Certain Underwriters at Lloyd's London v. Smith , 77 S.W.3d 859 ( 2002 )

MAJORITY OPINION

WANDA McKEE FOWLER, Justice.

This is an appeal and cross-appeal by National Convenience Stores, Inc. and Certain Underwriters at Lloyd’s, London, from summary judgment rulings and a bench trial. Appellants challenge (1) the award to appellee of the proceeds of an insurance policy National Convenience Stores held on the lives of its employees, (2) the court’s findings at the bench trial on attorney’s fees and the applicability of Texas Insurance Code article 21.55, and (3) prejudgment interest. Lloyd’s additionally argues that it should not be held jointly and severally liable for the award. Appel-lee/cross-appellant challenges the trial court’s summary -judgment in favor of Lloyd’s that article 21.55 was not applicable to her claims. We affirm in part and reverse and remand in part.

FACTS

National Convenience Stores, Inc. (“NCS”) owned and operated “Stop ’N Go” convenience stores in Texas and elsewhere in the United States. On December 4, 1991, William Smith, an NCS employee, was killed while in the course and scope of employment at an NCS convenience store. NCS had purchased an accidental death insurance policy from Certain Underwriters at Lloyd’s, London (“Lloyd’s”) that provided that Lloyd’s would pay NCS $250,000 upon the accidental death of any NCS Texas employee killed during the course and scope of employment with NCS. NCS was not a worker’s compensation subscriber. After William Smith’s death, NCS submitted a claim and was paid $250,000 in proceeds. Angela M. Smith, William Smith’s widow, subsequently learned of this payment.

PROCEDURAL HISTORY

After learning that NCS was paid the insurance benefits, Angela M. Smith, individually and as next friend of Brandon William Hendrix, a minor (“Smith”), sued Lloyd’s and others to recover the $250,000.¹ Lloyd’s brought NCS into the suit as a third-party defendant, and Smith amended her pleadings to seek the insurance proceeds from all defendants.

Smith also moved for partial summary judgment asking the court to declare her entitled to recover the insurance proceeds arising from her husband’s death. The trial court granted Smith’s motion, entering a partial summary judgment in her favor. The trial court also granted summary judgment in favor of Lloyd’s on Smith’s claims of breach of contract, conversion, money had and received, and conspiracy. Lloyd’s motion for summary judgment with respect to Smith’s claim under Texas Insurance Code article 21.55 was taken under advisement and never ruled on before trial.

Ultimately, the trial judge conducted a bench tidal on Smith’s claim for attorney’s fees under the Declaratory Judgment Act and the applicability of Texas Insurance Code article 21.55, and signed a judgment awarding Smith the policy benefit of $250,000, attorney’s fees of $87,5000, and prejudgment interest of $119,013.70. The defendants were held jointly and severally liable for the relief granted.

In support of the judgment, the trial court issued findings of fact and conclusions of law, including the following findings of fact:

16. Were Tex. Ins.Code art. 21.55 to apply in this case, the court would award interest as damages pursuant to Tex. Ins.Code art. 21.55 § 6. Such an award would include interest as damages at an annual rate of 18%, simple interest, beginning to accrue November 27, 1995. As of the date of the court’s judgment, the amount would equal $181,602.73.

17. An award under Tex. Ins.Code art. 21.55 § 6 would also include an award of attorneys’ fees in an amount that would leave the plaintiffs with the $250,000 policy benefit and the $181,602.73 interest as damages after payment to their counsel under the contingent fee employment contract. The award of attorneys’ fees under these constraints would equal $232,401.47, increasing to $287,735 if this matter is appealed.

The trial court’s conclusions of law included the following: (1) an award to Smith of $87,500 in attorney’s fees under Tex. Crv. PRAC. & Rem.Code § 37.009 was reasonable, necessary, just and equitable; (2) Lloyd’s was entitled to judgment on Smith’s claims for damages and attorney’s fees under Texas Insurance Code article 21.55 because article 21.55 was not applicable to the action; (3) Lloyd’s, NCS, and the other defendants were jointly and severally liable for the $250,000 policy benefit and attorneys’ fees of $87,500; and (4) pursuant to Tex. Civ. Prac. & Rem Code § 37.003, 37.004, 37.009, and 37.011, Smith was entitled to recover the policy benefit and attorneys’ fees from the defendants jointly and severally.

On appeal, appellant NCS raises 14 issues (not including subparts). NCS’s first ten issues relate to the trial court’s holding that NCS did not have an insurable interest in the life of William Smith and that Smith was entitled to the $250,000 insurance proceeds. In raising these issues, NCS asks this panel to reconsider this court’s prior decision in Tamez v. Certain Underwriters at Lloyd’s, London, 999 S.W.2d 12 (Tex.App.-Houston [14th Dist.] 1998, pet. denied), involving several of the same defendants and the same insurance policy. NCS’s eleventh and twelfth issues challenge the trial court’s award of attorney’s fees based on the Declaratory Judgment Act, Smith’s failure to segregate the attorney’s fees, and the legal and factual sufficiency of the fee award. In its thirteenth and fourteenth issues, NCS complains that the trial court should not have awarded prejudgment interest, and alternatively, that prejudgment interest was improperly awarded under Texas Finance Code section 302.002, and should have been calculated under the common law as provided in Johnson & Higgins of Texas v. Kenneco Energy, Inc., 962 S.W.2d 507 (Tex.1998).

Lloyd’s brings three issues. In the first two issues, Lloyd’s challenges the trial court’s judgment holding it jointly and severally hable for the award of the $250,000 insurance proceeds, attorney’s fees, and prejudgment interest. In the third issue, Lloyd’s argues, as does NCS, that NCS has an insurable interest in the lives of its employees.

Cross-appellant Smith brings a single issue complaining of the trial court’s finding that Texas Insurance Code article 21.55 is not applicable to her claims.

We will address the claims of each party in turn, concluding with Smith’s cross-appeal.

