Insurance Defense

Update on Recent Insurance Law Decisions

There have been a number of recent court decisions and developments which are of potential significance to the practice of insurance law. These involve the duty to defend, coverage for corporations in defamation matters, worker’s compensation, proof of the existence of specific types of insurance and expert testimony.

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 Insurance- The Duty to Indemnify is Not Dependent on the Duty to Defend:

In D.R. Horton-Texas, Ltd. v. Markel International Insurance Co., Ltd., 06-1018 (Tex. 2009), the Supreme Court held that the duty to indemnify is not dependent on the duty to defend and that an insurer may have a duty to indemnify its insured even if the duty to defend never arises. Thus, even if there is no duty to defend under the pleadings, an insurer’s duty to indemnify may exist and will depend on the facts proven at trial and whether the damages caused by the insured’s acts or omissions proven are covered by the terms of the policy. In this case, the insurer settled the Plaintiff’s claim before trial of the liability issue. Nonetheless, the Supreme Court held that “In determining coverage, a matter dependent on the facts and circumstances of the alleged injury-causing event, parties may introduce evidence during coverage litigation to establish or refute the duty to indemnify,…” and especially in situations where, as in the case at issue, the underlying liability dispute is resolved before a trial on the merits and there was no opportunity to develop the coverage evidence in the underlying litigation.

Failure to Obtain Insurance- Proof of Causation Required:

In Metro Allied Insurance Agency, Inc. v. Lin, 07-1032 (Tex. 2009), the Supreme Court addressed proof of causation required to establish liability for a party’s failure to procure insurance, and held that under both negligence and Texas Deceptive Trade practices Act theories, a plaintiff must prove the availability of coverage which would have covered the plaintiff’s damages, through proof of existing policy terms, or by other evidence that the proposed insurance agreement was available in the market, or by expert testimony to that effect.

Products Liability- Sufficiency of Expert Testimony:

In Whirlpool Corporation v. Camacho, 08-0175 (Tex. 2009), the Supreme Court discussed in detail the plaintiff’s expert’s testimony, and reversed a judgment in favor of plaintiff, noting that the trial court must evaluate an expert’s testimony by considering both our Robinson-type factors and examining an expert’s testimony for analytical gaps in his testimony, since “in very few cases will the evidence be such that the trial court’s reliability determination can properly be based only on the experience of a qualified expert to the exclusion of factors such as those set out in Robinson, or, on the other hand, properly be based only on factors such as those set out in Robinson to the exclusion of considerations based on a qualified expert’s experience.”

Workers Compensation- Subscribing Employers- General Contractor- Owner Controlled Insurance Program (“OCIP”):

In HCBeck Ltd. v. Rice, 06-0418 (Tex. 2009), the Supreme Court dealt with the extent to which a general contractor must “provide” workers’ compensation insurance to qualify for statutory employer status and the resulting immunity from work-related claims of a subcontractor’s employee. Dealing with an “owner controlled insurance program” (“OCIP”) the Supreme Court held that a general contractor “provides” workers compensation insurance, and is thus statutorily insulated from liability, where the OCIP is incorporated into both the general contractor’s upstream contract with the owner and into the general contractors downstream subcontract, provided that the contract specifies that the general contractor is ultimately responsible for obtaining alternate workers compensation insurance in the event that the owner terminates the OCIP.

Such is the case even though the general contractor did not pay any workers compensation premiums for the injured subcontractor’s employee, those premiums having been paid by the owner under the OCIP.

Defamation- Coverage Excluded for Corporation Based Upon Knowledge of its Officers and Employees:

In Chrysler Insurance Company v.Greenspoint Dodge of Houston, Inc., 08-0780 (Tex. 2009), the Supreme Court dealt with an insurance policy’s exclusion of coverage for defamatory statements where made by an insured with knowledge of the statement’s falsity. The Supreme Court held that a corporation’s knowledge is not limited to what its officers know, but may include the knowledge of other employees, if those employees are corporate-vice principals. Thus, where corporate employees were found to be “vice-principals” of the corporation, the corporation thus “knew,” through its vice principals, that the defamatory remarks were false when made, and such knowledge by the corporation, as the named insured, was sufficient to invoke the “known-falsity exclusion.” Accordingly the policy in question did not provide liability coverage for the underlying defamation claim.

By H. Norman Kinzy and Oliver Krejs

Commercial Litigation

The United States Supreme Court Ruling on Campaign Finance

"The founders realized there has to be some place where being right is more important than being popular or being powerful, and where fairness trumps strength—and in our country, that place is supposed to be the courtroom." Retired Justice Sandra Day O’Connor speaking at Keynote Address at Georgetown Law School Conference January, 2010.

The controversial ruling by the United States Supreme Court in Citizens United v. Federal Election Commission, January 21, 2010, determining that the Federal Government may not ban political spending by corporations or unions in candidate elections is sure to have fallout across the country and will impact state held elections ultimately. This includes judicial elections in the State of Texas, as it is only a matter of time, experts say, before laws will be challenged in courts or repealed by state legislature.

