to satisfy policy requirements, including that it provide notice of loss that included a description of the properties involved. These matters were submitted to the jury which found, among other things, that League City failed to provide notice of loss as to each disputed structure (Question No. 18), and that TWIA was prejudiced by each such failure (Question No. 19). League City challenges these adverse findings on TWIA's affirmative defenses.
With respect to most but not all of the disputed structures, the jury also found failures to keep and provide accurate records of repair expenses (Question No. 20), and that TWIA was prejudiced by each such failure (Question No. 21). The City also challenges the repair-records findings, but because the failure to provide notice is dispositive with respect to all disputed structures—while the jury found the repair-records defense applied to most but not all disputed structures—for sake of simplicity we focus our analysis on the prompt-notice affirmative defense. See TEX. R. APP. P. 47.1.
1. Jury charge
In issue 11, League City argues that the questions on notice, repair receipts, and prejudice were submitted improperly. We review claims of charge error for an abuse of discretion. See Dep't of Human Servs. v. E.B., 802 S.W.2d 647, 649 (Tex. 1990); Powell Elec. Sys., Inc. v. Hewlett Packard Co., 356 S.W.3d 113, 122 (Tex. App.—Houston [1st Dist.] 2011, no pet.); see also Thota v. Young, 366 S.W.3d 678, 687 (Tex. 2012). A trial court abuses its discretion in formulating a jury charge only by acting without reference to law or guiding principles. See E.B., 802 S.W.2d at 649.
A trial court must submit to the jury broad-form questions "whenever feasible," along with such instructions and definitions as are "proper to enable the jury to render a verdict." TEX. R. CIV. P. 277. Questions, instructions, and definitions that are submitted to the jury must be raised by the pleadings and the evidence. TEX. R. CIV. P. 278. "A judgment shall not be reversed because of the failure to submit other and various phases or different shades of the same question." Id.
The insurance policy required "prompt written notice" including "a description of the property involved" after a loss caused by hail or windstorm. It also provided that a "legal action" against TWIA may not be "sustainable" unless League City complied "with all the terms of the policy." The notice of loss initiates the proceedings by which an insured may recover under an insurance policy. See Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Crocker, 246 S.W.3d 603, 608 (Tex. 2008).
Only a material breach of a "timely notice" provision will excuse an insurer's performance under the policy. PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630, 636 (Tex. 2008). An insurance company seeking to avoid coverage under an "occurrence" policy must show that (1) the insured failed to comply with the timely-notice provision and (2) the insurer suffered prejudice as a result of this failure. Id. at 636-37. The prejudice requirement is based on the "fundamental principle of contract law" that "when one party to a contract commits a material breach of that contract, the other party is discharged or excused from any obligation to perform." Hernandez v. Gulf Grp. Lloyds, 875 S.W.2d 691, 692 (Tex. 1994).
League City argues that Questions No. 18 and No. 19 were improper and should not have been submitted. Question No. 18 tracked the language of the policy and asked whether League City failed to give TWIA "prompt written notice of a loss including a description of the property involved for the following structures." Question No. 19 asked:
Was Texas Windstorm Insurance Association prejudiced by League City's failure, if any, to give prompt notice of a loss, including a description of the property involved?Beneath each question was a table separately listing the 29 disputed structures with a column in which the jury could answer "yes" or "no." The jury answered "yes" with respect to each structure in both Question No. 18 and Question No. 19.
An insurer is "prejudiced" if the lack of prompt written notice prevents it from conducting a reasonable investigation of the loss and making a timely payment of any covered loss.