NCS’S LIABILITY

1. Insurable Interest and the Applicability of Collateral Estoppel

While the present case was pending in the trial court, this court issued its decision in Tamez v. Certain Underwriters at Lloyd’s, London, 999 S.W.2d 12 (Tex.App.Houston [14th Dist.] 1998, pet. denied), a case involving a nearly identical fact situation and claims against NCS and Lloyd’s for the insurance policy proceeds under the same policy at issue here. In Tamez, a different panel of this court reached three conclusions: (1) the plaintiffs had standing to seek the policy proceeds; (2) NCS has no insurable interest in the life of its employees; and (3) NCS recovered benefits from the policy in violation of article 3.51-6, section 3 of the Texas Insurance Code. Id. at 15-21. The Tamez court also found that there was no contractual relationship between Lloyd’s and the plaintiffs giving rise to the duty of good faith and fair dealing. Id. at 21.² The Texas Supreme Court denied the defendants’ petition for review, and, at about the same time the defendants filed their briefs, denied a motion for rehearing.³

NCS contends that this court should reconsider its decision that NCS lacks an insurable interest in the lives of its employees for the following reasons: (1) NCS has a unique relationship with its Texas employees and incurs substantial expenses for work-related deaths, so there is a clear and rational business purpose for having the insurance policy; (2) NCS has a right to enforce the Lloyd’s policy as a surplus lines policy under Texas Insurance Code article 1.14-2, section 9, to which Texas Insurance Code article 3.51-6 is not applicable; (8) the Lloyd’s policy is not a group policy under article 3.51-6, but a surplus lines policy enforceable as a manuscript policy pursuant to article 1.14-2, section 9; and (4) alternatively, if article 3.51-6 is applicable, the trial court misapplied the “person insured” language.

Lloyd’s joins in NCS’s argument. It asserts that (1) Texas Insurance Code article 3.49-1 mandates that the doctrine of insurable interest be liberally construed, and (2) the named beneficiary of a life insurance policy has an insurable interest in the life of another to the extent the beneficiary suffers actual pecuniary loss if the insured person dies. Additionally, Lloyd’s asserts that third parties like Smith lack standing to assert that the named beneficiary lacks an insurable interest with regard to the person whose life has been insured.

In response, Smith argues that this court’s opinion in Tamez decided these issues; therefore, collateral estoppel bars the defendants from relitigating them. Alternatively, Smith contends that the summary judgment granted on her breach of contract claim should be reversed and remanded for trial in the event the judgment in her favor is overturned. NCS and Lloyd’s reply that Smith may not assert collateral estoppel because she failed to preserve the argument below. Lloyd’s further argues that neither collateral es-toppel nor law of the case is applicable here.

a. Collateral estoppel

We first address the collateral estoppel issue. Collateral estoppel is issue preclusion. Barr v. Resolution Trust Corp., 837 S.W.2d 627, 629 (Tex.1992). It prevents a party from relitigating an issue that it previously litigated and lost. Quinney Elec., Inc. v. Rondos Entertainment, Inc., 988 S.W.2d 212, 213 (Tex.1999) (per curiam). Application of collateral estoppel is a question of law for the court. Hill v. Heritage Resources, Inc., 964 S.W.2d 89, 138 (Tex.App.-El Paso 1997, pet. denied). For collateral estoppel to apply (1) the facts sought to be litigated in the second action must have been fully and fairly litigated in the prior action, (2) the facts must have been essential to the judgment in the first action, and (3) the parties must have been cast as adversaries in the first action. Sysco Food Services, Inc. v. Trapnell, 890 S.W.2d 796, 801 (Tex.1994).

Collateral estoppel is an affirmative defense. Id. at 802. The party asserting it has the burden of pleading and proving its elements. In re H.E. Butt Grocery Co., 17 S.W.3d 360, 377 (Tex.App.Houston [14th Dist.] 2000, orig. proceeding). The party relying upon collateral estoppel must introduce into evidence the judgment and pleadings from the prior suit; if the party does not do this, the doctrine of collateral estoppel is not applicable in the second proceeding. Avila v. St. Luke’s Lutheran Hosp., 948 S.W.2d 841, 846 (Tex.App.-San Antonio 1997, pet. denied). This court has previously held that a party’s claims were barred when the party never presented her collateral estop-pel argument to the trial court. Mayes v. Stewart, 11 S.W.3d 440, 450 (Tex.App.-Houston [14th Dist.] 2000, pet. denied) (citing Tex.R.App. P. 38.1(a)).

A review of the record in this case reveals no specific pleading in which Smith asserted collateral estoppel. The parties and the court were aware of the pending Tamez case. The parties attached affidavits, deposition testimony, and other evidence filed in .Tamez in support of their motions, and once the opinion was issued, both sides referenced it in support of their arguments in the trial court. Nevertheless, Texas law is clear that collateral es-toppel is an affirmative defense, and a party seeking to rely on it has the burden to plead and prove it; otherwise it is waived.⁴ None of Smith’s petitions, including the last live petition, assert collateral estoppel as an affirmative defense, and the record reveals no evidence that collateral estoppel was argued to the trial court. Therefore, we hold that Smith cannot raise collateral estoppel on appeal.

b. Insurable interest

We turn now to appellants’ assertion that NCS has an insurable interest in the lives of its employees.

