Insurance Defense

Update on Recent Insurance Law Decisions

As you can see from the below introductions of Kent William­son and Mark Craig, our insur­ance practice is expanding and we are pleased to have Kent and Mark's expertise available to the division.

That said, there have been a number of recent court deci­sions which are of significance to the practice of insurance law. These include cases dealing with the CGL contractual liabil­ity exclusion, exemplary dam­ages, subrogation rights in a settlement contract, and mold coverage, among others.

Always, each case involves dif­ferent facts and law, and ac­cordingly the following must be taken for general information purposes only, rather than for action upon any specific fact situation.

CGL – Contractual Liability Exclusion:

In Gilbert Texas Construction, LP v. Underwriters at Lloyds, Lon­don, 08-0246 (TX 2010), the Texas Supreme Court contin­ued to refine its earlier 2007 LamarHomesdecision and dealt with the scope of the ISO form CGL policy exclu­sion for contractual liability. Drawing on the plain language of the exclusion, our Supreme Court held that the language of the exclusion applies with­out qualification to exclude coverage for all liabilities as­sumed by contract except for two situations:

  1. policy – defined types of contracts, including an "insured contract," e.g., in­demnity agreements by which the insured assumes another's tort liability; and
  2. situations in which the in­sured's liability for damages would exist absent the con­tract, i.e., situations in which the insured's liability for dam­ages does not depend solely on obligations assumed in a contract.

Exemplary Damages – Standards for Review on  Appeal:

In Bennett v. Reynolds, 08-0074 (Tex. 2010), the Supreme Court clarified the standards for reviewing exemplary dam­age awards in Texas in view of the increasingly strict due-process scrutiny mandated by recent United States Supreme Court decisions.

This case involved the wrong­ful conversion and sale of 13 cattle for $5,327.00, a sum which the court found to con­stitute "substantial" injury to the plaintiff justifying imposi­tion of exemplary damages, and which the civil jury also found to constitute theft.

Awards for exemplary dam­ages based upon either gross negligence and for statutorily defined "malice" are subject to Texas statutory "caps," except when felonies such as theft and/or other enumer­ated crimes are found to exist, in which case an award of exemplary damages is not subject to the statutory "caps." However, the Court noted that even absent a "cap," such awards are none­theless constrained by due process rulings of the United States Supreme Court which normally will require a "single digit" ratio between the amounts of exemplary dam­ages and actual damages.

Following on, our Supreme Court utilized language which leads one to the conclusion that even ratios of exemplary damages to actual damages as low as 4 to I will, absent ex­traordinary circumstances, be difficult to sustain on appeal. 

Further our Supreme Court admonished Texas courts when awarding or reviewing exemplary damage awards to rigorously apply the three-part GorelCampbell test requiring detailed factual analysis into (I) the degree of reprehensi­bility of a defendant's conduct, (2) .the disparity between ac­tual or potential harm suffered by the plaintiff and the puni­tive damages award, and (3) the difference between the punitive damages awarded by the jury and civil sanctions and criminal penalties legislatively authorized or imposed in comparable factual situations.

The Texas Supreme Court thus reversed the two instant judgments for exemplary dam­ages which were 47 times actual damages as to one de­fendant and 188 times actual damages as to another defen­dant and remanded those judgments for remittitur pro­ceedings.

Subrogation – "Made  Whole" Doctrine- Alloca­tion of Settlement Pro­ceeds:

Elaborating on its 2007 Fortis Benefits v. Cantu decision, the Supreme Court dealt with subrogation rights versus allo­cation of settlement dollars in Texas Health Insurance Risk Pool v. Sigmundik, 09-0772 (Tex. 2010).

Reiterating its earlier decision in Fortis Benefits, the Supreme Court noted that a contractual right to subrogation prevails over the "made whole" limita­tion applicable to equitable sub­rogation rights, and held that where a case was settled, a trial court abused its discretion when it allocated settlement monies between wrongful death claimants and their dece­dent's estate/subrogor in such fashion as to cut out any recov­ery by a subrogee asserting a contractual lien to subrogation. Although a trial court is free to exercise some discretion in dividing the settlement funds, it is thus an abuse of discretion for a trial court to award the contractually-based-lien subro­gee nothing from the settle­ment

In Personam Jurisdiction —Specific jurisdiction:

In Zinc Nacional, S.A. v. Bouche Trucking, Inc., 09-0734 (Tex. 2010), the Supreme Court dealt with the question of whether a non-resident defen­dant has minimum contacts with Texas for purposes of establishing specific jurisdiction (as opposed to general jurisdic­tion) by using a third party trucking service to transport its goods through Texas to an out-of-state customer, and concluded that the mere fact that goods have traveled into a state, without more, does not establish the minimum contacts necessary to subject a manufac­turer to personal jurisdiction within the state insofar as spe­cific jurisdiction is concerned.

Accordingly, the court re­manded the case to the Court of Appeals to determine whether general jurisdiction was, appropriate.

Premises Liability — Slip  and Fall Caused by Ice:

In Scott and White Memorial Hospital v. Fair, 08-0970 (Tex. 2010), the Supreme Court dealt with a premises liability case involving a fall which oc­curred on ice as a result of a winter storm. The court held that naturally occurring ice which accumulates without the assistance or involvement of unnatural contact is not an unreasonably dangerous con­dition sufficient to support a premises liability claim, even where a premises owner util­ized chemical deicers, which caused the ice to melt, but allowed the water to thereaf­ter re-freeze naturally.

Homeowner's Policy —Coverage for Mold:

In State Farm Lloyds v. Page, 08­0799 (Tex. 2010), the Su­preme Court interpreted pro­visions of the Texas Standard Homeowner's Policy Form B, and held that coverages con­tained therein (I) afford cov­erage for mold damage to personal property caused by plumbing leaks, but (2) that the policy does not cover mold damage to the dwelling itself caused by those same leaks.

Sexual Harassment:

In Waffle House, Inc. v. Wil­liams, 07-0205 (Tex. 2010), the Supreme Court dealt with claims for sexual harassment–….. – under (1) common law theo­ries of negligent supervision and retention of the harassing employee, and (2) the Texas Commission on Human Rights Act (TCHRA). The court resolved the case by holding that TCHRA is a legislative anti-harassment remedy which is preemptive of the common law when the complained-of negligence is entwined with the complained-of sexual har­assment. Thus, where the gravamen of a plaintiff's case is TCHRA-covered harassment, the Act forecloses recovery of any common law theory predicated on the same un­derlying sexual-harassment facts, in part because TCHRA provides different standards of liability, limitations periods, administrative review proce­dures, elements, defenses, and remedies than those involved in a common law negligence claim.

Noting that there is no com­mon law tort for sexual har­assment in Texas, the court also held that a common law claim for negligence in the supervision and retention of an offending employee cannot stand absent the employee having committed a common law tort. Since sexual harass­ment is not a recognized com­mon law tort in Texas, a com­mon-law negligent supervision and retention claim based on sexual harassment also failed.

By: H. Norman Kinzy and Oliver Krejs

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