                                    COURT OF APPEALS
                                 EIGHTH DISTRICT OF TEXAS
                                      EL PASO, TEXAS


 THE PRUDENTIAL INSURANCE                         §
 COMPANY OF AMERICA and PRUCO                                      No. 08-12-00077-CV
 LIFE INSURANCE COMPANY,                          §
                Appellants/Cross-Appellees,                           Appeal from the
                                                  §
 v.                                                                 327th District Court
                                                  §
 IRASEMA SAGARNAGA DURANTE,                                      of El Paso County, Texas
                                                  §
                Appellee/Cross-Appellant.                            (TC#2009-5465)
                                                   §

                                           OPINION

       The Prudential Insurance Company and Pruco Life Insurance Company (collectively

“Pruco”) appeal a judgment entered against them in favor of Irasema Sagarnaga Durante

(“Sagarnaga”). This case arises out of Pruco’s non-payment of life insurance proceeds based on a

rejected change of beneficiary form by the insured. Pruco brings six issues: (1) Sagarnaga

lacked standing to sue Pruco for breach of the insurance policy and common-law and statutory bad

faith; (2) the evidence is legally and factually insufficient to support the finding Pruco breached the

insurance policy; (3) the evidence is legally and factually insufficient to support the finding that

Pruco breached common-law and statutory duties of good faith and fair dealing, specifically

Chapters 541 and 542 of the Texas Insurance Code; (4) the trial court erred in admitting expert

testimony over Pruco’s objection; (5) the trial court erred by awarding Sagarnaga 18 percent
statutory penalty interest on the claim amount of $375,000; and lastly (6) the trial court erred by

awarding Sagarnaga attorney’s fees. Sagarnaga cross-appealed, asserting in a single issue the

trial court abused its discretion by failing to award her post-trial and appellate attorney’s fees. We

affirm in part, reform the judgment, and remand in part.

                                               BACKGROUND

         Dr. Arturo Garcia Fernandez was married to Margarita Henric Chavez, with whom he had

three children: Eloisa, Cecilia, and Arturo Garcia Henric, Jr. In July 2002, Dr. Garcia purchased

a Pruco life insurance policy (the “Policy”) for a death benefit of $750,000. In the application,

Dr. Garcia designated his wife, Margarita, as the primary beneficiary and contingent beneficiaries

were their three children. After Margarita’s death in 2005, Dr. Garcia married Irasema Sagarnaga

Durante in 2007.

         In February 2008, Dr. Garcia called Pruco regarding the Policy.                        In that recorded

conversation, Dr. Garcia requested a change of beneficiary form (“COB”) for the Policy. Pruco

instructed Dr. Garcia that they would complete the COB form and send it to him for his approval

and signature. The Pruco representative asked Dr. Garcia for the names of the beneficiaries and

the percentages each would be assigned.1 Dr. Garcia replied that he wanted to designate his wife,

Sagarnaga as a 50 percent beneficiary and his adult children as the remaining 50 percent

beneficiaries. Pruco sent the COB form to Dr. Garcia, but the requested beneficiary designations

were not included on the COB form.

         On April 3, 2008, Dr. Garcia and Sagarnaga went to the El Paso Prudential office.

Dr. Garcia spoke with Solis, a Pruco associate, and Schmid, a Pruco insurance agent. Sagarnaga,

1
  Because the Pruco representative, Ortega, was not trained in “fractionalized” beneficiary designations (where the
proceeds are split between various individuals), he was supposed to have forwarded Dr. Garcia’s call to a specialized
unit within Pruco which is familiar with fractionalized beneficiaries, however Ortega did not do this.
                                                         2
who speaks some English, was able to understand some of the discussion between her husband,

Solis, and Schmid. Dr. Garcia explained to Sagarnaga the changes he was making to the Policy.

Sagarnaga understood, during this meeting, Dr. Garcia executed the COB form making her a 50

percent beneficiary and the children the remaining 50 percent beneficiaries of the Policy.

       Dr. Garcia’s COB form, dated April 3, 2008, listed the beneficiaries as follows: the

primary beneficiary designation stated Sagarnaga was to receive 50 percent of the Policy

proceeds, 12 percent to Arturo Garcia, Jr., 13 percent to Eloisa, and 25 percent to Cecilia. The

contingent beneficiary, however, in the section titled “Additional/Special Beneficiary Requests”

[Emphasis added] on the COB form, read as follows:

       Pay 50% to Irasema Sagarnaga Durante, wife, if living otherwise same proportion
       of this to my two daughters and son, Arturo Garcia, Cecilia Garcia, Eloisa Garcia, if
       living, otherwise pay balance if any to Irasema Sagarnaga Durante, wife.

       Pursuant to Pruco’s contract, a policy owner could change, inter alia, the beneficiary, by

sending to Pruco a request “in a form that meets our needs.” According to the terms of the Policy,

if Pruco received a COB request, Pruco would record the change and file it. The change of

beneficiary would be effective as of the date the request was signed. Pruco’s internal procedures

were clear that in order for a COB to be accepted in its entirety, it “must clearly specify the

settlement to be in effect at the death of the Insured.”

       The signed COB form by Dr. Garcia was received by Pruco on April 10, 2008. The COB

form was routed to the “settlement options” department where it was reviewed by Mehrotra, a

Pruco associate. While the primary beneficiary designation was satisfactory, Mehrotra found

Dr. Garcia’s changes for the contingent beneficiary or “additional/special beneficiary

designation” to be “ambiguous.” Based on the ambiguity regarding the contingent beneficiaries,


                                                  3
Mehrotra initiated a “turndown procedure,” in which Pruco did not accept or record, in its entirety,

Dr. Garcia’s COB form. Pruco then prepared a new COB form. The new COB form did not change

the primary beneficiary designation, it only modified the language for the additional/special

beneficiary section, based on what Mehrotra believed Dr. Garcia was attempting to do. The

beneficiary provision proposed by Mehrotra was as follows:

        50% of the proceeds . . . to Irasema Sagarnaga Durante, Beneficiary, wife of the
        Insured, if living, otherwise as follows:

                 50% of such fund to Celcilia M. Garcia Henric . . .
                 26% of such fund to Eloisa Garcia Henric . . .
                 24% of such fund to Arturo Garcia Hendric . . .

