Slip and Fall Defense Litigation in Texas: The Time Notice Rule

The mere fact that a store employee is simply in close proximity to a dangerous or hazardous condition does not replace what is called in Texas, “the time-notice rule”. Constructive knowledge of a dangerous condition can be shown by proof that the dangerous or hazardous condition in dispute had existed for a reasonably long enough period of time  that the premises owner reasonably should have discovered it. This is known as the “time-notice rule,” and the Texas Supreme Court has repeatedly held that “temporal evidence best indicates whether the owner had a reasonable opportunity to discover and remedy a dangerous condition.” As the Texas Supreme Court stated in Wal-Mart Stores, Inc. v. Reece, 81 SW.3d 812, 816 (Tex. 2002):

An employee’s proximity to a hazard, with no evidence indicating how long
the hazard was there, merely indicates that it was possible for the
premises owner to discover the condition, not that the premises owner
reasonably should have discovered it. Constructive notice demands a more
extensive inquiry. Without some temporal evidence, there is no basis upon
which the factfinder can reasonably assess the opportunity the premises
owner had to discover the dangerous condition.

 
Without the time related requirement of the, owners of real property could be subject to strict liability claims for any dangerous or hazardous condition on the premises, which would be in itself unreasonable.

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Texas civil litigation attorneys based in Fort Worth who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s new office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Martindale AVtexas[2]

Texas Construction Bond Litigation and Attorneys’ Fees Lawsuit–Compliance Issues Determined in Austin Court

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

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  1. 03-02-00270-CV

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Cumberland Casualty & Surety Company, Appellant

v.

 

Nkwazi, L.L.C., Appellee

 

——————————————————————————–

 

 

FROM THE DISTRICT COURT OF BASTROP COUNTY, 21ST JUDICIAL DISTRICT

 

  1. 22,992, HONORABLE HAROLD R. TOWSLEE, JUDGE PRESIDING

 

 

 

——————————————————————————–

 

 

M E M O R A N D U M  O P I N I O N

This case arises out of a surety’s obligation under a performance bond. Appellee Nkwazi, L.L.C. (“Nkwazi”), a limited-liability company owned and operated by four persons, including Kalpesh Patel and Rajeev Patel, (1) contracted with Salinas Construction & Design (“Salinas”) for the construction of a motel in Bastrop. Appellant Cumberland Casualty & Surety Co. (“Cumberland”) issued performance and payment bonds to Salinas as part of Nkwazi’s requirement for financing. After repeated problems between Nkwazi and Salinas, Nkwazi declared Salinas in default and filed a claim against the performance bond. Cumberland refused coverage, and Nkwazi sued Cumberland. Following a jury trial, the district court rendered judgment, awarding Nkwazi actual damages, attorney’s fees, and prejudgment interest. Cumberland appeals, arguing that: (1) the jury’s findings were against the great weight and preponderance of the evidence, (2) the district court erred in awarding appellate attorney’s fees contrary to the jury answers, and (3) the district court erred in awarding Nkwazi prejudgment interest at a rate of ten percent per annum. We will affirm the district-court judgment.

 

Cumberland’s Failure to Perform By its first issue, Cumberland argues that the jury’s finding that Cumberland’s failure to perform under the bond was not excused was so against the great weight and preponderance of the evidence as to be manifestly unjust–a challenge to the factual sufficiency of the evidence. Oram v. State Farm Lloyds, 977 S.W.2d 163, 168 (Tex. App.–Austin 1998, no pet.); Raw Hide Oil & Gas, Inc. v. Maxus Exploration Co., 766 S.W.2d 264, 275-76 (Tex. App.–Amarillo 1988, writ denied). Specifically, Cumberland disputes the jury’s answers to Questions 2 and 3. Question 2 asked: “Was Cumberland[‘s] [] nonperformance under its Performance Bond excused by Nkwazi[‘s] [] failure to satisfy conditions precedent to recovery under the Performance Bond?” Question 3 asked: “Was Cumberland[‘s] [] failure to comply with the Performance Bond excused?” The jury answered “No” to both questions. Cumberland does not dispute that it failed to comply with the performance bond. Rather, Cumberland argues that its obligations under the bond were discharged because Nkwazi materially altered the bonded contract by not hiring an architect to inspect Salinas’s work, leading to a substantial overpayment for work Salinas either improperly performed or failed to perform. This, Cumberland argues, destroyed a condition precedent to bond performance.

 

The performance bond followed the format of American Institute of Architects document A312. Paragraph 3 delineated the requirements for bond performance. It required that there be no “Owner Default,” and if no owner default, then “the Surety’s obligation under this Bond shall arise.” Cumberland asserts that Nkwazi’s failure to hire an architect violated paragraph 12.4 of the bond. Paragraph 12.4 defines “Owner Default” as: “Failure of the Owner, which has neither been remedied nor waived, to pay the Contractor as required by the Construction Contract or to perform and complete or comply with the other terms thereof.” (Emphasis added.)

 

In response, Nkwazi argues it was not in default because its contract with Salinas did not require Nkwazi to hire an architect to inspect the construction. Specifically, Nkwazi asserts that a bid proposal by Salinas (the “Proposal”) was the only contract between Nkwazi and Salinas and there was no “owner default” or material alteration of that agreement. (2) Cumberland asserts that the Proposal required Nkwazi and Salinas to execute an “AIA [American Institute of Architects] Standard Form Construction Contract” (“AIA Contract”), and Nkwazi should be held to the AIA Contract provision that required it to employ an architect. (3)

 

In evaluating factual sufficiency, we review the entire record and set aside the finding only if it is so against the great weight and preponderance of the evidence as to be manifestly unjust. Cain v. Bain, 709 S.W.2d 175, 176 (Tex. 1986); Oram, 977 S.W.2d at 168. We may not reverse simply because we conclude that “the evidence preponderates toward an affirmative answer”; instead, we may only reverse where “the great weight of [the] evidence supports an affirmative answer.” Herbert v. Herbert, 754 S.W.2d 141, 144 (Tex. 1988).

 

The record reflects that Nkwazi entered into a franchise agreement with Comfort Inn, which provided Nkwazi guidelines for the motel’s construction. Nkwazi employed an architect who drafted drawings and created a “specifications book” based on the guidelines. Comfort Inn then approved Nkwazi’s plan, allowing Nkwazi to solicit construction bids. In 1997 Nkwazi sent bid packages to numerous contractors, which included the plans and specifications created by Nkwazi’s architect. Eventually, Nkwazi accepted Salinas’s construction bid of $1,089,000. Rajeev testified that after choosing Salinas, he asked Salinas to send Nkwazi a contract, and Salinas sent Rajeev the Proposal. (4) Both Rajeev, for Nkwazi, and Salinas signed the two-page Proposal, which was dated January 3, 1997. Rajeev and Kalpesh testified that this was the only contract to which the parties agreed. To obtain financing, Nkwazi received a Small Business Administration Loan, funded by First State Bank of Austin. Rejeev testified that the only contract documentation that he initially presented to the bank to secure the loan was the Proposal.

 

The bank required that the project be bonded, and Cumberland agreed to issue performance and payment bonds to Salinas. The bond request from Salinas’s bond agent to Cumberland stated that the motel contract date was “1/?/97,” and the amount requested was “$1,089,000.” Cumberland issued an original bond, for Phase I, for half the cost of construction; it was dated April 17, 1997. In August Cumberland issued a rider for the remainder of the contract, covering Phase II. Nkwazi paid Salinas’s $17,000 premium. Thomas West, Cumberland’s Dallas branch manager, testified that Cumberland had investigated Salinas’s “prior contract performance,” and a compilation of Salinas’s financial data before issuing the bond. Cumberland required that a fund administration service be used to monitor the payments made to Salinas.

 

Construction began in April 1997, and Nkwazi paid Salinas as the project progressed. During construction Salinas neglected to follow the construction plans and defects in his work became apparent. Meetings occurred between Nkwazi and Salinas to correct the defects. Salinas did remedy some of the problems; however, others remained. Rajeev testified that toward the end of 1997 communications with Salinas became more difficult and less frequent. To complete construction, Nkwazi worked directly with the subcontractors to correct Salinas’s insufficient work. Rajeev testified that during construction he did not have an architect inspect the progress of the motel; he also testified that he did not know of such a requirement and did not know that architects “provided that service.” Rajeev, and later Kalpesh, monitored Salinas’s progress by periodically visiting the construction site; when defects were discovered, Rajeev brought them to Salinas’s attention. In early 1998, the fund administration service reported Nkwazi’s problems with Salinas and the project’s slow progression to Cumberland. Nkwazi retained counsel and notified Cumberland that it was considering a declaration that Salinas was in default. At a meeting among the three parties, Salinas agreed to correct the construction problems, and Nkwazi, at Salinas’s demand and Cumberland’s suggestion, agreed to set aside $108,917 as retainage to ensure that Salinas and his subcontractors would be paid. Nkwazi and Salinas signed an agreement concerning the retainage, as did West, for Cumberland. Nkwazi, however, continued to experience problems with the construction and, in August 1998, almost one year after the projected completion date, Nkwazi declared Salinas in default. At this time, serious problems in the motel’s construction remained. After Nkwazi failed to obtain sufficient responses from Cumberland concerning bond coverage, Nkwazi filed this action against Cumberland. (5)

 

Viewing the evidence in the light most favorable to the jury’s verdict, we find the evidence sufficient to support the jury’s answers to Questions 2 and 3. At trial the parties presented conflicting testimony regarding the Proposal. Cumberland, through Rajeev’s testimony, presented evidence that the specifications book, presented to Nkwazi by its architect, contained requirements that any contract would be an AIA Contract. The bid-proposal form that Salinas signed and that became the Proposal was also a part of the specifications book. The Proposal’s language envisioned that the owner and the builder would sign a separate contract. Rajeev and Kalpesh testified that neither had sufficiently read nor understood all the contents of the specifications book and that they were unaware of the contract requirements. Rajeev stated that he asked for Salinas to send him a contract for the motel’s construction, and the Proposal was all that he received. He stated that he was unaware that more was required. Kalpesh presented similar testimony. Rajeev admitted that the Proposal’s language indicated that it was not the contract, but he and Kalpesh both testified that they believed that the Proposal was, in fact, their contract with Salinas. Reinforcing this belief was Rajeev’s testimony that the bank did not require any other contract, aside from the Proposal, for the small business loan. Rajeev also testified that he was the person supervising Salinas, but that, although possessing a civil engineering degree, he had no construction experience. Both Rajeev and Kalpesh offered testimony concerning the serious nature of the construction problems remaining at the motel.

 

West testified that Cumberland’s file only contained the Proposal and the Phase I and II bonds–no AIA Contract. Moreover, no evidence was adduced at trial that the parties entered into an AIA Contract. The following testimony was offered by West when he was questioned about Cumberland’s issuance of the performance bond to Salinas without reviewing the AIA Contract.

 

 

[Q]: Why was Cumberland Casualty & Surety Company performance bond then issued in April?

 

 

 

 

[A]: I believe it’s because that’s when the contract was signed and it was time to obtain the payment and performance bonds in order for the contractor to move forward in constructing the hotel.

 

 

 

 

[Q]: Was a signed A.I.A. contract sent to you at the time this bond was issued?

 

 

 

 

[A]: No.

 

 

 

 

[Q]: How did you learn that the contract had been entered into?

 

 

 

 

[A]: It’s our understanding the agent provided the information that they had secured contracts and they needed to get the payment and performance bonds issued in order to move forward.

 

 

 

 

 

 

The agent West mentions was Cumberland’s agent in South Texas. West also testified that Nkwazi had complied with the notice requirements to invoke bond coverage. West stated at trial that he did not think the Proposal represented the contract, but his deposition testimony, introduced at trial, stated the opposite. Similarly, West testified that Cumberland’s position was that Nkwazi had not properly paid Salinas in accordance with the contract; yet, in his deposition, West stated that Cumberland’s position was that Nkwazi had paid Salinas pursuant to the contract.

 

When viewed in a neutral light, the entire record does not lead to a conclusion that the jury’s finding was manifestly unjust. Cumberland argues that the Proposal was not a valid contract and that Nkwazi and Salinas did not comply with the AIA Contract provisions. Cumberland attempted to show that the Proposal was not a contract but only a bid proposal and offered evidence that Nkwazi failed to comply with the AIA Contract that Nkwazi should have required. Yet, Cumberland issued the bond without an AIA Contract and never demanded that Nkwazi provide one. Cumberland accepted Nkwazi’s premium payment. There is no evidence or allegation that Nkwazi misrepresented that an AIA Contract had been signed. That Cumberland’s agent assured Cumberland that a contract existed and that the Proposal envisioned that an AIA Contract would be signed is of no benefit to Cumberland. We hold the evidence is factually sufficient to support the jury’s finding that Cumberland was not excused from its obligation under the performance bond.

 

Cumberland relies on Old Colony Insurance Co. v. City of Quitman for the proposition that a surety is released from its obligation when there is a material alteration in, and deviation from, the terms of the contract without its consent and to its prejudice. 352 S.W.2d 452, 455 (Tex. 1961). The alleged material alteration is that Nkwazi failed to have an architect inspect the on-going construction, which led to a substantial overpayment of Salinas. Cumberland’s reliance on Old Colony is misplaced. The applicable contract, as found by the jury, is the Proposal and not the AIA Contract; therefore, by the Proposal’s terms, Nkwazi cannot be held to have made a material alteration of a contract that it did not agree to. In Old Colony, the City of Quitman paid a well-drilling company the remaining balance due before a contract provision, requiring the testing of the water, had been satisfied. 352 S.W.2d at 453. After payment, the well was tested and the water proved unusable. Id. The city then sought recovery from the surety for the full amount paid. Id. The supreme court held that making the final payment on the contract before the water test had been completed, as required by the contract, was a material alteration, which prejudiced the surety; thus, no recovery was permitted. Id. at 456. Here, Cumberland argues that Nkwazi’s overpayment materially altered the AIA Contract; however, the evidence supports the jury’s findings that the Proposal, not the referenced AIA Contract, was the contract that Cumberland bonded. Therefore, Old Colony is inapplicable because Nkwazi did not materially alter the contract that was in effect. Instead, Cumberland had bonded Salinas’s performance under the Proposal, a contract which Cumberland does not argue Nkwazi materially altered. We overrule Cumberland’s first issue.

 

 

 

 

 

Appellate Attorney’s Fees

 

By its second issue, Cumberland argues that the district court erred in awarding appellate attorney’s fees contrary to the jury’s answers to Question 5. In response to Question 5, the jury awarded $84,783.71 in attorney’s fees to Nkwazi. The jury, however, awarded zero dollars to Nkwazi for each of the following subparts concerning appellate attorney’s fees: (1) for an appeal to the court of appeals, (2) for petition to the Supreme Court of Texas, and (3) for an appeal to the Supreme Court of Texas in the event petition was granted. Nkwazi filed a motion to disregard the jury’s answers. In the final judgment, the district court ordered that Cumberland pay Nkwazi $25,000, $10,000, and $5000, respectively, “in the event” these appeals were filed. Cumberland contends that the district court’s order was made in error. Nkwazi, however, argues that the uncontroverted evidence concerning appellate attorney’s fees established the amount as a matter of law, and the district court’s decision should be affirmed.

 

A trial court may disregard the jury’s negative finding and substitute its own affirmative finding only if the evidence conclusively establishes the affirmative finding. Brown v. Bank of Galveston, Nat’l Ass’n, 930 S.W.2d 140,145 (Tex. App.–Houston [14th Dist.] 1996), aff’d, 963 S.W.2d 511, 515-16 (Tex. 1998). The amount of attorney’s fees to be awarded is a question of fact and must be supported by credible evidence; this amount rests in the sound discretion of the trial court and its findings will not be disturbed, absent an abuse of discretion. A.V.I., Inc. v. Heathington, 842 S.W.2d 712, 718 (Tex. App.–Amarillo 1992, writ denied); Travelers Ins. Co. v. Brown, 750 S.W.2d 916, 918-19 (Tex. App.–Amarillo 1988, writ denied). While the fact finder ordinarily determines the reasonableness of the amount, the decision may not be arbitrary. Gunter v. Baily, 808 S.W.2d 163, 166 (Tex. App.–El Paso 1991, no writ). Evidence of attorney’s fees that is clear, direct, and uncontroverted is taken as true as a matter of law, especially when the opposing party has not rebutted the evidence. Ragsdale v. Progressive Voters League, 801 S.W.2d 880, 882 (Tex. 1990). Testimony by an interested witness may establish the amount of attorney’s fees as a matter of law only if: (1) the testimony could be readily contradicted if untrue; (2) it is clear, direct, and positive; and (3) there are no circumstances tending to discredit or impeach it. Id.

 

At trial, Nkwazi presented expert testimony concerning reasonable attorney’s fees from Robert Shaffer, an attorney for Nkwazi. He testified as to the reasonableness of the requested fees for trial, as well as the fees that might be required in the event of an appeal to the court of appeals and the supreme court. Cumberland did not offer an expert of its own to refute Shaffer’s testimony. Cumberland did extensively cross-examine Shaffer regarding attorney’s fees accrued by Nkwazi related to the pretrial events and up to the trial itself. However, Cumberland did not cross-examine or offer any controverting or impeaching evidence concerning the requested appellate attorney’s fees. The evidence that $40,000 was a reasonable attorney’s fee for potential appeals was clear, direct, and positive and could have been readily controverted if the amount was not reasonable. See Cale’s Clean Scene Carwash, Inc. v. Hubbard, 76 S.W.3d 784, 788 (Tex. App.–Houston [14th Dist.] 2002, no pet.). Therefore, Nkwazi established as a matter of law the amount of attorney’s fees, and the district court did not err in awarding a reasonable amount as shown by the evidence. We overrule Cumberland’s second issue.

 

 

 

 

 

Prejudgment Interest

 

By its third issue, Cumberland argues that the district court erred in awarding Nkwazi prejudgment interest calculated at the rate of ten percent per annum. Cumberland, citing an earlier version of section 302.002 of the finance code, contends that the appropriate rate should have been six percent per annum because the contract ascertains an amount payable. See Act of May 24, 1997, 75th Leg., R.S., ch. 1008, § 1, sec. 302.002, 1997 Tex. Gen. Laws 3091, 3422 (amended 1999) (current provision at Tex. Fin. Code Ann. § 302.002 (West Supp. 2003)); Great Am. Ins. Co. v. North Austin Mun. Util. Dist. No. 1, 950 S.W.2d 371, 372-73 (Tex. 1997). Specifically, Cumberland argues that the performance bond and the underlying AIA Contract, which Nkwazi should have used, defined Cumberland’s contractual obligation under the bond. Alternatively, Cumberland argues that if this Court holds that the Proposal is the contract in effect, then the interest rate should still be calculated at six percent because the project specifications referenced in the Proposal provide that AIA form A201constitutes the “general conditions of [the] contract” and “clearly spell out the method by which damages for the Contractor’s breach are to be calculated.” Cumberland concedes that the “time frame adopted by the trial court was accurate.” Nkwazi argues that the court did not err because the Proposal is the contract and read in conjunction with the performance bond, provides no method for ascertaining Salinas’s or Cumberland’s liability. Because we have held that the Proposal is the contract between Nkwazi and Salinas, we accept Nkwazi’s argument.

 

In a breach-of-contract cause of action, prejudgment interest is calculated as simple interest and is based on the postjudgment interest rate applicable at the time of judgment. Johnson & Higgins, Inc. v. Kenneco Energy, 962 S.W.2d 507, 532 (Tex. 1998). In Johnson & Higgins, the supreme court held that there are two legal sources for an award of prejudgment interest: (1) general principles of equity and (2) an enabling statute. Id. at 528. Under the finance code, prejudgment interest applies only to judgments in wrongful death, personal injury, property damage, and condemnation cases. Tex. Fin. Code Ann. §§ 304.102, .201 (West Supp. 2003); Johnson & Higgins, 962 S.W.2d at 530. Because Nkwazi’s breach-of-contract claim does not fall within the statutory provisions, prejudgment interest is governed by the common law. Johnson & Higgins, 962 S.W.2d at 530. Prejudgment interest accrues at the rate for postjudgment interest and shall be computed as simple interest. Id. at 532; see also International Turbine Servs., Inc. v. VASP Brazilian Airlines, 278 F.3d 494, 500 (5th Cir. 2002). Under the finance code, postjudgment interest is computed under the provisions of section 304.003; therefore, prejudgment interest is ten percent per annum, simple interest. Tex. Fin. Code Ann. § 304.003(c) (West Supp. 2003).

 

Cumberland’s reliance on the earlier version of the finance code is misplaced. The provisions of former section 302.002 do not govern the calculation of prejudgment interest in this action. See Walden v. Affiliated Computer Servs., Inc., 97 S.W.3d 303, 330 (Tex. App.–Houston [14th Dist.] 2003, pet. filed) (section 302.002 does not apply to award of prejudgment interest). The district court was thus correct in ordering that prejudgment interest should run at ten percent per annum. Cumberland’s third issue is overruled.

 

 

 

 

 

Conclusion

 

We affirm the district-court judgment.

 

 

 

 

 

 

__________________________________________ Lee Yeakel, Justice

 

Before Justices Kidd, B. A. Smith and Yeakel

 

Affirmed

 

Filed: June 12, 2003

 

  1. For clarity we will refer to the Patels by their first names.

 

  1. The “Bid Proposal Form” contained the following language:

 

 

 

 

Bidder has carefully examined the form of contract, instructions to bidders, profiles, grades, specifications and the plans therein . . . and will do all the work and furnish all the material called for in the contract DRAWINGS and specifications . . . . In the event of the award of a contract to the undersigned, the undersigned will execute same on [an AIA] Standard Form Construction Contract and make bond for the full amount of the contract, to secure proper compliance with the terms and provisions of the contract . . . . The work proposed to be done shall be accepted when fully complied and finished to the entire satisfaction of the Architect and the Owner.

 

  1. Cumberland argues that the appropriate contract was AIA Document A101. Such document requires, inter alia, that: “Final payment . . . shall be made by the Owner to the Contractor when . . . a final Certificate for Payment has been issued by the Architect.” A101 also incorporated by reference AIA Document A201, which requires: “The Architect will provide administration of the Contract as described in the Contract Documents, and will be the Owner’s representative (1) during construction, (2) until final payment is due . . . . The Architect will advise and consult with the Owner. The Architect will visit the site at intervals appropriate to the stage of construction to become generally familiar with the progress and quality of the completed Work . . . .”

 

  1. The Proposal was a form included in the specifications book prepared by Nkwazi’s architect.

 

  1. Salinas declared bankruptcy and was not joined as a party.

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Fort Worth, Texas civil litigation attorneys in Tarrant County who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Martindale AVtexas[2]

Texas Insurance Commissioner Bulletin Regarding Roofing Contractors and Claims–Ft Worth Roofing Company Defense Attorneys

 

COMMISSIONER’S BULLETIN # B-0014-14

May 23, 2014

 

TO: ALL COMPANIES, CORPORATIONS, EXCHANGES, MUTUALS, RECIPROCALS, ASSOCIATIONS, LLOYDS, OR OTHER INSURERS WRITING PROPERTY AND CASUALTY INSURANCE IN THE STATE OF TEXAS AND TO THEIR REPRESENTATIVES AND AGENTS, AND TO ADJUSTERS, PUBLIC ADJUSTERS, ROOFING CONTRACTORS, AND THE PUBLIC GENERALLY

RE: HOUSE BILL 1183

The Texas Department of Insurance issues this bulletin to remind insurers, insurance adjusters, and public insurance adjusters that the 83rd Texas Legislature (2013), enacted House Bill 1183, effective September 1, 2013, which establishes prohibited conduct of insurance adjusters, public insurance adjusters, and roofing contractors.

HB 1183 does not change existing prohibitions in Texas Insurance Code, Chapters 4101 or 4102, but it adds §4101.251 and §4102.163.

Section 4101.251 prohibits licensed adjusters from adjusting a loss related to roofing damage on behalf of an insurer if the adjuster is a roofing contractor or otherwise provides roofing services or roofing products for compensation, or is a controlling person in a roofing-related business. The section also prohibits a roofing contractor from acting as an adjuster or advertising to adjust claims for any property for which the roofing contractor is providing or may provide roofing services, regardless of whether the contractor holds a license under this chapter.

Section 4102.163 prohibits a roofing contractor from acting as a public adjuster or advertising to adjust claims for any property for which the contractor is providing or may provide roofing services, regardless of whether the contractor holds a license under this chapter.

While not contained in HB 1183, public insurance adjusters are prohibited from participating directly or indirectly in the reconstruction, repair, or restoration of damaged property that is the subject of a claim adjusted by the license holder. Texas Insurance Code §4102.158.

The department will investigate written complaints of persons violating the Insurance Code and notes that violating Insurance Code Chapters 4101 and 4102 may result in criminal penalties and license denial, suspension, or revocation. In addition, violating Chapter 4102 may result in fines.

If you have any questions regarding this bulletin, please contact Jamie Walker by email atjamie.walker@tdi.texas.gov, or by telephone at 512-305-6797.

For more information concerning this bulletin, see Questions 12-14 of
Frequently Asked Questions or at the following web address:http://www.helpinsure.com/home/documents/unlicensedfaq.pdf.

