Gary C. Quintinsky v. Texas Mutual Insurance Company

Citation: Not availableDocket: 03-07-00299-CV

Court: Court of Appeals of Texas; April 30, 2008; Texas; State Appellate Court

Original Court Document: View Document

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Gary C. Quintinsky appeals a judgment from the Texas Court of Appeals, which awarded Texas Mutual Insurance Company $5,077,390 in compensatory damages and $2,500,000 in exemplary damages. The case centers on allegations that Quintinsky fraudulently induced Texas Mutual to issue insurance policies for companies he owned by misrepresenting their payroll to circumvent Texas Mutual’s experience-rating system. Quintinsky raises four issues on appeal, challenging the sufficiency of the evidence for jury findings, the denial of his motion for judgment notwithstanding the verdict, and a jury argument regarding exemplary damages. The court affirms the judgment.

Texas Mutual has been the State of Texas’s worker’s compensation insurer of last resort since 2001, required to insure high-risk applicants at higher premiums. Policyholders must fully disclose ownership and payroll information. At trial, evidence was presented explaining Texas Mutual’s application process, which involves estimating payroll and adjusting premiums based on actual payroll figures. The premium calculation considers both payroll amounts and risk-based class codes, with an experience modifier that adjusts rates based on a company's claims history. Quintinsky was identified as the true owner of multiple companies involved in renting cranes for construction projects, contributing to the allegations against him.

In 1994, Quintinsky sold the assets of United Crane Companies to Ellynn Ogilvie, an employee and his alleged live-in girlfriend, while maintaining control over the business. Texas Mutual insured United Crane Companies for several policy years from 2000 to 2004 and conducted audits based on unemployment reports, federal tax forms, and payroll journals provided by the companies. These audits typically relied on the accuracy of the documents submitted by the employer. However, during the fourth year of coverage, Texas Mutual refrained from auditing after discovering previous inaccuracies in the companies' reports.

Turner, a Texas Mutual representative, noted that the United Crane Companies had a high modifier greater than 3.0, indicating potential fraud due to excessive premium payments. Upon further investigation, Texas Mutual identified multiple companies at the same address, leading them to request payroll information directly from the Texas Workforce Commission. The data received revealed significant discrepancies—millions of dollars—between the reported payroll to Texas Mutual and the actual figures from the state, suggesting that the documents submitted were falsified.

Turner suspected alterations in the payroll journals provided but could not confirm whether the federal tax forms were also modified. In 2004, amidst financial difficulties, Ogilvie sold the assets of United Crane Companies to a new entity, United Crane Rental, Inc., owned by Quintinsky, which Texas Mutual insured without knowledge of this connection. Quintinsky misrepresented his management control over other businesses and claimed no shared workers or payroll with other entities on the insurance application for United Crane Rental's 2005-2006 policy.

United Crane Companies, located at 5855 Kelley Street, Houston, was misrepresented by Quintinsky, who claimed that United Crane Rental operated from 4042 Piping Rock Lane, which was actually his home. Texas Mutual discovered this deception, realizing both companies shared the same physical location. Turner testified that insurers may be misled by concealing payroll through companies with shared addresses or management, suggesting that listing a home address could imply United Crane Rental was a separate entity. Quintinsky obstructed Texas Mutual's audit attempts at Kelley Street. At the time of his insurance application, the United Crane Companies had a high experience modifier of 3.11, motivating Quintinsky to establish United Crane Rental, which would start with a lower modifier of 1.0. Upon suspecting Quintinsky's intent to evade the high modifier by operating through United Crane Rental, Texas Mutual canceled the rental's insurance policy.

Cheryl Wilson, an accountant for United Crane from 1995 to 2003, testified via video deposition that she left the company due to pressure to produce inaccurate financial statements, specifically at the request of Quintinsky and co-leader Ellynn Ogilvie. Wilson stated that Ogilvie directed her on what the financial numbers should reflect and provided her with the payroll information used in audits. Although Wilson denied participating in under-reporting payroll, she suspected the reported figures were inaccurate, noting the limited documentation presented compared to her knowledge of the actual payroll. Additionally, Heather Hill, an insurance agent for the United Crane Companies, confirmed that United Crane was her agency’s largest account in recent years.

