Insurance Defense

Update on Recent Insurance Law Decisions

Over the past several months, there have been several decisions and developments which are potentially significant to the practice of insurance law. These involve legal malpractice, employer liability, and claims against health care providers for premises liability. 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.

Legal Malpractice: Probate Proceedings

In Smith v. O’Donnell, Executor of the Estate of Corwin Denney, 07-0697 (Tex. 2009), the Supreme Court extended its previous holding that an executor was in privity with a decedent’s attorney (and thus could sue for estate planning malpractice) to allow suit by an executor against a decedent’s attorney for the decedent’s survivable claims for legal malpractice against the attorneys who advised decedent with respect to the decedent’s actions while serving as executor to the estate of the decedent’s previously deceased wife.

Though the facts are complex, some 29 years after the alleged malpractice, the beneficiaries of the wife’s estate sued the estate of the deceased executor of the wife. The executor of the deceased executor settled the claims of the wife’s beneficiaries, and then brought suit for legal malpractice against the attorneys who had advised the deceased executor. Although the rule ostensibly remains in Texas that intended beneficiaries under a will or other third parties who lack privity with a deceased’s attorney cannot sue for malpractice in their own right, given the right approach and the right facts, there are ways around that prohibition which can ultimately allow a recovery against a decedent’s attorneys for malpractice, whether it be for malpractice involved in estate planning or for malpractice committed during the probate process.

No Liability of Employer to Third Party for Injuries due to Fatigue of Off-Duty Employee:

In Nabors Drilling, USA, Inc. v. Escoto, 06-0890 (Tex. 2009), the Supreme Court reiterated the general rule that employers in Texas do not owe a duty to third parties for the tortious activities of off-duty employees occurring off the work site. Although limited exceptions exist, e.g., when an employer sends an obviously intoxicated employee to drive home, and/or where the employee is using the employer’s vehicle, our Supreme Court held that an employer in Texas has no duty to prevent injury due to the fatigue of its off-duty employee or to train employees about the dangers of fatigue.

Thus the employer had no liability for an accident arising out of a fatigued employee’s use of the employee’s own vehicle while driving home from work after a tiring work shift, where the employer did not affirmatively exercise control over the tired employee. Because of the many factors which can contribute to an employee’s fatigue, including factors arising from the employee’s activities before reporting to work and while at work, the court held that imposing a duty on employers to prevent their employees from driving while fatigued is not reasonably justified, and concomitantly held that there is no duty of an employer to train employees about the dangers of fatigue.

Negligently Maintained Hospital Bed is Not a Healthcare Liability Claim:

In Marks v. St. Luke’s Episcopal Hospital, 07-0783 (Tex. 2009), the Supreme Court dealt with whether a hospital patient’s fall from a negligently maintained hospital bed was a healthcare liability claim under the “Medical Liability and Insurance Improvement Act” of Texas, which act precludes claims if the plaintiff fails to timely file an expert report substantiating the claim. Noting that the Texas medical liability statute was specifically intended to apply to situations having a “material adverse effect on the delivery of medical
and healthcare services in Texas,” the Supreme Court rejected the hospital’s contention that a healthcare liability claim includes any injury to a patient negligently caused by any unsafe condition at a healthcare facility.

Rather, the Supreme Court held that the patient’s fall from a defective hospital bed involved the failure of a piece of equipment which did not involve a “departure from the accepted standards of medical care or health care,” was merely “incidental to the patient’s care,” was more in the nature of a premises liability claim, and that the claim in this case based on the defectively assembled or maintained hospital bed was not governed by the Texas healthcare liability statute.

The result of this ruling was to obviate the need for any supporting expert medical report, avoided the damage caps contained in the Texas medical liability statute, and ostensibly would invoke insurance coverage available from the hospital’s CGL carrier rather than or in addition to the hospital’s medical malpractice carrier. Indeed, in cases alleging both premises liability and healthcare liability claims, both the CGL carrier and the medical malpractice carrier of a healthcare provider in Texas could see defense and apportionment issues arise.”

By H. Norman Kinzy

Insurance Defense

Update on Recent Insurance Law Decisions

Over the past several months, there have been several decisions and developments which are potentially significant to the
practice of insurance law. These involve settlements, limitations and insurance coverage.

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. Protection of Medicare Claims: As of July 1, 2009, there is now a requirement that insurors and self-insureds must report certain information pertaining to settlements and judgments involving Medicare recipients to the federal government. Thus, all parties, their insurers, and their lawyers must take steps to insure that the claims of the United States for the recovery of Medicare monies paid to plaintiffs are protected.