Julia Rathgeber
Commissioner of Insurance

 

 

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Fort Worth, Texas civil litigation attorneys in Tarrant County who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Martindale AVtexas[2]

Duty to Defend and Indemnify Under Advertising Injury and Personal Injury Coverage–Texas Insurance Defense Lawyers

Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
2016 WL 102294
United States District Court,
S.D. Texas, Houston Division.
Evanston Insurance Company, Plaintiff,
v.
Gene by Gene, Ltd., Defendant.
Civil Action No. H–14–1842
|
Signed January 6, 2016

ORDER
DAVID HITTNER, United States District Judge
*1 Pending before the Court is Defendant Gene by Gene
Ltd.’s Motion for Summary Judgment (Document No. 21).
Having considered the motion, submissions, and applicable
law, the Court determines the motion should be granted.
I. BACKGROUND
This is an insurance coverage dispute. Defendant Gene
by Gene Ltd. (“Gene by Gene”) owns and operates
www.familytreedna.com, a genetic genealogy website. Users
of the website are offered the opportunity to test their
genetic information. Once users receive their DNA test
results they can analyze their genetic information to
learn more about their ancestry and connect with other
users whose results match in varying degrees. 1 Plaintiff
Evanston Insurance Company (“Evanston”) is Gene by
Gene’s insurer. Evanston issued four policies to Gene
by Gene: Policy Numbers SM–892198 and SM–898899
(“Professional Liability policies”), 2 and Policy Numbers
SM895587 and XS–800378 (“Excess Liability policies”) 3
(collectively, “Policies”). The Professional Liability policies
are duty to defend policies.
1 See Family Tree DNA, https://www.familytreedna.com
(last visited January 1, 2016).
2 Defendant Gene by Gene Ltd.’s Motion for
Summary Judgment, Document No. 21, Exhibit
A (Professional Liability Policy No. SM–892198)
[hereinafter Professional Liability Policy No. SM–
892198]; Defendant Gene by Gene Ltd.’s Motion
for Summary Judgment, Document No. 21, Exhibit
C (Professional Liability Policy No. SM–898899)
[hereinafter Professional Liability Policy No. SM–
898899].
3 Defendant Gene by Gene Ltd.’s Motion for Summary
Judgment, Document No. 21, Exhibits B (Excess
Liability Policy No. SM–8955870) [hereinafter Excess
Liability Policy No. SM–8955870]; Defendant Gene by
Gene Ltd.’s Motion for Summary Judgment, Document
No. 21, Exhibit D (Excess Liability Policy No. XS–
800378) [hereinafter Excess Liability Policy No. XS–
800378].
On May 15, 2014, Gene by Gene was sued by named plaintiff
Michael Cole (“Cole”), on behalf of himself and others,
in Cause Number 1:14–cv–004–SLG, styled Michael Cole,
individually and on behalf of all others similarly situated
v. Gene by Gene, Ltd. a Texas limited liability company d/
b/a Family Tree DNA, in the United States District Court
for the District of Alaska (the “Underlying Lawsuit”). 4
Cole alleges Gene by Gene improperly published his DNA
test results on its website without his consent. Cole claims
this practice violated Alaska’s Genetic Privacy Act, Alaska
Statute § 18.13.010 (“Genetic Privacy Act”), which prohibits
the disclosure of a person’s DNA analysis without written and
informed consent. When Gene by Gene demanded coverage
and a defense of the Underlying Lawsuit from Evanston,
Evanston refused based on an exclusion in the Policies titled
“Electronic Data and Distribution of Material in Violation of
Statutes” (“Exclusion”).
4 Defendant Gene by Gene Ltd.’s Motion for Summary
Judgment, Document No. 21, Exhibit E (Class Action
Complaint and Demand for Jury Trial) [hereinafter
Underlying Suit Complaint].
*2 On July 2, 2014, Evanston filed the present declaratory
judgment action, seeking a declaration from the Court that it
does not have to defend and/or indemnify Gene by Gene from
and against any claims or judgments in, or resulting from,
the Underlying Lawsuit. On August 29, 2014, Gene by Gene
answered and asserted its own counterclaims, requesting a
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 2
declaration from the Court that Evanston is required to defend
and indemnify Gene by Gene and claiming that Evanston
breached its contract and violated Chapter 542 of the Texas
Insurance Code. On August 28, 2015, Gene by Gene moved
for summary judgment.
II. STANDARD OF REVIEW
Summary judgment is proper when “there is no genuine
dispute as to any material fact and the movant is entitled to
a judgment as a matter of law.” FED.R.CIV.P. 56(a). The
court must view the evidence in a light most favorable to the
nonmovant. Coleman v. Hous. Indep. Sch. Dist., 113 F.3d
528, 533 (5th Cir.1997). Initially, the movant bears the burden
of presenting the basis for the motion and the elements of the
causes of action upon which the nonmovant will be unable
to establish a genuine issue of material fact. Celotex Corp.
v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d
265 (1986). The burden then shifts to the nonmovant to come
forward with specific facts showing there is a genuine issue
for trial. See FED.R.CIV.P. 56(c); Matsushita Elec. Indus.
Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87, 106 S.Ct.
1348, 89 L.Ed.2d 538 (1986). “A dispute about a material
fact is ‘genuine’ if the evidence is such that a reasonable jury
could return a verdict for the nonmoving party.” Bodenheimer
v. PPG Indus., Inc., 5 F.3d 955, 956 (5th Cir.1993) (citation
omitted).
But the nonmoving party’s bare allegations, standing alone,
are insufficient to create a material issue of fact and defeat a
motion for summary judgment. Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247–48, 106 S.Ct. 2505, 91 L.Ed.2d
202 (1986). Moreover, conclusory allegations unsupported
by specific facts will not prevent an award of summary
judgment; the plaintiff cannot rest on his allegations to get
to a jury without any significant probative evidence tending
to support the complaint. Nat’l Ass’n of Gov’t Emps. v.
City Pub. Serv. Bd. of San Antonio, 40 F.3d 698, 713 (5th
Cir.1994). If a reasonable jury could not return a verdict for
the nonmoving party, then summary judgment is appropriate.
Liberty Lobby, Inc., 477 U.S. at 248, 106 S.Ct. 2505.
The nonmovant’s burden cannot be satisfied by conclusory
allegations, unsubstantiated assertions, or “only a scintilla of
evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d
337, 343 (5th Cir.2007) (quoting Little v. Liquid Air Corp.,
37 F.3d 1069, 1075 (5th Cir.1994)). Furthermore, it is not the
function of the court to search the record on the nonmovant’s
behalf for evidence which may raise a fact issue. Topalian v.
Ehrman, 954 F.2d 1125, 1137 n. 30 (5th Cir.1992). Therefore,
“[a]lthough we consider the evidence and all reasonable
inferences to be drawn therefrom in the light most favorable
to the nonmovant, the nonmoving party may not rest on the
mere allegations or denials of its pleadings, but must respond
by setting forth specific facts indicating a genuine issue for
trial.” Goodson v. City of Corpus Christi, 202 F.3d 730, 735
(5th Cir.2000) (quoting Rushing v. Kansas City S. R.R. Co.,
185 F.3d 496, 505 (5th Cir.1999)).
III. LAW & ANALYSIS
Gene by Gene contends the claim in the Underlying
Lawsuit falls under its Advertising Injury and Personal Injury
coverage because it is for an injury that arises out of the
written publication of material that violates a person’s right of
privacy. Evanston contends the claim is excluded from that
coverage because it is brought pursuant to a statute that falls
under Section C of the Exclusion, which precludes coverage
for “any other statute, law, rule, ordinance, or regulation that
prohibits or limits the sending, transmitting, communication
or distribution of information or other material.” 5
5 Professional Liability Policy No. SM–892198, supra
note 2 at 14.
*3 The parties agree Texas law governs the rules of
insurance policy interpretation in this case. Test Masters
Educ. Servs., Inc. v. State Farm Lloyds, 791 F.3d 561, 564
(5th Cir.2015). To determine whether an insurer has a duty
to defend an insured from an underlying lawsuit, Texas
courts apply the “eight comers rule.” Id. “ ‘Under that rule,
courts look to the facts alleged within the four comers of the
[underlying] pleadings, measure them against the language
within the four comers of the insurance policy, and determine
if the facts alleged present a matter that could potentially
be covered by the insurance policy.’ ” Id. (quoting Ewing
Constr. Co. v. Amerisure Ins. Co., Inc., 420 S.W.3d 30, 33
(Tex.2014)). Courts must focus on the factual allegations
in the underlying pleadings rather than any asserted legal
theories or conclusions. Id. (citing Ewing, 420 S.W.3d at
33). Courts must “resolve ‘all doubts regarding the duty to
defend … in the insured’s favor.’ ” Id. (quoting Ewing, 420
S.W.3d at 33). If the underlying complaint “ ‘potentially
includes a covered claim, the insurer must defend the entire
suit.’ ” Id. (emphasis in original) (quoting Zurich Am. Ins. Co.
v. Nokia, Inc., 268 S.W.3d 487, 491 (Tex.2008)). The insured
has an initial burden to establish coverage under the terms
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 3
of the policy. Gilbert Texas Const., L.P. v. Underwriters
at Lloyd’s London, 327 S.W.3d 118, 124 (Tex.2010). Once
coverage is established, the insurer has the burden to show an
exclusion applies. Id.
“If only one party’s construction [of an insurance policy’s
language] is reasonable, the policy is unambiguous.” RSUI
Indemnity Co. v. The Lynd Co., 466 S.W.3d 113, 118
(Tex.2015). However, if both parties have reasonable
interpretations of the language, the policy is ambiguous.
Id. In that case, courts “must resolve the uncertainty by
adopting the construction that most favors the insured …
even if the construction urged by the insurer appears to be
more reasonable or a more accurate reflection of the parties’
intent.” Id. (emphasis added). A construction that renders
any portion of a policy illusory or “meaningless, useless, or
inexplicable” cannot be adopted by the court. Evanston Ins.
Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660, 669
n. 27 (Tex.2008).
A. Coverage under the Policies
According to the complaint in the Underlying Lawsuit,
the sole claim asserted in the case is pursuant to Alaska’s
Genetic Privacy Act. That claim is based on the factual
allegations that Gene by Gene “made the results of [the
customers’] DNA analyses publicly available on its own
websites. [Gene by Gene] also disclosed Plaintiffs sensitive
information to third-party ancestry company RootsWeb.” 6
In addition, Gene by Gene “never obtained Plaintiff’s or the
Class’s informed written consent required by [the Genetic
Privacy Act] to make the results of their DNA analyses public
or to disclose sensitive information to third-parties, including
ancestry company RootsWeb … By making the results of their
DNA analyses publicly available and otherwise disclosing
the same to any third-parties as described herein, [Gene by
Gene] violated Plaintiff’s and the Class’s statutorily-protected
rights to privacy in their genetic information as set forth in
the Genetic Privacy Act … as well as their common law rights
to privacy.” 7
6 Underlying Suit Complaint, supra note 4 at 13.
7 Underlying Suit Complaint, supra note 4 at 13–14.
The Professional Liability policies provide coverage for
“Personal Injury and Advertising Injury Liability.” 8 Under
the Professional Liability policies, “Advertising injury”
means “injury … arising out of oral or written publication
of material that libels or slanders a person or organization
or a person’s or organization’s products, goods or operations
or other defamatory or disparaging material, occurring in the
course of the Named Insured’s Advertisement.” 9 “Personal
injury” is defined to include “oral or written publication
of material that violates a person’s right of privacy.” 10
Comparing the factual allegations within the four corners of
the Underlying Lawsuit and the four comers of the Policies,
the claim in the Underlying Suit falls within the definition of
Personal Injury because it includes the publication of material
—the DNA analysis—that allegedly violates a person’s right
to privacy.
8 Professional Liability Policy No. SM–892198, supra
note 2 at 2; Professional Liability Policy No. SM–
898899, supra note 2 at 2.
9 Professional Liability Policy No. SM–892198, supra
note 2 at 27; Professional Liability Policy No. SM–
898899, supra note 2 at 45.
10 Professional Liability Policy No. SM–892198, supra
note 2 at 30; Professional Liability Policy No. SM–
898899, supra note 2 at 45.
*4 The Professional Liability policies define “damages”
as “the monetary portion of any judgment, award or
settlement.” 11 Damages do not include “punitive or
exemplary damages … taxes, criminal or civil fines, or
attorney’s fees or penalties imposed by law … sanctions …
or the return of or restitution of fees, profits or charges for
services rendered.” 12 Fines, penalties, and taxes are “limited
to payments made to the government” and do not include
statutory damages that make up the monetary portion of a
judgment. Flagship Credit Corp. v. Indian Harbor Ins. Co.,
481 Fed.Appx. 907, 912 (5th Cir.2012). The relief requested
in the underlying lawsuit includes “an award of actual and
statutory damages of $5,000.” 13 This request falls under the
Policies’ definition of damages. Accordingly, the Court finds
Gene by Gene, as the insured, has met its burden to establish
coverage under the terms of the policy.
11 Professional Liability Policy No. SM–892198, supra
note 2 at 19; Professional Liability Policy No. SM–
898899, supra note 2 at 15–16.
12 Professional Liability Policy No. SM–892198, supra
note 2 at 19.
13 Underlying Suit Complaint, supra note 4 at 15.
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 4
B. Applicability of Exclusion
The Exclusion at issue in this case, included in all four
policies, precludes coverage for a claim based upon or arising
out of any violation of:
(a) the Telephone Consumer Protection Act of 1991
(TCPA) and amendments thereto or any similar or
related federal or state statute, law, rule, ordinance or
regulation;
(b) the CAN–SPAM Act of 2003 and amendments thereto
or any similar or related federal or state statute, law, rule,
ordinance, or regulation; or
(c) any other statute, law, rule, ordinance, or regulation
that prohibits or limits the sending, transmitting,
communication or distribution of information or other
material. 14
Evanston contends the claim in the Underlying Lawsuit falls
under the plain language of Section C of the Exclusion
because it is brought pursuant to a statute—the Genetic
Privacy Act—that prohibits the transmitting, communication
or distribution of information or other material—namely,
the public disclosure of a person’s DNA analysis on Gene
by Gene’s website and to other third-parties like RootsWeb.
Gene by Gene contends this construction of Section C is too
broad and is unreasonable in light the rest of the Exclusion
and the entire policy.
14 Professional Liability Policy No. SM–892198, supra
note 2 at 14; Excess Liability Policy No. SM–8955870,
supra note 3 at 5; Professional Liability Policy No. SM–
898899, supra note 2 at 7; Excess Liability Policy No.
XS–800378, supra note 3 at 12.
Specifically, Gene by Gene contends the canon of
construction of ejusdem generis should apply to Section
C. According to that canon, “Where general words follow
specific words in a statutory enumeration, the general words
are [usually] construed to embrace only objects similar
in nature to those objects enumerated by the preceding
specific words.” Yates v. United States, –––U.S. ––––, 135
S.Ct. 1074, 1086, 191 L.Ed.2d 64 (2015) (alteration in
original). The Telephone Consumer Protection Act (“TCPA”)
referenced in Section A of the Exclusion generally regulates
the use of unsolicited telephone calls and fax transmissions
to consumers. 15 Similarly, the CAN–SPAM Act of 2003
(“CAN–SPAM”) referenced in Section B of the Exclusion
generally regulates the use of unsolicited, fraudulent, abusive,
and deceptive emails to consumers. 16 Accordingly, Gene by
Gene contends Section C also refers generally to other forms
of unsolicited communication to consumers “that intrude[ ]
into one’s seclusion.” 17
15 See 47 U.S.C. § 227; Mims v. Arrow Fin. Servs., LLC,
–––U.S. ––––, 132 S.Ct. 740, 745, 181 L.Ed.2d 881
(2012).
16 See 15 U.S.C. §§ 7703, 7704; White Buffalo Ventures,
LLC v. Univ. of Tex. at Austin, 420 F.3d 366, 371 (5th
Cir.2005).
17 Defendant Gene by Gene Ltd.’s Motion for Summary
Judgment, Document No. 21 at 10.
*5 In response, Evanston contends Gene by Gene’s reliance
on ejusdem generis is misplaced because the “intent”
of each statute is different. 18 For example, the TCPA
regulates “unsolicited, automated” telephone calls and fax
transmissions, while the CAN–SPAM Act regulates “false or
misleading unsolicited e-mail.” 19 However, while the two
statutes regulate different forms of communication, the intent
—to protect consumers from unsolicited communication that
invades their seclusion—is the same. In addition, Gene by
Gene’s construction does not render the “or any similar
or related” portions of Sections A and B redundant. It is
reasonable to construe that language as meaning any similar
or related statutes or laws that govern communication over
the phone or fax machine (Section A) or email (Section B),
while Section C covers other, similarly unsolicited forms of
communication that may be regulated by statute, law, rule,
ordinance, or regulation. Accordingly, the Court finds Gene
by Gene’s construction of the Exclusion reasonable. 20
18 Evanston Insurance Company’s Response to Gene
by Gene, Ltd.’s Motion for Summary Judgment and
Memorandum in Support Thereof Document No. 25 at
13.
19 Evanston Insurance Company’s Response to Gene
by Gene, Ltd.’s Motion for Summary Judgment and
Memorandum in Support Thereof, Document No. 25 at
13.
20 In its motion for summary judgment, Gene by Gene
contends Texas Department of Insurance (“TDI”) orders
support its construction of the Exclusion, citing to,
inter alia, approved forms for exclusions concerning the
TCPA and CAN–SPAM Act. Defendant Gene by Gene
Ltd.’s Motion for Summary Judgment, Document No. 21
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 5
at 12–19. In response, Evanston contends the evidence
Gene by Gene cites are not actually final “orders” of the
TDI, but are “correspondence and certificates from the
TDI which show certain endorsements were filed with
that administrative agency for the purpose of obtaining
use approval.” Evanston Insurance Company’s Response
to Gene by Gene, Ltd.’s Motion for Summary Judgment
and Memorandum in Support Thereof Document No. 25
at 14. Because the Court is able to determine that the
Exclusion is at the very least ambiguous and that Gene
by Gene’s construction of it is reasonable without relying
on the TDI evidence, the Court need not address whether
the TDI documents are in fact final “orders.”
In addition, Gene by Gene contends Evanston’s construction
is unreasonable because it would render illusory the
Advertising Injury coverage, which includes claims arising
out of the written publication of material that libels or slanders
a person, and the Personal Injury coverage, which includes
claims arising out of the written publication of material that
violates a person’s right to privacy. In response, Evanston
contends
the policies would still apply to the
many more traditional defamation and
advertising injuries so long as there
is [no] statute, law, rule, ordinance
or regulation that applied to the
type of information being published.
Thus, common law claims for [libel],
slander, invasion of privacy and other
forms of defamation would still be
covered under the advertising injury
provisions of the policies as long as
there is no statute prohibiting the act
complained about.” 21
However, as Gene by Gene points out, common law claims,
while not codified in a statute, are still based on “law” and
thus may still be excluded under Evanston’s construction. 22
In addition, Gene by Gene points to states such as Texas
where the “traditional defamation” injuries, like libel and
false disparagement of goods, services, or business are in fact
regulated by statute. 23 In that case, Evanston’s construction
would render a policy that explicitly includes coverage
for libel illusory. However, even if the Court also found
Evanston’s construction reasonable, the Exclusion would be
ambiguous and the Court would still be required to apply
the alternative reasonable construction propagated by the
insured, Gene by Gene.
21 Evanston Insurance Company’s Response to Gene
by Gene, Ltd.’s Motion for Summary Judgment and
Memorandum in Support Thereof, Document No. 25 at
15 (emphasis added).
22 See COMMON LAW, Black’s Law Dictionary (10th
ed.2014) (defining “common law” as “the body of law
derived from judicial decisions, rather than from statutes
or constitutions”).
23 See TEX. CIV. PRAC. & REM. CODE § 73.001, et
seq (elements of libel); TEX. BUS. & COM. CODE §
17.46(b)(8) (Texas Deceptive Trade Practices Act).
*6 Applying the claim in the Underlying Suit to the
Exclusion as construed by Gene by Gene, the Court finds
the claim does not fall under the Exclusion. The Genetic
Privacy Act does not concern unsolicited communication to
consumers, but instead regulates the disclosure of a person’s
DNA analysis. The facts upon which the claim is based
deal solely with Gene by Gene’s alleged improper disclosure
of DNA test results on its public website and to thirdparties.
The facts alleged in the complaint do not address
the type of unsolicited seclusion invasion contemplated by
the Exclusion. Accordingly, the Underlying Lawsuit is not
excluded from Gene by Gene’s policy coverage. Because
Gene by Gene has met its burden to establish that the claim
in the Underlying Lawsuit is covered by the Policies and
Evanston did not establish that the claim is excluded, the
Court finds Evanston has a duty to defend and indemnify
Gene by Gene in the Underlying Lawsuit.
C. Counterclaims
Gene by Gene alleges Evanston breached its contract when
it refused to defend and indemnify Gene by Gene pursuant
to the Policies. The Court has already determined Evanston
had a duty to defend and indemnify Gene by Gene under the
Policies. 24 Therefore, Evanston breached its contract when it
refused coverage. Accordingly, summary judgment is granted
as to Gene by Gene’s breach of contract counterclaim.
24 See also Professional Liability Policy No. SM–892198,
supra note 2 at 1; Professional Liability Policy No. SM–
898899, supra note 2 at 1.
Gene by Gene alleges Evanston violated Chapter 542 of the
Texas Insurance Code when it delayed in paying Gene by
Gene’s defense costs. That chapter “may be applied when an
insurer wrongfully refuses to promptly pay a defense benefit
owed to the insured.” Lamar Homes, Inc. v. Mid–Continent
Cas. Co., 242 S.W.3d 1, 20 (Tex.2007). See also Trammell
Evanston Insurance Company v. Gene by Gene, Ltd., — F.Supp.3d —- (2016)
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 6
Crow Residential Co. v. Va. Sur. Co., Inc., 643 F.Supp.2d
844, 859 (N.D.Tex.2008) (Fitzwater, J.) (holding an insurer
is liable under the statute when “it wrongfully rejects its
defense obligation.”). An insurer is liable under the statute if
it wrongfully delays payment for more than 60 days. TEX.
INS. CODE § 542.058. The Court has already determined
Evanston had a duty to defend under the Policies. 25 Evanston
delayed more than 60 days to pay Gene by Gene’s defense.
Accordingly, Evanston is liable under Chapter 542 of the
Texas Insurance Code and thus summary judgment is granted
as to Gene by Gene’s counterclaim.
25 See also Professional Liability Policy No. SM–892198,
supra note 2 at 1; Professional Liability Policy No. SM–
898899, supra note 2 at 1.
IV. CONCLUSION
Based on the foregoing, the Court hereby
ORDERS that Defendant Gene by Gene Ltd.’s Motion for
Summary Judgment (Document No. 21) is GRANTED. The
Court further
ORDERS that Defendant Gene by Gene must file its brief
and documentation regarding the calculation of its damages,
attorneys’ fees, and prejudgment interest by January 27,
2016. The Court further
ORDERS that Plaintiff Evanston must submit its response to
Defendant Gene by Gene’s brief and calculation by February
17, 2016.
All Citations
— F.Supp.3d —-, 2016 WL 102294

 

 

 

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Fort Worth, Texas civil litigation attorneys in Tarrant County who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Martindale AVtexas[2]

OSHA levies $80K in Fines Against Texas Roofing Company–Texas Roofing Contractor Litigation

OSHA levies $80K in fines for Quick Roofing for repeatedly exposing Conroe, Texas, workers to falls, ladder hazards, eye injuries | United States Department of Labor

OSHA levies $80K in fines for Quick Roofing for repeatedly exposing Conroe, Texas, workers to falls, ladder hazards, eye injuries
Employer has been cited six times in three years for same or similar violations

Employer name: Quick Roofing LLC

Inspection Site: 628 Maple Point Drive, Conroe, Texas

Citations issued: April 14, 2016

Investigation findings: On Nov. 23, 2015, after witnessing three roofers at work at a site in Conroe not using fall protection systems, U.S. Department of Labor Occupational Safety and Health Administration inspectors began an investigation of their employer, Quick Roofing LLC. The inspectors found one serious and four repeat violations dealing with fall, ladder, and eye hazards. The Texas roofing company has an extensive history with OSHA for repeatedly exposing workers to fall and ladder hazards. The agency previously cited Quick Roofing for the same or similar violations in:

  • Dallas in December 2015
  • San Antonio in October 2015
  • Austin in September 2015
  • Fort Worth in July 2014 and February 2013

Proposed Penalties: $80,280

Quote: “Falls from roofs and ladders can debilitate or kill workers,” said Joann Figueroa, OSHA’s area director in the Houston North office. “Quick Roofing’s continued history of ignoring federal safety standards must end. OSHA will not tolerate employers that repeatedly ignore commonsense safety requirements.”

Link to the citations:http://www.osha.gov/ooc/citations/QuickRoofingLLC_1107565_0414_16.pdf

Background: In 2014, more than 800 workers died after falling. From May 2-6, 2016, construction employers and employees across the country will stop work for a few hours to learn more about how to recognize and prevent fall hazards. The National Safety Stand Down to Prevent Falls in Construction web site has information, materials and programs designed to help save lives.

Quick Roofing has 120 workers at its headquarters in Kennedale and has facilities in Austin, San Antonio, and Katy. The company has 15 business days from receipt of its citations to comply, request an informal conference with OSHA’s area director, or contest the citations and penalties before the independent Occupational Safety and Health Review Commission.