Historically, Texas courts have held that it is against the public policy of Texas to allow anyone who has no insurable interest to be the owner of a policy of insurance upon the life of a human being. Cheeves v. Anders, 28 S.W. 274, 275, 87 Tex. 287, 291 (Tex.1894). The foundation of this doctrine is a prohibition on life insurance policies that offer a financial inducement to destroy the- life of the insured person. Id. at 28 S.W. at 275, 87 Tex. at 293-94; see also Stillwagoner v. Travelers Ins. Co., 979 S.W.2d 354, 360 (Tex.App.-Tyler 1998, no pet.) (“The insurable interest requirement for beneficiaries of life insurance rests on two coexisting policy considerations: (1) that no inducement be offered to one person to take the life of another; and (2) that no one should be permitted to wager on the continuation of a human life.”). In 1942, the Texas Supreme court articulated three general classes of those who may have an insurable interest in the life of another: (1) one so closely related by blood or affinity that he wants the other to continue to live, irrespective of monetary considerations; (2) a creditor; and (3) one having a reasonable expectation of pecuniary benefit or advantage from the continued life of another. Drane v. Jefferson Standard Life Ins., Co., 139 Tex. 101, 161 S.W.2d 1057, 1059 (1942).

Against this backdrop, the Texas legislature added article 3.49-1 to the Texas Insurance Code in 1953. See Tamez, 999 S.W.2d at 17. In 1991, at the time the policy at issue was purchased, section 4 of article 3.49-1 provided that the provisions of the Code were “cumulative of existing law in Texas, statutory and otherwise, on the question of insurable interest.” Id.⁵ Section 4 farther directed that the Code “shall be liberally construed to effectuate its purposes, and its provisions are not to be limited or restricted by previous declarations or holdings of the Courts of Texas defining the term insurable interest.” Id. Nevertheless, the Tamez court determined, after surveying the case law that developed following the enactment of article 3.49-1, that the categories of persons having an insurable interest as articulated in Drane remained unchanged. Tamez, 999 S.W.2d at 17-18.

In analyzing the policy at issue, which NCS concedes is the same policy at issue here, the Tamez court determined that NCS did not fit into any of the Drane categories, and therefore NCS did not have an insurable interest in the lives of its employees. Id. at 19. Accordingly, the policy was “void as to NCS.” Id. Further, the Tamez court found that NCS was not the proper beneficiary and found that it recovered the benefits from the policy in violation of the Insurance Code. Id. at 21. The court reached this conclusion because it interpreted article 3.51-6, section 3 as impliedly prohibiting employers from ben-efitting from insurance proceeds “in that it provides for payment of proceeds to the person insured or to his designated beneficiary.” Id. at 20. Accordingly, the court determined that, under the Insurance Code, the plaintiffs were the proper beneficiaries. See id. at 19-21. The court rejected NCS’s argument that it fell within the category of one having a reasonable expectation of pecuniary benefit or advantage from the continued life of another. Id. at 18. The court likewise rejected NCS’s alternative argument that it has an insurable interest because it sustains a substantial pecuniary loss upon the death of an employee in the form of funds paid to the families and expenses for potential liability in litigation. Id. at 19.

Similarly, in Stillwagoner v. Travelers Ins. Co., the Tyler Court of Appeals looked to the Drane categories of persons with an insurable interest to determine that a home health care company did not have an insurable interest in the life of a temporary employee hired two months before her death. Stillwagoner v. Travelers Ins. Co., 979 S.W.2d at 361-63. As that court explained:

The Travelers policy paid Advantage $200,000 without regard to whether Advantage suffered any loss at all. Therefore, it stood to gain a great deal from its wager on the life of its employee in the likely event that no claim was brought or if the claim could be settled for less than. the policy benefits. Viewed in this light, the policy appears to be a wagering contract on the fives of the persons insured, one of the evils the insurable interest rule was devised to discourage. We conclude Advantage had no insurable interest in [the deceased employee’s] fife.

Id. at 363. In reaching its conclusion, the Stillwagoner court stated that “the mere existencé of an employer/employee relationship is never sufficient to give the employer an insurable interest in the fife of the employee.” Id. at 361.

We find that the reasoning of Tamez controls the determination of this issue, and we find that NCS has no insurable interest in the fives of its employees.⁶ We therefore overrule NCS’s first ten issues. Consequently, we do not reach Smith’s alternative argument that the summary judgment in favor of Lloyd’s on Smith’s breach of contract claim should be reversed.

3. Attorney’s Fees

Having determined that the trial court correctly held that Smith was the proper beneficiary of the insurance proceeds, we now turn to the issue of attorney’s fees. Appellants raise numerous challenges to the fee award. NCS argues that there was no basis for an award of attorney’s fees because a declaratory judgment action may not be coupled with a damage action simply to pave the way to recover attorney’s fees, and challenges the legal and factual sufficiency of the evidence of attorney’s fees. Lloyd’s makes a similar argument that a declaratory judgment action is not available to settle disputes already pending before a court, and additionally argues that it cannot be directly liable for attorney’s fees because the trial court found there was no contract between Lloyd’s and Smith, and there is no independent basis for liability. In response, Smith argues that the case involved a declaration of the party’s rights under the policy since its inception, and is not an attempt to “boot strap” a declaratory action for the attorney’s fees.

a. Did Smith bring a valid declaratory judgment action?

The trial court’s conclusions of law state that “pursuant to Tex. Civ. Prac. & Rem Code §§ 37.003, 37.004, 37.009, and 37.011, Smith is entitled to recover the policy benefit and attorneys’ fees from the defendants jointly and severally.”' There is no question that the court is empowered to make a judicial determination of the litigants’ rights, status, and relations under an insurance policy. See Tex. Civ. Prac. & Rem Code §§ 37.003, 37.004, and 37.011 (Vernon 2001). The availability of another remedy that might be entirely adequate does not necessarily deprive the trial court of jurisdiction to grant declaratory relief. Texas Liquor Control Bd. v. Canyon Creek Land Corp., 456 S.W.2d 891, 895 (Tex.1970); Armentrout v. Texas Dep’t of Water Resources, 675 S.W.2d 243, 245 (Tex.App.-Austin 1984, no writ). A declaratory judgment proceeding is an additional and cumulative remedy, and does not supplant any existing remedy. McKinley v. McKinley, 483 S.W.2d 310, 312 (Tex.Civ.App.-Tyler. 1972,), rev’d.on other grounds, 496 S.W.2d 540 (Tex.1973). Further, it is well-recognized that a declaratory judgment action is an appropriate means to resolve a controversy involving entitlement to insurance proceeds. See, e.g., Empire Life Ins. Co. v. Moody, 584 S.W.2d 855, 858 (Tex.1979); Marineau v. General American Life Ins. Co., 898 S.W.2d 397, 405 (Tex.App.-Fort Worth 1995, writ denied).