Hill primarily communicated with Ogilvie regarding United Crane's operations, occasionally reaching out to Quintinsky for insights on equipment when Ogilvie was unavailable. Ogilvie made most decisions and signed documents, while both she and Quintinsky appeared to jointly manage the business. Hill learned from Ogilvie about her intention to separate from Quintinsky and sell business assets to him, believing their application for new insurance coverage stemmed from personal issues rather than an attempt to evade United Crane's high experience modifier. Hill noted that the business was growing alongside its workforce during her involvement. 

Quintinsky's video deposition revealed that he invoked the Fifth Amendment against self-incrimination in response to numerous inquiries regarding potential fraud against Texas Mutual, misrepresentation of payroll, violations of insurance laws, and concealment of material facts. The jury was instructed that they could infer that Quintinsky’s refusal to answer questions could be detrimental to his case. 

The district court found that both United Crane Companies and United Crane Rental, Inc. committed fraud against Texas Mutual, and that Quintinsky conspired with them. The jury established that the fraud harmed Texas Mutual and that Quintinsky engaged in deceptive practices affecting property valued at $1,500 or more. Texas Mutual was awarded $5,059,200 for the United Crane Companies policies and $18,190 for the United Crane Rental policy, along with $2,500,000 in exemplary damages. The district court upheld the jury's verdict despite Quintinsky's motions for a new trial and judgment notwithstanding the verdict, leading to an appeal.

Quintinsky contests the legal and factual sufficiency of evidence supporting jury findings related to United Crane Rental, Inc., specifically regarding claims of fraud, punitive damages, and conspiracy to commit fraud. The legal sufficiency is evaluated based on the absence of vital facts, legal restrictions on evidence, minimal evidence, or evidence that contradicts vital facts. Factual sufficiency requires a comprehensive examination of all evidence, determining if the jury's finding is so weak as to be manifestly unjust.

Quintinsky argues that undisputed evidence shows that the insurance agent for Texas Mutual was fully informed about United Crane Rental's formation before issuing a policy, thus undermining the jury's conclusions about intentional misrepresentation. This argument relies heavily on Heather Hill’s deposition, where she discusses a conversation with a Texas Mutual representative, Mr. Biernacki. Hill asserts that the representative seemed to understand the required information for coverage. However, her testimony lacks definitive proof that Texas Mutual was aware of the ownership connection between the United Crane entities and Quintinsky, reducing it to speculation about the representative's knowledge.

Testimony regarding a claimed conversation was absent, and Hill attempted to justify her belief in the legality of her actions as United Crane’s insurance agent. The jury had the discretion to disregard Hill’s self-serving testimony. Evidence revealed Quintinsky’s deliberate efforts to mislead Texas Mutual. The insurance application signed by Quintinsky falsely stated he did not own or control any other business in Texas, contradicting evidence that he owned and operated United Crane Companies with employees. The jury could conclude that Quintinsky intentionally misrepresented ownership and payroll information on the application, which listed a home address instead of the actual business address, potentially obscuring the connection between United Crane Rental and his other companies. Quintinsky’s refusal to allow auditors to inspect the premises further suggested he had something to hide. His deposition testimony included repeated claims of Fifth Amendment privilege when questioned about misleading Texas Mutual, supporting the jury's findings regarding United Crane Rental.

Quintinsky also contested the sufficiency of evidence supporting the jury's actual damages award, arguing that the evidence indicated he did not report the full payroll to the National Council on Compensation Insurance (NCCI) as legally required. Turner, the Appellee’s expert, testified that she provided the NCCI with payroll figures to recalculate the experience modifier but admitted that she withheld some payroll figures due to ongoing litigation with Quintinsky. He asserted that once the litigation concluded, the NCCI could reassess the modifier, potentially resulting in a lower premium owed.