 

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Fort Worth, Texas civil litigation attorneys in Tarrant County who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Martindale AVtexas[2]

Standard Homeowner’s Policy Market Value and Damages Issues Raised in Texas Insurance Defense Litigation

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 14-51301
CLAUDIA AYOUB; GERALD C. AYOUB,
Plaintiffs – Appellants
v.
CHUBB LLOYDS INSURANCE COMPANY OF TEXAS,
Defendant – Appellee
Appeal from the United States District Court for the Western District of Texas USDC No. 3:13-CV-58
Before DENNIS and COSTA, Circuit Judges, and ENGELHARDT,* District Judge.
GREGG COSTA, Circuit Judge:**
The principal question presented in this dispute over a homeowner’s insurance policy is whether a section of the policy setting forth a “reconstruction cost less depreciation” standard for dwelling loss is a coverage provision, on which the insured has the burden of proof, or a limitation of liability provision, on which the insurer has the burden. We also have to decide
* Chief Judge of the Eastern District of Louisiana, sitting by designation.
** Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
United States Court of Appeals
Fifth Circuit
FILED
January 28, 2016
Lyle W. Cayce
Clerk
Case: 14-51301 Document: 00513359490 Page: 1 Date Filed: 01/28/2016
No. 14-51301
2
how insureds can prove market value under Texas law for personal items which may have no such thing. For the reasons discussed below, we find that summary judgment in favor of the insurer was not warranted on either issue.
I.
Claudia and Gerald Ayoub own a home in El Paso. Prior to the loss in this case, it was worth in the neighborhood of $2 million. The home was insured under a “Texas Standard Homeowners Policy” issued by Chubb Lloyds Insurance Company of Texas. Coverage A of the Policy insured the dwelling for up to $2,511,000. Coverage B insured personal property in the home for up to $1,506,600. At additional cost, the Ayoubs purchased replacement cost endorsements for both their dwelling and personal property.
The Ayoubs’ home was damaged when pipes burst during a severe cold front. The Ayoubs notified Chubb, which began investigating the claim and made payments totaling close to $1 million for repairs to the dwelling and losses to personal property. A disagreement arose between Chubb and the Ayoubs regarding the full extent of the Ayoubs’ covered loss. The Ayoubs sued Chubb in Texas state court to force additional payment under the Policy. In addition to their contract claims, the Ayoubs asserted statutory claims for unfair claim settlement practices and deceptive trade practices.
Chubb removed the case to federal court. After discovery, Chubb moved to exclude the testimony of two of the Ayoubs’ witnesses: David Fix, an expert on dwelling replacement cost, and Mr. Ayoub. The district court struck as unreliable Fix’s depreciation opinion, which was based on a figure Fix received secondhand (from the Ayoubs’ insurance adjuster) and could not justify. The court refused to strike Mr. Ayoub’s lay opinion “as to the value of his own property” because the objections raised by Chubb went to “its weight and credibility” rather than its admissibility. Case: 14-51301 Document: 00513359490 Page: 2 Date Filed: 01/28/2016
No. 14-51301
3
Chubb then moved for summary judgment. The district court granted summary judgment on the dwelling claim because it found that the Policy obligated the Ayoubs to establish depreciation, but their only depreciation evidence had been struck as unreliable. The district court reached a similar conclusion as to the personal property claim. It found that the Ayoubs bore the burden of establishing “actual cash value” of the personal property, including depreciation, and the only evidence—Mr. Ayoub’s lay opinion testimony—concerned replacement cost. Finally, the district court granted summary judgment on the statutory claims because they were “based on the alleged breach of the insurance contract.” The Ayoubs timely appealed the summary judgment order.1
II.
Summary judgment is appropriate when “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” FED. R. CIV. P. 56(a). We review the district court’s grant of summary judgment de novo, construing all facts and inferences in the light most favorable to the nonmoving party. See EEOC v. Chevron Phillips Chem. Co., 570 F.3d 606, 615 (5th Cir. 2009). Because the proper interpretation of an insurance policy presents a legal question, not a factual one, the district court’s interpretations of the Policy are also reviewed de novo. See Martco Ltd. P’ship v. Wellons, Inc., 588 F.3d 864, 878 (5th Cir. 2009).
1 The Ayoubs also appealed the district court’s orders excluding Fix’s depreciation testimony. We find that they have forfeited that issue. The Ayoubs included the relevant orders in their notice of appeal below, and they list the admissibility of Fix’s opinion in their statement of issues on appeal. But they have not explained how the court’s ruling allegedly conflicted with the Federal Rules of Evidence, Texas law, or our precedent. Hinting at error is not enough to garner appellate review. See United States v. Scroggins, 599 F.3d 433, 446–47 (5th Cir. 2010) (finding issue not “adequately presented” on appeal when the issue was “mentioned in the questions presented and the summary of the argument, but the body of the brief [did] not discuss it in any depth”). Case: 14-51301 Document: 00513359490 Page: 3 Date Filed: 01/28/2016
No. 14-51301
4
A. Dwelling claim
The first issue is whether the Ayoubs or Chubb bore the burden of proving depreciation to the dwelling. The policy’s “Verified Replacement Cost Endorsement” states:
The district court interpreted the last sentence of Item 4(b) as a “precondition to coverage” which the Ayoubs had to prove.
Under Texas law, an insured suing for breach of an insurance agreement bears the initial burden of proving that his loss results from a covered risk. See Guaranty Nat’l Ins. Co. v. Vic Mfg. Co., 143 F.3d 192, 193 (5th Cir. 1998); Employers Cas. Co. v. Block, 744 S.W.2d 940, 944 (Tex. 1988) disapproved of for other reasons by State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996). But if the insurance policy contains exclusions to coverage, it is the insurer’s burden to prove the exclusion applies. See Guaranty Nat’l, 143 F.3d at 193. Case: 14-51301 Document: 00513359490 Page: 4 Date Filed: 01/28/2016
No. 14-51301
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Similar rules govern an insured’s damages. The insured has the burden of proving the extent of his loss. See Block v. Employers Cas. Co., 723 S.W.2d 173, 178 (Tex. App.—San Antonio 1986), aff’d, 744 S.W.2d 940 (Tex. 1988); see also 12 Lee R. Russ & Thomas F. Segalla, COUCH ON INSURANCE § 175:92 (3d ed. 2005) (“In accord with general principles governing the law of damages, there can be no recovery for items where their existence and value are not proved. Consequently, the insured bears the burden of proof under a property insurance policy . . . .” (emphasis added)). And if the insurance policy defines how loss will be measured, the insured is “relegated” to that measure. Cf. Crisp v. Security Nat’l Ins. Co., 369 S.W.2d 326, 327–28 (Tex. 1963) (finding that certain policy language “does not establish a contractual measure of damages to which the insured must be relegated”); see also U.S. Fire Ins. Co. v. Stricklin, 556 S.W.2d 575, 581–82 (Tex. App.—Dallas 1977, writ ref’d n.r.e.) (finding that jury instruction explaining “actual cash value” was “misleading” because it did not obligate the jury to “follow the contractual measure of damages”). But a contractual limitation of liability—that is, a cap on what the insurer will have to pay out, independent of the value of the loss—falls upon the insurer to plead and prove. See Manhattan Fire & Marine Ins. Co. v. Melton, 329 S.W.2d 338, 339–45 (Tex. App.—Texarkana 1959, writ ref’d n.r.e.); see also Imperial Ins. Co. v. Nat’l Homes Acceptance Corp., 626 S.W.2d 327, 328–30 (Tex. App.—Tyler 1981, writ ref’d n.r.e.) (holding that trial court properly allowed insureds to recover repair costs despite policy language which limited insurer’s liability to “actual cash value of the property at the time of loss” in light of insurer’s failure to “raise the issue of the propriety of the measure of damages until it moved for an instructed verdict”).
Underlying these rules is recognition that the value of a loss can be expressed a number of different ways. As relevant here, two possible measurements are market value and repair or replacement cost. 12 COUCH ON Case: 14-51301 Document: 00513359490 Page: 5 Date Filed: 01/28/2016
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INSURANCE § 175:24. Which particular measurement most faithfully compensates the insured for his actual loss—no more and no less—can be a “controversial question.” See id. § 175:5; see also Crisp, 369 S.W.2d at 328 (“Indemnity is the basis and foundation of insurance coverage not to exceed the amount of the policy, the objective being that the insured should neither reap economic gain nor incur a loss if adequately insured.”). A contractual measure of damages is one way of settling the controversy in advance. A limitation of liability can serve the same function, by indicating that the insurer will pay only the smallest of a number of different possible measurements. See, e.g., Imperial Ins., 626 S.W.2d at 329 (stating that liability “shall not exceed” (1) actual cash value with deduction for depreciation, (2) repair or replacement costs with material of like kind and quality, or (3) policy limit).
This is not to say that the absence of a contractual measure of damages gives the insured absolute freedom to decide how to measure his loss. Texas law provides some default rules. In the case of a “partial loss under an insurance contract insuring a dwelling”—the loss at issue in this case—the “ordinary measure of damages . . . is the difference between the value of the property immediately before and immediately after the loss, but within the amount of the policy.” Imperial Ins. Co., 626 S.W.2d at 329–30; see also Custom Controls Co. v. Ranger Ins., 652 S.W.2d 449, 452 (Tex. App.—Houston [1st Dist.] 1983, no writ) (“[T]he common law measure of damages . . . is the market value immediately before and immediately after the loss.”).
Whether the last sentence of Item 4(b) of the Verified Replacement Cost Endorsement sets forth a contractual measure of damages that overrides the default common law standard or a limitation of liability is not an easy question. No Texas court has addressed a policy provision that is substantially similar in its overall structure and language to this one. Chubb’s reading of the sentence as a measure of damage rather than a cap on coverage makes some
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sense when the sentence is viewed in isolation: “If you have a covered partial loss to your dwelling or an other structure, and do not begin to repair, replace or rebuild the lost or damaged property within 180 days from the date of loss, we will only pay the reconstruction cost less depreciation.” The sentence is couched in terms of what Chubb will pay, rather than what Chubb’s payment cannot exceed (although this seems a distinction without a difference when the sentence contains only one measurement of loss). Also compelling, the Ayoubs purchased the endorsement for an additional premium, and it is explicitly titled “replacement cost.” This suggests that the endorsement offers a more valuable measure of damages, purchased by the Ayoubs for the express purpose of having recourse to it. See 12 COUCH ON INSURANCE § 176:56 (“[W]hile a standard policy compensating an insured for the actual cash value of damaged or destroyed property makes the insured responsible for bearing the cash difference necessary to replace old property with new property, replacement cost insurance allows recovery for the actual value of property at the time of loss, without deduction for deterioration, obsolescence, and similar depreciation of the property’s value.”).
We are persuaded, however, that Chubb’s interpretation is not reasonable in light of the Verified Replacement Cost Endorsement as a whole. See RSUI Indemnity Co v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015) (“If only one party’s construction [of the policy language] is reasonable, the policy is unambiguous and we will adopt that party’s construction.”). In reaching this conclusion, we heed the Texas Supreme Court’s admonition not to “isolat[e] from its surroundings or consider[] apart from other provisions a single phrase, sentence, or section of a contract.” State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995).
The first sentence of the endorsement’s dwelling provision (Item 4(b)) begins with limitation language: “Our limit of liability for covered losses . . . .” Case: 14-51301 Document: 00513359490 Page: 7 Date Filed: 01/28/2016
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Such language is similar to policy language that has been construed by Texas courts as limitations of liability. Cf. Crisp, 369 S.W.2d at 328 (stating that “liability hereunder shall not exceed . . .” (emphasis added)); Imperial Ins. Co., 626 S.W.2d at 329 (same); Manhattan Fire, 329 S.W.2d at 340 (same). And Item 4(b) follows another section of the endorsement—Item 4(a), governing losses to personal property—that is undoubtedly a limitation provision under Texas case law.
2 Compare Section I – Conditions, Item 4(a) (“Our limit of liability and payment for covered losses to personal property . . . will not exceed the smallest of the following: (1) the actual cash value at the time of the loss determined with proper deduction for depreciation; (2) the cost to repair or replace the damaged property with material of like kind and quality, with proper deduction for depreciation; or (3) the specified limit of liability of the policy.”) with, e.g., Imperial Ins. Co., 626 S.W.2d at 329 (“[L]iability hereunder shall not exceed the actual cash value of the property at the time of loss, ascertained with proper deduction for depreciation; nor shall it exceed the amount it would cost to repair or replace the property with material of like kind and quality within a reasonable time after the loss, without allowance for any increased cost of repair or reconstruction . . .; nor shall it exceed the interest of the insured, or the specific amounts shown under ‘Amount of Insurance.’”). Indeed, Chubb acknowledged at oral argument that Item 4(a) and all but the last sentence in Item 4(b) are limits of liability. In light of this, we are inclined to construe the final sentence of Item 4 consistently with its other parts.
2 Item 4(a) of the Verified Replacement Cost Endorsement is superseded by the Replacement of Personal Property endorsement, discussed in the next section. But it remains instructive for determining the purpose of the Verified Replacement Cost Endorsement as a whole. Case: 14-51301 Document: 00513359490 Page: 8 Date Filed: 01/28/2016
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Even if this were not our inclination, Chubb’s interpretation of the final sentence of Item 4(b) gives the Verified Replacement Cost Endorsement a perplexing structure. It would be unusual for policy language to first limit the insurance company’s overall liability and then set a contractual measure of damages controlling only a subset of potential covered losses (partial losses for which repairs were not timely commenced).3 Odder still would be reading the final sentence in Item 4(b) as placing a burden on the insurer in its first clause, and a burden on the insured in the next clause (at least absent any express language setting forth the contrasting burdens). But that is what Chubb’s reading of the endorsement would require us to do. The “reconstruction cost less depreciation” language is only implicated if the policyholder does not “begin to repair, replace or rebuild the lost or damaged property within 180 days . . . .” Although it is undisputed for purposes of this appeal that the Ayoubs did not commence repairs within 180 days, that fact will be disputed in a number of cases. It makes no sense to put the onus on the insured to prove that they did not begin repairs on the dwelling within 180 days in order to have access to a lesser recovery—a burden they would never seek.
Chubb’s interpretation of the last sentence of Item 4 as a contractual measure of damages thus creates more questions than it answers. We conclude that the better reading of the policy is that all components of Item 4 are limits
3 Consider the analogy to coverage grants and exclusions described above on page 4. One would expect a policy to begin by defining what it insures, and then carve-out any exclusions. See generally 14 TEX. JUR. 3d Contracts § 249 (2015) (“An exception . . . takes out of a contract that which, but for the exception, would otherwise be included in it. . . . Ordinarily, exceptions . . . are construed as limitations on the language in the agreement that precedes them.” (emphasis added)). And the Policy here does exactly that; it starts with the coverage grants and then establishes exclusions in a separate subsection titled “Exclusions.” This sequence—from affirmative coverage to negative carve-outs—makes more sense than the structure of the Verified Replacement Cost Endorsement proposed by Chubb. Case: 14-51301 Document: 00513359490 Page: 9 Date Filed: 01/28/2016
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of liability on which Chubb bore the burden of proof.
4 See Italian Cowboy Partners, Ltd. v. Prudential Ins. Co. of Am., 341 S.W.3d 323, 333 (Tex. 2011) (explaining that the task of courts is to “examine and consider the entire writing in an effort to harmonize and give effect to all [of its] provisions . . .” (quoting J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex. 2003)).
B. Personal property claim
The Ayoubs also purchased an endorsement entitled “Replacement of Personal Property.” The endorsement states that the Ayoubs “may” seek reimbursement “on a replacement cost basis” for items actually “repair[ed], restore[d], or replace[d]” within a year of the loss. Otherwise, Chubb will pay the “actual cash value” of the damaged property. The full text of the endorsement is below:
4 At oral argument before this court, the Ayoubs indicated that they would need to prove the common law measure of damages at trial: the difference in market value of their home immediately before and immediately after the loss-causing event. We express no opinion whether the Ayoubs have the evidence they need to prove that measure of damages. Case: 14-51301 Document: 00513359490 Page: 10 Date Filed: 01/28/2016
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As with the Verified Replacement Cost Endorsement, the parties disagree whether the Replacement of Personal Property endorsement is a limitation of liability that Chubb needed to invoke and establish, or a measure of damages that the Ayoubs had to prove. The Replacement of Personal Property endorsement is unlike any policy language addressed in Texas case law that we have seen. And it is inconsistently phrased in terms of Chubb’s “limit of liability,” what Chubb will or will not pay, and what the Ayoubs may claim. Its scattershot and somewhat redundant organization makes it much Case: 14-51301 Document: 00513359490 Page: 11 Date Filed: 01/28/2016
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harder to categorize than the Verified Replacement Cost Endorsement. Because we find that summary judgment should not have been granted on this claim for another reason, as described below, we will assume that the Replacement of Personal Property endorsement defines a mandatory measure of damages for personal property not fixed or replaced within a year: “actual cash value,” with a deduction for depreciation.
5
It is undisputed that the Ayoubs did not fix or replace most of the damaged personal property within the one-year deadline. The district court granted summary judgment on this claim because the Ayoubs’ only evidence of underpayment was an inventory prepared by Mr. Ayoub reflecting replacement cost of the affected items (clothing, housewares, and furnishings). The court found the inventory to be no evidence of “actual cash value of the items lost.”
The problem with the district court’s conclusion is that “actual cash value” means “market value,” Mew v. J & C Galleries, Inc., 564 S.W.2d 377, 377 (Tex. 1978), and Texas law acknowledges that personal effects have “no market value in the ordinary meaning of that term.” Crisp, 369 S.W.2d at 328. Texas law thus provides considerable leeway for establishing their value. A variety of representative values are probative—including “market[,] reproduction or replacement values.” Id. at 329 (alteration and emphasis added). “The trier of facts may consider original cost and cost of replacement, the opinions upon value given by qualified witnesses, the gainful uses to which
5 The endorsement does not explicitly state that “actual cash value” includes a deduction for depreciation. But it is the clear intent of the endorsement, which elsewhere defines “replacement cost” (the alternative to “actual cash value”) as not including “a deduction for depreciation.” See 12 COUCH ON INSURANCE § 178:5 (“Absent an express policy provision, the intent of the parties as to whether depreciation was intended to be included can be derived from consideration of the policy as a whole, as for instance, where the policy, for a higher premium . . ., expressly excludes depreciation from a calculation of replacement cost, but is silent as to its deduction from actual cash value, implying that depreciation should be considered as to the latter valuation[.]”). Case: 14-51301 Document: 00513359490 Page: 12 Date Filed: 01/28/2016
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the property has been put as well as any other facts reasonably tending to shed light upon the subject.” Id. (emphasis added). The overarching inquiry is “the actual worth or value of the articles to the owner for use in the condition in which they were at the time of the [loss] excluding any fanciful or sentimental considerations.” Id. at 328; see also Allstate Ins. Co. v. Chance, 590 S.W.2d 703, 704 (Tex. 1979) (“[T]he rule is that where household goods have no recognized market value, the trier of fact may consider, in determining the actual value to the owner at time of loss, the original cost, cost of replacement, opinions of qualified witnesses, including the owner, the use to which the property was put, as well as any other reasonably relevant facts.”).
Given the broad range of evidence that is probative on actual cash value for personal property like that at issue, Mr. Ayoub’s assessment of replacement costs was some evidence of actual cash value. Summary judgment should not have been granted on this basis.
C. Statutory claims
Finally, the district court granted summary judgment on the Ayoubs’ statutory claims because they were “based on the alleged breach of the insurance contract” that the court had rejected. As explained above, we believe that summary judgment should not have been granted on the Ayoubs’ contractual claims. Our ruling undercuts the district court’s stated rationale for granting summary judgment on the Ayoubs’ statutory claims.
We acknowledge the uphill battle that the Ayoubs face on these claims even if they ultimately prove that Chubb breached the contract. Under Texas law, “[e]vidence establishing only a bona fide coverage dispute does not demonstrate bad faith.” State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex. 1998). It may well be that, if this case proceeds to trial, the Ayoubs’ evidence shows nothing more than a legitimate dispute over whether Chubb owed more than the nearly $1 million it has already paid. If so, the district
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court may be justified in summarily disposing of the Ayoubs’ bad faith claims. See Weiser-Brown Op. Co. v. St. Paul Surplus Lines Ins. Co., 801 F.3d 512, 525–27 (5th Cir. 2015) (affirming district court’s decision to enter judgment as a matter of law on insured’s bad faith claims during a jury trial which resulted in verdict for insured on the coverage dispute). But the arguments presented to us in this appeal have not explained in any detail why Chubb refused further payment on the claims, much less why its rationale was or was not reasonable. As such, we believe the prudent course of action is to remand and allow the district court to address this issue if it arises in the normal course.
III.
We REVERSE the district court’s grant of summary judgment in favor of Chubb on the Ayoubs’ dwelling, personal property, and statutory claims and REMAND for further proceedings. Case: 14-51301 Document: 00513359490 Page: 14 Date Filed: 01/28/2016

 

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Martindale AVtexas[2]

Uninsured Motorist Insurance Policy Claim Defense Evidence Issues in Fort Worth Litigation