NCS and Lloyd’s protest that the declaratory action is not an appropriate basis for the relief awarded. We find appellants’ authorities factually distinguishable because they involved either declaratory judgment counterclaims, declaratory actions mirroring contract claims already pending, or separate declaratory actions filed after pending actions on the same subject. None of these happened here. Smith alleged in her original petition that NCS lacked any insurable interest in the lives of its employees and thus the insurance benefits under the Lloyd’s policy must be paid to the estate of William Smith. Smith prayed for, among other things, that she be awarded the proceeds of the Lloyd’s policy. Smith’s second amended original petition, in which she added NCS as a defendant, repeated that NCS lacked an insurable interest in the policy proceeds and that the estate of William Smith was entitled to the proceeds, and further alleged that NCS held the proceeds in a constructive trust. In Smith’s sixth amended pleading, the last live pleading, Smith specifically invoked a request for declaratory relief, alleging that the policy provision naming NCS as the beneficiary was void and illegal because NCS had no insurable interest in the life of William Smith and that the Smiths were the lawful beneficiaries under the policy. Smith’s pleadings demonstrate that the gravamen of her action, from its inception, was a declaration of her rights concerning the policy proceeds.

Appellants contend, however, that Smith’s action was not one for declaratory relief, as evidenced by the fact that she did not amend her pleadings to reflect the addition of a specific pleading for declaratory relief until after the trial court initially determined that NCS lacked an insurable interest. NCS particularly complains that Smith’s claim for attorney’s fees against it did not appear until Smith’s sixth amended petition — filed several months after the trial court entered an order holding that William Smith’s estate was entitled to the policy proceeds. However, appellants cite no authority that holds that a particular type of pleading is required to support a claim for declaratory relief. On the contrary, Texas law is well settled that no particular type of pleading is required under the Declaratory Judgments Act. James v. Hitchcock Indep. School Dist., 742 S.W.2d 701, 704 (Tex.App.-Houston [1st Dist.] 1987, writ denied); Frost v. Sun Oil Co., 560 S.W.2d 467, 473 (Tex.Civ.App.-Houston [1st Dist.] 1977, no writ). Pleadings under this Act are to be liberally construed. First American Title Ins. Co. of Texas v. Willard, 949 S.W.2d 342, 352 (Tex.App.-Tyler 1997, writ denied).

Likewise, neither appellant points to any authority that holds that a plaintiff may not amend her pleadings several times so as to fully reflect the relief sought. Generally, a party is entitled to amend its pleadings subject only to the opposing party’s right to show prejudice or surprise. See Greenhalgh v. Service Lloyds Ins. Co., 787 S.W.2d 938, 940-41 (Tex.1990); see also Tex.R. Civ. P. 63, 66. Indeed, Stoner v. Thompson, 578 S.W.2d 679 (Tex.1979), from the Texas Supreme Court, is particularly instructive on this issue. There, the Court determined that a plaintiff was permitted to make a trial amendment that asserted declaratory relief when the opposing party had fair notice of the declaratory relief sought. Id. at 684 (“A determination of the question of the validity of the Malkans’ contract to buy the stock had to be made before the trial court could have granted the Malkans relief under any of their prior pleadings.”).

We also reject NCS’s contention that to hold that the instant action was one for declaratory relief is to hold that every breach of contract action is automatically one for declaratory relief. At no time did Smith assert a breach of contract action against NCS. Further, the trial court found that Smith could not maintain a breach of contract action against Lloyd’s. The purpose of a suit for declaratory judgment is to have the court clarify one’s rights. Frost v. Sun Oil Co., 560 S.W.2d at 473.

In short, from its inception, Smith’s suit was one to determine the rights that William Smith’s estate had under the insurance policy at issue. We therefore overrule NCS’s' eleventh and twelfth issues, and hold that attorney’s fees were properly awarded under the Declaratory Judgments Act.

b. Amount of fees awarded

We next address NCS’s complaints regarding the amount of attorney’s fees awarded. The Declaratory Judgments Act provides that in any proceeding under the Act “the court may award costs and reasonable and necessary attorney’s fees as are equitable and just.” Tex. Civ. PRAC. & Rem.Code Ann. § 37.009 (Vernon 2000). The Act does not require an award of attorney’s fees to the prevailing party, but merely provides that a court “may” award them. Bocquet v. Herring, 972 S.W.2d 19, 20 (Tex.1998). The Act entrusts attorney fee awards to the trial court’s sound discretion. This discretion is subject only to the requirements that (1) any fees awarded be reasonable and necessary, which are matters of fact, and (2) any fees be equitable and just, which are matters of law. Id. at 21. It is an abuse of discretion for a trial court to rule arbitrarily, unreasonably, or without regard to guiding legal principles. Id. Therefore, in reviewing an attorney fee award under the Act, the court of appeals must determine whether the trial court abused its discretion by awarding fees when there was insufficient evidence that the fees were reasonable and necessary, or when the award was inequitable or unjust. Id.