League City argues that these questions were improperly submitted because TWIA did not request a jury question asking whether its failure to comply with the insurance policy was excused. League City relies on comments in the Texas Pattern Jury Charges that the question on excuse is controlling and should be submitted in broad form. See Texas Pattern Jury Charges—Bus., Consumer, Ins. & Employment PJC 101.21, 101.59 (2014). The comment to the PJC explains that the pattern charge for excuse complies with Rule 277's mandate to use broad-form submission when feasible. Id. In this case, the jury could have found that League City gave notice in accordance with the policy to TWIA on some but not all of the covered structures. "Rule 277 is not absolute; rather, it mandates broad-form submission 'whenever feasible.'" Crown Life Ins. Co. v. Casteel, 22 S.W.3d 378, 390 (Tex. 2000). We find no fault with the trial court's implicit determination that broad-form submission was not feasible in this case. The trial court did not abuse its discretion by submitting these questions, which comport with law. See E.B., 802 S.W.2d at 649.
League City also contends that the submission of Question No. 18 was improper because it did not identify "the breach by TWIA that League City's failures were supposed to excuse." That assertion fails to recognize that Question No. 19 was connected to Question No. 18 by the instruction advising the jury to answer Question No. 19 only if it answered "yes" to any subpart in Question No. 18. Question No. 19 inquired about prejudice and defined prejudice as follows: "An insurer is 'prejudiced' if the lack of prompt written notice prevents it from conducting a reasonable investigation of the loss and making a timely payment of any covered loss." This is the precise breach of which League City complains: TWIA's failure to conduct a reasonable investigation and promptly pay for any covered loss.
Question No. 18 followed the language of the policy and asked whether League City failed to comply with the timely-notice provision. See PAJ, 243 S.W.3d at 636-37. Question No. 19 asked whether TWIA suffered prejudice in a relevant sense as a result of such a failure. See id. This language comports with the Supreme Court's holding in PAJ about what showing must be made for an insurer to avoid liability for an insured's failure to comply with a timely-notice provision. Id. Accordingly, we overrule issue 11.
2. Sufficiency of the evidence
In issue 13, League City argues that the evidence was insufficient to support the jury's answers regarding the affirmative defenses, including the questions about timely notice and resulting prejudice. We review legal-sufficiency challenges to determine whether the evidence "would enable reasonable and fair-minded people to reach the verdict under review." City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). To determine the factual sufficiency of the evidence, we are required to examine all of the evidence, and we will set aside the judgment only if it is so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986). Unlike a legal-sufficiency review, a factual-sufficiency review requires that we review the evidence in a neutral light. Id.; Nelson v. Najm, 127 S.W.3d 170, 174 (Tex. App.—Houston [1st Dist.] 2003, pet. denied). The trier of fact may choose to "believe one witness and disbelieve others" and "may resolve inconsistencies in the testimony of any witness." McGalliard v. Kuhlmann, 722 S.W.2d 694, 697 (Tex. 1986); see also City of Keller, 168 S.W.3d at 820. An answer to a jury question is immaterial when it cannot alter the effect of the verdict. Thota, 366 S.W.3d at 694.
The City also challenges the repair-records findings, but because the failure to provide notice is dispositive, for sake of simplicity we focus our analysis on that particular affirmative defense. See TEX. R. APP. P. 47.1.
League City initially sent TWIA a notice of loss that identified only "Wind Damage to Various Locations." That notice did not specifically identify any affected property. TWIA received the nonspecific notice, and it assigned the insurance claim to an adjuster. League City later gave notice of specific Hurricane Ike losses it attributed to windstorm by using the spreadsheet created by the adjuster. In August 2009, the adjuster estimated the loss to the structures that were covered under the policy. Approximately six months later, those estimates were emailed to League City. TWIA paid the covered claims that were submitted, and it did not deny payment on any covered, scheduled structure.
Without informing TWIA of any unaddressed claims, League City filed suit. The original petition failed to identify any covered structure as to which there was an unaddressed or unpaid claim for Hurricane Ike windstorm damages. It alleged that "numerous additional structures covered by this insurance policy were either ignored by TWIA's adjuster or were improperly inspected." The City claimed that as a result, it had not been properly compensated under the terms of the insurance policy. League City did not respond to TWIA's letter asking why it had been sued. As late as October 2013, the trial court directed League City to specify which structures were at issue.