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-15-00252-CV
IN RE STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY
RELATOR
———-
ORIGINAL PROCEEDING
TRIAL COURT NO. 153-258960-12
———-
OPINION1
———-
Relator State Farm Mutual Auto Insurance Company has filed a petition for writ of mandamus asking this court to compel the Honorable Susan McCoy, presiding judge of the 153rd District Court of Tarrant County, to set aside her January 30, 2015 order granting the motion for new trial filed by real parties in interest Scott Newell and Heidi Newell and to reinstate the trial court’s
1Tex. R. App. P. 52.8(d).
2
September 30, 2014 final judgment. See Tex. Gov’t Code Ann. § 22.221 (West 2004), see also Tex. R. App. P. 52. For the reasons explained below, we conditionally grant the petition.
I. Background
The Newells sued State Farm, their insurer, for underinsured motorist benefits arising from a June 2009 car accident. Scott claimed the injuries he sustained in the accident necessitated surgery in December 2009. The parties stipulated that the negligence of the other driver, Terry Cox, caused the accident. The parties also stipulated that Scott was insured under a State Farm auto policy that provided underinsured motorist coverage. The remaining issues were tried to a jury.
The accident
Scott testified that on June 24, 2009, he stopped his vehicle at a red light at the intersection of North Beach Street and Fossil Vista Road in Fort Worth. Cox’s vehicle was initially stopped five to six feet behind him, but then Scott felt an impact from the rear. Scott described the impact as a “jolt” and testified, “It wasn’t ragely intensive or anything, but I knew I had been hit by another car.” Scott was wearing a seatbelt at the time of the accident and testified that he did not hit the steering wheel or “fly around in the vehicle” as a result of the collision.
Scott got out of his car and saw that Cox’s car was still in contact with his car. After Cox backed up, Scott “could see that there was at least some mild
3
damage to [his] vehicle.” Scott admitted that the damage to the vehicle was minor, and he did not feel like he was injured. Scott drove his vehicle to work at Dallas Love Field and worked for the rest of the day without any problems.
Cox, who testified through deposition at trial, stated that while he was stopped at the light, he looked to his left, “thought [he] saw some movement like the traffic was getting ready to go,” and while he was turning back to look forward, he felt a bump. According to Cox, his foot was on the brake at the time, and he did not recall lessening the pressure on the brake. He was adamant he did not accelerate. At first, Cox thought Scott’s car had rolled backwards into Cox’s car. Cox conceded that he was not sure if Scott’s vehicle rolled backwards and that it was possible that Cox’s vehicle rolled forward. Cox testified that Scott claimed there was a dent or a crease in his bumper to the left of the license plate, but Cox saw no damage to Scott’s car. Cox’s vehicle was not damaged. The driver’s crash report completed by Cox on the day of the accident stated that he was “stopped at the traffic signal behind [Scott’s vehicle]. It seemed to roll backwards as [Cox] crept forward and [Cox] felt a very slight bump. No damage was done to either vehicle.”
Mike Rangel, a licensed professional engineer in Texas and a licensed and accredited accident reconstructionist, testified as State Farm’s accident reconstruction expert. In formulating his opinions, Rangel reviewed a photograph
4
of the post-accident position of the vehicles,2 photographs of the post-accident condition of vehicles, the drivers’ deposition testimonies, the driver’s crash report completed by Cox,3 the repair estimate for Scott’s car, the vehicles’ specifications, and crash-test data for the two vehicles. Rangel opined that the accident’s impact or closing speed was less than four miles per hour, meaning that Cox hit Scott’s vehicle at less than four miles per hour. Rangel testified that the position of the vehicles after the accident—they were still touching—was consistent with Cox’s vehicle rolling forward at a low speed and making contact with Scott’s vehicle. At a higher rate of speed, such as ten miles per hour, the vehicles would be separated post-accident. Rangel testified that based on the closing speed and the lack of damage to the vehicles, the velocity change of Scott’s vehicle was less than two miles per hour, meaning that after impact, Scott’s vehicle would have moved forward at two miles per hour. According to Rangel, the force and velocity of the accident was the equivalent of backing into a curb at one to two miles per hour.
Based upon his review of the post-accident photographs, other than a chip on Cox’s front bumper cover to the left side of the license plate, Rangel could see no discernable damage to Cox’s vehicle and observed a little scuff on the left
2Scott took the photograph of the post-accident position of the vehicles. The photograph shows the front of Cox’s vehicle touching the rear of Scott’s vehicle.
3Rangel testified that he believed that Scott said he filled out a driver’s crash report, but he had never seen it.
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side of Scott’s rear license plate. Rangel testified that the repair estimate for Scott’s vehicle was $791.41, which was for the refinishing and polishing of the bumper cover. Rangel explained that the bumper cover was not the bumper itself but a plastic cover that covers the bumper. Rangel also noted that Scott’s vehicle was equipped with active head restraints, which, in a rear-end collision, limit the amount of rearward motion of an occupant’s head. Rangel testified that Scott’s airbags did not deploy, but he conceded that they typically do not deploy when a vehicle is hit from behind.
Scott’s Medical History
Scott testified that he had neck pain in the past. He denied that it was ongoing, continuous pain and described the neck pain as “isolated incidents” from car accidents that occurred several years prior to the June 2009 accident. Scott testified he was in an automobile accident in 1996 that resulted in neck pain. He stated that the pain and the treatment associated with the accident did not persist longer than a few weeks following the accident.
Scott testified that in 1999, Dr. John Ferris—Scott’s physician for at least ten years prior to the June 2009 accident—treated Scott for a “kink” in his neck that occurred after he turned his head wrong while shaving. Scott’s medical records, which were admitted into evidence, stated that Dr. Ferris diagnosed Scott with a muscle spasm in his left posterior cervical muscles. Dr. Ferris prescribed Tylenol 3 and Norflex, a muscle relaxer.
6
Scott testified that Dr. Ferris also treated him for back and neck injuries he sustained in a 2002 rear-end automobile collision in Florida. The car that rear-ended the vehicle in which Scott was a passenger was traveling at forty miles per hour when it struck the vehicle. The x-rays taken during an emergency room visit when he returned to Texas were negative. Scott was prescribed Flexeril and Vicodin. Scott reported to Dr. Ferris that the medications helped with the pain, but he was still in a lot of pain and had mobility problems. Dr. Ferris’s notes stated that Scott’s range of motion was severely impaired and that the muscles on Scott’s left side were very tight. Dr. Ferris ordered a physical therapy consult for whiplash injury, placed Scott on Naproxen, and ordered Scott to continue with Flexeril and Vicodin twice a day.
In 2004, Scott went to a CareNow clinic complaining of right shoulder and neck pain that he woke up with one morning. Scott denied any injury. He was prescribed anti-inflammatory drugs and muscle relaxers.4
In 2005, Dr. Ferris treated Scott for neck and shoulder pain. Scott testified that he just woke up with a stiff neck one morning. Scott reported to Dr. Ferris that he could not turn his head without pain, and Dr. Ferris noted that he had some cervical myofascial strain and tenderness. Dr. Ferris prescribed rest, heat, a prescription pain-reliever and muscle relaxer, and physical therapy.
4Records from Scott’s 2004 CareNow visit were not admitted into evidence at trial. Records from this visit were used as an exhibit and were discussed during the deposition of Dr. Larry Kjeldgaard, one of Scott’s treating physicians. Dr. Kjeldgaard’s video deposition was played for the jury at trial.
7
Two days before the June 2009 accident, Dr. Ferris saw Scott for his annual physical. No complaints of neck pain were recorded, but Dr. Ferris was concerned about a swollen cervical lymph node and noted that he wanted to recheck it in about two months.
Scott’s Post-Accident Treatment and Activities
Scott went to work after the accident and the next day. He began to feel sore the night after the accident and started to feel stiffness and some pain the next morning. The stiffness worsened as the day progressed. Scott felt as if he had whiplash; he testified that he knew what whiplash felt like because he had been in a couple of accidents that had resulted in whiplash.
Scott testified that he stopped at a CareNow clinic on his way home from work the day after the accident and that a physician examined him and ordered an x-ray. The medical records from CareNow show that Scott reported neck and upper back pain, stiffness, and restricted movement. Scott’s records also state that he was experiencing mild tenderness and muscle spasms and that his range of motion was restricted. Scott was diagnosed with muscle spasms in his neck, and his medical records from CareNow described the x-ray as “negative.” The radiologist’s report stated that there was a reversal of the normal lordotic curvature secondary to spasm and that there was a posterior narrowing of the
8
C4-C5 disc space. Scott testified that he was prescribed anti-inflammatories and pain medication.5 Scott paid CareNow $198 for the exam.
Scott testified that each day after the accident, he would start out with stiffness in his neck, which would radiate pain through his right shoulder blade as the day progressed. He only took the anti-inflammatories and medication prescribed by CareNow for a short time, and after that, he took Ibuprofen and treated himself with back massages. Scott testified that his condition did not improve. Because of the pain, he was not able to participate in his sons’ scouting and sports activities. Scott and his wife, Heidi, normally split the household chores. Scott testified that he was not able to help with the household chores after the accident, so they had to hire a housekeeper and a lawn service, and Heidi’s mother had to help with the laundry.
Heidi admitted that her husband had a few car accidents where he experienced a small amount of pain on a short-term basis, but she stated that he did not have any ongoing pain from those accidents. She testified that between the accident in June 2009 and Scott’s surgery in December 2009, his mobility was very limited. Before the accident, she and Scott split the household responsibilities, but after the accident, Scott was not able to do anything. According to Heidi, the Newells had a maid service come twice a month before the accident, and they continued the maid service after the accident.
5 According to Scott’s medical records from CareNow, he was prescribed anti-inflammatories and a muscle relaxer.
9
Despite Scott’s condition, he and Heidi went to Mexico on vacation in August 2009, during which he went swimming; he and one of his sons went on a camping trip in October 2009; and the family went to Mexico on vacation in November 2009. Scott was also able to continue driving to work and testified that other than the five days he took off for the surgery and recovery, the accident did not interfere with his work. He also traveled out of state for work during the period between the accident and his surgery.
Scott returned to Dr. Ferris on August 17, 2009, for a follow-up visit regarding the swollen cervical lymph node. Scott testified that at that time, he was still in constant pain, with the “pain shooting like a lightning bolt down his spine.” Dr. Ferris’s notes from that visit indicate that Scott did not report any neck or back pain. Scott testified that he did not report neck or back pain to Dr. Ferris because Dr. Ferris’s office had informed him that they were no longer treating automobile accident injuries. A CT scan of Scott’s chest and neck was performed to evaluate the swollen cervical lymph node. The lymph node was normal.
Dr. Larry Kjeldgaard
Dr. Kjeldgaard is a board-certified orthopedic surgeon who testified by video deposition at the trial. Dr. Kjeldgaard first saw Scott on September 22, 2009. According to Dr. Kjeldgaard’s notes, Scott’s chief complaint was “posterior cervical pain,” and Scott reported that he was in a rear-collision automobile
10
accident on June 24, 2009, and that he was suffering from a whiplash-type injury to his cervical spine. Scott denied any previous problems, injuries, or accidents to his cervical spine. After a physical exam during which Dr. Kjeldgaard noted that Scott had “diffuse pain and tenderness over the left and right paraspinal musculature of the cervical spine” and restricted mobility in his cervical spine, Dr. Kjeldgaard diagnosed Scott with cervical thoracic myofascitis and a “strain sprain of the cervical and the thoracic muscle and the lining of the muscle . . . that was secondary to the motor vehicle accident.” Dr. Kjeldgaard prescribed physical therapy and noted that if Scott’s condition did not improve, Dr. Kjeldgaard would consider ordering an MRI.6
Scott next saw Dr. Kjeldgaard on November 3, 2009. According to Dr. Kjeldgaard’s notes, Scott’s visit was regarding his “cervical neck and radicular pain” and his continued complaint of “left posterior cervical neck pain that radiates into his left shoulder in loss of range of motion.” Dr. Kjeldgaard recommended an MRI, which was done on November 6, 2009. Based upon his review of the MRI, Dr. Kjeldgaard felt Scott “had a ruptured disc or . . . herniated nucleus pulposus between the fourth and fifth cervical levels in the neck, some enlargement or hypertrophy of the facet or connector joints of the neck and some spurring, spondylosis and narrowing of the nerve holes or the foramen at the C4-5 level.” The radiologist’s report, however, stated that there was a disc
6Scott admitted that he missed several of the prescribed physical therapy sessions.
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protrusion—not a ruptured or herniated disc—at C4-C5. When asked about the report, Dr. Kjeldgaard said that based upon his interpretation of the MRI, the disc was herniated. Dr. Kjeldgaard also noted that the normal curvature of the spine, called lordosis, was reversed in Scott’s spine, which was not normal. He stated that Scott’s complaints of pain and lack of mobility were consistent with the MRI. Dr. Kjeldgaard explained that a herniated disc “pushes beyond the back edge of the vertebrae into the space where the spinal cord and/or nerve root is present causing compression on those, and that can generate pain.” In his opinion, the disc herniation was caused by the accident.
Dr. Kjeldgaard recommended surgery for a total disc replacement at C4-C5. Dr. Kjeldgaard performed the surgery on December 16, 2009. Dr. Kjeldgaard testified that the surgery confirmed his preoperative diagnosis of a herniated disc at C4-C5. Scott reported improvement of his symptoms to Dr. Kjeldgaard after the surgery. Scott testified that “[t]he restriction [in movement in my neck], the pain, that lightning down my back was gone immediately [after the surgery].”7 He further testified that he had no pain at the time of trial.
On direct examination, Dr. Kjeldgaard agreed that Scott’s herniated disc was the type of injury that could have resulted from the whiplash-type motion of the neck caused by a rear-end automobile collision, even one that occurred at a low speed. He further agreed that it was not unusual for someone who sustains
7Scott also testified that after the surgery, the only pain from which he had to recover was the pain caused by the surgery itself and that he missed forty hours of work recovering from the surgery.
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a herniated disc in an automobile accident not to experience significant symptoms immediately after the accident. And the muscle spasms that Scott reported at the CareNow clinic the day after the accident indicated a new injury as opposed to an older, chronic injury. Dr. Kjeldgaard concluded that “[b]ased on the premise that [Scott’s] history . . . is accurate and truthful, I believe that the injury he suffered on that date was the proximal cause of his problem.” It was Dr. Kjeldgaard’s opinion that Scott’s herniated disc occurred on the day of the accident.
On cross-examination, Dr. Kjeldgaard confirmed that Scott denied any previous problems, injury, or accident to his cervical spine. Dr. Kjeldgaard admitted that he had not reviewed any of Scott’s prior medical records, Scott’s deposition testimony, an incident report prepared by a police officer that described the accident as low-speed and involving no injuries and mild damage to Scott’s car,8 photographs of the vehicles, the records and x-ray from Scott’s June 25, 2009 CareNow visit, or Scott’s medical records from Dr. Ferris. Dr. Kjeldgaard admitted that Scott did not tell him about being diagnosed with cervical thoracic myofascial pain syndrome in March 2005, which was Dr. Kjeldgaard’s initial diagnosis in September 2009.9 Dr. Kjeldgaard also conceded
8Dr. Kjeldgaard was shown an “Incident Detail Report” during his deposition, but the report was not admitted into evidence at the trial.
9Dr. Kjeldgaard explained that in layman’s terms, cervical thoracic myofascial pain syndrome means “chronic soreness and tenderness about the
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that his conclusion that Scott’s cervical thoracic myofascitis and strain sprain were caused by the accident was an impression he formed based upon information he received from Scott.
But Dr. Kjeldgaard also testified that he believed Scott’s herniated disc was a relatively recent injury because Scott’s muscle strength and reflexes were normal when he examined Scott in September 2009. If Scott’s herniated disc had been present for a longer period of time, Dr. Kjeldgaard would have expected to see muscle weakness and diminished reflexes in the muscles that were fed by the nerve the disc was pressing against. Dr. Kjeldgaard testified that Scott’s June 2009 CareNow records did not change his opinion and that the findings of muscle spasm and Scott’s complaints of pain in the records supported his opinion. While Scott’s previous injuries were relevant, Dr. Kjeldgaard’s sense was that Scott had recovered from those quickly and that the June 2009 accident caused the herniated disc at C4-C5, which did not get better on its own like Scott’s other injuries did. If the herniated disc existed before the accident, Dr. Kjeldgaard would have expected it to cause pain before the accident.
Dr. Roby Mize
Dr. Mize, who is also board certified in orthopedic surgery, testified as State Farm’s medical expert. Dr. Mize admitted that he never physically examined Scott. But he reviewed all of Scott’s medical records from 1999 to the
muscles and lining of the muscles in the back of the neck in between the shoulder blade area.”
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time of trial, Rangel’s expert report, the parties’ depositions, and the incident report prepared by a police officer that described the accident as low-speed and involving no injuries and mild damage to Scott’s car.
Dr. Mize testified that the records from Scott’s June 25, 2009 CareNow exam indicated there was tenderness in Scott’s neck when he moved it, but there was no tenderness upon palpation. Dr. Mize noted that Scott was diagnosed with a muscle spasm but went on to explain that muscle spasms can be under a patient’s control and there are a lot of different causes of muscle spasms, the most common of which is not injury. The most common cause is an overly tight or overly tense muscle. Dr. Mize did concede, however, that a minor car accident could cause muscle spasms. Dr. Mize noted that the CareNow x-ray of Scott’s cervical spine was “essentially normal” and showed no evidence of any type of acute injury. Dr. Mize also pointed out that Scott’s records from the CareNow clinic stated that he was instructed to return to the clinic in seven to fourteen days if his condition did not improve or return immediately if his condition worsened. Scott did not return.
Dr. Mize also reviewed Dr. Ferris’s records, which began in 1999. Dr. Mize noted that Dr. Ferris’s records indicated that Scott had instances of neck pain in 1999, 2002, and 2005. He also noted that Dr. Ferris had diagnosed Scott with cervical thoracic myofascial syndrome in 2005, which Dr. Kjeldgaard also diagnosed him as having in September 2009. Dr. Mize reviewed the CT scan
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taken in August 2009. The CT scan was basically normal, but it showed some chronic degenerative changes in Scott’s cervical spine that, in Dr. Mize’s opinion, had been there for much longer than two months. Dr. Mize did not see any herniated discs but did see slight disc bulges or protrusions at four out of the six levels. Dr. Mize thought it was “extremely significant” that Scott did not report his “lightning bolt” pain to Dr. Ferris at Scott’s August 2009 appointment because in his opinion, if Scott was in pain, he would have told his long-time physician.
Dr. Mize examined Dr. Kjeldgaard’s notes from Scott’s September 2009 visit. Dr. Mize testified that when a patient presents with a neck problem, the patient’s history of prior neck injuries or problems is very significant. Dr. Mize also disagreed with Dr. Kjeldgaard’s assessment that Scott’s herniated disc was a recent injury because it had not caused any problems. According to Dr. Mize, a herniated disc putting pressure on a spinal nerve would have caused rapid and dramatic changes almost immediately, including muscle atrophy and loss of reflexes. In Dr. Mize’s opinion, there was no objective evidence in September 2009 to show that there was any nerve pressure.
Dr. Mize also reviewed the November 2009 MRI ordered by Dr. Kjeldgaard and the radiologist’s report. The radiologist’s report stated that at C4-C5 a “[l]oss of disc height is present” and that there was “a [b]road 2 mm disc protrusion with a 3mm left posterolateral component,” which caused “mild central canal stenosis and contribute[d] to moderate left and mild right neural foraminal narrowing with
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uncinate hypertrophy.” Dr. Mize explained that the loss of disc height was the result of deterioration or degeneration of the disc over time and that the disc protrusions were “very, very small.” The “mild central canal stenosis” meant the spinal canal had narrowed but was not touching the spinal cord. Dr. Mize further explained that the disc protrusions at almost every level of Scott’s cervical spine, not the June 2009 accident, caused the stenosis. He also opined that the stenosis was not causing Scott any problems. The disc protrusion also contributed to the narrowing of the neural foramen, which are holes through which nerves run. Dr. Mize stated that the MRI showed that these nerves were not being compressed or touched. The radiologist also did not note any nerve compression in his report.
Dr. Mize testified that Scott had a protruded disc at C4-C5 and that “[t]here was no evidence whatsoever that he had a herniated disc” there. Dr. Mize explained that a herniated disc is a protruding disc that has progressed to the point where the annulus, or the capsule, surrounding the disc tears and the disc herniates out and puts pressure on the nerve. He observed no defect or tear in the annulus at C4-C5 or abnormal fluid collection there. The radiologist also described the disc as protruding instead of herniated. According to Dr. Mize, there was no objective evidence on the MRI or the CT scan that Scott had a herniated disc and nothing objective indicated that Scott was injured in the June 2009 automobile accident.
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When questioned about the reversal of Scott’s lordotic curve noted in both the CareNow x-ray and by Dr. Kjeldgaard, Dr. Mize testified that he did not attach any clinical significance to it because it was probably caused by the considerable degenerative arthritis in Scott’s spine from the base of his skull to the top of his shoulders. Dr. Mize was emphatic that Scott’s degenerative arthritis was not caused by the accident but developed over several years. Dr. Mize further testified that based upon Dr. Kjeldgaard’s physical examinations of Scott in September and November 2009 and the CT scan and MRI—both of which revealed no objective evidence that would indicate any compression or pressure on the nerve—Scott’s disc replacement surgery was not indicated because there was no objective, valid evidence to perform the surgery. In fact, “there was no valid objective indication for performing any kind of surgery.” In Dr. Mize’s opinion, there was no evidence that the June 2009 accident caused an injury that required the disc replacement surgery. The fact that Scott testified that he was pain free after the surgery did not negate the fact that he did not need surgery to start with.
On cross-examination, Dr. Mize stated that it was his opinion that Scott’s injury, if any, was limited to a minor, soft-tissue strain of the neck, which was the type of injury that would completely heal in two to four weeks without treatment. Dr. Mize did not consider Scott’s muscle spasm diagnosed at the CareNow clinic the day after the accident to be a significant objective finding. He also