Generally, when a plaintiff pleads several causes of action including a request for a declaratory judgment and for an award of attorney’s fees, and is subsequently awarded declaratory relief but denied other relief, he is only entitled to those attorney’s. fees attributable-to the declaratory judgment action. Leon Ltd. v. Albuquerque Commons Partnership, 862 S.W.2d 693, 709 (Tex.App.-El Paso 1993, no writ). If attorney’s fees are authorized for some, but not all, of a party’s claims, that party generally has the duty to segregate the recoverable attorney’s fees from the unrecoverable attorney’s fees. Stewart Title Guar. Co. v. Sterling, 822 S.W.2d 1, 10-11 (Tex.1991). An exception to this duty to segregate arises when the attorney’s fees are incurred in connection with claims arising out of the same transaction and are so interrelated that the prosecution or defense of such claims entails proof or denial of essentially the same facts.. Id. at 11. Therefore, when the causes of action involved in a suit are dependent upon the same set of facts or circumstances and are intertwined to the point of being inseparable, the party suing for attorney’s fees may recover the entire amount covering all claims. Id.

As we have determined, the gravamen of Smith’s action was a determination of rights and obligations under an insurance policy. Smith alleged that William Smith’s estate was the proper beneficiary under the policy, and both NCS and Lloyd’s defended against Smith’s claims by arguing (as they do here) that NCS was the proper beneficiary under the policy. Smith’s claims against NCS for a constructive trust involved the same operative facts and the same question of law raised in her claims against the other defendants — specifically, whether NCS had an insurable interest in the policy proceeds. See McLendon v. McLendon, 862 S.W.2d 662, 672-74 (Tex.App.-Dallas 1993, writ denied), disapproved on other grounds, Dallas Market Center Development Co. v. Liedeker, 958 S.W.2d 382 (Tex.1997). Therefore, Smith’s attorney’s fees fell within the exception to the general rule regarding segregation of attorney’s fees. Stewart Title, 822 S.W.2d at 11.

We further find that the trial court did not abuse its discretion in awarding attorney’s fees of $87,500 to Smith. The fees equal 35% of the $250,000 awarded under the policy, which is within the range contemplated by the terms of Smith’s contingency fee contract. The record also includes substantial testimony on the attorney’s fees issue, including testimony from Smith’s expert on attorney’s fees that a fee award of $134,615, increasing to $166,666 on appeal, was at “the low end” of a reasonable fee. The trial court, as the finder of fact, could have reasonably concluded that it was equitable and just to award reasonable and necessary attorney’s fees in the amount of $87,500. We therefore hold that the trial court did not abuse its discretion in awarding attorney’s fees of $87,500 to Smith. NCS’s eleventh and twelfth issues are overruled.

4. Prejudgment Interest

NCS’s thirteenth and fourteenth issues challenge the trial court’s award of prejudgment interest. Texas Finance Code section 302.002, upon which Smith relies, provides as follows:

If a creditor has not agreed with an obligor to charge the obligor any interest, the creditor may charge and receive from the obligor legal interest at the rate of six percent a year on the principal amount of the credit extended beginning on the 30th day after the date on which the amount is due. If an obligor has agreed to pay to a creditor any compensation that constitutes interest, the obligor is considered to have agreed on the rate produced by the amount of that interest, regardless of whether that rate is stated in the agreement.

Tex. Fin.Code Ann. § 302.002 (Vernon 2001). This section is a recodification of the former article 5069-1.03 of the Texas Annotated Civil Statutes.⁷ Cases interpreting the former article 5069-1.03 reject the application of the statute in anything other than a breach of contract case. See, e.g., International Ins. Co. v. Dresser Indus., Inc., 841 S.W.2d 437, 447 (Tex.App.-Dallas 1992, writ denied); Shell Pipeline Corp. v. Coastal States Trading, Inc., 788 S.W.2d 837, 848-49 (Tex.App.-Houston [1st Dist.] 1990, writ denied), disapproved on other grounds, Johnson & Higgins of Texas v. Kenneco Energy, Inc., 962 S.W.2d 507 (Tex.1998).

Here, Smith did not allege breach of contract against NCS, and she did not prevail on her breach of contract claim against Lloyd’s. As to NCS, Smith alleged that NCS, which was not entitled to the policy proceeds, held the proceeds in a constructive trust for the benefit of the estate of William Smith. The trial court determined that the estate of William Smith is entitled to the proceeds of the policy; therefore, while not explicitly stated, the trial court’s judgment implies that Smith is entitled to the imposition of a constructive trust against NCS for the amount of the proceeds. Because Smith’s claim against NCS for a constructive trust does not sound in contract, we hold that section 302.002 does not apply. Consequently, in accordance with the Texas Supreme Court’s directive in Johnson & Higgins of Texas v. Kenneco Energy, Inc., 962 S.W.2d 507, 531 (Tex.1998), we sustain NCS’s thirteenth and fourteenth issues and remand the case to the trial court for a determination of the availability of prejudgment interest under the common law and, if prejudgment interest may be awarded, that it be calculated in accordance with the Texas Supreme Court’s directive. Id. (holding that, under the common law, prejudgment interest begins to accrue on the earlier of (1) 180 days after the date a defendant receives written notice of a claim or (2) the date suit is filed).

LLOYD’S LIABILITY

Lloyd’s raises three issues on appeal. First, it contends that it should not be held jointly and severally liable to the Smiths. Second, Lloyd’s contends that an insurer should not be jointly and severally liable for attorney’s fees and interest to a party not in privity with it. Finally, Lloyd’s argues that an employer should have an insurable interest in the life of its employee if the employer could sustain a substantial pecuniary gain through the continued life of the employee or would have a eon-siderablé pecuniary loss in case of his or her death. Because we have determined that NCS did not have an insurable interest in the life of William Smith, we overrule the third issue. We will address Lloyd’s first and second issues together.

Lloyd’s argues it is not jointly and severally hable for the policy proceeds because requiring it to pay the benefits a second time defeats and contravenes the purpose of the insurable interest doctrine by making it possible for NCS to retain at least a portion of the policy benefit. In response, Smith argues that joint and several liability is appropriate because it discourages insurers from issuing improper coverage, and Lloyds has a statutory obligation to pay under Texas Insurance Code article 3.51-6, section 3.