                 25% of proceeds to said Cecilia M. Garcia Henric . . .
                 13% of proceeds to said Eloisa Garcia Henric . . .
                 12% of proceeds to said Arturo Garcia Henric . . .

        Mehrotra sent the new COB form to Dr. Garcia on April 14, 2008, and requested he review

it. If after the review, the COB form stated what Dr. Garcia intended for the additional/special

beneficiary section, he was to sign and return it to Pruco. If not, Dr. Garcia should contact Pruco

to obtain a corrected COB form. Dr. Garcia received this correspondence, but there is no

evidence the letter was opened or read by Dr. Garcia before he died.2

        Dr. Garcia died in Brazil on September 22, 2009. Dr. Garcia’s daughter, Eloisa, advised

Pruco of his death two days later. The children each filed a claim for benefits under the Policy in

October 2009.

        On October 21, 2009, Sagarnaga met with Schmid in El Paso.                         She asserted that

Dr. Garcia had changed the beneficiary designation to include her under the Policy. Pruco

informed Schmid about the issue of Dr. Garcia’s COB form. Schmid suggested Sagarnaga contact

2
 Prior to his death, Dr. Garcia had been sick several times and much of his mail went unopened. Sagarnaga found a
box of unopened mail from various companies after Dr. Garcia’s death, including mail from Pruco.
                                                       4
Pruco directly. Sagarnaga then called Pruco and was advised Dr. Garcia’s COB form naming her

as a 50 percent beneficiary had not been accepted or recorded. Pruco stated Sagarnaga was not a

beneficiary under the Policy. Pruco instructed Sagarnaga to submit a written statement regarding

her claim including any additional supporting information within fifteen days.3

          That same day, October 21, after her telephone call to Pruco, Sagarnaga sent a letter stating

she was a beneficiary and made a claim for benefits. Pruco referred Sagarnaga’s statement to its

claims department to handle as an adverse claims case on October 27.4 On November 3, Pruco

responded in writing to Sagarnaga, and explained that Dr. Garcia’s COB form was unacceptable.

Pruco stated that due to the lack of response by Dr. Garcia to their “turndown” letter, their position

was that their liability was to the contingent beneficiaries, the three children. On November 13,

Pruco sent a second letter reiterating their position and stated that if Sagarnaga had documentation

to support her claim to submit it within ten days. On November 18, the claims of all parties were

formally referred to Pruco’s legal department. According to Pruco, the claim was referred after

Pruco performed an internal investigation and they determined Sagarnaga’s claim had merit.

          On December 17, 2009, the children filed suit against Pruco, seeking payment of the entire

death benefit, plus statutory penalties. On January 8, 2010, Pruco answered, counterclaimed and

included a third party complaint interpleader action naming Sagarnaga. On March 9, 2010,

Sagarnaga filed a counterclaim against Pruco, seeking 50 percent of the disputed death benefit and


3
    Pruco’s internal notes from October 21, 2009 reflect the following:

          *** wife is saying that their rep was there when she and the insured requested to set up bene to be
          split 50% to her and the children ***
          >> sent ref for possible adverse claim, wife stated that if she will not get any response from pru she
          will seek the assistance of her atty.
4
  During this time Pruco investigated Dr. Garcia’s death, pursuant to its internal policies, including obtaining official
death certificates, to verify Dr. Garcia’s death. Pruco also advised the children that Sagarnaga had made a claim.
                                                            5
damages for:         (1) breach of contract; (2) violation of the Prompt Payment Statute; 5 (3)

common-law bad faith; and (4) statutory bad faith claims. Sagarnaga also filed a third-party

claim against Schmid and Prudential, seeking the same damages based on Schmid’s purported

negligence and Texas Insurance Code violations.

           On March 9, 2010, Pruco filed a motion asking the court to interplead the death benefit

pursuant to TEX.R.CIV.P. 43, find they had completely discharged all their liabilities to the

claimants and dismiss with prejudice the lawsuits against them. On March 29, Sagarnaga filed

her response arguing Pruco had not met the elements for relief under a Rule 43 interpleader action.

At a hearing on March 25, 2010, the court granted Pruco’s request to deposit 50 percent of the

death benefit ($375,000) into the registry of the court, but denied Pruco’s motion to dismiss. At

that time, the children and Sagarnaga agreed 50 percent of the Policy benefit was to be paid

directly to the children. On June 3, 2010, Pruco deposited $382,483.50 into the court’s registry.

Prior to trial, the children and Sagarnaga entered into another settlement agreement for an

additional $90,000 from the remaining registry funds to be paid to the children. The children did

not participate in the trial and the court later dismissed their claims.

           The trial court conducted a two day trial in August 2011.6 At trial, a Pruco employee

acknowledged the primary beneficiary designation was “quite clear,” but that Pruco failed to

record Dr. Garcia’s COB in its entirety due to Pruco finding the “additional/special beneficiary

designation” to be ambiguous. 7              Additionally, without objection from Pruco, Sagarnaga’s



5
    TEX.INS.CODE ANN. §§ 542.051 to 542.061 (West 2009 and Supp. 2014).
6
    Sagarnaga’s claims against Schmid were dismissed with prejudice before trial.
7
  One of the findings of fact challenged by Pruco is finding #99: “The Company admits that Garcia’s primary
designation on the COB is clear.”
                                                          6
attorney David Pierce testified regarding her attorney’s fees.

         The trial court made 168 findings of fact and 32 conclusions of law, many of which Pruco

objected to. The court found Sagarnaga was a beneficiary under the Policy; Pruco had breached

the Policy; and violated Chapters 541 and 542 of the Texas Insurance Code. The trial court found

Pruco breached the insurance contract when it: (1) “failed to file and record the primary

beneficiary designation” and “give it effect” from the date it was signed; and (2) failed to distribute

50 percent of the death benefit to Sagarnaga. The court entered an amended judgment in January

2012 awarding Sagarnaga: (1) $90,000 as damages for breach of contract; (2) statutory penalty

interest of 18 percent on $375,000 from November 3, 2009 through the date judgment was

rendered; (3) 5 percent post-judgment interest until paid in full; and (4) $200,000 in attorney’s fees

through trial. Both parties appealed.