The evidence at trial established that the initial "notice" that League City sent did not describe the damaged property but merely advised TWIA of "Wind Damage to Various Locations." Specific losses were communicated through the spreadsheet, but TWIA paid for those to the extent covered by the policy. League City employee Paula Orise testified that League City made no supplemental damage claims after early 2009. Thus, TWIA had no indication that League City would claim other Hurricane Ike windstorm damage revealed later in litigation, such as repairs to the roof of City Hall, the Civic Center, or the library.
The evidence was conclusive that League City's initial notice to TWIA was prompt, but it did not include a description of any property involved, instead specifying only damage in "Various Locations." As such, the evidence was legally sufficient to enable the jury to conclude that League City failed to give TWIA prompt written notice of a loss including a description of the property involved, as asked by Question No. 18. See City of Keller, 168 S.W.3d at 827. This finding is not so contrary to the overwhelming weight of the evidence as to be clearly wrong and unjust. See Cain, 709 S.W.2d at 176. Accordingly, we overrule issue 13 to the extent the City challenges the sufficiency of the evidence to support the prompt-notice defense.
3. Materiality of prompt-notice jury questions
In issue 10, League City argues that the trial court should have disregarded the jury's answers about the prompt-notice affirmative defense. It contends that despite League City's failure to give notice of the additional claims, TWIA elected to treat the insurance policy as continuing. League City made essentially the same argument in issue 13, arguing that the jury's answers about the prompt-notice affirmative defense were immaterial or supported by no evidence. We address these issues together.
The City raises the same challenges to the repair-records findings in issues 10 and 13, but because the failure to provide notice is dispositive, for sake of simplicity we focus our analysis on that particular affirmative defense. See TEX. R. APP. P. 47.1.
League City contends that because TWIA accepted the first notice of loss, which did not provide a description of the property involved but identified only "Wind Damage to Various Locations," and it acted in compliance with the insurance policy by adjusting and paying the claim, it "elected" to treat the policy as continuing and cannot claim prejudice from lack of notice. The City further argues that TWIA treated the insurance policy as continuing by demanding appraisal after suit was filed. It rests this argument on the Supreme Court's contract-based holdings in Hernandez, PAJ, and their progeny.
In Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994), a young woman was a passenger in a car that flipped over due to the negligence of the driver. 875 S.W.2d at 692. The passenger was killed, and the driver's "only asset was a $25,000 liability policy" with his insurer. Id. at 691. The decedent was covered by her parents' insurance policy with Gulf Group Lloyds, which included uninsured/underinsured motorist coverage in the amount of $100,000. Id. The damages suffered by the decedent and her parents exceeded $125,000, and without consent from their own insurer, the parents settled with the driver for the limits of his insurance policy. Id. When the parents later sought to recover benefits under their own policy, Gulf Group Lloyds denied coverage because of a policy exclusion for settlement without consent. Id. The parents argued that the policy exclusion was unenforceable unless the insurer could show that it was prejudiced by their actions. The Supreme Court agreed, applying the contract principle that a breach must be material to excuse the other contracting party's performance. Id. at 692-93. It held that "an insurer who is not prejudiced by an insured's settlement may not deny coverage under an uninsured/underinsured motorist policy that contains a settlement-without-consent clause." Id. at 693.
PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008), applied the prejudice rule when an insured notified its insurer of a covered claim—a lawsuit that had been filed against it—but did not do so "promptly," notifying the insurer four to six months after the beginning of litigation due to confusion over policy coverage. PAJ, 243 S.W.3d at 631. The insured, a jewelry manufacturer, purchased a commercial general liability policy prior to being sued for copyright infringement. Id. The parties stipulated that the insured failed to timely notify the insurer of the lawsuit and that the insurer was not prejudiced by the untimely notice. Id. The Supreme Court held that "an insured's failure to timely notify its insurer of a claim" "does not defeat coverage if the insurer was not prejudiced by the delay." Id. at 636-37. Because the insurer had stipulated that it was not prejudiced, it could not deny coverage. Id. at 637.