In Cheeves v. Anders, 87 Tex. 287, 28 S.W. 274 (1894), the Texas Supreme Court explained the issue thusly:

When an insurance company has issued a policy upon the life of a person, payable to one who has no insurable interest in the life insured, or when a policy has been assigned to one having no such interest, the insurance company must nevertheless pay the full amount of the policy, if otherwise liable, because it has so contracted; and it is no concern of the insurer as to who gets the proceeds, except to see that it is paid to the proper, parties under its agreement. It is simply required to perform its contract, and the law will dispose of the money according to the rights of the parties. Pacific Mut. Life Insurance Co. v. Williams, 79 Tex. at 637, 15 S.W. 478, and authorities cited.

Id. at 87 Tex. at 292, 28 S.W. at 275 (emphasis added). Thus, the law requires only that the insurance company pay the proceeds of the insurance policy to the designated beneficiary named in the policy, and if the designated beneficiary is not the proper party to receive the proceeds, he holds them in a constructive trust for the proper beneficiary. See DeLeon, 259 F.3d at 350 (“Texas courts have refrained from invalidating a policy for want of an insurable interest to avoid a windfall to insurers at the expense of lawful beneficiaries. Instead, they require insurers to pay the policy proceeds to.the beneficiary named in the policy.”); see also Tamez, 999 S.W.2d at 15 (“[A] person with no insurable interest will hold the proceeds of a policy as trustee for the benefit of those persons entitled by law to receive it.”). Here, the trial court’s findings of fact included the unchallenged finding that Lloyd’s paid the $250,000 policy proceeds to NCS in satisfaction of NCS’s claim for benefits under the policy arising from William Smith’s death. As we have previously determined, NCS held the proceeds in a constructive trust for Smith. Accordingly, Lloyd’s discharged its responsibilities by paying the insurance proceeds to NCS and therefore is no longer hable for the proceeds.⁸

Our conclusion is further supported by the Tamez court’s reasoning that Lloyd’s had no contractual relationship with the plaintiffs:

An insurer owes its insured a duty of good faith and fair dealing because of the special relationship arising out of the insurance contract. Aranda v. Ins. Co. of N. Am., 748 S.W.2d 210, 212 (Tex.1988). Accordingly, only the insured ' has standing to sue its insurer for breach of the duty of good faith and fair dealing. P.G. Bell Co. v. United States Fidelity and Guaranty Co., 853 S.W.2d 187, 190 (Tex.App.-Corpus Christi 1993, no writ). The supreme court has held that an insurer’s duty of good faith and fair dealing does not extend to third-party claimants. Transport Ins. Co. v. Faircloth, 898 S.W.2d 269, 279-80 (Tex.1995).

There is no relationship between Lloyd’s and appellants giving rise to the duty of good faith and fair dealing. There was no contractual relationship between appellants and Lloyd’s. Although we have held that the rightful beneficiaries of the policy proceeds are appellants, we do not believe this holding extends the duty of good faith and fair dealing to appellants. Accordingly, we uphold the trial court’s grant of summary judgment in favor of appellees on this claim.

Id. at 21. Likewise, the trial court here granted Lloyd’s summary judgment on Smith’s breach of contract claim, finding no contractual relationship between Lloyd’s and Smith. Smith does not challenge this ruling, except alternatively in the event we determine that the trial court’s declaration and damage award was error. Without a contractual relationship or other duty owed to Smith, joint and several liability cannot be independently imposed upon Lloyd’s for the proceeds. For the same reason, Lloyd’s is not jointly and severally liable for attorney’s fees or interest.⁹

Nevertheless, Smith urges that Texas Insurance Code article 3.51-6, section 3 imposes an independent, statutory basis for liability on Lloyd’s to pay the proceeds to the legal heirs of William Smith. Section 3 provides in pertinent part, “all benefits under any group or blanket accident and sickness policy shall be payable to the person insured, or to his designated beneficiary or beneficiaries, or to his estate_” Tex. Ins.Code Ann. art. 3.51-6, § 3 (Vernon Supp.2001). The trial court expressly found that the named beneficiary of the policy was NCS, that NCS submitted a claim for benefits under the policy arising from the death of William Smith, and Lloyd’s paid $250,000 to NCS in satisfaction of its claim for benefits under the policy arising from the. death of William Smith. Consistent with the reasoning in Cheeves v. Anders, Lloyd’s discharged its statutory obligations upon paying NCS. Cheeves, 87 Tex. at 292, 28 S.W. at 275. NCS, having obtained the proceeds in contravention of the statute, held the proceeds in a constructive trust for the lawful béneficiaries. Smith argues elsewhere in her brief and in support of her cross-issue that because NCS was not the lawful beneficiary under the policy in contravention of article 3.51-6 section 3, Smith should be substituted as the designated beneficiary by operation of law. To the extent we understand her argument as one to reform the policy in order to impose direct liability on Lloyd’s under article 3.51-6, section 3, we reject this contention.

In DeLeon, the Fifth Circuit considered whether reformation was appropriate to substitute the deceased’s estate for NCS as the beneficiary under the policy so that the estate’s representative could then sue Lloyd’s on the policy. See DeLeon, 259 F.3d at 351. The DeLeon court determined that the Tamez court’s reasoning was at odds with a reformed contract, because the Tamez court found that there was not a contractual relationship with the insurer and imposed liability based on a constructive trust theory. Id. (citing Tamez, 999 S.W.2d at 21). After analyzing the provisions of article 3.51-6 in conjunction with the insurable interest doctrine, the DeLeon court concluded that since the constructive trust is already available to plaintiffs in such cases, there was nothing that suggested that the Texas legislature thought plaintiffs needed the additional protection of reformation. See id. at 352. Regarding the practical effect of its holding, the DeLeon court stated the following:

Our conclusion is confirmed by the reality that allowing reformation — ¡-and a later contract action — in such cases would also create inequitable results. The plaintiff could either (1) sue the employer under the common law, seeking a constructive trust on the proceeds; or (2) sue the insurer on a breach-of-contract theory. The first option presents little difficulty, unlike a suit against the insurer. The insurer could be required to pay the policy proceeds twice: first, to the employer under the policy, and second, to the plaintiff for breach of contract. Requiring Lloyd’s to pay twice would be inconsistent with the insurable interest dotítrine as applied to the group accident policy. As we have explained, under the insurable interest doctrine, where a constructive trust is applied, the insurer only pays what it owes under the insurance policy. This doctrine does not impose a “penalty” of double payment on the insurer for having entered into a policy whose beneficiary lacks an insurable interest.