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maintained that Scott did not have a herniated disc in his neck and that Scott’s surgery was unnecessary.
Dr. Mize conceded that there was no evidence in Scott’s medical records that he was suffering from any kind of neck pain from 2005 through 2009 and that there was no indication of neck pain or muscle spasm during Scott’s annual physical two days before the accident. Dr. Mize confirmed that Scott had “extensive chronic degenerative deterioration throughout the cervical spine,” and even though Scott had a moderate amount of degenerative changes for a man his age, the chronic degenerative deterioration in his cervical spine was “out of the ordinary for a 40-year-old.” According to Dr. Mize, Scott’s previous neck injuries contributed to the development of his chronic degenerative arthritis. Dr. Mize admitted that Scott’s preexisting conditions in his spine made him more fragile and vulnerable to injury and that trauma can make a degenerative condition begin to hurt when it did not before.
Dr. Mize stated that it was quite common for a person involved in an automobile collision to not feel pain until several hours after the accident. He agreed that the physician’s assistant who examined Scott at the CareNow clinic the day after the accident determined that Scott had muscle spasms in his neck. Dr. Mize testified that a muscle spasm is both an objective and a subjective finding. A muscle spasm is a subjective finding because the patient has control
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over the tense muscles in the neck. Scott’s tension could have come from another source.
When asked about the reversal of the normal lordotic curve of the spine noted in the CareNow x-ray, Dr. Mize admitted that the finding is frequently an indication of muscle injury, especially if found following a traumatic event and in conjunction with muscle spasm. Dr. Mize also conceded that the reversal of the normal lordotic curve of the spine is an objective finding. But Dr. Mize testified that reversal of the normal lordotic curve is frequently found on x-rays with no indication of trauma. Among the many causes of reversal of the normal lordotic curve are increased muscle tension, muscle spasms, and disease processes, such as degenerative arthritis, which was, in all probability, causing Scott’s straightening of the spine. Dr. Mize further testified that the second x-ray finding—posterior narrowing of C4-C5 disc space—is rarely an indication of an acute injury to the disc space, but it is an indication of chronic degenerative arthritis. In all probability, the posterior narrowing of the C4-C5 disc space had nothing to do with the accident. Dr. Mize stated that there was no objective evidence of a recent injury in the November 2009 MRI.
Dr. Mize testified that Scott had chronic degenerative arthritis, which can cause pain. Dr. Mize agreed that the fact that Scott went through with disc replacement surgery was a strong indication that he was experiencing pain prior to surgery. Dr. Mize explained that during the surgery, Dr. Kjeldgaard removed
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some bone spurs at C4-C5 from Scott’s spine. These spurs were not caused by the accident but by longstanding degenerative arthritis. The removal of these bone spurs could have contributed to Scott being pain-free after the surgery.
The jury’s findings, judgment, and motion for new trial
The jury awarded Scott $198 for reasonable and necessary past medical care for injuries that resulted from the accident but awarded no damages for past physical pain and mental anguish, past and future disfigurement, past and future physical impairment, and lost wages. The jury awarded Heidi no damages for past loss of household services. After applying offsets and credits totaling $67,500 for monies paid to the Newells by Cox’s insurance policy and by State Farm under the policy’s personal injury protection and underinsured motorist provisions,10 the trial court entered a take-nothing judgment against the Newells.
The Newells moved for a new trial, arguing that the jury’s finding of no damages for Scott’s past pain and mental anguish was against the great weight and preponderance of the evidence and was manifestly unjust in light of the jury’s award of $198 for Scott’s past medical care. The trial court granted the new trial. State Farm filed a motion to reconsider, and the Newells filed a motion requesting that the trial court enter a substitute order granting their motion for new trial setting forth the specific grounds for granting them a new trial. The trial court implicitly denied State Farm’s motion for reconsideration and entered a
10The parties stipulated to the amount of offsets and credits.
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substitute order granting the Newells’ motion for new trial, which reads in pertinent part as follows:
The court grants the New Trial because the jury’s finding that Plaintiffs [sic] sustained no compensable physical pain and suffering is against the great weight and preponderance of the evidence and is manifestly unjust in light of the jury’s other finding that the Plaintiff sustained a physical injury in the incident in question. Additionally there was objective evidence of [Plaintiff’s] injury, such as a thorough exam of the neck showing no muscle spasm a few days before the collision in question, the presence of muscle spasm on the day after the collision, as well as x-ray’s [sic] showing reverse of the normal curvature of the spine.
The trial court entered an agreed order abating the case pending this court’s ruling on State Farm’s mandamus petition.
II. Standard of Review
To be entitled to mandamus relief, a relator generally must demonstrate (1) the trial court clearly abused its discretion; and (2) the relator has no adequate remedy by appeal. In re Reece, 341 S.W.3d 360, 364 (Tex. 2011) (orig. proceeding). A trial court clearly abuses its discretion if it reaches a decision so arbitrary and unreasonable as to amount to a clear and prejudicial error of law or if it clearly fails to analyze the law correctly or apply the law correctly to the facts. In re Cerberus Capital Mgmt. L.P., 164 S.W.3d 379, 382 (Tex. 2005) (orig. proceeding). “In determining whether the trial court abused its discretion with respect to resolution of factual matters, we may not substitute our judgment for that of the trial court and may not disturb the trial court’s decision unless it is shown to be arbitrary and unreasonable.” In re Sanders, 153 S.W.3d 54, 56
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(Tex. 2004) (orig. proceeding). In other words, under an abuse-of-discretion standard, we defer to the trial court’s factual determinations if they are supported by the evidence, but we review the trial court’s legal determinations de novo. In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex. 2009) (orig. proceeding). A trial court’s order granting a new trial may be reviewed by an appellate court in a mandamus proceeding. See In re Toyota Motor Sales, USA, Inc., 407 S.W.3d 746, 755–59 (Tex. 2013) (orig. proceeding); In re United Scaffolding, Inc., 377 S.W.3d 685, 688–89 (Tex. 2012) (orig. proceeding).
III. Requirements for an Order Granting a New Trial
While Texas trial courts historically have enjoyed broad discretion in granting new trials, that discretion is not without limits. In re Columbia Med. Ctr. of Las Colinas, Subsidiary, L.P., 290 S.W.3d 204, 210, 212 (Tex. 2009) (orig. proceeding) (stating that a trial court’s “significant discretion” to grant a new trial “should not, and does not, permit a trial judge to substitute his or her own views for that of the jury without a valid basis”). The trial court’s order granting a new trial must be “understandable,” “reasonably specific,” see id. at 213, “cogent,” “legally appropriate,” “specific enough to indicate that the trial court did not simply parrot a pro forma template,” and issued “only after careful thought and for valid reasons,” see United Scaffolding, 377 S.W.3d at 688–89. In the context of a mandamus proceeding, an appellate court may scrutinize new trial orders to ensure compliance with these requirements, and it also may review the
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correctness or validity of the trial court’s reasons for granting a new trial. See Toyota Motor Sales, 407 S.W.3d at 757–58. A trial court’s articulated reasons for granting a new trial must be supported by the underlying record; if not, the new trial order will not survive mandamus review. See id. at 758 (“Appellate courts must be able to conduct merits-based review of new trial orders. If, despite conformity with the procedural requirements of our precedent, a trial court’s articulated reasons are not supported by the underlying record, the new trial order cannot stand.”).
As to the trial court’s order granting the Newells a new trial, we conclude that the trial court provided an understandable, reasonably specific explanation of its reason for setting aside the jury’s verdict. See id. at 757; Columbia Med. Ctr., 290 S.W.3d at 213; In re Wyatt Field Serv. Co., 454 S.W.3d 145, 155–56 (Tex. App.—Houston [14th Dist.] 2014, orig. proceeding [mand. pending]). The trial court’s reason for granting a new trial is facially sound; it is legally appropriate and specific enough to indicate that the trial court did not “simply parrot a pro forma template” but arrived at its conclusion based upon specific evidence presented at trial. See Toyota Motor Sales, 407 S.W.3d at 756–57; United Scaffolding, 377 S.W.3d at 688–89; Wyatt Field Serv., 454 S.W.3d at 155–56.
Having determined that the new trial order is facially sound, we must determine whether the trial court’s stated reasons for granting a new trial are valid and correct by conducting a careful “merits review” of the record. See
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Toyota Motor Sales, 407 S.W.3d at 759 (“Simply articulating understandable, reasonably specific, and legally appropriate reasons is not enough; the reasons must be valid and correct.”). In other words, we must decide whether the trial court correctly concluded that the evidence was factually insufficient to support the jury’s finding that Scott “sustained no compensable physical pain and suffering.” See id. at 757–58. We analyze this issue under the factual-sufficiency standard of review. See In re Athans, No. 14-15-00143-CV, 2015 WL 5770854, at *4 (Tex. App.—Houston [14th Dist.] Oct. 1, 2015, orig. proceeding) (op. on reh’g); In re E.I. duPont de Nemours & Co., 463 S.W.3d 80, 85 (Tex. App.—Beaumont 2015, orig. proceeding); Wyatt Field Serv., 454 S.W.3d at 152–53; In re Zimmer, Inc., 451 S.W.3d 893, 905–06 (Tex. App.—Dallas 2014, orig. proceeding); In re Baker, 420 S.W.3d 397, 402–03 (Tex. App.—Texarkana 2014, orig. proceeding).
IV. Factual Sufficiency Standard of Review
In reviewing an order granting a new trial, we must be mindful of the different roles of the jury, the trial court, and the appellate court. As stated by one of our sister courts:
In a mandamus proceeding, we may not substitute our judgment for that of the trial court. But neither may the trial court substitute its judgment for that of the jury in granting a new trial. The method for ensuring that the trial court does not substitute its judgment for that of the jury, is [for the appellate court] to confirm that the court’s reasons for granting a new trial are valid and correct, i.e., supported by the trial record.
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Wyatt Field Serv., 454 S.W.3d at 152 (citations omitted). Thus, after a review of the record of the trial, if we determine that the record does not support the trial court’s stated reasons for granting the motion for new trial, then the trial court abused its discretion by granting a new trial based on factual sufficiency. See id. at 152–53.
In a factual-sufficiency review, we examine the entire record, considering both the evidence in favor of, and contrary to, the challenged finding. Maritime Overseas Corp. v. Ellis, 971 S.W.2d 402, 406–07 (Tex. 1998). When a party attacks the factual sufficiency of an adverse finding on an issue on which the party had the burden of proof, the party must demonstrate that the adverse finding is against the great weight and preponderance of the evidence. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 242 (Tex. 2001). A reviewing court considers and weighs all the evidence, and it is proper to set aside the jury finding only if the finding is so contrary to the overwhelming weight of the evidence that the finding is clearly wrong and unjust. See Maritime Overseas Corp., 971 S.W.2d at 406–07.
The jury is the sole judge of the credibility of the witnesses and the weight to be given to their testimony. Golden Eagle Archery, Inc. v. Jackson, 116 S.W.3d 757, 761 (Tex. 2003). When presented with conflicting testimony, the jury may believe one witness and disbelieve others, and it may resolve inconsistencies in the testimony of any witness. Athans, 2015 WL 5770854, at *4
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(citing McGalliard v. Kuhlmann, 722 S.W.2d 694, 697 (Tex. 1986)). Neither the trial court nor this court may substitute its own judgment for that of the jury, even if the court would reach a different answer on the evidence. Maritime Overseas Corp., 971 S.W.2d at 407. The amount of evidence necessary to show that factually sufficient evidence supports a jury finding is far less than the amount of evidence necessary to justify a conclusion that the finding is so contrary to the overwhelming weight of the evidence so as to be clearly wrong and unjust. See GTE Mobilnet of S. Tex. Ltd. P’ship v. Pascouet, 61 S.W.3d 599, 615–16 (Tex. App.—Houston [14th Dist.] 2001, pet. denied).
V. Analysis
In two related issues, State Farm challenges the trial court’s order granting the Newells a new trial. First, State Farm contends the trial court abused its discretion by ordering a new trial. Second, State Farm asserts that the trial court’s conclusion that the jury’s award of no damages for past physical pain and suffering was against the great weight and preponderance of the evidence was incorrect, thereby making the trial court’s articulated reasons for granting a new trial invalid and incorrect. Because we consider State Farm’s second issue as an interrelated subpart of its first issue, we address both issues as one.
We examine the evidence the trial court identified in its new trial order, as well as the remaining evidence in the record before us to determine if the trial court’s stated reasons in its order support granting the Newells a new trial. See
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Toyota Motor Sales, 407 S.W.3d at 758; E.I. duPont, 463 S.W.3d at 87. The trial court concluded that the evidence was factually insufficient to support the jury’s finding that Scott sustained no compensable physical pain and suffering based upon the jury’s finding that Scott sustained a physical injury in the accident and based upon objective evidence of Scott’s injury, specifically the exam of Scott’s neck a few days before the accident showing no muscle spasm, the presence of a muscle spasm the day after the accident, and an x-ray showing a reversal of the normal curvature of the spine.
Generally, the jury has great discretion in considering evidence on the issue of damages. Grant v. Cruz, 406 S.W.3d 358, 363 (Tex. App.—Dallas 2013, no pet.) (citing McGalliard, 722 S.W.2d at 697; Lanier v. E. Founds., Inc., 401 S.W.3d 445, 454–55 (Tex. App.—Dallas 2013, no pet.)). Matters of pain and mental anguish are necessarily speculative, and it is particularly within the jury’s province to resolve these matters and decide the amounts attributable thereto. Id. at 363 (citing Lanier, 401 S.W.3d at 454–55). When there is uncontroverted, objective evidence of an injury and the causation of the injury has been established, appellate courts are more likely to overturn jury findings of no damages for past pain and mental anguish. Id. (citing Lanier, 401 S.W.3d at 455); see also Blizzard v. Nationwide Mut. Fire Ins. Co., 756 S.W.2d 801, 805 (Tex. App.—Dallas 1988, no writ). However, where the evidence of pain is conflicting, scant, or more subjective than objective, appellate courts are
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generally more reluctant to determine a jury finding of no damages is contrary to the great weight and preponderance of the evidence. Grant, 406 S.W.3d at 363–64 (citing Lanier, 401 S.W.3d at 455; McGuffin v. Terrell, 732 S.W.2d 425, 428 (Tex. App.—Fort Worth 1987, no writ) (finding when there was no objective evidence of injury, jury could resolve inconsistencies in evidence, determine plaintiff’s injuries from accident were minimal, and award no damages for pain and suffering despite awarding damages for past medical expenses)).
Additionally, the mere fact of injury does not prove compensable pain and mental anguish. Id. at 364; Blizzard, 756 S.W.2d at 805; see also Lanier, 401 S.W.3d at 454–55; Lamb v. Franklin, 976 S.W.2d 339, 341–42 (Tex. App.—Amarillo 1998, no pet.). “[A] damage award for physical pain is not always mandated when medical expenses are awarded.” Enright v. Goodman Distribution, Inc., 330 S.W.3d 392, 398 (Tex. App.—Houston [14th Dist.] 2010, no pet.). For an undisputed injury that is less serious and accompanied only by subjective complaints of pain, a jury may reasonably believe that the injured party should be compensated “for seeking enough medical care to ensure that [the] injury was not serious” yet also conclude the injured party “never suffered pain warranting a money award.” Blizzard, 756 S.W.2d at 805; see also McGuffin, 732 S.W.2d at 428 (stating that “evidently the jury found appellant’s injury so minimal as to not warrant an award for past pain and suffering” despite the jury’s award of medical expenses for treatment of muscle spasms); Chadbourne v.
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Cook, No. 05-99-00353-CV, 2000 WL 156955, at *2 (Tex. App.—Dallas Feb. 15, 2000, no pet.) (not designated for publication) (stating that “the jury could reasonably conclude any pain and suffering [one of the plaintiffs] endured was too negligible to warrant monetary compensation” despite the jury’s award of medical expenses for treatment of his nose injury). Moreover, when there is conflicting evidence of the injury’s cause or an alternative explanation for the injured party’s reported pain, appellate courts have upheld zero damage findings for physical pain despite the jury finding that the injured party is entitled to damages for medical expenses. Grant, 406 S.W.3d at 364; Enright, 330 S.W.3d at 398; see also Lanier, 401 S.W.3d at 455 (“When there is conflicting evidence about the severity of the injuries or about whether the injuries were caused by the collision, the jury has the discretion to resolve the conflicts, determine which version of the evidence to accept, and refuse to award damages.”); Hyler v. Boytor, 823 S.W.2d 425, 427–28 (Tex. App.—Houston [1st Dist.] 1992, no writ) (upholding zero damages finding for pain and suffering despite award for medical expenses; jury heard evidence of alternative causes for plaintiff’s lumbar sprain and spinal injury).
As pointed out by State Farm in its mandamus petition, the trial court did not grant a new trial on the grounds that the evidence was factually insufficient to support the jury’s finding that Scott did not sustain any compensable mental anguish. Thus, we do not address the mental anguish category of damages.
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The jury awarded Scott $198 as a “reasonable expense of necessary medical care incurred in the past” to compensate him for his injuries that resulted from the accident. Given this finding, the jury believed that Scott suffered some injury as a result of the accident and reasonably sought enough medical care to ensure that the injury was not serious. The jury did not award Scott damages for his subsequent treatment and surgery, even though it heard evidence that Scott incurred between approximately $53,000 and $54,000 in medical expenses. As explained below, the jury could have reasonably believed, based on the evidence, that Scott did not suffer any physical pain and suffering as a result of the accident.
It was undisputed that the accident occurred at a very low speed, causing less than $800 in damage to Scott’s car and no damage to Cox’s car. The jury heard conflicting evidence about the severity of Scott’s injuries and whether his injuries were caused by the collision. Scott was instructed to return to the CareNow clinic in seven to fourteen days if his condition did not improve or return immediately if his condition worsened, but there was no evidence that he returned to the clinic. While he and his wife testified that he was in pain in the months following the accident, nearly three months elapsed between the accident and when Scott sought treatment from Dr. Kjeldgaard. During that time, Scott went on vacation to Mexico and saw Dr. Ferris in August 2009 to follow-up for a cervical lymph node but did not mention his neck pain to the doctor. Scott
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did not attend all of the physical therapy sessions ordered by Dr. Kjeldgaard, and he went camping and took another trip to Mexico in the intervening months between his initial appointment with Dr. Kjeldgaard and his surgery. Until Scott had surgery in December 2009, he did not miss any work as a result of his injuries and traveled out of state for work.
While Dr. Kjeldgaard testified that the accident caused the injury that necessitated Scott’s surgery, Dr. Mize testified that it did not.11 It was Dr. Kjeldgaard’s opinion that Scott’s neck pain was the result of a herniated disc that was caused by the accident. But Scott did not inform Dr. Kjeldgaard of his history of neck injuries or review Scott’s medical records regarding those problems. Dr. Mize reviewed all of Scott’s medical records. In his opinion, the CareNow x-ray was normal and showed no signs of acute injury. The CT scan and the MRI scan, however, showed degenerative changes in Scott’s cervical spine that had been present longer than two months. Dr. Mize observed no herniated discs and stated that the CT scan and the MRI did not indicate any compression or pressure on the nerve. Dr. Mize opined that there was no objective evidence in Scott’s medical records that he was injured in the accident
11In their response, the Newells refer to Dr. Mize as State Farm’s “well-compensated medical expert,” pointing out that he was paid approximately $35,000 to testify in this lawsuit, earns approximately forty percent of his annual income, or approximately $200,000, from testifying as an expert, and is able to testify favorably for the party who consults him in approximately ninety percent of the cases he reviews. The Newells elicited this information from Dr. Mize on cross-examination. As we pointed out above, the jury is the sole judge of the credibility of the witnesses and the weight to be given to their testimony. Golden Eagle Archery, 116 S.W.3d at 761.
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and there was no objective, valid evidence that Scott needed surgery. It was Dr. Mize’s opinion that Scott had chronic, degenerative arthritis that was caused not by the accident but by his previous neck injuries; the arthritis was causing his pain.
Scott’s CareNow records reflected the presence of a muscle spasm the day after the accident, which the Newells argue is uncontroverted, objective evidence of an injury. It was not undisputed, however, that the muscle spasm was caused by the accident. Dr. Mize testified that he did not consider the muscle spasm to be a significant objective finding. It was his opinion that muscle spasms can be under a patient’s control and there are a lot of different causes of muscle spasms, the most common of which is not injury; the most common cause of muscle spasms is an overly tight or overly tense muscle. Moreover, the accident occurred at a low speed and caused minor property damage, and Scott had a history of prior neck injuries. With respect to the reverse of the normal curvature of the spine, Dr. Mize testified that it was caused by Scott’s degenerative arthritis, which Scott had in his spine from the base of his skull to his shoulders.
It was the jury’s duty to resolve any fact issues at trial, and the trial court may not substitute its judgment for that of the jury. See United Scaffolding, 377 S.W.3d at 688; Columbia Med. Ctr., 290 S.W.3d at 212. Here, the jury reasonably could have concluded that Scott’s ongoing complaints of pain were
33
not proximately caused by the accident and did not rise to the level of compensable physical pain and suffering. Based upon our review of the record, given the presence of conflicting evidence, the jury’s finding that Scott sustained no compensable physical pain and suffering was not so clearly against the “great weight and preponderance of the evidence” as to be clearly wrong and unjust. Thus, the record does not support this ruling, and the trial court abused its discretion by granting a new trial for this reason. See Toyota Motor Sales, 407 S.W.3d at 758; Wyatt Field Serv., 454 S.W.3d at 149. Accordingly, we sustain both of State Farm’s issues.
VI. Conclusion
When, as here, the trial court’s reasons for granting the motion for new trial are invalid, a remedy by appeal is inadequate and the relator is entitled to mandamus relief. See Toyota Motor Sales, 407 S.W.3d at 758. Accordingly, we conditionally grant State Farm’s petition for writ of mandamus and direct the trial court to set aside its January 30, 2015 order granting the Newells’ motion for new trial and to reinstate its September 30, 2014 final judgment. We are confident the trial court will comply, and the writ will issue only if it fails to do so.
/s/ Anne Gardner
ANNE GARDNER
JUSTICE
PANEL: LIVINGSTON, C.J.; GARDNER and GABRIEL, JJ.
DELIVERED: January 26, 2016