Consistent with PAJ, other cases also have held that the insurer bears the burden to show prejudice arising from the insured's failure to provide prompt notice as required by the insurance policy in order to defeat coverage. See Fin. Indus. Corp. v. XL Specialty Ins. Co., 285 S.W.3d 877, 878-79 (Tex. 2009) (claims-made policy); Prodigy Commc'ns Corp. v. Agric. Excess & Surplus Ins. Co., 288 S.W.3d 374, 376, 382 (Tex. 2009) (same).
The Supreme Court also has considered the effect of absence of notice on coverage. National Union Fire Insurance Co. v. Crocker, 246 S.W.3d 603 (Tex. 2008), was an insurance-coverage case that came to the Supreme Court of Texas on certified questions from the federal court of appeals. An employee of a nursing home injured a resident by hitting her with a door. Crocker, 246 S.W.3d at 604. The resident sued the nursing home and the employee. Id. Unbeknownst to the employee, he qualified as an additional insured on his employer's commercial general liability policy. Id. at 605. The employee never notified the employer's insurance carrier that he had been sued, nor did he answer the suit. Id. The trial court severed the claims against the employee, and a jury returned a take-nothing judgment against the nursing home upon finding that neither it nor its employees were negligent. Id. Nevertheless, the trial court entered a $1 million default judgment against the employee in the severed case. Id.
The plaintiff sued the employer's insurance carrier to collect on her default judgment, but the insurer denied coverage because the employee never gave notice that he had been sued. Id. One of the certified questions asked:
Does proof of an insurer's actual knowledge of service of process in a suit against its additional insured, when such knowledge is obtained in sufficient time to provide a defense for the insured, establish as a matter of law the absence of prejudice to the insurer from the additional insured's failure to comply with the notice-of-suit provisions of the policy?Id. at 609. The Supreme Court answered this question "no," noting the "fundamental differences" between PAJ and a case in which "notice was not merely late; it was wholly lacking." Id. The Court explained that requiring an additional insured to provide notice that it has been sued serves a different purpose from "that underlying the requirement for notice of a claim or occurrence," because there are "a variety of reasons" why an additional insured "might well opt against seeking a defense from an insurer." Id. at 610. Without notice that it is expected to provide a defense, the insurer is unable to protect itself from an adverse judgment. See id.
League City contends that by acting in accordance with the policy in the months after the hurricane and by demanding appraisal after suit was filed, TWIA elected to continue the contract after the City breached the requirement to provide notice of its additional losses, and it cannot rely on the affirmative defense of lack of notice. The logical flaw in this argument is that it assumes that TWIA knew of the breach. "Waiver is the intentional relinquishment of a right actually known, or intentional conduct inconsistent with claiming that right." Ulico Cas. Co. v. Allied Pilots Ass'n, 262 S.W.3d 773, 778 (Tex. 2008). "The actual choice to ignore a breach and continue performance presupposes knowledge of the breach." See Crump v. Frenk, 404 S.W.3d 146, 153 (Tex. App.—Texarkana 2013, no pet.).
In this case, TWIA was unaware of damage that may not have been discovered or discoverable at the time of the initial inspections, because League City did not provide notice. In the midst of the litigation of this case, League City still had failed to inform TWIA which specific structures it claimed sustained additional, uncompensated, covered damages. This is a case of no notice, like Crocker, rather than a case of tardy notice, like PAJ. Like the insurer in Crocker which did not know if the additional insured was expecting a defense or making other arrangements, TWIA did not know if League City was expecting further investigation, adjustment, or payment or if it agreed with the adjustment and payments that already had been made. Without any communication after the claim was closed, TWIA could not know that League City had breached the requirement to provide notice. As such, we conclude that TWIA was unaware of the City's breach and therefore did not "elect" to continue the contract despite the breach.