Id. at 352-58 (citations omitted) (emphasis added). Finally, the DeLeon court noted that the Texas Insurance Code creates other incentives for insurers to comply, such as the threat of license revocation for those who fail to comply with the provisions of the code. Id. at 358.

We find the DeLeon court’s reasoning consistent with Texas law and applicable to the issue of the imposition of joint and several liability on Lloyd’s. Accordingly, we sustain Lloyd’s first and second issues, and hold that it is not jointly and severally hable for the $250,000 policy proceeds, attorney’s fees, or interest.

SMITH’S CROSS-ISSUE

In her sole cross-issue, Smith argues that she is the only lawful beneficiary of the policy at issue, and that the policy should be reformed to substitute her as the named policy beneficiary. Unlike the discussion of reformation in the previous section, which was based on article 3.51-6, section 3 of the Texas Insurance Code, this claim is based on article 21.55, section 6. Smith points out that if she were the beneficiary, the court would have erred if it did not award her interest as damages and attorneys’ fees pursuant to Texas Insur-anee Code article 21.55, section 6. In response, Lloyd’s challenges Smith’s arguments and asserts that even if she has a claim under article 21.55, she did not present sufficient evidence to support the claim and the attorney’s fees found by the trial court.¹⁰

The purpose of article 21.55 is to obtain prompt payment of claims pursuant to policies of insurance, and its provisions are to be liberally construed to promote this purpose. See Tex. Ins.Code Ann. art. 21.55, § 8 (Vernon Supp.2001). An insurer that fails to comply with the requirements of article 21.55 subjects itself to interest as damages and attorneys’ fees:

In all cases where a claim is made pursuant to a policy of insurance and the insurer liable therefor is not in compliance with the requirements of this article, such insurer shall be hable to pay the holder of the policy, or the beneficiary making a claim under the policy, in addition to the amount of the claim, 18 percent per annum of the amount of such claim as damages, together with reasonable attorney fees. If suit is filed, such attorney fees shall be taxed as part of the costs in the case.

Tex. Ins.Code Ann. art. 21.55, § 6 (Vernon Supp.2001). The action initiating the claims process provided for in article 21.55 is the submission of a claim. A “claim” is defined as:

a first party claim made by an insured or a policyholder under an insurance policy or contract or by a beneficiary named in the policy or contract that must be paid by the insurer directly to the insured or beneficiary.

Id. § 1(3). Smith contends that she is not named in the policy as a beneficiary only because Lloyd’s elected to violate Texas law by naming NCS as the beneficiary, and since she is the only party lawfully entitled to receive benefits from the policy, she must be substituted for NCS as the policy beneficiary. In support of her argument, she relies primarily upon American Nat’l Ins. Co. v. Foster, 133 Tex. 588, 130 S.W.2d 287, 290 (1939), and Stillwagoner, 979 S.W.2d at 355-56, for the proposition that when a policy contains a provision contrary to a statute, Texas courts will conform the insurance contract to comply with the applicable statute.¹¹

As in our prior discussion of reformation under article 3.51-6, section 3, we agree with the DeLeon court on this issue. In DeLeon, as here, the plaintiffs sought to hold Lloyd’s hable for interest and attorney’s fees under article 21.55. See DeLeon, 259 F.3d at 354. The DeLeon court found that, despite the admonition that article 21.55 should be liberally construed, its plain language demonstrated that its provisions were inapplicable because the plaintiffs were not beneficiaries “named in the policy or contract.” Id. Further, the applicable statutory deadlines make it clear that the legislature meant the “named” beneficiary and not a lawful, yet unnamed, beneficiary. To hold otherwise would create a windfall for beneficiaries that become known only through the process of litigation. Id.

As this court stated in Daugherty v. American Motorists Ins. Co., 974 S.W.2d 796 (Tex.App.-Houston [14th Dist.] 1998, no pet.), “[t]he purpose of the statutory deadline contained in article 21.55 is to guarantee the prompt payment of claims made pursuant to policies of insurance; not to create a statutory windfall for one party or the other.” Id. at 799. We note that in the present case the trial court’s conclusions of law provide that, in the event that article 21.55 were applicable, Smith would be entitled to an additional $181,602.73 in interest as damages (as of the date of the court’s judgment) and $287,735 in attorney’s fees. We find that these amounts far exceed the policy amount of $250,000 originally sued for, and would amount to the sort of statutory windfall rejected in Daugherty and De-Leon.

Thus, as with section 3.51-6, section 3, we decline to find that reformation is available to impose liability on Lloyd’s under article 21.55. We therefore overrule Smith’s cross-issue. Accordingly, we need not address whether Smith failed to present sufficient evidence in support of her article 21.55 claim.

SUMMARY

We affirm the trial court’s judgment awarding Smith the policy proceeds of $250,000 and attorney’s fees of $87,500 from NCS. We reverse that portion of the judgment awarding Smith prejudgment interest against NCS based on Texas Finance Code section 302.002 and remand for a determination of the availability of prejudgment interest under the common law and the calculation of any award of prejudgment interest in accordance with Johnson & Higgins of Texas v. Kenneco Energy, Inc., 962 S.W.2d 507 (Tex.1998). We also reverse that portion of the judgment imposing joint and several liability on Lloyd’s for the policy proceeds, attorney’s fees, and interest. We affirm the trial court’s finding that article 21.55 is not applicable to Smith’s claims.