                                                     Standard of review

         Findings of fact in a bench trial have the same force and dignity as a jury’s verdict upon

questions and are reviewed for legal and factual sufficiency of the evidence by the same standards.

Ortiz v. Jones, 917 S.W.2d 770, 772 (Tex. 1996); Stanley Works v. Wichita Falls Independent

School District, 366 S.W.3d 816, 824 (Tex.App.--El Paso 2012, pet. denied). Where, as here, the

appellate record contains a reporter’s record, findings of fact are not conclusive on appeal if the

contrary is established as a matter of law or if there is no evidence to support the findings.8

Vernon v. Perrien, 390 S.W.3d 47, 57 (Tex.App.--El Paso 2012, pet. denied).

         In a factual sufficiency review, we consider all of the evidence, both the evidence which


8
  In a civil case, if the trial court’s factual findings are unchallenged, as some are in this case, they are binding on the
appellate court unless the contrary is established as a “matter of law,” or there is “no evidence” to support the finding.
McGalliard v. Kuhlmann, 722 S.W.2d 694, 696 (Tex. 1986). In other words, our review of unchallenged findings is
restricted to whether the evidence is legally sufficient to support them.
                                                             7
tends to prove the existence of a vital fact, as well as evidence which tends to disprove its

existence. Sotelo v. Gonzales, 170 S.W.3d 783, 787 (Tex.App.--El Paso 2005, no pet.). Cain v.

Bain, 709 S.W.2d 175, 176 (Tex. 1986). After considering and weighing all the evidence, we set

aside the fact-finding only if it is so contrary to the overwhelming weight of the evidence as to be

clearly wrong and unjust. Rusty’s Weigh Scales and Service, Inc. v. North Texas Scales, Inc., 314

S.W.3d 105, 110 (Tex.App.--El Paso 2010, no pet.). The trier of fact is the sole judge of the

credibility of the witnesses and the weight to be given to their testimony. GTE Mobilnet of S. Tex.

Ltd. Partnership v. Pascouet, 61 S.W.3d 599, 615-16 (Tex.App.--Houston [14th Dist.] 2001, pet.

denied). We will not substitute our own judgment for that of the trier of fact, even if we would

reach a different answer on the evidence. Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 407

(Tex. 1998).

        A legal sufficiency or “no evidence” challenge will be sustained if the party suffering the

adverse decision at trial shows: (1) the complete absence of a vital fact; (2) the court is barred by

rules of law or evidence from giving weight to the only evidence offered to prove a vital fact; (3)

the evidence offered to prove a vital fact is no more than a scintilla; or (4) the evidences establishes

conclusively the opposite of the vital fact. City of Keller v. Wilson, 168 S.W.3d 802, 810 (Tex.

2005); Stanley Works, 366 S.W.3d at 828. When conducting a legal sufficiency review, we must

view the evidence in the light favorable to the verdict, crediting favorable evidence if a reasonable

fact finder could, and disregarding contrary evidence unless a reasonable fact finder could not.

City of Keller, 168 S.W.3d at 830; Stanley Works, 366 S.W.3d at 828. The final test for legal

sufficiency must always be whether the evidence at trial would enable reasonable and fair-minded

people to reach the verdict under review. City of Keller, 168 S.W.3d at 827; Stanley Works, 366


                                                   8
S.W.3d at 828.

           We review the trial court’s legal conclusions de novo. BMC Software Belgium, N.V. v.

Marchand, 83 S.W.3d 789, 794 (Tex. 2002).

                                                   DISCUSSION

           Pruco bring six issues: (1) Sagarnaga lacked standing to sue Pruco for breach of the

insurance policy and common-law and statutory bad faith; (2) the evidence is legally and factually

insufficient to support the finding that Pruco breached the insurance policy; (3) the evidence is

legally and factually insufficient to support the finding that Pruco breached common-law and

statutory duties of good faith and fair dealing, specifically Chapters 541 and 542 of the Texas

Insurance Code; (4) the trial court erred in admitting expert testimony over Pruco’s objection; (5)

the trial court erred by awarding Sagarnaga 18 percent statutory penalty interest on the claim

amount of $375,000; and (6) the trial court erred by awarding Sagarnaga attorney’s fees. These

issues are interrelated, and we will address them accordingly.9

                                                       Standing

           Pruco contends the trial court erroneously found Sagarnaga had standing. An insurance

policy is a contract between the insurer and the insured/owner of the policy. Hernandez v. Gulf

Group Lloyds, 875 S.W.2d 691, 692 (Tex. 1994). A beneficiary named under a life-insurance

policy has no standing to recover under the policy unless his interest has vested. Rotating

Services Industries, Inc. v. Harris, 245 S.W.3d 476, 481 (Tex.App.--Houston [1st Dist.] 2007, pet.

denied), citing Cates v. Cincinnati Life Ins. Co., 947 S.W.2d 608, 614 (Tex.App.--Texarkana

1997, no writ), op. on remand from 927 S.W.2d 623 (Tex. 1996). Texas law holds that a named

beneficiary has no vested interest in the policy proceeds unless one of the following conditions
9
    Unless otherwise specified, section citations, are to the Texas Insurance Code.
                                                            9
occurs: (1) a contract—separate from the policy itself—proscribes any change in the designation

of the beneficiary; (2) the policy itself does not authorize the owner of the policy to change the

beneficiary; or (3) the insured dies.     Harris, 245 S.W.3d at 481.       Until any one of these

conditions occur and the beneficiary right’s become vested, an insurer may not prevent the policy

owner from exercising his right to change the beneficiary. Id. at 481, citing State Farm Life Ins.

Co. v. Martinez, 174 S.W.3d 772, 781 (Tex.App.--Waco 2005), rev’d on other grounds, 216

S.W.3d 799 (Tex. 2007).