Accordingly, we overrule issue 10, and we overrule issue 13 to the extent that it also argues that the jury's answers to the questions on TWIA's affirmative defense of failure to give prompt notice were immaterial because TWIA elected to continue contract.
* * *
Having overruled all challenges to the jury's findings on TWIA's affirmative defense that League City failed to give prompt notice of its claim, we hold that the trial court correctly rendered a take-nothing judgment on the breach-of-contract claim.
C. League City's extracontractual claims
In issues six and seven, League City argues that the trial court erred by disregarding the jury's findings on its extracontractual claims. The jury found in League City's favor on claims that TWIA violated the Insurance Code and breached the duty of good faith and fair dealing. League City argues that its claims were supported by legally sufficient evidence and the questions were not immaterial.
When an insured's failure to comply with a prompt-notice requirement causes prejudice to the insurer, it defeats coverage. See Prodigy Commc'ns, 288 S.W.3d at 375; PAJ, 243 S.W.3d at 636-37; see also Greene v. Farmers Ins. Exch., 446 S.W.3d 761, 767-70 (Tex. 2014); Lennar Corp. v. Markel Am. Ins. Co., 413 S.W.3d 750, 761-63 (Tex. 2013). TWIA established that League City's failure to comply with the prompt-notice requirement caused it prejudice. This negated League City's breach-of-contract claim and resolved the issue of coverage in TWIA's favor.
As a matter of law, when insurance coverage is resolved in the insurer's favor, extracontractual claims do not survive unless the insured has alleged that the insurer engaged in conduct that "was extreme and produced damages unrelated to and independent of the policy claim." Progressive Cty. Mut. Ins. Co. v. Boyd, 177 S.W.3d 919, 922 (Tex. 2005); see State Farm Lloyds v. Page, 315 S.W.3d 525, 532 (Tex. 2010). League City did not allege that TWIA engaged in conduct that was extreme and produced damages unrelated to and independent of the policy claim. Because the issue of coverage was resolved in TWIA's favor, League City's extracontractual claims also fail. We overrule issues six and seven.
* * *
Having concluded that the trial court correctly rendered a take-nothing judgment on League City's breach-of-contract claim and that resolution of the coverage issue in TWIA's favor defeated League City's extracontractual claims, we need not address League City's other issues.
Issues one through four challenge a finding by the jury that the appraisal award was invalid. League City sought a judgment in the amount of the appraisal, but the jury verdict was much less. On appeal, the City requests a new trial by challenging the jury verdict that the appraisal was invalid and the City's damages were far less than determined by the appraisers. Issue eight challenges the trial court's failure to award attorney's fees for representation in the trial court in accordance with the verdict, and issue nine challenges the jury's failure to award appellate attorney's fees. Because we determine that the trial court correctly rendered a take-nothing judgment based on TWIA's affirmative defenses we do not reach the merits of the City's issues regarding the appraisal or attorney's fees. See TEX. R. APP. P. 47.1
II. TWIA's cross-appeal
In its cross-appeal, TWIA challenges a monetary sanctions order as excessive. Throughout the course of pretrial litigation, there were numerous discovery disputes. Although TWIA did not file special exceptions to require League City to clarify which buildings were at issue, it repeatedly objected to discovery because it lacked that information.
TWIA also filed two petitions for writ of mandamus challenging pretrial orders. See In re Texas Windstorm Ins. Ass'n, No. 01-14-00318-CV, 2014 WL 1713782, at *1 (Tex. App.—Houston [1st Dist.] April 25, 2014, orig. proceeding) (mem. op.) (challenging order striking affirmative defenses; mandamus denied); In re Texas Windstorm Ins. Ass'n, No. 01-13-00866-CV, 2014 WL 459002, at *1 (Tex. App.—Houston [1st Dist.] Feb. 4, 2014, orig. proceeding) (mem. op.) (regarding compelled discovery; dismissed after relator informed the court that the matter had been resolved).