Quintinsky contends that a lower premium could lead to reduced compensatory damages; however, his argument relies on speculative testimony that a jury might reasonably reject. Witness Turner indicated that the National Council on Compensation Insurance (NCCI) might recalculate the modifier but expressed uncertainty about whether this would occur or the extent of any potential reduction. Turner provided detailed calculations of Texas Mutual’s damages, utilizing actual payroll reports from the Texas Workforce Commission and previous audits of the United Crane Companies. For unreported workers, she applied a pro rata distribution based on audits rather than the highest rated code, ultimately calculating a total premium due of approximately $7.1 million across all policy periods. This figure was later revised to about $5.6 million due to a settlement with other defendants, which also impacted the experience modifier and premiums. Turner emphasized that she offered Quintinsky every benefit of the doubt in her calculations, referring to the final amount as the "rock bottom, iron-clad damage figure." Her calculations and related documents were admitted as evidence without objection. Additionally, Turner noted her extensive experience in performing such calculations. The evidence supporting the jury's damages award was found to be substantial. Quintinsky also challenged the sufficiency of evidence regarding his alleged conspiracy with the United Crane Companies to defraud Texas Mutual, arguing that there was inadequate proof of his role or knowledge in the misrepresentation, with testimony indicating that the company's president primarily handled insurance matters.

Evidence indicates that Ms. Ogilvie was involved in the operations of United Crane Companies, but this does not exclude the possibility of Quintinsky's involvement in the conspiracy. The jury was instructed that for Quintinsky to be part of the conspiracy, he must have knowledge of and agreed to a common objective leading to damages to Texas Mutual. Testimonies presented supported this conclusion. Wilson identified Quintinsky as a co-leader with Ogilvie, stating he requested her to print a false financial statement. Hill testified that she contacted Quintinsky when Ogilvie was unavailable, noting Quintinsky's knowledge of company equipment and indicating he was likely the vice president. Hill also mentioned that she needed both Quintinsky and Ogilvie to discuss strategies for lowering a modifier, implying a close working relationship. Quintinsky’s deposition revealed he invoked the Fifth Amendment when asked about participation in a conspiracy, allowing the jury to infer that his silence indicated unfavorable information. The evidence was deemed sufficient to uphold the jury's findings regarding United Crane Companies.

In addressing Quintinsky’s claims, he contended the district court wrongly denied his motion for judgment notwithstanding the verdict, asserting Texas Mutual's claims were purely contractual, thus dismissing the fraud findings and exemplary damages. Contrary to his assertions, the court referenced established law from the Texas Supreme Court allowing tort damages for fraudulent inducement even when related to a contract. The court clarified that a legal duty exists to avoid fraud in contract procurement, which can lead to tort claims irrespective of the economic nature of the damages. Quintinsky attempted to differentiate his case by referencing Classical Vacations but did not succeed in undermining the prevailing legal principles.

The travel agency was contractually required to report issued tickets to the airline but allegedly failed to do so. The jury ruled in favor of the airline, awarding both actual and exemplary damages. However, the appellate court reversed the exemplary damages, stating that the airline's claim was purely contractual, thus not warranting such damages. The court referenced the supreme court’s decision in Formosa Plastics but declined to apply it to post-contract fraud that only affects the contracting parties. It noted that the jury did not find fraudulent inducement, distinguishing this case from Classical Vacations, where fraud occurred before the contract's formation. 

Additionally, Quintinsky raised concerns about Texas Mutual’s closing argument, claiming it constituted an incurable jury argument by suggesting that non-parties were harmed by the alleged misconduct related to workers' compensation premiums. Quintinsky cited Philip Morris USA v. Williams, where the Supreme Court ruled that punitive damages cannot punish a defendant for harm to nonparties. The court acknowledged that while harm to nonparties cannot be the basis for punitive damages, it can still inform the jury's assessment of the defendant's reprehensibility, which could influence the decision to award exemplary damages.

A jury cannot impose punitive damages based on harms inflicted on nonparties; it may only consider the defendant’s reprehensibility in relation to the plaintiff. Courts must ensure juries focus on appropriate questions, particularly when evidence or arguments presented might blur these lines. If a party does not object during trial or request limiting instructions regarding improper jury arguments, they fail to preserve error. To demonstrate incurable error from jury arguments, the complainant must show the arguments were so prejudicial that they could not be remedied by instructions to disregard. This requires proving the arguments were inflammatory enough to undermine the adversarial process or appeal to biases, which is a high burden. The review includes the entirety of the case, from voir dire to closing arguments. In this case, Quintinsky did not prove his claims, as the argument in question was brief, non-repetitive, and not inflammatory. Thus, the court found no incurable error and affirmed the district court's judgment.