       The policy terms define the right of the owner to change beneficiaries. See Martinez, 216

S.W.3d at 802-3 (citing Acts of 1953, 53rd Leg., R.S., ch. 113, 1953 Tex. Gen. Laws 400 (current

version at TEX.INS.CODE ANN. § 1103.055 (West 2009))(subchapter B of chapter 1103, governing

designation of beneficiary of life policy). On “substantial compliance” with the requirements

stated in the policy for beneficiary changes, the insurer must honor the request and effect the

change. See Stewart v. Mut. Ben. Life Ins. Co., 522 S.W.2d 257, 260 (Tex.Civ.App.--Amarillo

1975, writ ref’d n.r.e.)(rejecting contention that a “satisfactory” request created express condition

that insurer must consent to request). In determining the question of substantial compliance there

can be no hard and fast rule, but each case must be decided on its own set of facts as to what was

done or caused to be done by the insured.               Porter v. Garner, 386 S.W.2d 618, 620

(Tex.Civ.App.--El Paso 1965, writ ref’d n.r.e.).

       Pruco’s argument is similar to the argument raised in Todd v. Mutual Benefit Life Ins. Co.,

483 S.W.2d 889 (Tex.Civ.App.--Waco 1972, writ ref’d n.r.e.). In Todd, the insured had a life

policy naming his wife as a beneficiary. The insured changed his beneficiary designation and

sent the completed form (on the insurer’s required form) to the insurer. Id. at 890. The insurer


                                                   10
received the form the day before the insured died, but rejected the form as “unacceptable” because

the form failed to indicate who might receive the share of a predeceased beneficiary. At the time

the insured died, all the primary beneficiaries named on his COB form were living. Todd, 483

S.W.2d at 890. The court of appeals rejected the insurer’s argument the failure to designate a

contingent beneficiary allowed them to reject the COB, noting “[t]he rejection of the form was

simply based on some company policy or rule which was moot and had no application to the

insured Mr. Todd’s case.” Id. at 892. The insurer’s argument was deemed “groundless” because

when the insured died, both of the primary beneficiaries indicated on the COB request were alive

and survived him. Id.

       In Martinez, much like the case at hand, the court was presented with competing claims to

the proceeds of a life insurance policy, the terms of which required that a COB request be written

“in a form acceptable” to the insurer. Martinez, 216 S.W.3d at 802-03. The insured executed a

COB request from his ex-wife to his current wife twenty-four days before he died. He also used

the insurer’s “own printed form” to make the change. After the COB was received by the insurer,

they had “concerns” that it would violate the insured’s divorce decree. So, as a result, the insurer

did not accept the COB request. The Texas Supreme Court found that the COB request, even if it

might violate the divorce decree, did not render the request “unacceptable.” See id.

       Pruco seeks to distinguish Martinez arguing the use of its form was not at issue, however,

neither was it in Martinez. Dr. Garcia, like the insured in Martinez, used the COB form provided

by his insurer. The Martinez insurer rejected the COB form based on the possibility the insured’s

request violated his divorce decree. Here, Pruco failed to record the COB based on the content of

the request, that is, Dr. Garcia’s contingent beneficiary designation in the additional/special


                                                11
beneficiary section. Pruco argues the COB was unacceptable to them because Mehrotra found the

contingent beneficiaries percentages as designated by Dr. Garcia ambiguous. However, it is

undisputed, Sagarnaga survived her husband, thereby rendering the question of ambiguity of the

additional/special beneficiary designation moot.

       Pruco argues the Policy requires a COB form must be “in a form that meets our needs,” and

that one of Pruco’s “needs” is the beneficiary designation be clear as to who the beneficiaries are.

At trial, Pruco acknowledged the primary beneficiary designation was “quite clear,” but Pruco

refused to record the COB in its entirety. Even in its brief, Pruco acknowledges that “no one

disputed that” Dr. Garcia’s primary beneficiary designation “was clear.”

       Pruco asserts that “in a form that meets our needs” authorizes an insurer to substantively

review the contents of the COB form. According to Pruco, after their review, they may reject the

COB form in its entirety, even if only a part of it is objectionable, as it was here. This argument

precipitously leaves the definition of “meets our needs” completely in Pruco’s discretion, and

belies their assurance to the policy owners that beneficiary changes will be recorded, filed and

given effect the date they are executed. Pruco’s concern about the additional/special beneficiary

designation as a basis for their failure to record Dr. Garcia’s COB request, especially in light of the

clarity of the primary beneficiary designation is without merit.

       The Court in Martinez notes that even if the insurer is correct regarding concerns that a

COB request may violate a divorce decree, “the policy still said that a change would take effect

when a request was signed, not when it was accepted.” [Emphasis in original]. Id. at 803.

Pruco’s Policy with Dr. Garcia provided, “[i]f we receive your request . . . we will file and record

the change and it will take effect as of the date you signed the request.” Pruco’s Policy language


                                                  12
is essentially equivalent to the Martinez policy language,10 and we find no reason not to adopt the

same rationale as the Martinez Court.

           Like Pruco, the insurer in Martinez, also raised the issue of standing of the designee of the

insured’s rejected COB request. Pruco argues Sagarnaga has no standing because they rejected

the COB request of Dr. Garcia. However, like Martinez, if the COB request is valid and the

insured substantially complied, Sagarnaga is a beneficiary whose right’s vested when her husband

died.

           Pruco contends that Harris serves to resolve the standing argument. The policy at issue in

Harris contained a similar provision to that construed in Martinez and required that “any change

[of beneficiary] must be in a written form satisfactory to [Nationwide].” See Harris, 245 S.W.3d

at 483; Martinez, 216 S.W.3d at 801. However, in contrast to the policy in Martinez, the Harris

policy required that any change be “recorded” at the insurer’s home office. More importantly, the

original beneficiary in Harris was designated an “irrevocable” beneficiary. Harris, 245 S.W.3d

at 483. The insurer in Harris rejected an initial COB request of the “irrevocable” beneficiary, but

later accepted the COB where the sole “irrevocable beneficiary” signed the COB form, thereby

consenting to the change. Id. at 485. We find the facts in Harris distinguishable from the facts

in this case.