At a hearing on a motion to compel, TWIA complained that it did not know which structures were alleged to have been improperly adjusted. League City assured the court that it would inform TWIA that day which structures were at issue. The City contended that 29 structures sustained windstorm damage from Hurricane Ike for which it had not been properly compensated. Three weeks later, the trial court ordered TWIA to respond to certain discovery requests by October 25, 2013.
On November 4, 2013, League City filed a motion to enforce the court's order compelling production and for a $5,000 sanction for each day that TWIA was late in responding, plus costs and attorney's fees. TWIA responded to the motions and the discovery requests two days later, but the trial court nevertheless ordered TWIA to "pay $15,000 as a sanction for violation of the Court's order, which includes the amount of attorney's fees and expenses Plaintiff incurred in preparing Plaintiff's Motions, and attending the hearing on the Motions."
TWIA argues that the trial court erred by imposing a $15,000 discovery sanction. It contends this sanction was improper because League City failed to demonstrate harm or prejudice from the discovery violation, there was no basis for the amount of the sanction imposed, and the $15,000 fine was excessive in relation to the discovery violation.
TWIA did not pay the monetary sanction during the course of litigation in the trial court. League City argues that the sanction was incorporated into the judgment by deducting the amount of the sanction from the cost apportionment in the amended final judgment. The City asserts that the amended final judgment superseded the pretrial sanction and reflected "the court's finding of good cause to apply the unpaid sanctions against TWIA's cost recovery." Thus, the City contends that the sanctions order is moot.
On October 16, 2014, the trial court signed both a judgment ordering League City to pay costs of court in the amount of $39,901.95 and a separate order granting TWIA's motion to adjudge costs, finding that "there is good cause to assess taxable costs" incurred by TWIA in the amount of $23,187.32. TWIA's motion to adjudge costs does not appear in the record. Because of the discrepancy between the two cost awards, about a week after the court issued its final judgment and order, TWIA requested clarification of the judgment. TWIA also filed a proposed amended final judgment that replaced "$39,901.95" with "$23,187.32." Several weeks later, the trial court signed the amended final judgment. It stated: "It is further ORDERED, ADJUDGED, and DECREED that costs of court are taxed against Plaintiff League City in the sum of $23,187.32."
Although the amended final judgment does not expressly mention the $15,000 sanction, on appeal, both TWIA and League City agree that the reduction in costs was an offset in satisfaction of the previously ordered yet unpaid $15,000 discovery sanction. As such, the amended final judgment incorporated the earlier sanctions order, and TWIA was no longer required to pay the $15,000. Cf. Green v. Allied Interests, Inc., No. 03-97-00510-CV, 1998 WL 105154, at *2 (Tex. App.—Austin Mar. 12, 1998, pet. denied) (mem. op.) (interlocutory order awarding per diem sanctions for failure to appear at deposition superseded and mooted by final judgment that incorporated a fixed amount of sanctions).
On appeal, TWIA challenges only the interlocutory sanctions order, but not the final judgment allocating costs without express reference to any monetary sanction. Yet it argues in favor of this court modifying the taxable costs on appeal. To the extent the amended final judgment incorporated or superseded any interlocutory sanctions order, the appellate issue challenging the interlocutory sanctions order is moot. See id. TWIA has not raised an issue challenging the allocation of costs payable by League City, and we do not review unassigned error. See Allright, Inc. v. Pearson, 735 S.W.2d 240, 240 (Tex. 1987).
We overrule the first issue in TWIA's cross-appeal.
TWIA also contends the trial court erred by striking three of its affirmative defenses to the appraisal award as a discovery sanction. This issue was conditioned on reversal of the trial court's take-nothing judgment. Because we have concluded that the trial court properly rendered take-nothing judgment in this case, we do not reach the second issue in TWIA's cross-appeal. See TEX. R. APP. P. 47.1.
Conclusion
We affirm the judgment of the trial court.
Michael Massengale
Justice Panel consists of Justices Jennings, Massengale, and Huddle.