Such claims of the U.S. government constitute independent claims to recover Medicare money paid to plaintiffs because of accidents. Thus, the failure of a party, an insurer and/or the parties’ attorneys, and/or the Medicare recipients to make certain that such monies are reimbursed to the U.S. government may generate liability for a duplicate payment to the U.S. government, even though already paid to the plaintiff.

Medicaid recipients who may be involved are generally over 65 years old, although for certain illnesses, such as renal failure, Medicare claims for reimbursement may extend to people of all ages.

The Texas Tort Claims Act-“Special Defect”:

In Denton County, Texas v. Beynon, 08-0016 (Tex. 2009), the Supreme Court held that for purposes of liability suits against the state of Texas, a “special defect” under the Texas Tort Claims Act is limited to “excavations or obstructions” that exist “on” the roadway surface. Therefore, a horizontal floodgate arm barring access to a roadway, which was located approximately 3 feet above the surface of a two-lane rural highway, was not a “special defect” under the Texas Tort Claims Act, and the plaintiff was not entitled to sue the state of Texas for injuries received in a collision with the floodgate arm.

High-Speed Police Chase Automobile Accident-Coverage Under Policy of Fleeing Driver:

In Tanner v. Nationwide Mutual Fire Insurance Company, 07-0760 (Tex. 2009), plaintiffs sued a fleeing driver, who while being chased by police, collided with the vehicle occupied by plaintiffs. The fleeing driver’s insurer refused to pay damages, and the plaintiffs filed a declaratory-judgment action to recover a default judgment taken against the fleeing driver. Nationwide asserted that the acts of its fleeing insured were intentional, and that the plaintiffs’ claims for bodily injury were thus excluded from coverage under Nationwide’s policy. Our Supreme Court held that “intentionally” as used in the policy exclusion excludes coverage only for “the resulting damage or injury, [and not] the actions that led to it.” Thus, the court held that the exclusionary language voids coverage when the resulting injury was intentional, but not when merely the insured’s conduct was intentional. Accordingly,
Nationwide was held to have coverage for damages resulting from its insured’s intentional effort to avoid police in a high speed chase, because Nationwide’s insured did not intend to cause the plaintiffs’ injuries.

Limitations-No Tolling by Temporary Absence from State:

In Ashley v. Hawkins 07-0572 (Tex. 2009), the Texas Supreme Court held that when a potential defendant leaves Texas following a motor vehicle collision, but is otherwise amenable to out of state service of process, Texas’ two year statute of limitations applicable to personal injury claims is not tolled, and a plaintiff must obtain substituted service by publication or other means to prevent the expiration of the statute of limitations.

No Revivor of Claims Barred by Statute of Repose:

In Galbraith Engineering Consultants, Inc. v. Pochucha, 07-1051 (Tex. 2009), the Supreme Court dealt with the question of whether a claim, which was barred by statute of “repose,” can be revived after a defendant to a lawsuit designates another person or entity as a “responsible third party.”

For purposes of proportionate 33, TEX. CIV. PRAC. & REM. CODE, a defendant may designate a non-party as a “responsible third party.” When this occurs, the plaintiff has a 60-day window in which to bring suit directly against the designated responsible third party despite the fact that the applicable statute of limitations would otherwise bar a direct action against such designated party. However, the statute allowing designation of responsible third parties speaks only of revival of those claims which are “barred by limitations” and does not mention claims barred by statutes of repose. Since statutes of repose are passed by the Legislature to provide a definitive date beyond which an action cannot be filed, and thereby create a statutory right to be free from liability after a specified time, the Supreme Court held that the aforesaid provisions of our proportionate responsibility statute do not revive a plaintiff’s claims against a designated responsible third party when such claims are barred by a statute of repose.”

By H. Norman Kinzy

Insurance Defense

Recent Insurance Decisions of Note

Over the past several months, there have been several decisions which are potentially significant to the practice of insurance law. These decisions involve arbitration, medical malpractice, notice provisions of “claims made” insurance policies, and federal preemption.

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.

No Independent Appeal Available From Arbitration Award Despite Arbitrators’ Manifest Disregard Of  The Law:

In Citigroup Global Markets, Inc. v. Bacon, 07-20670 (5th Cir., March 18, 2009), the United States Fifth Circuit Court of Appeals reviewed the recent United States Supreme Court decision in Hall Street Associates, L.L.C. v Mattel Inc., 128 S. Ct. 1396, 1403 (2008) and ruled that within the Fifth Circuit (which includes Texas Federal Courts), “manifest disregard of the law” by arbitrators in reaching an arbitration award is no longer an independent non-statutory ground for vacating such an award under the Federal Arbitration Act (“FAA”). Although the 5th Circuit left open a narrow possibility that legal errors by arbitrators might be the subject of appeal if they can be framed so as to come within the statutory grounds for appeal under § 10 of the FAA, such is not a foregone conclusion.

