Firm News

SettlePou Welcomes Three New Attorneys

SettlePou has continued a pattern of steady growth over the past several years by hiring top law school graduates. In keeping with that tradition, SettlePou is proud to announce the addition of three new associates: Will Bassham, Kristina Kiik, and Braden Wayne. 

 Will Bassham is a member of the firm’s Creditor's Rights section. In 2005, he graduated magna cum laude from Texas Tech University with a B.A. in Philosophy and Political Science. He went on to attend law school at Texas Tech, where he graduated cum laude in 2010.Will was also the Comment Editor of the Texas Tech Law Review. 

Kristina Kiik joined the firm's Commercial Litigation section. She attended Southern Methodist University for both her undergraduate and legal education. Kristina received a B.A. in Political Science, International Studies, and Public Policy in 2006, and was a 2010 cum laude law school graduate. She was also the Casenote and Comment Editor for the SMU Law Review, and a member of Phi Delta Phi legal honors fraternity. 

Braden Wayne is also a member of the firm's Commercial Litigation section. He attended the University of Richmond, where he graduated magna cum laude in 2007 with a B.A. in Criminal Justice. Braden was a 2010 cum laude graduate of Southern Methodist University Dedman School of Law, where he served as the Associate Managing Editor of the International Law Review Association. 

Will, Kristina, and Braden were all licensed to practice law in Texas in November of 2010. SettlePou is excited to have these three talented graduates join the team. 


Insurance Defense

Update on Recent Insurance Law Decisions

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, products liability, health care and asbestos claims, inter alia.                           

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. 

Insurance – Commercial General Liability – Contractual Liability Exclusion:

A substituted opinion in Gilbert Texas Construction, LP v. Underwriters at Lloyds, London, 08-0246 (Tex. 2010) was handed down by the Texas Supreme Court on December 17, 2010.  The court reiterated its earlier decision that under the ISO form CGL policy exclusion for contractual liability, coverage is excluded for all liabilities assumed by contract except for two situations: 

  1. where an exception to the exclusion brings a claim back into coverage, e.g., certain policy-defined contracts including an “insured contract,” i.e., an indemnity agreement by which the insured assumes another’s tort liability; and
  2. where the insured would have liability in the absence of the contract or agreement.  

            The Supreme Court also ruled that the insured could not recover a settlement payment under estoppel theory against the insurer.  The court explained that even if an insurer assumes an insured’s defense when no coverage for the risk exists, the policy is not expanded to cover the risk simply because the insurer assumes control of the defense of the lawsuit, unless the insurer’s actions prejudice the insured.  Finding that no prejudice existed in this case, the court held that the insurer was not estopped to deny coverage. 

Insurance – Auto and CGL – “Insured Contracts” and the “Subsequent to Execution” Requirement:

            In Mid-Continent Casualty Company v. Global Enercom Management, Inc. 09-0744 (Tex. 2010), the Supreme Court examined provisions in an auto policy and in a commercial general liability policy which extended the insured’s coverage to “insured contracts” so long as the liability occurred “subsequent to the execution of the contract or agreement.”  In this particular case, although one party had signed the contract before the accident occurred, the other party did not sign the contract until after the accident.  The insurer claimed that the accident occurred before the “execution” of the contract, but the Supreme Court held that formal signing of the contract was not required, and explained that an unsigned agreement all of the terms of which are embodied in a writing, unconditionally assented to by both parties, is a written contract.  Thus, the court recognized that the term “execute” as used in an insurance policy means “to finish” or to “make complete,” and does not require formal signing of an “insured contract” by the parties prior to the accident for which coverage is sought.  

Products Liability – Manufacturer’s Statutory Duty to Indemnify:

            In Fresh Coat, Inc. v. K-2, Inc., 08-0592 (Tex. 2010), the Supreme Court examined a manufacturer’s statutory duty to indemnify a subcontractor/installer which installed a stucco-type exterior insulation and finishing system commonly known as “EIFS.”  The court found that the synthetic stucco was a “product” and that the contractor which installed it on a house was a “seller,” thereby making applicable Texas’ statutory duty of a manufacturer to indemnify a seller for product defects.  The court noted that the statutory definition of “seller” does not exclude a seller who is also a service provider, nor does it require the seller to only sell the product.  Significantly, the court also held that the manufacturer’s statutory obligation to indemnify the contractor covered a settlement payment made by the contractor/installer to the homebuilder even where the contractor/installer may have been independently obligated by a contract to indemnify the homebuilder, because the language of the statute provides that the manufacturer’s duty to indemnify “is in addition to any duty to indemnify established by law, contract, or otherwise.”