           Dr. Garcia contacted Pruco and advised them he wished to change his beneficiary

designations. Pruco sent him a partially completed COB form. Dr. Garcia completed the

10
     The policy stated:

           Change of Beneficiary Designation: You may make a change while the Insured is alive by sending
           us a request. The change will take effect the date the request is signed, but the change will not
           affect any action we have taken before we receive the request. We have the right to request your
           policy to make the change on it.

Martinez, 216 S.W.3d at 802, n.11.
                                                          13
remaining information and returned the COB request to Pruco. It is undisputed Dr. Garcia’s

primary beneficiary designation was clear and unambiguous. Pruco’s argument that the failure to

record the COB request in its’ entirety is justifiable because they found the contingency

designation unclear is without merit.              This is particularly true, in light of the fact that at

Dr. Garcia’s death, all the primary beneficiaries listed were living, rendering the

“additional/special beneficiary” language inapplicable.                    We find that Dr. Garcia met the

substantial compliance test and had “done all that he could reasonably have done” to effect the

change.” Tips v. Security Life & Accident Company, 144 Tex. 461, 464, 191 S.W.2d 470, 471

(1945). Therefore, the COB became effective as of the date Dr. Garcia signed the COB form,

April 3, 2008, and Sagarnaga became an intended beneficiary of the policy. On Dr. Garcia’s

death, Sagarnaga’s interest in the Policy vested, and she obtained standing to proceed against

Pruco for a breach of contract. Harris, 245 S.W.3d at 481. Pruco’s first issue is overruled.

                                               Breach of Contract

         Pruco contends the trial court erroneously found it breached the contract of insurance.11

The construction of a contract is a question of law for the court. Coker v. Coker, 650 S.W.2d 391,

393 (Tex. 1983); Edwards v. Lone Star Gas Co., a Div. of Enserch Corp., 782 S.W.2d 840, 841

(Tex. 1990). The general rules of contract construction govern insurance policy interpretation.

Tex. Farmers Ins. Co. v. Murphy, 996 S.W.2d 873, 879 (Tex. 1999); State Farm Life Ins. Co. v.


11
   Pruco also argues that because it timely interpleaded the disputed Policy funds into the court’s registry, no cause of
action for breach of contract exists, contending that interpleader is meant to take the place of payment when an insurer
is presented with competing claims, and citing TEX.INS.CODE ANN. § 542.058(c) in support. However, this argument
fails to take into account Section 542.061: “[t]he remedies provided by this subchapter are in addition to any other
remedy or procedure provided by law or at common law.” Sagarnaga’s claims, separate from the alleged violation of
the Prompt Payment Statute, are not affected by Pruco’s interpleader under the statute. See Clayton v. MONY Life
Insurance Company of America, 284 S.W.3d 398, 404-05 (Tex.App.--Beaumont 2009, no pet.)(noting that
“interpleader tender did not serve to discharge all liability claims which arose prior to the interpleader . . . [t]hose
disputed independent claims must be adjudicated by summary judgment motion or trial.”).
                                                          14
Beaston, 907 S.W.2d 430, 433 (Tex. 1995); Barnett v. Aetna Life Ins. Co., 723 S.W.2d 663, 665

(Tex. 1987); see also Markel Ins. Co. v. Muzyka, 293 S.W.3d 380, 385–86 (Tex.App.--Fort Worth

2009, no pet.)(describing various principles of contract interpretation that apply to insurance

policies).

        “The elements of a breach of contract claim are (1) the existence of a valid contract, (2)

performance or tendered performance by the plaintiff, (3) breach of the contract by the defendant,

and (4) resulting damages to the plaintiff.” Fieldtech Avionics & Instruments, Inc. v. Component

Control.Com, Inc., 262 S.W.3d 813, 825 (Tex.App.--Fort Worth 2008, no pet.), citing Harris v.

Am. Prot. Ins. Co., 158 S.W.3d 614, 622–23 (Tex.App.--Fort Worth 2005, no pet.).

        The facts regarding the breach are straightforward. The Policy is a contract. Dr. Garcia

substantially complied with the COB requirements, Sagarnaga became vested on Dr. Garcia’s

death, and 50 percent of the Policy proceeds were to be paid to Sagarnaga. Pruco failed to tender

the 50 percent policy death benefit to Sagarnaga. The trial court found Sagarnaga incurred

damages as a result of Pruco’s failure to pay the Policy benefits, specifically, having to pay the

children $90,000 from Sagarnaga’s 50 percent of the Policy death benefits that had been deposited

in the court’s registry. The elements of a breach of contract are met in the instant case and we

overrule Pruco’s second issue.

                                      Texas’ Prompt Pay Statute

        Pruco’s fifth issue and part of their third complaint both involve Chapter 542 of the Texas

Insurance Code, known as the Prompt Pay Statute. Pruco asserts the evidence is legally and

factually insufficient to support the finding that Pruco violated the TEX.INS.CODE ANN. §§ 542.051

– 542.061. In addition, the court erred in awarding Sagarnaga statutory penalty interest pursuant


                                                15
to TEX.INS.CODE ANN. § 542.060 (West 2009). We disagree.

       Section 542.055 provides than an insurer, within 15 days of receipt of a claim, is to

acknowledge receipt, commence investigation and request “all items, statements, and forms that

the insurer reasonably believes, at that time, will be required from the claimant.” TEX.INS.CODE

ANN. § 542.055(a). The statute provides that a “notice of claim” is defined as any written

notification by a claimant to an insurer. TEX.INS.CODE ANN. § 542.051(4). If the insurer denies

the claim, such denial must be “not later than the 15th business day after the date the insurer

receives all items, statements, and forms required by the insurer . . . .” TEX.INS.CODE ANN.