Currently, all state court judicial positions in the State of Texas are elected by the general public. This has been a controversial issue for many years, as judges must raise campaign funds in order to run for re-election and much of the money raised for judges are from donations from lawyers and lawfirms. Invariably, these same judges will have to decide cases that involve their contributors and the question is raised…is justice for sale?

A study by Chris Bonneau and Damon Cann in their paper The Effect of Campaign Contributions on Judicial Decisionmaking reveals that attorney contributions have a significant effect on judicial decisions. The study indicated a campaign contribution shifts the predicted probability to a virtually certain win for the side offering the contribution (Page 18 of Article).

As a result, the debate will open up again on whether judicial elections in the State of Texas are appropriate, and this recent Supreme Court decision will revive consideration of an alternative system to the partisan election process of selecting judges in the State of Texas.

Stay tuned…

By J. Allen Smith.

Business Counsel Services

ObamaCare Health Reform Update


President Obama’s health care legislation was a major topic throughout 2009, and the beginning of 2010 has been no different. Just as 2009 was filled with confusion, debates, and general concerns, 2010 continues on this weaving path toward uncertainty. In fact, a comparison of this update with the previous update and supplement in the November 2009 issue will reveal the paradox used to describe the health care legislation both then and now: while Congress is no closer to approving revised healthcare legislation, many significant developments have taken place in the intervening months. This update will again attempt to provide an understanding of where the process currently stands and briefly touch on the status of some of the legislation provisions.

Status of Legislation

At the end of 2009, the House of Representatives ("House") and the Senate unveiled their respective versions of the health care bill. While the House bill was unveiled, submitted and passed by its members within a relatively short timeframe, the Senate bill was not approved until Christmas Eve.

Following approval, both bills were to be sent to a conference committee to begin the negotiations necessary to produce a single health care bill. Instead of a formal conference, private negotiations were conducted with key lawmakers to address issues relating to the merging of the bills. However, during these negotiations, a major roadblock descended from Massachusetts.

In the Massachusetts’ Special Election to replace the late Edward M. Kennedy in the Senate, Republican Scott Brown defeated Democrat Martha Coakley. This Republican victory resulted in the Democrats losing their 60 member Supermajority voting block; the same 60 member Supermajority voting block that narrowly approved theSenate bill version. Because there were not enough votes in the Senate to likely approve any bill version or prevent a Republican filibuster, new strategies are being examined to determine how health care legislation should move forward. On January 27, 2010, during his State of the Union Address, President Obama reiterated his commitment to the health care legislation, but also indicated that a cooling off period would take place while health care legislation is being reexamined.

Legislation Provisions

Even though the status and direction of the health care legislation as a whole is uncertain, a brief summary of the status of specific provisions within the legislation should be examined. Please note that the following summary is based simply on a comparison of the provisions within the House and Senate bill versions and does not comment on the level of support or disapproval from the Democratic or Republican parties.

It appears that there are several issues on which the House and Senate bill versions are in agreement. First, both bill versions are in agreement when it comes to immediate reforms (i.e. reforms that would become effective immediately upon passage of a final bill). The reforms would include such things as eliminating pre-existing condition exclusions. Second, there is general agreement for the creation of new health insurance marketplaces (i.e. exchanges) for individuals and small businesses to obtain health insurance. Sliding scale subsidies would be provided to make the premiums of the exchange plans affordable. Third, Medicaid eligibility levels would be expanded. Fourth, both bill versions contain individual and employer mandates resulting in tax penalties for the failure to purchase or offer coverage. Finally, there would be limitations on physician ownership in hospitals. Both bill versions would amend Section 1877 of the Social Security Act ("Stark Law") by imposing additional requirements to meet the hospital ownership exception.

While the House and Senate bill versions are in agreement on several issues, the three issues that are conflicting are the most contentious aspects of the legislation. The first issue the bills are in disagreement about is how the legislation will be funded. The House bill desires to impose taxes on high income individuals while the Senate bill aims higher taxes towards insurers and their "Cadillac" plans. The Senate bill additionally proposes a tax on elective cosmetic surgery. Another issue relates to the health insurance exchanges. While the bills agree that the exchanges should be created, there is a difference in the logistics. The House bill would establish a national exchange but allow for the formation of state exchanges in lieu of the national exchange. The Senate, on the other hand, would require each state to establish an exchange. The final issue involves the establishment of a government-run insurance plan. While the House bill aims to create a national insurance option that would be offered through the exchanges, the Senate bill would require the Office of Personnel management to contract with insurers and create at least two multi-state health plans that would be offered through the state exchanges.


When the country embarked on the road towards enacting comprehensive health care legislation the principal theme in any discussion was: wait for the process to become more complete before evaluating what the legislation will entail. As it currently stands at the end of January 2010, that theme has not changed. But given the impact of potential health care legislation, it is imperative to stay informed.

 By Michael S. Byrd and Bradford E. Adatto.