 

 

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Martindale AVtexas[2]

Texas Automobile Insurance Policy Litigation With Stowers Claim and Attorneys Involvement–Texas Insurance Defense Litigation

Opinion issued March 31, 2011
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-09-00457-CV
———————————
ROBERT B. TAYLOR AND R.B.T INVESTMENTS, INC. F/K/A GULF OXYGEN COMPANY, INC., Appellants
V.
ALLSTATE INSURANCE COMPANY AND ALLSTATE COUNTY MUTUAL INSURANCE COMPANY, Appellees
On Appeal from the 190th District Court
Harris County, Texas
Trial Court Case No. 08-08861/A
O P I N I O N
Appellants Robert B. Taylor and R.B.T. Investments, Inc. f/k/a Gulf Oxygen Company, Inc. (collectively, ―Taylor‖) appeal from a summary judgment rendered
2
in favor of appellees Allstate Insurance Company and Allstate County Mutual Insurance Company (collectively, ―Allstate‖) on the grounds that Taylor‘s sole cause of action against Allstate is a Stowers1 claim, and no Stowers claim can be made under the facts of this case. In two issues, Taylor asserts that the trial court erred by granting Allstate‘s ―no cause of action‖ motion for summary judgment and by denying Taylor‘s motion for leave to replead his claims against Allstate. We conclude that the trial court properly rendered summary judgment with respect to Taylor‘s claims against Allstate for negligence, vicarious liability, and tortious interference with Taylor‘s fiduciary and contractual relationship with his attorney but that the trial court erred in determining that no cause of action exists with respect to Taylor‘s breach of contract and statutory claims. We also conclude that the trial court did not abuse its discretion by denying Taylor‘s motion for leave to replead because Taylor had already been provided an opportunity to replead, and Taylor had in fact amended his pleadings at the time summary judgment was granted. We, therefore, affirm in part and reverse and remand in part.
Background
According to his pleadings, Taylor was involved in an automobile accident in 2005 in which the passenger of the other vehicle was catastrophically injured.
1 G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 547 (Tex. Comm‘n App. 1929, holding approved).
3
The family of the injured passenger brought suit against Taylor. Allstate retained John Causey, an independent contractor, as counsel for Taylor in the automobile accident suit. Taylor claims he had defenses to that suit, including his contention that he was entirely in his lane of traffic when the collision occurred, he was still or moving slowly at the time, and the passenger‘s failure to wear a seatbelt caused the injuries. At mediation, Taylor settled the automobile accident suit for an amount that exceeded his insurance coverage. Allstate tendered policy limits. Taylor filed this action against his former legal counsel and various insurance providers, ultimately including Allstate, to recover costs paid by Taylor to settle litigation against him arising out of the automobile accident.
Taylor‘s initial claim against Allstate was for negligence with respect to Allstate‘s handling Taylor‘s defense in the automobile accident case. Allstate filed special exceptions and moved for traditional summary judgment on the grounds that a Stowers claim is the only common law claim cognizable under Texas law for an insurer‘s alleged mishandling of a third party claim against the insured, and the facts pled by Taylor would not support a Stowers claim. Taylor filed a second amended petition to add claims against Allstate for breach of contract, tortious interference with Taylor‘s contractual and fiduciary relationship with Causey, vicarious liability for Causey‘s conduct in representing Taylor, and violations of provisions of the Insurance Code and Deceptive Trade Practices Act (―DTPA‖). In
4
response to Taylor‘s new claims, Allstate filed a supplement to its motion for summary judgment. Citing additional authority, the supplement referenced Taylor‘s new claims and re-urged its argument that a Stowers claim was Taylor‘s exclusive cause of action against Allstate. Taylor filed a response to Allstate‘s motion for summary judgment, in which he disputed that a Stowers claim was his exclusive remedy under Texas law, distinguishing some of the cases relied on by Allstate and pointing out that the Texas Supreme Court had remanded certain insured-insurer claims in one of the cases relied on by Allstate. Taylor then filed a supplement to his second amended petition to add claims against Allstate for additional violations of the DTPA and Insurance Code and asserting that Allstate breached the standard of care implicit in its contractual duty to defend.
The trial court rendered summary judgment in Allstate‘s favor. Taylor filed a motion to reconsider the summary judgment and for leave to replead, which the trial court denied. Subsequently, the trial court entered an order severing Taylor‘s claims against Allstate into a separate cause. After severance, Taylor filed a motion for new trial, which was not granted, and this appeal ensued.2
2 Although no party challenges our jurisdiction, we conclude in our sua sponte review that the language of the trial court‘s orders unambiguously expresses the trial court‘s intention that the summary judgment order become final and appealable upon issuance of the severance order. See In re Certain Underwriters
5
Standard of Review
We review the trial court‘s grant of summary judgment de novo. Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009); Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). We review the evidence presented in the motion and response in the light most favorable to the party against whom the summary judgment was rendered, crediting evidence favorable to that party if reasonable jurors could and disregarding contrary evidence unless reasonable jurors could not. Fielding, 289 S.W.3d at 848; see City of Keller v. Wilson, 168 S.W.3d 802, 827 (Tex. 2005). Issues not expressly presented to the trial court by written motion, answer, or other response shall not be considered on appeal as grounds for reversal. TEX. R. CIV. P. 166a(c).
A defendant-movant may establish its right to summary judgment by demonstrating that the law does not recognize the cause of action pled. E.g., Peeler v. Hughes & Luce, 909 S.W.2d 494, 497–98 (Tex. 1995); Higbie Roth Constr. Co.
at Lloyd’s London, No. 01-09-00851-CV, 2010 WL 184300, at *2 (Tex. App.—Houston [1st Dist.] Jan. 15, 2010, no pet.) (mem. op.) (finding finality where judgments stated: ―This judgment is [a] final judgment. All relief not expressly granted herein is denied.‖); In re Daredia, 317 S.W.3d 247, 249 (Tex. 2010) (indicating that a statement that the judgment in question is ―appealable‖ is a clearer indication of finality than a statement that the judgment is ―final.‖).
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v. Houston Shell & Concrete, 1 S.W.3d 808, 811 (Tex. App.—Houston [1st Dist.] 1999, pet. denied). In such an instance, the movant meets its summary judgment burden not by proving or disproving facts, but by showing that the plaintiff has not pled a viable cause of action. Higbie Roth Constr. Co., 1 S.W.3d at 811. To determine whether a cause of action exists under the circumstances pled, we construe the pleading broadly and assume the facts pled are true. Id. at 811–12. The summary judgment at issue in this appeal is largely a motion for judgment on the pleadings. Allstate filed only one piece of evidence in support of its motion for summary judgment — an affidavit tending to disprove certain facts relevant to a Stowers claim.
Taylor’s Tort Claims Against Allstate
Taylor alleges common law causes of action against Allstate for negligence and tortious interference with his contractual and fiduciary relationship with Causey, Taylor‘s legal counsel in the automobile accident suit; Taylor also alleges that Allstate is vicariously liable for conduct by Causey in the defense of that suit. Allstate argues, on appeal as it did below, that the only common law cause of action recognized under Texas law in the context of an insurer‘s handling of a third party claim against an insured is a Stowers claim, and no Stowers claim exists
7
here.3 See G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 547 (Tex. Comm‘n App. 1929, holding approved). We hold that the trial court properly granted summary judgment on Taylor‘s tort claims against Allstate. A. Vicarious Liability
With respect to Taylor‘s vicarious liability claim, Allstate argues that Taylor‘s claims fail as a matter of law under the Texas Supreme Court‘s holding in State Farm Mutual Automobile Insurance Co. v. Traver, 980 S.W.2d 625, 627–29 (Tex. 1998). We agree. In Traver, the Texas Supreme Court explains that, in light of the special relationship between attorney and client and the special duties owed by an attorney to the client, an attorney must exercise unfettered control and discretion over his or her representation of the client. Id. at 627. The Court holds that this vesting of control and responsibility in the attorney necessarily precludes an insurer from exercising control over the attorney‘s representation of the insured to the degree necessary to justify the imposition of vicarious liability. Id. Thus, the Court concludes that an insured cannot bring a claim against his insurer on the
3 Taylor does not allege that Allstate ever refused him defense in the automobile accident suit. To the contrary, the parties appear to agree that Allstate performed its duty to defend — whether negligently or not — and tendered the full limits of its policy after receiving notice of the claim.
8
basis of vicarious liability for the conduct of the insured‘s attorney in a third party action. Id.
Because the attorney misconduct alleged by Taylor falls within this category of representative conduct over which the attorney must exercise absolute control, Taylor may not hold Allstate vicariously liable for Causey‘s alleged actions. We affirm the trial court‘s summary judgment with respect to Taylor‘s vicarious liability claim.
B. Negligence
Taylor‘s negligence claim alleges that Allstate ―failed to exercise ordinary care in discharging [its] duties and obligations to [Taylor] by conducting an inadequate investigation and providing an inadequate defense in the [automobile accident suit].‖ Allstate argues that Texas law does not recognize a negligence claim by an insured against his insurer based on alleged mishandling of the defense of a third party claim. We agree.
This court has previously declined to recognize a negligence claim against an insurer where the insurer does not refuse to defend or settle but, rather, the insured is dissatisfied with the quality of the defense provided. See Wayne Duddlesten, Inc. v. Highland Ins. Co., 110 S.W.3d 85, 96–97 (Tex. App.—Houston [1st Dist.] 2003, pet. denied). In Duddlesten, an insured asserted that its insurer acted negligently by paying several workers‘ compensation claims that the
9
insured believed were invalid. Id. After the trial court granted special exceptions and struck the insured‘s negligence claims, the insured appealed the decision. We affirmed the trial court‘s judgment, stating that we were not aware of any authority from the Texas Supreme Court expressly permitting an insured to sue its insurer for negligent handling of a claim outside the scope of Stowers and were unwilling to expand the scope of an insurer‘s duties to the insured without express authorization from the Texas Supreme Court. Id. at 97. In making this determination, we looked to the Texas Supreme Court‘s decision in Maryland Insurance Co. v. Head Indus. Coatings and Serv., Inc. [Head], 938 S.W.2d 27, 28 (Tex. 1996) (superseded in part by statute), as well as the Fifth Circuit‘s decision in Ford v. Cimarron Insurance Co., 230 F.3d 828, 832 (5th Cir. 2000).
In Head, the Texas Supreme Court declined to recognize a duty of good faith and fair dealing between an insurer and its insured, stating: ―Texas law recognizes only one tort duty in this context, that being the duty stated in [Stowers].‖ Head, 938 S.W.2d at 28. The context in Head was a claim in the name of an insured against its insurer for failing to defend and pay a third party claim. The Court also noted that ―an insured is fully protected against his insurer‘s refusal to defend or mishandling of a third-party claim by his contractual and Stowers rights.‖ Id. at 28–29.
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Four years after Duddlesten, the Texas Supreme Court reinforced the position it took in Head in a context where the claims arose out of the insurer‘s conduct in handling and settling a third party claim rather than a refusal to defend. See Mid-Continent Ins. Co. v. Liberty Mut. Ins. Co., 236 S.W.3d 765, 776 (Tex. 2007). In Mid-Continent, one insurer asserted contribution and subrogation claims against a co-insurer for costs incurred in settling third party claims against a shared insured. Id. Among other arguments, the insurer asserted claims on the basis of its subrogation to the common law rights of the insured. Id. Citing Head, the Texas Supreme Court observed: ―An insurer‘s common law duty in this third party context is limited to the Stowers duty to protect the insured by accepting a reasonable settlement offer within policy limits. Stowers is the only common law tort duty in the context of third party insurers responding to settlement demands.‖ Id. (internal citation omitted). Because the elements of a Stowers claim had not been met, the Court concluded that the insured had no common law rights to which the co-insurer could be subrogated. Id.
In Ford, an insured sued his insurer for negligently handling his claim after a letter from the insurer stating that the insured was partially negligent in causing the fire was obtained by the fire extinguisher certification company that the insured was suing. Ford, 230 F.3d at 829–30. Looking to Texas Supreme Court authority, the Fifth Circuit rejected the insured‘s claim, observing that ―the Stowers duty is
11
the only common law tort duty Texas currently recognizes in third party insurance claims.‖ Id. at 832.
Other courts of appeals have taken similar tacks since Duddlesten. Our sister court, the Fourteenth Court of Appeals, recently handled an appeal involving facts similar to Duddlesten. See Methodist Hosp. v. Zurich Am. Ins. Co., No. 14-07-00663-CV, 2009 WL 3003251, at *3 (Tex. App.—Houston [14th Dist.] July 7, 2009, pet. denied). Methodist Hospital involved an insured, Methodist, who alleged that its insurer, Zurich, had acted negligently in handling and settling workers‘ compensation claims asserted against Methodist. Id. at *1–2. As Allstate has done here, Zurich moved for summary judgment on Methodist‘s negligence claims on the grounds that Texas law does not recognize a cause of action by an insured for its insurer‘s negligent handling of a third party claim outside the context of a Stowers claim. Id. at *4. The trial court granted summary judgment on Methodist‘s negligence claims, and the Fourteenth Court of Appeals affirmed. Id. at *6. The court held that, because the relationship between Methodist and Zurich was that of insured/insurer with respect to the third party claims at issue, ―Texas law negates Methodist‘s contention that Zurich owed a duty to perform with care.‖ Id.
The Dallas Court of Appeals has reached a consistent result under facts similar to those presented here. Cain v. Safeco Lloyds Inc. Co., 239 S.W.3d 895,
12
897–98 (Tex. App.—Dallas 2007, no pet.). Faced with negligence claims arising out of the insurer‘s handling of an automobile accident suit against its insured, the Dallas Court of Appeals held that Texas law does not recognize a cause of action for an insurer‘s negligent defense of a third party claim beyond Stowers and declined to expand the scope of the Stowers duty to allow for such a claim. Id. (citing Traver and Head, as well as Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994)).
Taylor relies largely on Traver to argue that his claim for negligent defense is actionable, pointing out that: (1) the Court in Traver distinguished itself from Head on the basis that the claim asserted in Traver arose not out of a refusal to defend but allegations of inadequate defense, and (2) the Traver court remanded ―any remaining claims that [the insured] pled or might plead against [his insurer].‖ We are unpersuaded by these arguments. While Taylor‘s allegations of negligent defense can be factually distinguished from the allegations of improper refusal to defend in Head, this same distinction cannot be made with respect to Mid-Continent, Duddlesten, Methodist, or Cain, each of which involved allegations of negligence in the handling of a third party claim. Mid-Continent, 236 S.W.3d at 776 (insurer allegedly acted negligently in negotiating and refusing to participate in settlement of third party claim); Duddlesten, 110 S.W.3d at 97 (insurer allegedly acted negligently in failing to adequately investigate and dispute third party
13
claims); Methodist, 2009 WL 3003251, at *3–4 (insurer allegedly acted negligently in handling third party claims); Cain, 239 S.W.3d at 897–98 (insurer allegedly negligent in controlling details of defense of third party claim). Thus, questions potentially left open in Traver have been decided in subsequent decisions.
In accordance with Texas Supreme Court authority, as interpreted by this Court and other Texas courts of appeals addressing the issue, we hold that Texas law does not recognize a negligence cause of action under the circumstances of this case. We affirm the trial court‘s summary judgment on Taylor‘s negligence claims against Allstate.
C. Tortious Interference
Taylor asserts that Allstate committed tortious interference with a contractual and fiduciary relationship by:
tacitly, expressly and through the implied promise of future business, required Mr. Causey — and Mr. Causey assented — to put Allstate‘s interests ahead of Mr. Taylor‘s interests by consciously limiting Mr. Taylor‘s defense solely to engineering a settlement — a settlement in which Mr. Causey, although clearly not ready for trial and the case clearly was not ready for trial, coerced Mr. Taylor into accepting by telling him that the case would go to trial in a week and that there was a medical lien in excess of $8,000 which the jury would weigh heavily in [the automobile accident victim‘s family‘s] favor and against Mr. Taylor. None of these statement (sic) were true.
Allstate‘s argument for summary judgment broadly states that, under existing precedent, Stowers provides the sole tort duty in third party insurance cases. The motion does not distinguish between Taylor‘s negligence claim and
14
Taylor‘s tortious interference claim. In his response, Taylor globally contends insurance companies should be subject to the same laws as others, but he does not point us to any specific argument or authority permitting an insured‘s claim against his insurer for tortious interference with the attorney-client relationship between the insured and legal counsel retained by the insurer.
1. Tortious Interference with a Fiduciary Relationship
We have previously declined to recognize a cause of action for tortious interference with a fiduciary relationship. Alpert v. Crain, Caton & James, P.C., 178 S.W.3d 398, 407 (Tex. App.—Houston [1st Dist.] 2005, pet. denied) (declining to recognize the cause of action in a suit brought by an attorney‘s former client against both the attorney and the attorney‘s own legal counsel after the attorney allegedly breached his fiduciary duty to the former client); see also Traver, 980 S.W.2d at 632 (Gonzalez, J., joined by Abbott, J., concurring and dissenting) (noting that ―[s]ome courts have recognized that the tortious interference cause of action is applicable to the attorney-client relationship‖ but admitting that ―we have not been able to find a reported case reviewing a claim for tortious interference under similar facts[.]‖).4 Based on the arguments presented,
4 This court has also declined to recognize a cause of action against an attorney for aiding and abetting a client‘s breach of fiduciary duty to a third party by conduct within the scope of the attorney‘s representation of the client. Span Enters. v. Wood, 274 S.W.3d 854, 859 (Tex. App.—Houston [1st Dist.] 2008, no pet.).
15
we decline to recognize a cause of action for tortious interference with a fiduciary duty in this case.
2. Tortious Interference with a Contractual Relationship
In Head, the Court did not recognize a common law duty of good faith and fair dealing for an insurer in handling third party claims because the insured is fully protected against the insurer‘s refusal to defend or mishandling of a third party claim through his contractual and Stowers rights. Head, 938 S.W.2d at 28–29 (Tex. 1996). Here, Taylor‘s claims against Allstate arise out of its conduct in handling a third party claim; therefore, under analogous reasoning, Taylor is fully protected by his contractual and Stowers rights such that it is unnecessary to recognize cause of action for tortious interference in this context.
The control-based analysis in Travers may be read to counsel against a claim for tortious interference in this context. The Court in Travers reasoned that the elevated duties owed by an attorney to a client require the attorney to exercise the kind of unfettered control over his representation of the client that forestalls meaningful outside influence over the representation. Travers, 980 S.W. 2d at 627. In the context of handling the client‘s legal matter, an attorney‘s contractual relationship with his client is also, necessarily, a fiduciary relationship. Thus, unlike the other party to the contract in a typical tortious interference claim, an attorney is not free to act in his own best interest in performing, or choosing not to
16
perform, his contractual obligations to his client. Here, Taylor‘s claim for tortious interference with his contractual relationship with Causey is based on the same alleged conduct that is the basis for Taylor‘s claim for tortious interference with his fiduciary relationship with Causey, and all of this alleged conduct falls within Causey‘s legal representation of Taylor, over which Causey alone must exercise unfettered control.
We also note that Texas case law has given the insurer room to protect its legitimate interests in the defense of a third party claim by placing a burden of absolute loyalty to the insured on the attorney, who ―must at all times protect the interests of the insured if those interests would be compromised by the insurer‘s instructions.‖ Unauthorized Practice of Law Comm. v. Am. Home Assur. Co., Inc., 261 S.W.3d 24, 27 (Tex. 2008). Recognizing potential liability on the part of the insurer for advocating a defense strategy with which the insured disagrees undermines this balance and, where it exists, the insurer‘s right of control over the defense. The insurer‘s right of control is not absolute, and the insured is permitted to refuse the insurer‘s defense under certain circumstances, such as a serious conflict of interests between the insured and the insurer. See, e.g., N. Cnty. Mut. Ins. Co. v. Davalos, 140 S.W.3d 685, 689 (Tex. 2004) (holding that the alleged conflict of interest between the insured and the insurer over the best venue for the action did not destroy the insurer‘s right of control but noting that an insured ―may
17
rightfully refuse an inadequate defense and may also refuse any defense conditioned on an unreasonable, extra-contractual demand that threatens the insured‘s independent legal rights.‖).
We conclude that, under current Texas Supreme Court authority, Texas law does not recognize a cause of action by an insured against his insurer for tortious interference with the insured‘s relationship with his attorney arising out of the insured‘s handling of the defense of a third party claim under the circumstances alleged by Taylor in this action.
D. Taylor’s Contract Claims Against Allstate
Taylor contends that the trial court should not have granted summary judgment on his breach of contract claims on the basis of Allstate‘s ―no cause of action‖ summary judgment. Taylor points out that the Texas Supreme Court expressly contemplates the existence of some contractual right in the following statement: ―The court overlooked the fact that an insured is fully protected against his insurer‘s refusal to defend or mishandling of a third-party claim by his contractual and Stowers rights.‖ Head, 938 S.W.2d at 28–29; see also Traver, 980 S.W.2d at 629 (―We further concluded that rights granted under Stowers together with rights under the contract of insurance fully protected the insured against an insurance company‘s erroneous refusal to defend a third-party liability claim.‖).
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Allstate re-urges its argument that the Stowers doctrine represents the insured‘s exclusive basis for recovery against its insurer with respect to the insurer‘s handling of third party claims. In the context of Taylor‘s contract claims, Allstate relies largely on three courts of appeals‘ opinions: Cain, Duddlesten and Methodist. See Duddlesten, 110 S.W.3d at 96–97; Methodist, 2009 WL 3003251, at *7; Cain, 239 S.W.3d at 897–98. Allstate asserts that these cases hold, essentially, that the insurer‘s contractual duty to defend does not impose upon the insurer a duty to defend ―with care.‖
The no-cause-of-action analysis in Cain, Duddlesten and Methodist dealt with the insured‘s tort claims. See Duddlesten, 110 S.W.3d at 96–97; Methodist, 2009 WL 3003251, at *7; Cain, 239 S.W.3d at 897–98. Consistent with the Texas Supreme Court‘s prior holdings, these courts of appeals cases hold that Texas law does not recognize a claim for negligence based on the insurer‘s handling of the defense of a third party claim, whether the claims is asserted outside of the Stowers doctrine or as an extension of the doctrine. Duddlesten, 110 S.W.3d at 96–97; Methodist, 2009 WL 3003251, at *7; Cain, 239 S.W.3d at 897–98. These cases do not hold that Texas law does not recognize a cause of action for breach of contract between an insured and its insurer. We, therefore, disagree that a breach of contract claim may never lie against an insurer for its conduct in handling the defense of a third party claim against the insured.
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The nature and extent of the duties owed under a contract are determined by the contract‘s terms. See Duddlesten, 110 S.W.3d at 89–90 (―We will determine appellee‘s contractual duties by looking at language of the policy itself.‖). In fact, in each of the cases relied on by Allstate wherein a breach of contract claim was asserted, the court specifically analyzes the contract in question to determine the nature of the insurer‘s contractual duties. See Duddlesten, 110 S.W.3d at 89–90; Methodist, 2009 WL 3003251, at *8–10. Likewise, in Mid-Continent, to determine the insured‘s rights against his insurer to which a co-insurer may be subrogated, the Texas Supreme Court did not deny the existence of a breach of contract clause under Texas law but, rather, reviewed the policy in question to determine what rights were afforded the insured by the contract. Mid-Continent, 236 S.W.3d at 775–76. Furthermore, in Head, the Texas Supreme Court permitted the insured to recover breach of contract damages against its insurer. Head, 938 S.W.2d at 29.
Here, Allstate provided no analysis of the terms of Taylor‘s insurance contract with Allstate and did not file the contract with its motion for summary judgment. Without such analysis, we conclude that Allstate has not met its burden of proving that it was entitled to summary judgment on Taylor‘s breach of contract claims as a matter of law. Cf. TEX. R. CIV. P. 166a(c) (to prevail on a motion for traditional summary judgment, the movant must demonstrate that no genuine issue of material fact exists and it is entitled to judgment as a matter of law); KPMG
20
Peat Marwick v. Harrison Cnty. Hous. Fin. Corp., 988 S.W.2d 746, 748 (Tex. 1999) (same). We reverse and remand the trial court‘s judgment with respect to Taylor‘s breach of contract claims.
E. Taylor’s Statutory Claims Against Allstate
Taylor‘s statutory claims against Allstate include numerous alleged violations of DTPA and Insurance Code. Taylor essentially argues that the trial court erred in granting summary judgment on these claims because the Stowers doctrine does not supplant an insured‘s statutory rights of action. Allstate makes no argument specific to Taylor‘s statutory claims. To the extent Allstate‘s broad assertions about the exclusivity of the Stowers claim can be read as an argument that the Stowers doctrine necessarily supplants all statutory causes of action an insured might otherwise have against its insurer in the context of defending third party claims, we disagree. None of the authority presented by Allstate supports the position that Texas law prohibits an insured from bringing otherwise valid statutory claims against an insurer. E.g., Duddlesten, 110 S.W.3d at 90–94 (reviewing insured‘s evidence and concluding evidence was insufficient to support insured‘s claims under DTPA and Insurance Code). Allstate makes no argument as to whether or not Taylor‘s DTPA and Insurance Code claims are otherwise invalid under the facts of this case as pled by Taylor.
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Because Allstate asserts only a general ―no cause of action‖ basis for summary judgment on Taylor‘s statutory claims and does not attack any of the elements of the statutory claims Taylor asserts, we conclude that Allstate has not met its burden of proving that it was entitled to summary judgment on Taylor‘s statutory causes of action as a matter of law. Cf. TEX. R. CIV. P. 166a(c); KPMG Peat Marwick, 988 S.W.2d at 748. We reverse and remand the trial court‘s judgment with respect to Taylor‘s statutory causes of action.
F. Taylor’s Warranty Claims Against Allstate
Although Taylor‘s pleadings refer to breach of warranty claims against Allstate, Taylor‘s appellate briefing does not address those claims. Nor did Taylor provide the trial court with a basis for denying summary judgment on these claims. For this reason, we hold that any error in granting summary judgment on these claims is waived. Wheeler v. Methodist Hosp., 95 S.W.3d 628, 646 (Tex. App.—Houston [1st Dist.] 2002, no pet.). We affirm the trial court‘s judgment with respect to Taylor‘s warranty claims.
We therefore sustain in part and overrule in part, Taylor‘s first issue.
Opportunity to Amend Pleadings
In his second issue, Taylor contends he should be given an opportunity to re-plead his claims. Taylor asserts: ―When a ‗no cause of action‘ summary judgment
22
is granted, the Trial Court abuses its discretion by not allowing the nonmovant the opportunity to replead,‖ citing Perry v. S.N., 973 S.W.2d 301, 303 (Tex. 1998).
The record shows that on the same day Allstate filed its motion for summary judgment, Allstate specially excepted to Taylor‘s allegations against Allstate on the grounds asserted in its motion for summary judgment. We agree with Allstate that, like the plaintiff in Perry, Taylor was put on notice of Allstate‘s summary judgment grounds and given an opportunity to replead before the trial court signed the summary judgment order. See Perry, 973 S.W.2d at 303. Taylor did, in fact, amend his pleadings after Allstate filed its special exceptions and motion for summary judgment and before the trial court ruled on the summary judgment motion. We conclude that the trial court properly denied Taylor‘s motion for leave to amend his pleadings. We overrule Taylor‘s second issue.
Conclusion
We reverse the portion of the trial court‘s judgment granting summary judgment on Taylor‘s breach of contract and statutory causes of action and remand those claims for further proceedings; we affirm the judgment in all other respects.
Elsa Alcala
Justice
Panel consists of Chief Justice Radack and Justices Alcala and Bland.

 

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Martindale AVtexas[2]