§ 542.056(a). Subsection (a) of Section 542.058 states if an insurer “after receiving all items,

statements, and forms reasonably requested” under Section 542.055 delays payment of the claim

for more than 60 days (or that period another applicable statute specifies), the insurer shall pay

“damages and other items” in accordance with Section 542.060.                   TEX.INS.CODE ANN.

§ 542.058(a).

       If an insurer is liable for a claim that is not in compliance with the Prompt Payment

subchapter, the insurer is liable for interest on the claim of 18 percent a year as damages, and

reasonable attorney fees. TEX.INS.CODE ANN. §542.060(a). In June of 2009, the following

provision was added to Section 542.058:

       (c) A life insurer that receives notice of an adverse, bona fide claim to all or part of
       the proceeds of the policy before the applicable payment deadline under Subsection
       (a) shall pay the claim or properly file an interpleader action and tender the benefits
       into the registry of the court not later than the 90th day after the date the insurer
       receives all items, statements, and forms reasonably requested and required under
       Section 542.055. A life insurer that delays payment of the claim or the filing of an
       interpleader and tender of policy proceeds for more than 90 days shall pay damages
       and other items as provided by Section 542.060 until the claim is paid or an
       interpleader is properly filed.


                                                 16
TEX.INS.CODE ANN. § 542.058(c).12

        Additionally, Section 542.061 provides: “[t]he remedies provided by this subchapter are

in addition to any other remedy or procedure provided by law or at common law.”

        Dr. Garcia died on September 22, 2009. The children each filed a claim for benefits under

the Policy by October 15, 2009. On October 21, 2009, Sagarnaga called Pruco to assert her claim

to the death benefit. She also sent a letter that day reiterating her position that Dr. Garcia signed a

COB making her a 50 percent beneficiary. Subsequently, Pruco receives Sagarnaga’s letter

regarding her claim. Pruco referred the file to its claims department for handling as an adverse

claims case on October 27. On November 3, Pruco sends a letter to Sagarnaga rejecting her

claim, stating the children are the only beneficiaries. On November 13, Pruco sent a letter to

Sagarnaga requesting her to submit documents verifying Dr. Garcia’s intent regarding the change

of beneficiary.

        On December 17, the children filed their original petition against Pruco for the entire

benefit under the Policy.            On January 8, 2010, Pruco answered the children’s suit,

counterclaimed, and included “a third party action in interpleader against Sagarnaga seeking to

deposit the Death Benefit” with the court. On March 9, Pruco filed a “Motion to Interplead Funds

and Dismiss,” arguing that Pruco is “ready, willing and able to pay the Death Benefit” and was

requesting the “Court’s permission to deposit the Death Benefit with the Court.” Pruco was also

seeking, after the death benefit was paid, that Pruco “shall be fully and completely discharged of

any and all liabilities to the claimants . . . .” On May 7, the court signed an order in which Pruco’s

motion to dismiss was denied, but ordered the $375,000, plus interest payable pursuant to the


12
  Amended by Acts 2009, 81st Leg., ch. 833, § 1, eff. June 19, 2009. This subsection was in effect prior to
Dr. Garcia’s death in September of 2009.
                                                        17
Policy, to be deposited immediately into the registry of the court. On August 3, the court signed

an agreed order which reflected that Pruco had deposited $382,483.50 into the court’s registry on

June 3.

          The trial court, in her conclusions of law, held Sagarnaga was entitled to $135,000 of

statutory interest for the violation of Chapter 542, commencing on November 3, 2009, and “[t]he

Company is liable to Sagarnaga for wrongfully delaying payment to Sagarnaga for more than 60

days after receiving notice of the Sagarnaga claim.” On January 25, 2012, the court signed an

amended judgment awarding Sagarnaga “statutory interest damages . . . on the Claim Amount as

calculated at the rate of 18% per year commencing on November 3, 2009, and ending on the day

preceding the date of judgment was rendered.”

          Notice of claim is written notification by the claimant to the insurer, and it is undisputed

Pruco received written notice from Sagarnaga.             TEX.INS.CODE ANN. § 542.051(4).         On

November 3, Pruco sent written notice to Sagarnaga rejecting her claim, which complied with

TEX.INS.CODE ANN. § 542.056(a). The interpleader was filed on January 8, but the tender of the

death benefits into the registry of the court was not accomplished until June 3, 2010.

          Pruco argues that the evidence is legally and factually insufficient to support the court’s

finding that Pruco violated the Section 542.058. First, Pruco agues they required additional time

to conduct an investigation into Dr. Garcia’s death, thus the Section 542.058 deadlines were not

triggered until after November 2009. Second, Pruco was presented with “adverse, bonafide”

claims, so Section 542.058(c) ninety-day deadline applies. Finally, Pruco’s interpleader was filed

prior to the expiration of ninety days, so therefore, they did not violate the Prompt Pay statute. In

support of their claim the interpleader was filed timely, Pruco points to the express language of


                                                  18
Section 542.058(c) and the holding in Martinez.

       In Martinez, the trial court assessed the statutory penalty interest after the interpleader was

filed and until the final judgment was signed, some nine months later. Martinez, 216 S.W.3d at

805. The Texas Supreme Court held, “only the absence of rival claims” would justify continuing

the statutory penalty of Section 542.060(a) after interpleader occurs. Id. at 807. Pruco urges this

Court to construe Martinez for the proposition that “interpleader sufficed in place of payment.”

Id. at 806. However, in Martinez, the policy proceeds were deposited into the trial court’s registry

on the same day the interpleader was filed. Id. at 801. In fact, the interpleader was filed and the

policy proceeds were deposited seventy-two days from the prompt payment sixty-day deadline,

thereby exceeding it only by twelve days. Id. at 807. The court held the insurer owed the

statutory penalties only for the twelve days it had missed the Section 542.058 deadline. Id. at

807-08.