This decision will likely be followed by a decision from our Texas Supreme Court which has just agreed to hear an appeal in Quinn v. Nafta Traders, Inc., 257 S.W. 3rd 795 (Tex. App., Dallas 2008) wherein Dallas Court of Appeals ruled that parties may not contractually expand the scope of judicial review of an arbitrator’s decision to include grounds for reversal which are not expressly identified in the Texas General Arbitration Act.

Thus, it is becoming ever more apparent that if one wishes one’s claims to be determined with regard to the predictability flowing from the rule of law, and to have a real and effective right of appeal from an adverse result, then arbitration should be avoided.

Medical Malpractice- Exception:

In Phillips v. Bramlett, Cause No. 07-0522 (Texas March 9, 2009), the Supreme Court dealt with the interplay between the statutory liability cap upon damages in Texas Medical Liability and Insurance Improvement Act as it ex isted prior to September 1, 2003, and the statutory “Stowers exception” contained in the same Act, which provided in part that “This section shall not limit the liability of any insurer….” The court concluded that the Stowers exception of Article 4590i Section 11.02 (c) expressly applied to insurers only and did not waive the liability cap of section 11.02 (a) generally. This means that when insurance coverage is below the statutory damages cap, the “Stowers exception” claim may be shared by the insured physician and the injured party because each will potentially have excess claims when the damage finding exceeds the statutory damage cap. Conversely, when insurance coverage is above the statutory damages cap, the physician is fully protected, and only the injured third party need pursue the statutory “Stowers exception.”

The effect of this decision to other pending and future cases should be fairly limited since Section 74.303(d) of our medical liability statute was amended in Texas’ Tort Reform Act, effective September 1, 2003, to provide that “the liability of any insurer under the common law theory of recovery commonly known in Texas as the ‘Stowers Doctrine’ shall not exceed the liability of the insured.” Thus, the language of the current statute now limits the liability of an insurer to “the liability of the insured,” which arguably limits the liability of an insurer to the amount of the statutory cap on damages in the current statute, which is in keeping with the tort reform purposes of the 2003 amendment. 56 Baylor Law Rev. 423, at p.457.

Notice Provisions-“Claims Made” Policies:

In Prodigy Communications Corporation v. Agricultural Excess and Surplus Insurance Company, 06-0598 (Texas, March 27, 2009), the Texas Supreme Court dealt with whether, under a claims-made policy, an insurer can deny coverage based on an insured’s failure to comply with policy provisions requiring that notice of a claim be given “as soon as practicable” when notice of the claim was provided before the reporting deadline specified in the policy and the insurer was not prejudiced by the delay. Involved was a ninety (90) day notice of claims “condition precedent” provision in a policy which had been extended by a contractual three (3) year discovery period.

The Texas Supreme Court held that in a claims-made policy, when an insured gives notice of a claim within the policy period or other specified reporting time period, the insurer must show that the insured’s non-compliance with the policy’s “as soon as practicable” notice provision prejudiced the insurer before it may deny coverage. The Texas Supreme Court also implied that if the insured  provides notice of claim outside the policy’s date-specific reporting period, that coverage will not be allowed.

In a companion case, Financial Industries Inc. v. XL Specialty Insurance Company, 07-1059 (Texas, 2009), the Supreme Court dealt with slightly different policy language but nonetheless held that the insurer must show prejudice before an insured’s violation of the “as soon as practicable” notice provision would allow an insurer to deny coverage.

Federal Preemption Limited:

In Wyeth v. Levine, 129 S. Ct. 1187 (U.S., March 4, 2009), the United States Supreme Court held that federal approval of labels giving warnings about the effects of drugs does not bar lawsuits under state tort law claiming inadequate warnings of health risks. While supposedly “narrowly drawn,” this decision nonetheless promises to encourage the filing of products liability lawsuits which have been discouraged or precluded by prior court decisions which have given significant preemptive effect to federal approval of various products. In Wyeth, the dissenting opinion heralded this likely effect when it stated that the majority opinion had turned a “common-law tort suit into a ‘frontal assault’ on the FDA’s regulatory regime for drug labeling….”

By H. Norman Kinzy