Texas Dwelling Insurance Policy Litigation in Fort Worth–Attorneys’ Fees Issues

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 02-10-00063-CV
COLUMBIA LLOYDS INSURANCE COMPANY
APPELLANT
AND APPELLEE
V.
ROBERT MAO AND VACHANA MAO
APPELLEES
AND APPELLANTS
————
FROM THE 342ND DISTRICT COURT OF TARRANT COUNTY
————
MEMORANDUM OPINION1
———-
I. INTRODUCTION
Columbia Lloyds Insurance Company issued a Texas Dwelling Policy that named Vachana Mao as insured and covered a rental house that she owned. After a fire occurred at the dwelling, Vachana reported the loss to Columbia Lloyds; Columbia Lloyds denied Vachana’s claim based on a vacancy clause in
1See Tex. R. App. P. 47.4.
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the policy. This litigation ensued, and the trial court granted Columbia Lloyds’s traditional and no-evidence motion for summary judgment on the Maos’ extracontractual claims; the trial court also granted the Maos’ motion for partial summary judgment on their breach of contract claim and awarded them actual damages of $30,000. The trial court granted Columbia Lloyds’s summary judgment on the Maos’ claim for attorney’s fees and for violations of the Prompt Payment of Claims Act (PPCA).
Columbia Lloyds and the Maos both perfected appeals. In one issue, Columbia Lloyds contends that the trial court erred by granting summary judgment for the Maos and by denying summary judgment for Columbia Lloyds on the Maos’ breach of contract claim because Columbia Lloyds conclusively established that the dwelling was vacant, triggering the vacancy exclusion of the policy. In three points, the Maos argue that the trial court erred by granting summary judgment for Columbia Lloyds on the Maos’ claim for attorney’s fees, their claim that Columbia Lloyds had violated the PPCA, and their extracontractual claims. For the reasons set forth below, we will reverse and remand in part and affirm in part.
II. FACTUAL AND PROCEDURAL BACKGROUND
The policy issued by Columbia Lloyds covered rental property located at 1109 Bewick in Fort Worth; a detached garage was also covered by the policy. The policy period was from January 19, 2006 to January 19, 2007, and the policy limit was $30,000 with a $300 deductible. The policy contained a vacancy clause
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that stated, ―During the policy term, if an insured building is vacant for 60 consecutive days immediately before a loss, we will not be liable for a loss by the perils of fire and lightning or vandalism or malicious mischief. Coverage may be provided by endorsement to this policy.‖
Judy Romero, a claims manager for Columbia Lloyds, received a phone call from Vachana on November 3, 2006, reporting that a fire had damaged the insured dwelling at 1109 Bewick on October 28, 2006. Romero noted on the ―Property Loss Notice‖ form that ―[t]he house was vacant per insured[––]tenant moved out in Feb.‖ Romero assigned the claim to Orena Claims Service.
Robert Orena inspected the dwelling on November 7, 2006, and took photographs; he determined that there were no contents in the house. Orena orally explained the vacancy clause to Vachana. Orena thereafter told Romero that the house was a total loss, that the origin of the fire was undetermined, and that the house had been vacant for more than sixty days.
Romero made the decision to deny the claim based on the vacancy clause in the policy and the facts supporting the vacancy (i.e., no contents in the house and no tenants in the house), and Romero told Orena to write a denial letter. Orena sent a letter dated November 10, 2006, to Vachana denying the claim based on the vacancy clause.
Following the letter, the Maos’ attorney sent a letter to Columbia Lloyds disputing the definition of ―vacancy‖ it had used. Romero printed out the definitions of ―vacancy‖ and ―unoccupied,‖ sent them to the Johnston Legal
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Group to obtain a legal opinion, and requested an examination under oath from Vachana.
During her examination under oath on May 14, 2007, Vachana stated that as of June 8, 2006, all of the prior tenant’s furniture had been moved out, and the insured dwelling was ―completely vacant.‖ She said that there was a sofa, an old bed, a gas range, and a refrigerator in the detached garage2 but that these appliances were not ―hooked up.‖ She explained that the house was in the process of being remodeled and that although the contractor’s proposal said that he would finish by July 12, 2006, she did not think that he had finished the work by that date because he kept coming in and out of the house.
On September 20, 2007, Romero sent a second denial letter to the Maos because the legal opinion that she had received from the Johnston Legal Group following the examination under oath confirmed that the vacancy clause applied.
The Maos filed suit against Columbia Lloyds, alleging claims for breach of contract, breach of the duty of good faith and fair dealing, common law fraud, violations of the Deceptive Trade Practices Act (DTPA), violations of the insurance code, and violations of the PPCA. The Maos also claimed they were entitled to attorney’s fees for their breach of contract and PPCA violation claims.
Columbia Lloyds answered, and in due course, the parties filed competing motions for summary judgment. The Maos moved for partial summary judgment
2Vachana said that the ―garage not burned down, just a little bit.‖
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on their breach of contract claim, arguing that as a matter of law the insured dwelling was not vacant at the time of the fire as the term ―vacant‖ is defined by Texas law. Columbia Lloyds moved for summary judgment on the Maos’ breach of contract claim, arguing that as a matter of law the property was vacant for sixty consecutive days prior to the fire. The Maos also moved for summary judgment on their extracontractual claims and on their claim for a violation of the PPCA. Eventually, the trial court signed a final judgment granting Columbia Lloyds’s motion for summary judgment on the Maos’ extracontractual claims and claim for violations of the PPCA and granting the Maos’ motion for partial summary judgment on their breach of contract claim; the trial court denied the Maos’ request for attorney’s fees under any theory of recovery.
III. STANDARD OF REVIEW
A. No-Evidence Summary Judgment Standard of Review
After an adequate time for discovery, the party without the burden of proof may, without presenting evidence, move for summary judgment on the ground that there is no evidence to support an essential element of the nonmovant’s claim or defense. Tex. R. Civ. P. 166a(i). The motion must specifically state the elements for which there is no evidence. Id.; Timpte Indus., Inc. v. Gish, 286 S.W.3d 306, 310 (Tex. 2009). The trial court must grant the motion unless the nonmovant produces summary judgment evidence that raises a genuine issue of material fact. See Tex. R. Civ. P. 166a(i) & cmt.; Hamilton v. Wilson, 249 S.W.3d 425, 426 (Tex. 2008).
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When reviewing a no-evidence summary judgment, we examine the entire record in the light most favorable to the nonmovant, indulging every reasonable inference and resolving any doubts against the motion. Sudan v. Sudan, 199 S.W.3d 291, 292 (Tex. 2006). We review a no-evidence summary judgment for evidence that would enable reasonable and fair-minded jurors to differ in their conclusions. Hamilton, 249 S.W.3d at 426 (citing City of Keller v. Wilson, 168 S.W.3d 802, 822 (Tex. 2005)). We credit evidence favorable to the nonmovant if reasonable jurors could, and we disregard evidence contrary to the nonmovant unless reasonable jurors could not. Timpte Indus., Inc., 286 S.W.3d at 310 (quoting Mack Trucks, Inc. v. Tamez, 206 S.W.3d 572, 582 (Tex. 2006)). If the nonmovant brings forward more than a scintilla of probative evidence that raises a genuine issue of material fact, then a no-evidence summary judgment is not proper. Smith v. O’Donnell, 288 S.W.3d 417, 424 (Tex. 2009).
B. Traditional Summary Judgment Standard of Review
In a summary judgment case, the issue on appeal is whether the movant met the summary judgment burden by establishing that no genuine issue of material fact exists and that the movant is entitled to judgment as a matter of law. Tex. R. Civ. P. 166a(c); Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844, 848 (Tex. 2009). We review a summary judgment de novo. Mann Frankfort, 289 S.W.3d at 848.
We take as true all evidence favorable to the nonmovant, and we indulge every reasonable inference and resolve any doubts in the nonmovant’s favor.
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20801, Inc. v. Parker, 249 S.W.3d 392, 399 (Tex. 2008); Sw. Elec. Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002). We consider the evidence presented in the light most favorable to the nonmovant, crediting evidence favorable to the nonmovant if reasonable jurors could, and disregarding evidence contrary to the nonmovant unless reasonable jurors could not. Mann Frankfort, 289 S.W.3d at 848. We must consider whether reasonable and fair-minded jurors could differ in their conclusions in light of all of the evidence presented. See Wal-Mart Stores, Inc. v. Spates, 186 S.W.3d 566, 568 (Tex. 2006); City of Keller, 168 S.W.3d at 822–24.
The summary judgment will be affirmed only if the record establishes that the movant has conclusively proved all essential elements of the movant’s cause of action or defense as a matter of law. City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979). If uncontroverted evidence is from an interested witness, it does nothing more than raise a fact issue unless it is clear, positive and direct, otherwise credible and free from contradictions and inconsistencies, and could have been readily controverted. Tex. R. Civ. P. 166a(c); Morrison v. Christie, 266 S.W.3d 89, 92 (Tex. App.—Fort Worth 2008, no pet.).
When competing motions for summary judgment are filed, and one is granted while the other is denied, we first review the order granting summary judgment. Hartford Cas. Ins. Co. v. Morton, 141 S.W.3d 220, 225 (Tex. App.––Tyler 2004, pet. denied). If we determine the order granting summary judgment
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was erroneous, we then review the trial court’s action in overruling the denied motion. Id. We determine all questions presented and may reverse the trial court’s judgment and render such judgment as the trial court should have rendered, including rendering judgment for the other movant. See Mann Frankfort, 289 S.W.3d at 848; Jones v. Strauss, 745 S.W.2d 898, 900 (Tex. 1988).
IV. A GENUINE ISSUE OF MATERIAL FACT EXISTS
ON THE APPLICABILITY OF THE POLICY’S VACANCY CLAUSE
In a single issue, Columbia Lloyds argues that the trial court erred when it granted a traditional summary judgment for the Maos on their breach of contract claim because the summary judgment evidence fails to conclusively establish that the dwelling was not vacant and that the trial court erred when it denied Columbia Lloyds’s traditional motion for summary judgment on the Maos’ breach of contract claim because the summary judgment evidence conclusively established that the dwelling was vacant for sixty consecutive days prior to the fire, triggering the vacancy exclusion in the policy.
As set forth above, the vacancy clause excluded coverage for fire damage occurring when the dwelling was vacant for sixty consecutive days before a fire. The policy does not define ―vacant.‖ The term vacant has been defined by case law as an ―entire abandonment, deprived of contents, empty, that is, without contents of substantial utility.‖ See Jerry v. Ky. Cent. Ins. Co., 836 S.W.2d 812, 815 (Tex. App.––Houston [1st Dist.] 1992, writ denied); Knoff v. United States
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Fid. & Guar. Co., 447 S.W.2d 497, 501 (Tex. Civ. App.––Houston [1st Dist.] 1969, no writ).
The summary judgment evidence on the vacancy issue included the Maos’ Request For Admission No. 11 asking Columbia Lloyds to admit ―[t]hat the fire on our [sic] about October 28, 2006 caused damage to the dwelling and contents in the dwelling at the property.‖ Columbia Lloyds answered, ―Denied. Answering further: Defendant admits that the fire caused damage to the dwelling but because there were no contents in the house, no contents were destroyed.‖ Deposition excerpts from Romero’s deposition indicate that the adjuster’s photos documented that nothing was in the actual dwelling, although a few items were in the detached garage. Romero also stated that she did not have any information that the Maos had abandoned the property; she knew that they were remodeling the home and that they were trying to sell it.
Vachana stated in her May 2007 examination under oath that as of the date of the fire, all of the prior tenant’s furniture had been moved out, and the insured dwelling was ―completely vacant.‖ She said that there was a sofa, an old bed, a gas range, and a refrigerator in the detached garage; that the appliances were not ―hooked up‖; and that the garage had no heating or air-conditioning and was not designed to be lived in. Vachana explained that although the remodeler’s proposal said that he would finish by July 12, 2006, she did not think that he had finished the work by that date because he kept coming in and out of the house.
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The remodeler, Valentin Leos, said that he started the remodel on July 12, 2006, and that he finished the job ―a month or month and seven days‖ before Vachana called and told him that the house had burned. Leos recalled that there was a refrigerator and a stove in the home, and he thought that there was a washer and dryer, but he was not sure if there was a dishwasher.
In her March 2009 summary judgment affidavit, Vachana averred that the home was in the process of being renovated until September 2006 but that it was not complete at the time of the fire because Leos still needed to put in new windows. She said that the utilities were connected because she showed the home to potential buyers approximately twice a week, that she had been to the home the week before the fire, and that she went to the home at least once a week. Vachana averred that there was a refrigerator, a washer, a dryer, and a dishwasher in the house and that there was a sofa, a heater, a bed, a refrigerator, and a range in the garage.
Generally, when contradictory summary judgment evidence exists on whether a dwelling was vacant within the meaning of the policy’s vacancy clause, it is a question for the jury. Germania Farm Mut. Aid Ass’n v. Anderson, 463 S.W.2d 24, 25 (Tex. Civ. App.––Waco 1971, no writ) (refusing to hold vacancy was established as a matter of law); accord Lundquist v. Allstate Ins. Co., 732 N.E.2d 627, 631 (Ill. App. Ct. 2000) (―[W]hether the subject dwelling was vacant or unoccupied at the time of the loss is a question of fact.‖); Cavin v. Charter Oak Fire Ins. Co., 384 N.E.2d 441, 443 (Ill. App. Ct. 1978) (holding fact issues existed
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regarding whether insured’s building was vacant and reversing summary judgment for the insurer where evidence showed that, at the time of loss, no tenants remained in the property, the property was furnished, the property was being renovated, and the insured was storing building materials in the dwelling); 6 Lee R. Russ & Thomas F. Segala, Couch on Insurance § 94:108 (3d ed. 1996) (―Whether or not insured premises have become vacant, unoccupied, or the like within the meaning of a forfeiture provision in an insurance policy is usually a question for the jury.‖).
Viewing all of the summary judgment evidence in the light most favorable to Columbia Lloyds, the nonmovant on the Maos’ traditional motion for summary judgment on their breach of contact claim that was granted, a genuine issue of material fact exists concerning whether the dwelling was not vacant for more than sixty consecutive days prior to the fire. That is, viewing the summary judgment evidence in this light, reasonable and fair-minded people could differ in their conclusions on whether the dwelling was not vacant for sixty consecutive days prior to the fire. See Wal-Mart Stores, Inc., 186 S.W.3d at 568. Based on the fact that no one lived in the dwelling; based on Orena’s photos of the dwelling after the fire; based on the remodeler’s proposal indicating repairs would be complete by July 12, 2006; and based on Vachana’s statement to Romero when she reported the fire that the dwelling was vacant, a reasonable and fair-minded person could conclude that the dwelling was abandoned, deprived of contents, and empty, that is, without contents of substantial utility for more than sixty days
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prior to the October 28, 2006 fire. Thus, the trial court erred by granting a traditional summary judgment for the Maos on their breach of contract claim.
We next address whether, viewing all of the summary evidence in the light most favorable to the Maos––the nonmovants on Columbia Lloyds’s traditional motion for summary judgment on the Maos’ breach of contract claim––the evidence conclusively establishes that the dwelling was vacant for more than sixty consecutive days prior to the fire. Viewing the summary judgment evidence in this light, reasonable and fair-minded people could differ in their conclusions on whether the dwelling was vacant for sixty consecutive days prior to the fire. Based on Vachana’s testimony that the dwelling was being remodeled, based on the remodeler’s testimony that he did not think he had completed the remodeling more than forty-five days prior to the fire, and based on Vachana’s testimony that she was trying to sell the dwelling and was showing it weekly to potential buyers, a reasonable and fair-minded person could conclude that the dwelling was not abandoned, deprived of contents, and empty, that is, without contents of substantial utility for more than sixty days prior to the October 28, 2006 fire. See Spates v. Republic Ins. Co., 756 S.W.2d 88, 91 (Tex. App.––San Antonio 1988, no writ) (holding fact question concerning date homeowners vacated the insured house precluded summary judgment for insurer based on vacancy clause).3
3See also Walch v. USAA, No. 02-01-00146-CV, 2002 WL 31628179, at *8 (Tex. App.––Fort Worth Nov. 21, 2002) (holding genuine issue of material fact existed concerning applicability of vacancy clause when unoccupied rental house was being renovated, contained appliances and building materials, utilities were
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Thus, the trial court did not err by denying Columbia Lloyds’s traditional motion for summary judgment on the Maos’ breach of contract claim.
Because––viewing the summary judgment evidence in the light most favorable to Columbia Lloyds––a genuine issue of material fact exists on whether the dwelling was not vacant for sixty consecutive days prior to the fire, we sustain Columbia Lloyds’s sole issue to the extent it seeks reversal of the summary judgment on the Maos’ breach of contract claim. Because––viewing the summary judgment evidence in the light most favorable to the Maos––a genuine issue of material fact exists on whether the dwelling was vacant for sixty consecutive days prior to the fire, we overrule Columbia Lloyds’s sole issue to the extent it seeks reversal of the trial court’s denial of its traditional motion for summary judgment on the Maos’ breach of contract claim. We will remand the Maos’ breach of contract claim to the trial court.
V. NO REVERSAL OF SUMMARY JUDGMENT
ON THE MAOS’ EXTRACONTRACTUAL CLAIMS
Columbia Lloyds filed a combined no-evidence and traditional motion for summary judgment addressing each of the Maos’ extracontractual claims. The no-evidence portion of Columbia Lloyds’s motion for summary judgment
on, and owner checked on house a couple times a week), op. withdrawn on denial of reh’g, 2003 WL 302220 (Tex. App.––Fort Worth Feb. 13, 2003, no pet.). Although the Walch opinion has been withdrawn and thus has no precedential value, we include it here because the Maos discuss it and attached a copy of the opinion to their brief. See Pearson v. K-Mart Corp., 755 S.W.2d 217, 219 (Tex. App.––Houston [1st Dist.] 1988, no writ) (discussing withdrawn supreme court opinion because both parties had referred to it in their briefs).
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specifically sets forth the elements of each of the Maos’ extracontractual claims: the breach of the duty of good faith and fair dealing claim, the DTPA and insurance code violation claims, and the common law fraud claim. Concerning the breach of the duty of good faith and fair dealing claim, Columbia Lloyds asserted that no evidence existed that Columbia Lloyds knew that its liability had become reasonably clear or that Columbia Lloyds had no reasonable basis to deny the Maos’ claim. Concerning the DTPA and insurance code violation claims, Columbia Lloyds asserted that no evidence existed that it had ―engaged in any unfair or deceptive act or practice in violation of Chapter 541, Subchapter B, of the Texas Insurance Code or § 17.46(b) of the Texas Business and Commerce Code.‖ Concerning the common law fraud claim, Columbia Lloyds asserted that no evidence existed that it made a false representation to the Maos with the intent that the Maos rely on it.
In their third point, the Maos argue that the trial court erred when it granted summary judgment for Columbia Lloyds on the extracontractual claims. The Maos’ brief challenges the trial court’s summary judgment on their breach of the duty of good faith and fair dealing claim, arguing that summary judgment evidence exists that Columbia Lloyds did not conduct a reasonable investigation. The Maos do not, however, separately address their alleged DTPA and insurance code violation claims or their common law fraud claim.4
4The Maos’ brief does not mention their fraud claim at all; their brief’s only mention of their DTPA and insurance code claims is the following sentence, ―The
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On appeal, an appellant must attack every ground upon which summary judgment could have been granted to obtain a reversal. Malooly Bros., Inc. v. Napier, 461 S.W.2d 119, 121 (Tex. 1970). A broad issue challenging the propriety of a summary judgment is sufficient to place all grounds for summary judgment before the appellate court, but does not relieve the appellant of the burden to challenge in his brief each of the grounds on which for the summary judgment could have been granted and to present argument and authorities for each possible basis for summary judgment. See, e.g., Cruikshank v. Consumer Direct Mortg., Inc., 138 S.W.3d 497, 502–03 (Tex. App.––Houston [14th Dist.] 2004, pet. denied); Pena v. State Farm Lloyds, 980 S.W.2d 949, 958 (Tex. App.—Corpus Christi 1998, no pet.).
Here, the Maos raise a general point on appeal that the trial court erred by granting summary judgment for Columbia Lloyds on all of its extracontractual claims, but––with the exception of their claim for breach of the duty of good faith and fair dealing––the Maos’ brief does not address each extracontractual claim separately nor point to specific summary judgment evidence constituting more than a scintilla of evidence on the specific element of each extracontractual claim challenged by Columbia Lloyds in the no-evidence portion of its motion for summary judgment. See Worldwide Asset Purchasing L.L.C. v. Rent-A-Center
crux of Plaintiff’s extra-contractual claims (breach of duty of good faith and fair dealing, Insurance Code/DTPA) go to whether or not Defendant conducted a reasonable investigation of the claim.‖
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East, Inc., 290 S.W.3d 554, 569 (Tex. App––Dallas 2009, no pet.). Accordingly, because on appeal the Maos do not challenge the specific no-evidence grounds on which the trial court could have granted summary judgment for Columbia Lloyds on the Maos’ DTPA and insurance code violation claims and common law fraud claim, we are required to affirm the summary judgments on those claims. See, e.g., Rangel v. Progressive County Mut. Ins. Co., No. 08-09-00138-CV, 2010 WL 3312624, at *4 (Tex. App.––El Paso Aug. 24, 2010, pet. denied); Juarez v. Longoria, 303 S.W.3d 329, 330 (Tex. App.––El Paso 2009, no pet.).
We next address the Maos’ challenge to the trial court’s summary judgment for Columbia Lloyds on the Maos’ breach of the duty of good faith and fair dealing claim. As previously mentioned, the Maos argue on appeal that more than a scintilla of summary judgment evidence exists on this claim because reasonable and fair-minded people could differ in their conclusions on whether Columbia Lloyds performed a reasonable investigation. The Maos argue that Columbia Lloyds’s conduct after its initial denial letter was ―pretextual‖ to retroactively support its unreasonable investigation and denial.
An insurer breaches its duty of good faith and fair dealing by denying or delaying a claim when the insurer’s liability has become reasonably clear. State Farm Fire & Cas. Co. v. Simmons, 963 S.W.2d 42, 44 (Tex. 1998) (citing Universe Life Ins. Co. v. Giles, 950 S.W.2d 48, 56 (Tex. 1997)). The focus is not on whether an insured’s claim was valid, but on the reasonableness of the insurer’s conduct in rejecting the claim. See Lyons v. Millers Cas. Ins. Co., 866
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S.W.2d 597, 601 (Tex. 1993). Evidence of coverage, standing alone, will not constitute evidence of bad faith denial. Provident Am. Ins. Co. v. Castaneda, 988 S.W.2d 189, 194 (Tex. 1998). Evidence showing only a bona fide coverage dispute does not rise to the level of bad faith. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Dominguez, 873 S.W.2d 373, 376 (Tex. 1994). Nor is bad faith established when a trier of fact, using hindsight, decides the insurer was simply wrong about the proper construction of the terms of the policy. See Lyons, 866 S.W.2d at 601. As long as an insurer has a reasonable basis to deny payment of a claim, even if that basis is eventually determined to be erroneous, the insurer is not liable for the tort of bad faith. Id. at 600. But insurers do have a duty to conduct a reasonable investigation of a claim and cannot insulate themselves from bad faith liability by investigating a claim in a manner calculated to construct a pretextual basis for denial. Simmons, 963 S.W.2d at 44. To withstand a no-evidence motion for summary judgment, a plaintiff in a bad faith case must present evidence that the insurer failed to attempt a prompt, fair settlement when the insurer’s liability has become reasonably clear. See Giles, 950 S.W.2d at 55.
The Maos argue that remodeling was taking place in the dwelling prior to the fire and that had Romero performed a reasonable investigation, she would have discovered evidence that Leos was working on the home during the sixty days prior to the fire. The Maos argue that ―Columbia Lloyds conducted little or no investigation prior to the November 10, 2006 denial.‖ And finally, the Maos argue that the action taken by Columbia Lloyds after its November 10, 2006
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initial denial letter was ―clearly done as a pretext to back-up Columbia Lloyd[s]’s denial, including Ms. Romero’s computer research and the EUO taken of the Maos.‖
To the extent that the Maos implicitly argue that Romero should have investigated the case herself, case law has held that an insurer can use information gathered by another party to fulfill its duty to conduct an investigation. See Pioneer Chlor Alkali Co. v. Royal Indem. Co., 879 S.W.2d 920, 941 (Tex. App.––Houston [14th Dist.] 1994, no writ) (holding that insurer conducted reasonable investigation by utilizing information gathered by its insured and therefore did not breach its duty of good faith and fair dealing). To the extent that the Maos argue that Romero’s investigation was insufficient, inadequate, or pretextual, the summary judgment evidence establishes that she relied on the adjuster’s photos and report, which revealed that there was nothing in the actual dwelling, as well as Vachana’s representation that the dwelling was vacant when she reported the claim. Viewing the summary judgment evidence in the light most favorable to the Maos, no summary judgment evidence exists that Orena’s report was not objectively prepared. See State Farm Lloyds v. Nicolau, 951 S.W.2d 444, 448–50 (Tex. 1997) (recognizing evidence casting doubt on reliability of expert’s report may support bad faith). No summary judgment evidence exists that it was unreasonable for Romero to rely on Orena’s investigation and report. Cf. Lyons, 866 S.W.2d at 601 (recognizing insurer’s reliance on report will not automatically shield insurer from bad faith finding when
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evidence exists that report was not objectively prepared or insurer’s reliance on report was unreasonable). No summary judgment evidence exists that Vachana did not tell Romero when she reported the fire that the dwelling was vacant. No summary judgment evidence exists that Columbia Lloyds conducted no investigation. No summary judgment evidence exists that Columbia Lloyds ignored certain information it possessed at the time of the denials or that the information it possessed was unreliable. See Castaneda, 988 S.W.2d at 197–98 (recognizing no evidence existed of pretextual denial of claim because no evidence existed that insurer ignored information that would lead a reasonable person to conclude that liability under the policy was reasonably clear or that there was no reasonable basis to deny the claim); Simmons, 963 S.W.2d at 47 (recognizing insurer repeatedly ignored evidence that its insureds did not burn down their home, resulting in outcome-oriented investigation); see also Spicewood Summit Office Condos. Ass’n, Inc. v. Am. First Lloyd’s Ins. Co., 287 S.W.3d 461, 470 (Tex. App.—Austin 2009, pet. denied) (recognizing insurer was entitled to summary judgment on insured’s DTPA and insurance code claims and on breach of duty of good faith and fair dealing claim when no evidence existed that inspector’s reports were not objectively prepared or that insurer’s reliance on reports was unreasonable); USAA v. Croft, 175 S.W.3d 457, 471 (Tex. App.––Dallas 2005, no pet.) (recognizing legally insufficient evidence existed to support bad faith finding when insurer relied upon engineer’s report and no evidence
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existed that report was not objectively prepared or that insurer’s reliance on report was unreasonable).
Viewing all of the summary judgment evidence in the light most favorable to the Maos, no summary judgment evidence exists that Columbia Lloyds denied the Maos’ claim when its liability had become reasonably clear or that Columbia Lloyds had no reasonable basis for denying the Maos’ claim. The trial court did not err by granting Columbia Lloyds’s no-evidence motion for summary judgment on the Maos’ breach of the duty of good faith and fair dealing claim.
We overrule the Maos’ third point.
VI. PPCA CLAIMS MUST BE REMANDED
In their first point, the Maos argue that the trial court erred by granting summary judgment for Columbia Lloyds on their claim for Columbia Lloyds’s violation of the PPCA. Because, as set forth above, we must remand the Maos’ breach of contract claim to the trial court, we also reverse the trial court’s grant of summary judgment to Columbia Lloyds on the Maos’ PPCA claim and remand that claim to the trial court. See Spicewood Summit Office Condos. Ass’n, 287 S.W.3d at 471 (remanding insured’s PPCA claim because insured’s breach of contract claim was reversed and remanded); Cater v. USAA, 27 S.W.3d 81, 84 (Tex. App.––San Antonio 2000, pet. denied) (holding that an insurance company’s good faith defense does not relieve the insurer from liability for damages for late payment, as long as the insurer is finally found liable for the claim); see also State Farm Lloyds v. Page, 315 S.W.3d 525, 531 (Tex. 2010)
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(recognizing that liability under the PPCA is premised on a finding of policy coverage); Higginbotham v. State Farm Mut. Auto. Ins. Co., 103 F.3d 456, 461 (5th Cir. 1997) (interpreting article 21.55 and its predecessor to conclude that an insurer’s good faith defense did not relieve the insurer of liability for damages for late payment, as long as the insurer is ultimately found liable for the claim). We sustain the Maos’ first point.
VII. REQUEST FOR ATTORNEY’S FEES MUST BE REMANDED
In their second point, the Maos argue that the trial court erred when it determined that they were not entitled to attorney’s fees. Because the Maos requested attorney’s fees based on their claims for breach of contract and for violations of the PPCA and because we are reversing and remanding those claims, we also remand the issue of attorney’s fees to the trial court for further consideration. See Spicewood Summit Office Condos. Ass’n, 287 S.W.3d at 471 (reversing and remanding the insured’s attorney’s fees in addition to its PPCA and breach of contract claims).
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VIII. CONCLUSION
Having disposed of all issues and points presented in both appeals, we reverse the trial court’s judgment with respect to the Maos’ claims for breach of contract, penalties under the PPCA, and attorney’s fees and remand for further proceedings consistent with this opinion; we affirm the trial court’s judgment with respect to the Maos’ extracontractual claims.
SUE WALKER JUSTICE
PANEL: WALKER, MEIER, and GABRIEL, JJ.
DELIVERED: March 24, 2011

 

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Martindale AVtexas[2]

Texas Stowers Action Litigation in CGL Policy–Texas Insurance Defense Attorneys as Witnesses

  1. 07-05-00188-CV

IN THE COURT OF APPEALS
FOR THE SEVENTH DISTRICT OF TEXAS
AT AMARILLO
PANEL E

JUNE 20, 2007

______________________________

 

YORKSHIRE INSURANCE CO., LTD., AND

OCEAN MARINE INSURANCE CO., LTD., APPELLANTS

V.

ROY SEGER, INDIVIDUALLY AND SHIRLEY FAYE HOSKINS,

INDIVIDUALLY AND AS ADMINISTRATOR OF THE ESTATE OF

RANDALL JAY SEGER, DECEASED, AND ALL AS ASSIGNEES OF

DIATOM DRILLING CO., A TEXAS LIMITED PARTNERSHIP, APPELLEES

_________________________________

 

FROM THE 84TH DISTRICT COURT OF HUTCHINSON COUNTY;

  1. 33,355; HONORABLE JOHN LAGRONE, JUDGE

_______________________________

 

Before QUINN, C.J., and HANCOCK, J., and BOYD, S.J. (1)

OPINION

We grant the Segers’ motion for rehearing. We withdraw our opinion of April 30, 2007, and substitute the following in its place.

Appellants, Yorkshire Insurance Co., Ltd., and Ocean Marine Insurance Co., Ltd., appeal a judgment entered against them awarding $26,732,876.71 in actual damages, $10,041,307.94 in pre-judgment interest, post-judgment interest at the rate of five percent per annum from the January 3, 2005 date of judgment, and costs, to appellees, Roy Seger and Shirley Faye Hoskins, individually and as administrator of the estate of Randall Jay Seger (collectively, “the Segers”). We affirm in part and reverse and remand for further proceedings.

Because of the complexity of the issues presented on appeal, we will outline the facts and circumstances leading to this appeal and identify other pertinent facts in our discussion of the specific issues presented.

Background

This is an appeal of a Stowers (2) action. The underlying incident giving rise to this action was the death of Randall Jay Seger. Randall did drilling work for two related companies, Diatom Drilling Co., L.P. (Diatom), and Employer’s Contractor Services, Inc. (ECS). ECS was a corporation established by Diatom’s general partner, Cynthia Gillman, to provide oil field services to Diatom and other drilling contractors. On July 13, 1992, while employed by ECS but providing services to Diatom, Randall was killed when a Diatom rig he was working on collapsed. Diatom, who was insured by a Lloyd’s of London-type comprehensive general liability (CGL) insurance policy at the time of the accident, notified the subscribing insurers (collectively, “the CGL insurers”) of the accident. Yorkshire and Ocean Marine (collectively, “Insurers”) were members of this group.

In June of 1993, Randall’s parents, the Segers, filed suit against Diatom, its partners, and ECS alleging negligence and gross negligence. The CGL insurers were not specifically notified of the suit at the time that it was filed. The suit sat virtually dormant until 1998. In 1998, Diatom demanded that the CGL insurers provide a defense to the Segers’ suit. The CGL insurers refused to provide a defense, contending that Randall’s death was not a covered occurrence and that Diatom failed to provide timely notice of suit.

After the CGL insurers refused to provide Diatom a defense, the Segers offered to settle their suit against Diatom for $500,000, the policy limits of the CGL policy. Diatom made demand on the CGL insurers to settle the claim based on this offer. The CGL insurers notified Diatom that two of the insurers had become insolvent and, therefore, the demand exceeded the available policy limits of the CGL policy. Based on this additional information, the Segers offered to settle the suit for $368,190, the policy limits available from the solvent CGL insurers. The Segers subsequently lowered their settlement offer to $250,000. The CGL insurers refused each of these settlement demands.

Prior to trial in the underlying lawsuit, the Segers non-suited Gillman, and Diatom’s counsel withdrew from representation. On March 27, 2001, the underlying suit was tried. Gillman was subpoenaed to attend and did attend as a witness. Gillman testified that she was appearing as the pro se representative of Diatom. However, the record reflects that Gillman’s participation in the proceeding was consistent with that of a witness rather than a party. Gillman’s limited “representation” of Diatom is evidenced by the fact that Diatom was not represented by counsel, presented no opening or closing argument, called no witnesses and presented no evidence. Gillman testified and, at the conclusion of her testimony, was dismissed. As a result of this trial, the trial court entered judgment against Diatom and awarded the Segers $15,000,000, plus pre- and post-judgment interest.