       The Martinez court repeatedly emphasized the payment of the proceeds into the court’s

registry tolls the statute’s interest penalties. A careful reading of Martinez reveals the Court used

“interpleader” and “deposit of the proceeds” interchangeably, and understood those actions would

occur nearly simultaneously. Id. at 806, 807. The court stated, “the statute seeks to get policies

paid as quickly as possible, it is not advanced by paying the wrong party, a consequence that

interpleader avoids.” Id. at 806. Further, “an insurer that tenders part of the policy proceeds

must pay penalties only on the remainder . . . .” Id. at 807. The court reasoned that “an insurer

that interpleads the entire policy proceeds owes nothing more, and should not have to pay penalties

on the presumption that it does.” Martinez, 216 S.W.3d at 807.

       Pruco correctly points out Martinez was decided in 2007, prior to the enactment of Section


                                                 19
542.058(c). Turning to the express language of the statute, firstly, we note that it states “file an

interpleader action and tender the benefits into the registry of the court . . . .” Secondly, it also

states, that “[a] life insurer that delays payment of the claim or the filing of an interpleader and

tender of policy proceeds,” if greater than ninety days, is subject to the statutory interest penalty of

Section 542.060(a). It is clear to us that the Legislature has intentionally coupled the filing of the

interpleader action and the deposit of the policy proceeds into the court’s registry in order to toll

the assessment of the statutory interest under Section 542.060(a).

        Therefore, we hold that the statutory interest, pursuant to Section 542.060(a), shall begin

the day after the deadline ends under Section 542.058(a) or (c), that being either day sixty-one or

day ninety-one. The interest penalty, in accordance with Martinez, shall accrue until the day

before the policy proceeds have been deposited into the court’s registry. In the case at hand, the

tender of the Policy proceeds into the court’s registry occurred on June 3, 2010. Therefore, the

court erred in assessing the statutory interest until January 24, 2012.

        Next, we turn to the sufficiency of the court’s findings of fact and conclusions of law that

(1) Pruco had an obligation to pay Sagarnaga within sixty days under Section 542.058(a); and (2)

that obligation began on November 3, 2009. The court found Sagarnaga was a beneficiary and it

is incontrovertible that Sagarnaga was not paid the Policy benefits within sixty days of her claim.

Pruco asserts they may delay payment up to ninety days under Section 542.058(c) if they have

received “notice of an adverse, bona fide claim . . . .” However, in order to avail themselves of the

payment delay of ninety days, Pruco shoulders the burden of proof in showing that Sagarnaga and

the children had adverse, bona fide claims to the Policy. However, here the record is woefully

devoid of evidence that Sagarnaga and the children were bona-fide adverse claimants. Pruco has


                                                  20
failed to show they are entitled to the extra thirty days Section 542.058(c) affords them, and the

evidence is legally and factually sufficient to support the court’s finding Pruco violated Section

542.058(a).

       On October 21, Pruco first became aware of Sagarnaga’s claim. Pruco then received

written notice of her claim. On November 3, 2009, Pruco rejected Sagarnaga’s claim asserting

the sole beneficiaries to the Policy were the children.      Then in a seeming about-face, on

November 13, Pruco requests Sagarnaga provide further documentation to support her claim.

Pruco points to their November 13 letter to show that they were continuing to evaluate Sagarnaga’s

claim through November 2009 and therefore is not liable to pay the death benefit on November 3,

2009. As Pruco was able to deny Sagarnaga’s claim on November 3, ostensibly, they had

concluded their investigation as to whether benefits were payable and to whom. We find that the

evidence is legally and factually sufficient to support the court’s conclusion that Pruco delayed

payment for over sixty days beginning on November 3, 2009.

       The interpleader and the deposit of policy proceeds should have occurred by January 2,

2010, under Section 542.058(a) in order to avoid the statutory penalties. The death benefits owed

to Sagarnaga were deposited into the court’s registry by Pruco on June 3, 2010. The imposition of

the statutory interest in accordance with Section 542.060(a) should begin the sixty-first day after

November 3, 2009 and end the day before June 3, 2010. In accordance with our opinion, the

statutory interest would commence on January 3, 2010 and end on June 2, 2010. Under our

holding and these facts, Pruco violated both Section 542.058(a), in that their tender of the policy

proceeds into the court’s registry exceeded the sixty days deadline.

       We overrule Pruco’s fifth issue and part of their third issue as to Chapter 542 and the


                                                21
imposition of the 18 percent statutory interest under Section 542.060(a).

                                         Attorney’s fees

       In its sixth issue, Pruco contends the evidence supporting the award of Sagarnaga’s

attorney’s fees is legally and factually insufficient. Pruco points to the failure of the testifying

attorney to segregate the attorneys’ fees accrued under the breach of contract claim and of those

fees that accrued under Sagarnaga’s other claims.

       Whether segregation is necessary is a question of law, subject to de novo review.

Penhollow Custom Homes, LLC v. Kim, 320 S.W.3d 366, 374 (Tex.App.--El Paso 2010, no pet.).

Texas law prohibits recovery of attorneys’ fees unless authorized by statute or contract. Tony

Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 310 (Tex. 2006). A negligence cause of action

does not support a claim of attorney’s fees, whereas a claim for breach of contract does. See

TEX.CIV.PRAC.&REM.CODE ANN. §§ 38.001–.006 (West 2008).

       If any attorney’s fees relate solely to claims for which fees are not recoverable, a claimant

must segregate recoverable from unrecoverable fees. Tony Gullo Motors, 212 S.W.3d at 313.

Intertwined facts do not make tort fees recoverable. Id. at 313. It is only when legal services

advance both recoverable and unrecoverable claims and the services are so intertwined that the

associated fees need not be segregated. A.G. Edwards & Sons, Inc. v. Beyer, 235 S.W.3d 704,

710 (Tex. 2007), citing Tony Gullo Motors, 212 S.W.3d at 313–14. Unsegregated fees are some

evidence of what the segregated amount should be, therefore, remand for segregation of fees may

be required when at least some of the fees at issue are attributable to claims for which attorney’s

fees are recoverable. Id.

       In the instant case, Sagarnaga’s claims and counterclaims involved breach of contract,


                                                22
violation of the Prompt Payment Statute, common-law and statutory bad faith, negligence and

Texas Insurance Code violations. The judgment awarded Sagarnaga $200,000 in attorney’s fees.