BRISTER, C.J., concurring.

SEYMORE, J., dissenting.

1 . For convenience, the appellants aligned with Lloyd’s will be referenced collectively as "Lloyd’s" unless the context indicates otherwise.

2 . Because of the procedural posture of the case, the Tamez court did not have an opportunity to address attorney’s fees or prejudgment interest.

3 . Subsequently, the Fifth Circuit extensively cited the Tamez opinion in DeLeon v. Lloyd’s London, Certain Underwriters, 259 F.3d 344 (5th Cir.2001), another case involving a similar factual background, the same insurance policy, and defendants NCS and Lloyds. After Tamez was decided,-the trial court granted summary judgment in' DeLeon in favor of Lloyd’s on the plaintiff’s breach of contract claim and the plaintiff appealed. Unlike the present case, NCS was not a party to that appeal because the plaintiff had previously dropped her claims against it.

4 . We recognize that, in DeLeon v. Lloyd’s London, Certain Underwriters, the Fifth Circuit found that collateral estoppel based on Tamez barred relitigation of the issues, but the De-Leon opinion is distinguishable on this point because it does not reflect that the issue of waiver was raised or litigated. DeLeon is discussed in greater detail in regard to the issues raised by Lloyd's and Smith.

5 . Effective September 1, 1999, article 3.49-1 was amended to include the following: "Any person of legal age may consent in writing to the purchase of or the application for an individual or group insurance policy or policies issued by any legal reserve or mutual assessment life insurance company by a third party or parties and in such written document consent to or designate any person, persons, partnership, association, corporation or other legal entity, or any combination thereof, as the absolute or partial owner or owners or beneficiary, or any combination thereof, of any policy or policies issued in connection with such consent or designation; and with respect to any such policy or policies any such owner or beneficiary shall at all times thereafter have an insurable interest in the life of such person, except as provided in Section 4 of this Act [those in the business of burying the dead].” Tex. Ins.Code Ann. art. 3.49-1, § 3 (Vernon Supp.2001).

6 . Accordingly, we reject NCS’s contention that the Tamez court misconstrued the meaning of the term “insured person” as used in article 3.51-6 by determining that it refers to the officers and employees of NCS rather than the corporate entity. Tamez, 999 S.W.2d at 20. We also reject Lloyd’s assertion that Smith lacks standing to bring her claims. See id. at 14-16; Stillwagoner, 979 S.W.2d at 359-60.

7 . Article 5069-1.03 provided: "When no specified rate of interest is agreed upon by the parties, interest at the rate of six percent per annum shall be allowed on all accounts and contracts ascertaining the sum payable, commencing on the thirtieth (30th) day from and after the time when the sum is due and payable.” Act of May 24, 1979, 66th Leg., R.S., ch. 707, § 1, 1979 Tex. Gen. Laws 1718, 1718, repealed by Act of May 24, 1997, 75th Leg., R.S., ch. 1008, § 6(a), 1997 Tex. Gen. Laws 3093, 3601-03 (current version at Tex. Fin.Code Ann. § 302.002 (Vernon 2002)).

8 . Smith cites several authorities that she contends hold that an insurer can be directly liable to the lawful beneficiary for life insurance proceeds paid to one with no insurable interest. However, we find these factually distinguishable. Further, three of the cases Smith cites involved claims against insurers when the insurance company paid a benefit with knowledge of an adverse claim to the proceeds. See McDonald v. McDonald, 632 S.W.2d 636, 640 (Tex.App.-Dallas 1982, writ refd n.r.e.); Sink v. Waco Mutual Life & Accident Ass’n, 49 S.W.2d 888, 889 (Tex.Civ.App.-Waco 1932, writ ref'd); Manhattan Life Ins. Co. v. Cohen, 139 S.W. 51, 56-57 (Tex.Civ.App.-San Antonio 1911, writ ref'd). That did not happen here. The trial court found that Lloyd's paid NCS the $250,000 on or about March 11, 1992, and Angela Smith and Brandon Hendrix were not declared the "lawful heirs” of William Smith until January 25, 2000, when the trial court signed its findings of fact and conclusions of law. Smith also relies on National Life & Accident Ins. Co. v. French, 144 S.W.2d 653 (Tex.Civ.App.-Amarillo 1940, no writ), but that case merely stands for the well-settled proposition that an insur- • anee company cannot avoid paying out the proceeds of a life insurance policy to a lawful beneficiary merely because the policy was issued or assigned to one lacking an insurable interest. Id. at 655; see also Cheeves v. Anders, 87 Tex. at 293, 28 S.W. at 276 ("[The . insurance company], having agreed to pay the money upon the death of a named person, ought not to be permitted to avoid liability upon its contract upon the ground that it has made an unlawful agreement, when that contract can be enforced in favor of a person who is in no wise concerned in the unlawful part of the transaction.”).

9 . In conjunction with its argument against the imposition of joint and several liability for attorney's fees and interest, Lloyd’s raised the additional argument that Smith’s claim under the Declaratory Judgments Act is improper. We have already rejected these arguments in our discussion of NCS’s liability, as we found that Smith’s claim was properly one for declaratory relief.

10 . Lloyd’s also raises the argument that Smith has waived her argument for reformation because she never pleaded it. This argument appears to have little merit. As Smith points out, her first motion for summary judgment argued that the Lloyd’s policy must be rewritten to conform to insurance regulations, and Lloyd's itself moved for summary judgment on that issue. Further, Lloyd's never objected that Smith’s pleadings did not seek contractual reformation. Smith’s Sixth Amended Petition does not plead for reformation, but asserts that the plaintiffs are "claimants” under article 21.55. Lloyd’s responsive answer includes special exceptions, but none objecting to reformation.

11 . We note that the French and Stillwagoner cases did not discuss reformation of an insurance contract, and, in addition, Stillwagoner did not address in any fashion direct liability on the part of the insurer.