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

Insurance Defense

The Internet and Personal Jurisdiction:

When Can a Non-resident be Sued in Texas Courts Based on Its Website?

Whether as a source of in­formation, a marketplace, or something in between, a business's website can be one of its most valuable as­sets. While websites endow businesses with invaluable marketing and sales benefits, many businesses are un­aware of the jurisdictional consequences of their Inter­net presence.

Even when a business is not organized under Texas law, does not maintain an office in Texas, has never sent a representative to Texas, or has never even had a tele­phone conversation with someone in Texas, that busi­ness may still be subject to personal jurisdiction in Texas courts based solely on its web presence. Merely maintaining a website that may be accessed in Texas, however, does not necessar­ily serve by itself as grounds for personal jurisdiction. 

To determine jurisdiction based solely on Internet presence, Texas courts will assess where the particular website falls along a spec­trum of interactivity. In this regard, Texas courts have identified three primary types of websites: com­mercially active, passive, and interactive.

Commercially Active Websites

At one end of the Internet jurisdiction spectrum are parties with "commercially active" websites. These websites are clearly used to transact business over the Internet. Commercially active websites incorporate e-commerce functionality, allowing parties residing outside of Texas to enter into contracts with Texas residents in transactions involving the knowing and repeated transmission of computer files over the Internet, allowing purchase orders to be placed on the website and processed automatically.

Transactions with Texans that have actually been con­summated through a web-site in sufficient quantity over a sufficiently long pe­riod of time are a factor that a Texas court may consider in determining whether the site is cornmercially active and whether the court can exercise juris­diction over the non-resident defendant. Texas courts have held that commercially active websites will by themselves support a Texas court's exer­cise of personal jurisdiction over the party operating the site.

Passive Websites

At the other end of the spec­trum are parties with purely "passive" websites. These websites merely provide in­formation to interested par­ties. They exist exclusively for basic identification pur­poses, and do not incorporate any interactive components—not even the ability to e-mail the party operating the site. Contact with Texas residents through the operation of pas­sive websites has been con­sidered incidental rather than purposeful by Texas courts. Accordingly, while there may be exceptions, passive web-sites generally tend to be in­sufficient on their own to give rise to personal jurisdiction in Texas.

Interactive Websites

In between commercially ac­tive websites and passive websites are "interactive" websites,  party operating the site. When a website does not clearly fit into either the com­mercially active category -or the passive category, Texas courts consider a number of factors in evaluating the de­gree of interactivity between the parties via the site and the effect of that interactivity on personal jurisdiction. Gener­ally, the more commercially interactive the site, the more likely it is to subject the party operating the site to personal jurisdiction in Texas.

By Michael R. Steinmark

Insurance Defense

SettlePou Welcomes New Attorneys

For more than 30 years, SettlePou has provided a unique brand of big-firm expertise coupled with small-firm attention to our clients through highly skilled, service-focused attorneys.  SettlePou has strategically grown to over 30 attorneys with a qualified support staff.  The firm has attracted top talent by cultivating a superlative work environment, being recognized by the Dallas Morning News in 2009 as one of its Top 100 Places to Work.  Continuing in that tradition, SettlePou is proud to announce the addition of two attorneys: Kent D. Williamson and Mark T. Craig.

Mr. Williamson joined Set­tlePou's Insurance Defense Section, as a shareholder, on June 16, 2010. Mr. Wil­liamson's experience is pri­marily in the defense of "non-subscriber" employ­ers who voluntarily opt out of the Texas Workers' Compensation Insurance Program. Mr. Williamson attended undergraduate school at Texas Tech Uni­versity and the University of Texas-Dallas. He gradu­ated from the University of Tulsa College of Law in 1990.

Mr. Craig also joined the Insurance Defense Section on June 16, 2010. Mr. Craig also practices in defense of non-subscriber employers, as well as premises liability claims and business/ commercial litigation.  Mr. Craig is a native of Dallas, Texas. He received his under­graduate degree from South­ern Methodist University in 1995 and graduated from St. Mary's University School of Law in 2000.


Mr. Williamson and Mr. Craig defend non-subscriber employ­ers in both traditional third-party lawsuits and lawsuits in­volving alleged ERISA viola­tions. In addition, both Mr. Williamson and Mr. Craig rep­resent clients in employment disputes, premises liability, and commercial vehicle and general insurance defense litigation.