Products Liability Federal Preemption – Federal Motor Vehicle Safety Standards:

            In MCI Sales and Service, Inc. v. Hinton, 09-0048 (Tex. 2010), the Texas Supreme Court dealt with whether or not a jury verdict against a manufacturer of a motor coach was pre-empted by federal safety regulations because the jury held the manufacturer to a higher standard than that required by the National Traffic and Motor Vehicle Safety Act.  The court noted that there is a presumption against preemption, and also noted the absence of any clear and manifest purpose by Congress to preempt the issues (1) of the need to install passenger seatbelts and (2) the selection of any one certain type of window glazing materials.  Accordingly, the Supreme Court held that federal law did not preclude a jury from finding against a manufacturer who failed to install seatbelts in its motor coaches (which were not otherwise required by law) and for choosing one form of window glazing material (as opposed to another approved type).  Implicit in the court’s holding was its determination that federal motor vehicle standards impose only minimum standards and that the jury’s finding did not present an obstacle to the accomplishment and execution of federal policy and was thus not preempted thereby. 

Healthcare Liability Claims v. Ordinary Negligence Claims:

            In Yamada v. Friend, 08-0262 (Tex. 2010), the court held that where a plaintiff’s lawsuit is based upon one set of underlying facts which support claims against a healthcare provider under both the Texas Medical Liability Act and ostensibly also under ordinary negligence rules, such claims may not escape the requirements of the Texas Medical Liability Act, simply by recasting the claims in terms of ordinary negligence.  Hence the plaintiff’s failure to provide a timely expert report as required by the Texas Medical Liability Act required dismissal of all of the claims against the physician, including those claims plead as ordinary negligence claims.  

Healthcare Liability Claims v. Defective or Unsafe Equipment Claims:

            In another substituted opinion, the Supreme Court withdrew its former opinion in Marks v. St. Luke’s Episcopal Hospital, 07-0783 (Tex. 2010), and held that even claims arising from “an unsafe condition created by an item of furniture” such as a defective or improperly assembled hospital bed, come within the ambit of Texas Medical Liability Act, and are thus health care claims which require statutory expert opinions in order to proceed under Texas law.  This decision recognizes that “medical equipment” specific to a particular patient’s care or treatment is an integral and inseparable part of the health care services provided.  When the unsafe or defective condition of that equipment injures the patient, the gravamen of the resulting cause of action is a health care liability claim.  Since the Plaintiff had not timely filed the statutorily required expert report, the case was dismissed. 

Healthcare Liability Claims – Medical Causation:

            In Jelinek v. Casas, 08-1066 (Tex. 2010), the Supreme Court dealt with the sufficiency of circumstantial evidence to support causation in a health care claim.  Our court held that when circumstantial evidence of medical causation is consistent with several possible medical conclusions, only one of which establishes that the defendant’s negligence caused the plaintiff’s injury, an expert witness must explain why, based on the particular facts of the case, such a conclusion of causation is medically superior to the others.  If the expert fails to give any reason beyond his unsupported opinion, the expert’s testimony is legally insufficient evidence of causation. 

Workers Compensation – Course and Scope of Employment While Traveling Home from Work:

            In Leordeanu v. American Protection Insurance Company, 09-0330 (Tex. 2010), the Supreme Court dealt with the issue of whether or not an employee, while traveling home from work may be in the course and scope of employment for injuries received during transit.  Generally, traveling home from work is not deemed to be in the “course and scope of employment” for compensation in Texas, but the court held that where an employee is traveling from one workplace to another workplace, which happens to be on her way home, the employee may be found “in the course and scope of employment” and entitled to worker’s compensation benefits, despite the fact that her ultimate destination was her home. 

TexasTort Claims Act – Timely Filed Lawsuit May Constitute Required Notice:

            In Colquitt v. Brazoria County, 09-0369 (Tex. 2010), the Supreme Court examined the six month notice requirement under the Texas Tort Claims Act, and held that the statutory notice requirement was satisfied by the filing of a lawsuit where the lawsuit was served on the government unit within six months after the accident, and contained all the notice information required by the Texas Tort Claims Act.  Accordingly, since the Texas Tort Claims Act does not require that separate “formal” notice be given before filing suit, if a lawsuit containing all the required notice information is served within the statutory six month period, the suit papers themselves will constitute sufficient notice.  

Asbestos Constitutional Law – Prohibition Against Retroactive Laws:

            In Robinson v. Crown Cork & Seal Company, Inc., 06-0714 (Tex. 2010), the Supreme Court dealt with whether a statute which absolved one specific corporation from its successor liability for personal injury claims arising from asbestos exposure violated the prohibition against retroactive laws contained in the Texas Constitution.  In this mesothelioma case, the legislature passed a statute absolving Crown Cork of any liability to which it succeeded by virtue of its merger with a manufacturer of asbestos products.  Despite the fact that Crown Cork had never itself engaged in the manufacture or sale of asbestos products, the Texas Supreme Court held that the statute violated the Texas Constitution’s prohibition against the passage of retroactive laws.  The Supreme Court held that the statute in question significantly impacted the substantial interest which the plaintiffs had in a well recognized common law cause of action, and that the retroactive statute was accordingly impermissible and void.