        When Sagarnaga’s counsel, Pierce, testified to his attorney’s fees, he stated:

                The only other point I wish to make is that I have not attempted to segregate
        fees in this case, because there are essentially to some degree three lawsuits that
        were being litigated: Ms. Sagarnaga versus the children, Ms. Sagarnaga versus
        Mr. Schmid and Ms. Sagarnaga versus Prudential. However, the facts of one and
        the facts of all are the same.

Pierce further testified:

        It is my opinion that it’s not really possible to tease out any particular part of any
        claim or cause of action, because the facts of the three cases are so interrelated that
        it was all going to be generated whether or not there was a claim against
        Mr. Schmid directly or it was just against Prudential.

While Pierce referred to an “affidavit” relating to his fees, the exhibit introduced at trial was the

billing records. Even a cursory review of the billing records indicates billing entries relating to

Schmid – who Sagarnaga raised negligence allegations against in her claims. Pierce made no

effort to estimate a possible segregation of fees in his testimony. While the standard does not

mandate the maintenance of separate time records when drafting the different claims, an opinion

would be sufficient as to the percentages of segregation as to the claims. See Tony Gullo Motors,

212 S.W.3d at 314 n.83.

        In Allan v. Nersesova, Allan pleaded thirteen claims against five defendants. 307 S.W.3d

564, 573 (Tex.App.--Dallas 2010, no pet.). At trial, Allan asserted only one cause of action

against one defendant for which attorney’s fees could be awarded. Id. Allan argued that she had

no burden to segregate her fees because the tort and contract claims required proof of the same set

of facts and circumstances and were intertwined to the point of being inseparable. The court of

appeals noted that Allan failed to show that all her attorney’s fees were incurred for legal services

                                                  23
involving the breach of contract action. Allan, 307 S.W.3d at 573. “For example, the fees

incurred in drafting the original and amended petitions and the jury charge relating to the tort

claims were not recoverable, while the portion of the fees relating to the contract claim was

recoverable.” Id. Based on these findings, the court of appeals reversed the attorney’s fee award

and remanded the case for a new trial on the issue of attorney’s fees. Id. at 573–74.

       We find the reasoning of Tony Gullo Motors and Allan appropriate in the instant case,

particularly with the lack of opinion regarding segregation of fees and the evidence presented

which included fees for claims where attorney’s fees would have been unrecoverable.

       We sustain Pruco’s sixth issue. TEX.R.APP.P. 43.3; 7979 Airport Garage, L.L.C. v.

Dollar Rent A Car Systems, Inc., 245 S.W.3d 488, 510 (Tex.App.--Houston [14th Dist.] 2007, pet.

denied)(ordering same relief where attorney fees were not segregated).

                            Standing and Violation of Chapter 541

       At oral argument the parties agreed that common law and statutory bad faith claims were

no longer at issue. Therefore, we do not address that part of Pruco’s third issue as it relates to

Chapter 541 and common-law bad faith, as it is not necessary to the disposition of the appeal.

TEX.R.APP.P. 47.1.

                                        Expert Witness

       Because we have concluded the evidence is sufficient to support the judgment without

Sagarnaga’s expert testimony, we do not address Pruco’s fourth issue as it is not necessary to the

disposition of the appeal. TEX.R.APP.P. 47.1.

                                       CROSS-APPEAL

       Sagarnaga has cross-appealed, asserting in a single issue the trial court abused its


                                                24
discretion by failing to award Sagarnaga post-trial and appellate attorney’s fees in its judgment.

        An     award     of    attorney’s    fees        under   Section   38.001   is    mandatory.

TEX.CIV.PRAC.&REM.CODE ANN. § 38.001 (West 2008); Gunter v. Bailey, 808 S.W.2d 163,

165-66 (Tex.App.--El Paso 1991, no writ)(holding that an award of reasonable attorney’s fees to a

plaintiff recovering on a valid claim founded on a written or oral contract is mandatory, and that it

follows that if the party is entitled to attorney’s fees under Section 38.001, he is also entitled to

attorney’s fees on appeal); Lee v. Perez, 120 S.W.3d 463, 469 (Tex.App.--Houston [14th Dist.]

2003, no pet.). Sagarnaga presented uncontested testimony that $30,000 is a reasonable fee for an

appeal to this Court, with additional fees for a motion to reconsider, and $5,000 for an appeal to the

Texas Supreme Court, increasing if the Supreme Court required briefing and granted oral

argument. “While the trial court had discretion to award a smaller or larger fee, it did not have

discretion to award nothing.” Id. Sagarnaga was entitled to an award of appellate attorney’s

fees. See id. at 469-70. However, because Pruco has partially succeeded in this appeal, and as

the matter is being remanded based on the failure to segregate the attorney’s fees, we have no

choice but to reverse and remand the award of attorney’s fees to the trial court for a determination

of the reasonable attorney fees to be awarded Sagarnaga in view of the fact that Pruco was partially

successful in this appeal, and to make a determination of an appellate attorney fee should the

matter be appealed to the Texas Supreme Court. See Parker v. Parker, 897 S.W.2d 918, 935

(Tex.App.--Fort Worth 1995, writ denied)(reversing and remanding appellate attorney fee award

for redetermination where appeal was partially successful); Smith v. Smith, 757 S.W.2d 422, 426

(Tex.App.--Dallas 1988, writ denied)(same). Sagarnaga’s issue is overruled to the extent that the

entire attorney’s fee award is being reversed and remanded for such redetermination.


                                                    25
                                        CONCLUSION

       We reform the trial court’s judgment to reflect the award of 18 percent statutory penalty

interest under Chapter 542 of the Insurance Code is to begin on January 3, 2010 and end June 2,

2010. We reverse that portion of the judgment as it relates to the attorney’s fees and remand to

the trial court for a determination of Sagarnaga’s recoverable attorney’s fees, including appellate

attorney fees, in a manner consistent with this opinion. We affirm the remainder of the trial

court’s judgment.



August 29, 2014
                                             YVONNE T. RODRIGUEZ, Justice

Before McClure, C.J., Rivera, and Rodriguez, JJ.




                                                26