By: H. Norman Kinzy.

Business Counsel Services

Personal Liability Pitfalls in Maintaining Corporate Filings, Books and Records

It is widely recognized among large and small business owners alike that running a business through an incorporated business entity can provide officers and directors invaluable protection against personal liability for acts of the business.  Whether formed as a corporation or other form of limited liability entity, such as a limited liability company (“LLC”), limited partnership (“LP”), or limited liability partnership (“LP”), utilizing an entity structure can shield personal assets from those collecting judgments or other debts against the business.  

While careful entity planning is the first step in personal liability protection, it is not the only step.  In order to enjoy the liability limitations afforded by business entity structures, it is critical to maintain the entity in good standing by filing with various offices of the State of Texas all required statutory reports, including in particular those arising under Chapter 171 of the Texas Tax Code.  It is equally important to maintain corporate formalities and keep corporate books and records up to date. 

State Filings

Business entities in Texas are subject to a number of requirements for annual and periodic filings with the Texas Comptroller and Texas Secretary of State.  These include, among others, annual Texas franchise tax reports, annual information reports, and other periodic information reports to update corporate information, such as registered agent, registered office, and various shareholder or partnership interests.  

The specific reports required for each entity vary based upon entity type and ownership, as well as revenues and margins.  Business entities in Texas also may be subject to payment of franchise taxes, or may be required to allow the Texas Comptroller to examine the company’s books and records to verify tax obligations. 

Failing to timely file required reports, to pay taxes due, or to allow inspection by the Comptroller can have significant consequences.  For example, such failures may lead to the forfeiture of an entity’s corporate privileges, including but not limited to the right to transact business in Texas and the right to sue or defend virtually all lawsuits in Texas.  Similarly, under certain circumstances an LLP can be converted to a general partnership for failing to file its annual certificate.  When corporate privileges are forfeited or an LLP becomes a general partnership by operation of statute, the directors, officers, or partners may become personally liable for all debts created or incurred in Texas after the date of forfeiture. 

While an entity with forfeited or converted status may later be reinstated, the reinstatement generally does not absolve the directors, officers, or partners of any personal liability accruing by statutory operation.  In other words, even if the entity’s status is later reinstated, the owners’ and operators’ personal assets may remain exposed to substantial claims based on contracts made, debts incurred, or torts committed during the forfeiture period.  

Corporate Books and Records

            In addition to filings with the State, it is crucial that Texas business entities keep their books and records updated to maintain personal liability limitations.  Whether a corporation, LLC, LP, LLP, or other type, a limited liability business entity is considered a “legal fiction”—an entity which exists by operation of law as separate and distinct from its owners and operators.  Generally this legal fiction protects the owners and operators from personal liability for acts of the business entity.  

Under certain circumstances, however, the entity may be disregarded—known as “piercing the corporate veil.”  When the veil is pierced, the owners or operators become personally liable for the acts and obligations of the business, just as when an entity’s right to do business is forfeited as discussed above.  Failing to maintain the entity’s books and records can support a claim for veil piercing. 

For example, a business entity may be disregarded where it becomes a mere “alter ego” for the owners or operators.  This occurs when the personal assets or affairs of the owners or operators become so comingled with those of the business that the two become indistinguishable.  While failing to maintain the business books and records may not alone be enough to pierce the veil, it can be evidence supporting an alter ego finding.  If the entity has not held regular meetings (e.g., shareholder, director, or member meetings), elected entity officials (e.g., directors, officers, or managers), issued shares, or maintained ownership allocation tables, among other things, the veil may be pierced and the owners or operators of the business may be held personally liable for what would otherwise have been corporate acts or obligations. 

Similarly, the veil may be pierced where two or more businesses are operated as a single business enterprise.  Under this theory, one entity may be held liable for the acts or obligations of another related entity where the operations of the two are so comingled that they become indistinguishable.  As with alter ego, failure to maintain each entity’s books and records can support piercing the veil.  Under certain circumstances, a single business enterprise analysis could be combined with an alter ego analysis to pierce through both corporate entities and hold the owners or operators personally liable. 

Accordingly, even the best laid business entity plans can go awry when corporate filings and corporate books and records are not properly maintained.  In both contexts, personal liability can be created where it otherwise would not have existed.  While this can, of course, pose a significant risk for business owners and operators defending a lawsuit, it can also provide substantial leverage in prosecuting a lawsuit against an entity and its individual owners and operators relating to actions during a time of forfeited corporate privileges. 

By: Michael R. Steinmark.