Following the entry of judgment in the underlying suit, Gillman contacted Diatom’s CGL insurers to inquire what they intended to do about the judgment. When Gillman received no response to her inquiry, she assigned Diatom’s rights against the CGL insurers to the Segers. The assignment reserved Diatom’s right to recover its attorney’s fees incurred in defense of the underlying suit, but otherwise assigned all of Diatom’s rights against the CGL insurers to the Segers. Following the assignment, the Segers filed suit against the CGL insurers seeking damages based on the insurers’ wrongful refusal to defend Diatom and negligent failure to settle the Segers’ claim when demand was made within policy limits.

Prior to trial on the Stowers action, the Segers settled their assigned claims against all of the remaining solvent CGL insurers, except Yorkshire and Ocean Marine, and the settling insurers were dismissed from the suit. As the Stowers litigation against Insurers moved toward trial, both the Segers and Insurers filed multiple motions for summary judgment. The trial court heard these motions, denied all of Insurers’ motions, and granted the Segers’ motion for partial summary judgment on the issues of “coverage, demand within limits, fully adversarial relationship, and trial.” Because each of these issues were resolved prior to trial, the only issues at the Stowers trial were the determination of Insurers’ negligence, causation, and damages. During the trial, the trial court directed the verdict as to damages based on the judgment the Segers obtained against Diatom in the underlying suit. The issues of negligence and causation were submitted to a jury. The jury returned a verdict in favor of the Segers.

Insurers appeal the trial court’s rulings on certain procedural issues, the competing motions for summary judgment, the denial of Insurers’ motion for directed verdict, and the granting of the Segers’ motion for directed verdict on damages. Insurers present six issues on appeal. Identifying these issues in the order that they will be addressed, Insurers contend that (1) the trial court erred in striking Insurers’ defenses for violations of the Insurance Code, (2) Randy’s death was not covered by the CGL policy because of the “leased-in worker” exclusion contained in the policy, (3) the Segers failed to make a settlement demand within Insurers’ several policy limits, (4) the Segers failed to conclusively establish their damages, (5) evidence of collusion between Diatom and the Segers was improperly concealed, and (6) the trial court judge should have recused himself and the Segers’ trial counsel should have been disqualified.

Summary Judgment Issues

Three of Insurers’ issues relate to matters that were decided by the trial court by summary judgment. These issues are the statutory preclusion of Insurers’ contract defenses, coverage, and demand within limits. (3) Each of these rulings will be reviewed using the same standard of review.

 

  1. Standard of Review

When both parties to a suit move for summary judgment, each party bears the burden of establishing that it is entitled to judgment as a matter of law. City of Garland v. Dallas Morning News, 22 S.W.3d 351, 356 (Tex. 2000). When the trial court grants one party summary judgment and denies the other, we review both parties’ summary judgment evidence, determine all questions presented, and render the judgment the trial judge should have rendered. FM Props. Operating Co. v. City of Austin, 22 S.W.3d 868, 872 (Tex. 2000). When the trial court does not specify the basis on which it granted summary judgment, the judgment will be affirmed on any meritorious ground expressly presented in the motion and which is preserved for appellate review. State Farm Fire & Cas. Co. v. S.S., 858 S.W.2d 374, 380 (Tex. 1993).

Both parties moved for summary judgment on traditional and no-evidence grounds. See Tex. R. Civ. P. 166a. We review a summary judgment de novo to determine whether the prevailing party has established its right to summary judgment as a matter of law. See Dallas Cent. Appraisal Dist. v. Cunningham, 161 S.W.3d 293, 295 (Tex.App.-Dallas 2005, no pet.). In reviewing a summary judgment, we must examine the entire record in the light most favorable to the nonmovant, indulging every reasonable inference and resolving any doubts against the motion. See City of Keller v. Wilson, 168 S.W.3d 802, 824-25 (Tex. 2005).

 

  1. Global Preclusion of Insurers’ Contract-Based Defenses

In 1992, Insurance Code article 1.14-1, section 8, provided, “Except for lawfully procured surplus lines insurance . . . any contract of insurance effective in this state and entered into by an unauthorized insurer is unenforceable by such insurer.” See Act of Apr. 27, 1967, 60th Leg., R.S., ch. 185, § 1, 1967 Tex. Gen. Laws 400, 401, amended by, Act of May 27, 1993, 73rd Leg., R.S., ch. 999, § 3, 1993 Tex. Gen. Laws 4373, 4374, repealed by, Act of Apr. 30, 1999, 76th Leg., R.S., ch. 101, § 5, 1999 Tex. Gen. Laws 486, 538 (current version at Tex. Ins. Code Ann. § 101.201 (Vernon Supp. 2006) (4)). (5) In 1993, this section was amended and the language of the exception was changed from “lawfully procured surplus lines insurance” to “insurance procured by a licensed surplus lines agent from an eligible surplus lines insurer.” However, under both the former and amended versions of article 1.14-1, section 8, whether the exception applied to a particular transaction was determined by reference to the requirements for “Surplus Lines Insurance,” contained in article 1.14-2. See Act of Apr. 27, 1967, 60th Leg., R.S., ch. 185, § 1, 1967 Tex. Gen. Laws 400, 408-14, amended by, Act of May 27, 1993, 1993, 73rd Leg., R.S., ch. 999, § 16, 1993 Tex. Gen. Laws 4373, 4376-81, repealed by, Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 26, 2003 Tex. Gen. Laws 3611, 4138 (current version at § 981.001-.222). (6)

The Segers contend that Insurers cannot enforce any defenses derived from the CGL policy, as a matter of law, because Insurers were unauthorized insurers when the policy was issued. Insurers contend that, even though they were and are unauthorized insurers, the statute does not preclude an unauthorized insurer’s reliance on contract-based defenses in suits initiated by the insured (7) or, if the statute does preclude an unauthorized insurer from asserting its contract-based defenses, the preclusion is inapplicable to Insurers because they met the surplus lines insurance exception.

Initially, because the surplus lines exception changed with the 1993 amendments, we must determine the law applicable to the current case. The Segers contend that, because the policy at issue was entered into in 1992, the laws existing at the time the contract was made became part of the contract and govern the transaction. Insurers contend that the 1993 amendments were procedural or remedial in nature and, therefore, are properly applied retroactively. Courts generally presume that an amendment to a statute is to be applied prospectively and not retroactively. Subaru of Am., Inc. v. David McDavid Nissan, Inc., 84 S.W.3d 212, 219 (Tex. 2002). However, this general rule does not apply when the amendment is procedural or remedial, unless the retroactive application of the amendment would affect a party’s vested rights. Id. at 219-20.

The 1993 amendments to articles 1.14-1 and 1.14-2 were intended to provide “reasonable and practical safeguards” to protect Texas consumers. Amended article 1.14-2, § 1. An unauthorized insurer who issues a policy to a Texas consumer is penalized by, among other things, being precluded from enforcing any defenses contained within the unauthorized policy. See amended article 1.14-1, § 9; Lexington Ins. Co., 209 S.W.3d at 89. However, because surplus lines insurance is sometimes necessary to insure risks for which coverage cannot be obtained from a licensed, resident insurer, see amended article 1.14-2, § 1; Mid-Am. Indem. Ins. Co. v. King, 22 S.W.3d 321, 322 (Tex. 1995), unauthorized insurers may become “eligible” to issue surplus lines policies to Texas consumers, provided that the insurer complies with strict capitalization and registration requirements. See amended article 1.14-1, § 8; amended article 1.14-2, § 3; Mid-Am. Indem. Ins. Co., 22 S.W.3d at 323. As these surplus lines insurers remain unauthorized insurers, they are subject to the remedial penalties imposed on an unauthorized insurer conducting the business of insurance in the state, including the loss of their contract-based defenses, unless they strictly comply with the eligibility requirements of amended article 1.14-2. See Lexington Ins. Co., 209 S.W.3d at 89. Because the 1993 amendment to article 1.14-1, section 8, affects only the remedies available to an insured when article 1.14-2 is violated by the insurer, we hold that the amended versions of these articles apply to the present case. (8)

While the parties and the foregoing analysis cite the former and amended articles 1.14-1 and 1.14-2, these articles were repealed and recodified by the 76th and 78th Legislatures. See Act of Apr. 30, 1999, 76th Leg., R.S., ch. 101, § 5, 1999 Tex. Gen. Laws 486, 538; Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 26, 2003 Tex. Gen. Laws 3611, 4138. However, the Legislature expressly indicated that no substantive change in the law was intended by either Act. See Act of Apr. 30, 1999, 76th Leg., R.S., ch. 101, § 6, 1999 Tex. Gen. Laws 486, 538 (“This Act is intended as a recodification only, and no substantive change in law is intended by this Act.”); Act of May 22, 2003, 78th Leg., R.S., ch. 1274, § 27, 2003 Tex. Gen. Laws 3611, 4139 (same). As a result and based on our determination that the 1993 amendments should be applied retroactively, we will refer to the current codification of the law when possible.

It is undisputed that Insurers were unauthorized insurers at all times relevant to the present case. Section 101.201(a) provides that, “An insurance contract effective in this state and entered into by an unauthorized insurer is unenforceable by the insurer.” (9) However, the former article 1.14-1, § 8, the amended article 1.14-1, § 8, and the recodified section 101.201(b) provide an exception to this prohibition for surplus lines insurance. The Segers contend that Insurers could produce no evidence that the CGL policy in this case was “lawfully procured surplus lines insurance” or, alternatively, the Segers conclusively established that the CGL policy was not “lawfully procured surplus lines insurance” and, therefore, Insurers are precluded from asserting their contract-based defenses under former article 1.14-1, § 8. Insurers contend that they were entitled to rely on their contract-based defenses because they established that they met the surplus lines exception of amended article 1.14-1, § 8, as a matter of law.

The Segers’ motion for summary judgment states that, for an insurer to raise any contractual defense in a suit on the policy, the insurer must prove that it was either authorized to do business in Texas or that the insurance at issue was “lawfully procured surplus lines insurance.” The Segers indicate that all references to provisions of the Insurance Code in their motion are references to the version in effect when the coverage was issued in 1992, i.e., the pre-amended versions of articles 1.14-1 and 1.14-2. The Segers then allege that the CGL policy was issued in violation of former article 1.14-2, §§ 2, 5, 6(a), 6(c), 6(d), 6(e), 6A(a6), (10) 7(a), 7(b), and 8. Ultimately, the Segers contend that, because Insurers could present no evidence that they met the “lawfully procured surplus lines insurance” exception or because the Segers had conclusively established that the CGL policy was not “lawfully procured surplus lines insurance,” the Segers were entitled to summary judgment precluding Insurers from relying on their contractual defenses as a matter of law.

Because we have already held that the 1993 amendments to articles 1.14-1 and 1.14-2 were procedural or remedial and are to be applied retroactively, any violation of former article 1.14-1 or 1.14-2 are of no effect on Insurers’ ability to enforce its contract-based defenses in the policy. As we held above, the pre-amendment law, relied upon by the Segers to support its motion for summary judgment, was rendered ineffective by the 1993 amendments and, as a result, violations of the pre-amendment provisions would not result in a preclusion of Insurers’ contract-based defenses. Therefore, we conclude that the Segers’ motion failed to expressly present grounds that would entitle the Segers to summary judgment on coverage based on Insurers being precluded from asserting their contract-based defenses. See Tex. R. Civ. P. 166a(c). Further, because the Segers’ motion cites ineffective law, we conclude that the Segers’ motion failed to state the elements upon which Insurers could produce no evidence relating to Insurers’ right to assert its contract-based defenses. See Tex. R. Civ. P. 166a(i). Because the Segers’ summary judgment motion presents no grounds upon which the trial court could have granted summary judgment, we conclude that, to the extent the trial court based its grant of summary judgment on coverage on the global preclusion of Insurers’ contract-based defenses, the trial court erred.

Insurers appeal the denial of their motion for partial summary judgment on coverage. Because surplus lines insurance is excepted from the general statutory restriction on unauthorized insurers, the burden of proving every fact essential to the invocation of the exception rests on Insurers. See Cramer v. Sheppard, 140 Tex. 271, 167 S.W.2d 147, 155 (1942); Risk Managers Int’l, Inc. v. State, 858 S.W.2d 567, 570 (Tex.App.-Austin 1993, writ denied). Thus, for Insurers to be entitled to summary judgment on coverage, Insurers must establish that Insurers were eligible surplus lines insurers and that the CGL policy was procured through a licensed surplus lines agent as a matter of law, see § 101.201(b), and that the Segers’ claims are not covered by the CGL policy.

We will initially review the evidence regarding whether Insurers established that they were eligible surplus lines insurers as a matter of law. An “eligible surplus lines insurer” must comply with the requirements of sections 981.051-.065 of the Insurance Code. See § 981.002(1). The record contains a certification from Kathy A. Wilcox, Registration Officer of the Texas Department of Insurance, that indicates, at all times pertinent to the present case, both Yorkshire (11) and Ocean Marine (12) were unlicensed insurers which were eligible to provide surplus lines insurance under each iteration of the statute and at all times pertinent to the present case. We conclude that, because these certifications were uncontroverted, the evidence conclusively established that Insurers were eligible surplus lines insurers. (13)

However, more is required to meet the exception of section 101.201(b). In addition to the insurer being eligible to provide surplus lines insurance, the insurance must be procured through a licensed surplus lines agent. § 101.201(b). The record includes a statement from Matt Ray, Deputy Commissioner of the Licensing Division of the Texas Department of Insurance, indicating that London American Risk Specialists, Inc. (LARSI), held a surplus lines agency license that was issued on February 14, 1984 and was due to expire October 25, 2005, if not timely renewed. Notably, the cover note for the CGL policy specifically indicates that the insurance was placed through LARSI. However, the Segers correctly indicate that this evidence identifies LARSI as holding a license as a managing general agency. Section 981.220(b) restricts a surplus lines agent whose license is granted to it as a managing general agent, that is not also licensed under Article 21.14 of the Insurance Code, (14) to business that originates through a licensed general property and casualty agent. Thus, for LARSI’s surplus lines agent license to meet the exception found in section 101.201(b), the transaction must have been directed through an agent that was a licensed general property and casualty agent. § 981.220(b).

No record evidence establishes that the CGL policy was directed through an agent that was a licensed general property and casualty agent. (15) As such, Insurers have failed to prove every fact essential to the invocation of the section 101.201(b) surplus lines insurance exception and the trial court did not err in overruling Insurers’ partial summary judgment motion on coverage. See Cramer, 167 S.W.2d at 155; Risk Managers Int’l, Inc., 858 S.W.2d at 570. We affirm the trial court’s denial of Insurers’ partial summary judgment on the issue of coverage.

  1. Coverage

While we have held that the trial court erred in granting the Segers summary judgment on the issue of coverage to the extent that summary judgment was based on the preclusion of Insurers’ contract-based defenses, because the trial court did not specify the grounds upon which it granted summary judgment on the issue of coverage, we must affirm the judgment if it is supported by any meritorious ground expressly presented in the motion and preserved for appellate review. S.S., 858 S.W.2d at 380. In their motion for summary judgment, the Segers alternatively contended that Insurers could produce no evidence to support any of the contract-based defenses they alleged and, inter alia, contended that the “Excluding Leased-In Employees/Workers” language does not exclude the Segers’ claims from coverage as a matter of law. (16) As such, a determination that Insurers failed to present more than a scintilla of evidence of any of the defenses alleged or that the Segers affirmatively negated each defense would require affirmation of the trial court’s summary judgment on the issue of coverage. (17)

The CGL policy includes, in its cover note, an exclusion of “Leased-In Employees/Workers.” This phrase is not defined by the policy. Insurers contend that a standard “leased worker” exclusion was not included in the policy because a standard “leased worker” exclusion was not established until 1993. Of note, the policy does include a standard employee exclusion. The employee exclusion specifically excludes any liability for claims asserted by, or on behalf of, Diatom/ECS employees from coverage under the policy. Insurers contend that either Randall was actually an employee of Diatom and, therefore, the Segers’ claim is excluded by the standard employee exclusion or Randall was “leased in” by Diatom from ECS and coverage is excluded based on the leased-in worker exclusion contained on the CGL cover note.

The Segers claims are for bodily injury to Randall. The CGL policy generally covers claims for bodily injury or property damage. Thus, there is no dispute that the CGL policy generally covers the kind of claims alleged by the Segers. However, the parties hotly contest the application of the leased-in worker/employee exclusion to the Segers’ claim. Once general coverage is established, the burden of proving the existence and applicability of a policy exclusion rests with Insurers. Tex. R. Civ. P. 94; Comsys Info. Tech. Servs., Inc. v. Twin City Fire Ins. Co., 130 S.W.3d 181, 193 (Tex.App.-Houston [14th Dist.] 2003, pet. denied); Venture Encoding Serv., Inc. v. Atl. Mut. Ins. Co., 107 S.W.3d 729, 733 (Tex.App.-Fort Worth 2003, pet. denied).

The interpretation of insurance policies is governed by the same rules of construction applicable to other written contracts. State Farm Life Ins. Co. v. Beaston, 907 S.W.2d 430, 433 (Tex. 1995). In construing a written contract, the court’s primary concern is to ascertain the true intentions of the parties as expressed in the instrument. Id.; Coker v. Coker, 650 S.W.2d 391, 393 (Tex. 1983). Terms in an insurance contract will be given their ordinary meaning unless the policy shows that the words were meant in a technical or different sense. Sec. Mut. Cas. Co. v. Johnson, 584 S.W.2d 703, 704 (Tex. 1979). We must read all parts of the contract together and must strive to give meaning to every sentence, clause, and word to avoid rendering any portion inoperative. Balandran v. Safeco Ins. Co. of Am., 972 S.W.2d 738, 741 (Tex. 1998). If, after applying these rules of construction, an insurance policy remains ambiguous, we are to construe the language in a manner that favors coverage. Beaston, 907 S.W.2d at 433.

Looking to the CGL policy, the phrase “Leased-In Employees/Workers” is not defined anywhere in the policy. No standard leased worker exclusion is included in the policy. Reading all of the parts of the policy reveals that every exclusion in the contract excludes coverage for claims of insureds’ liability related to or arising from the event or persons identified by the various exclusions. The ordinary meaning of “lease” is an agreement for possession or use of property for a specified period or at will in exchange for a specified rent or compensation. See Merriam-Webster’s Collegiate Dictionary 798 (Frederick C. Mish, ed., 11th ed. 2003); Black’s Law Dictionary 898 (7th ed. 1999). The ordinary meaning of “worker” is a person that “exerts strength or faculties to do or perform something.” Merriam-Webster’s Collegiate Dictionary 1442-43 (Frederick C. Mish, ed., 11th ed. 2003). The ordinary meaning of the word “in,” when used as a modifier, is directed toward some destination or place. Merriam-Webster’s Collegiate Dictionary 627 (Frederick C. Mish, ed., 11th ed. 2003). Therefore, we conclude that, applying the ordinary meaning to the words used in the CGL policy and striving to give meaning to every part thereof, the condition “Excluding Leased-In Employees/Workers,” as a matter of law, unambiguously excludes from coverage all claims for a named insured’s liability for bodily injury or property damage brought by or on behalf of persons that perform work for the insured under an agreement with another allowing temporary use of the worker, even though the leased worker would not be an employee of insured. (18)

Looking to the testimony of Cynthia Gillman at the underlying Seger v. Diatom trial, Gillman testified that ECS had a Contract for Personnel Services with Diatom by which ECS would supply workers to perform work in fulfillment of Diatom’s drilling contracts. Gillman testified that Randall Seger was an employee of ECS that was doing work at the Diatom drilling site at the time of his death. Considering this evidence in the light most favorable to Insurers and indulging all reasonable inferences in their favor, we conclude that there is more than a scintilla of evidence that the Segers’ claims were excluded by the CGL policy. Further, we cannot say that the Segers have negated the applicability of the CGL policy’s “Excluding Leased-In Employees/Workers” condition as a matter of law. Therefore, we conclude that the trial court erred in granting the Segers summary judgment on the issue of coverage.

The Segers contend that the leased-in worker exclusion is ambiguous because the exclusion could reasonably be construed to exclude leased-in workers from being “insureds” under the policy, claims made by leased-in workers, or all claims, including wrongful death claims asserted by survivors of the leased-in worker, arising from the leased-in worker relationship. However, as indicated above, when the CGL policy’s provisions are read together, we conclude that the exclusion excludes from coverage all claims for a named insured’s liability for bodily injury or property damage brought by or on behalf of persons that perform work for the insured under an agreement with another allowing the temporary use of the worker. Thus, our construction of this condition excludes coverage for all claims for bodily injury or property damage whether brought by or on behalf of leased-in workers. We do not find the Segers’ interpretation of the condition as excluding leased-in workers from being “insureds” reasonable, since the CGL policy specifically identifies those parties, Diatom and ECS, that were “insureds” and would not need to specifically identify others as not being “insureds.” (19)

Having concluded that the trial court erred in granting summary judgment on the issue of coverage, we reverse that portion of the summary judgment. We affirm the trial court’s denial of Insurer’s motion for summary judgment on the issue of coverage.

  1. Demand Within Limits

To prove an insurer’s negligent failure to settle a claim, i.e., a Stowers claim, the insured must establish that (1) the claim is within the scope of coverage, (2) a demand was made that was within policy limits, and (3) the demand was such that an ordinary prudent insurer would have accepted it, considering the likelihood and degree of the insured’s potential exposure to an excess judgment. Am. Physicians Ins. Exch. v. Garcia, 876 S.W.2d 842, 849 (Tex. 1994). A demand that exceeds the policy limits, even though reasonable, does not trigger the insurer’s duty to settle. Id. Insurers contend that, since the policy provided that each insurer was severally liable, the Segers’ collective settlement offers were ineffective to trigger Insurers’ Stowers liability because the Segers failed to make settlement demands within the several limits of Yorkshire and Ocean Marine. The Segers contend that their collective settlement demands were within the solvent policy limits available under the CGL policy and were sufficient to meet the second Stowers element. Further, the Segers rely on the CGL insurers’ admission that the Segers made a demand that was within the available policy limits.

The terms of the CGL policy provided that, in exchange for premium payments totaling $10,850, (20) the CGL insurers would provide coverage for the period of January 23, 1992 through January 23, 1993, with policy limits of $500,000 per accident/occurrence. The cover note, which was incorporated into the policy, indicated that Yorkshire insured 16.472 percent of the policy and that Ocean Marine insured 10 percent of the policy. It is undisputed that the Segers did not make demands upon Yorkshire and Ocean Marine separately that would fall within their proportionate share of the policy’s limits. However, it is also undisputed that the Segers did make demand for the stated policy limits, $500,000, and subsequently made demands for $368,190 and $250,000. In fact, at Insurers’ request, the trial court took judicial notice that the Segers offered to settle the underlying case for $250,000. Thus, the facts related to this issue are not in dispute. Rather, the question presented is whether the Segers’ collective settlement demand for $250,000 was sufficient to meet the “demand within policy limits” element of a Stowers action or were the Segers required to make separate demands upon each of the CGL insurers within each insurer’s proportionate share of the policy’s limits.

In a typical Stowers action, an insured brings suit against his insurer for the insurer’s negligent failure to settle a covered claim asserted against the insured for an amount within the applicable policy limits when the covered claim results in a judgment in excess of the policy limits. However, before an insured can prevail in a Stowers action, the claimant in the underlying proceeding must have made a settlement demand that was within the applicable policy limits. Id. Thus, it is the claimant in the underlying suit that determines whether the second element of a Stowers claim can be met by the insured. As a result, we believe that a claimant should be entitled to rely on the specific provisions of an insurance policy in making a settlement demand that is within the coverage of the policy. That it is the policy that dictates whether a settlement demand was within policy limits is bolstered by the Texas Supreme Court’s indication that a settlement demand that proposes to release the insured for “the policy limits,” in lieu of a demand for a sum certain, is sufficient to satisfy the “demand within limits” element of a Stowers action. See Id. at 848-49. Further, when a claimant makes such a demand and it is rejected by the insurer, we believe that proof that a settlement demand that was within the limits stated in the policy and that was rejected by the insurer is all that is necessary to satisfy the “demand within limits” element of a Stowers claim. Thus, in the present case, we conclude that the Segers’ collective settlement demand of $250,000, which falls within the $500,000 limit stated in the policy, was sufficient to satisfy the second element of a Stowers action against Insurers. (21) As the undisputed facts establish that the Segers made a settlement demand that was within the CGL policy limits as a matter of law, we affirm the trial court’s grant of summary judgment in favor of the Segers on this issue.

Damages

Insurers contend that the Segers presented no evidence to establish that Diatom suffered injury as a result of any negligence on the part of Insurers and, therefore, the trial court’s grant of directed verdict as to damages was in error. Insurers contend that (1) Diatom was judgment proof and, therefore, was not injured by Insurers’ negligence, (2) directed verdict was an improper method to determine damages, and (3) because the underlying judgment was not the result of a fully adversarial trial, it constituted no evidence of damages. The Segers contend that Diatom’s financial condition is immaterial to Insurers’ Stowers liability and that, because the damages awarded in the underlying judgment were the result of a fully adversarial trial, the damages awarded in that judgment are conclusive of the damages Diatom suffered as a result of Insurers’ negligence. We will address each of Insurers’ subpoints regarding this issue in the order in which they were presented.

In reviewing the granting of a no-evidence summary judgment, we must decide whether any probative evidence was presented that would raise a genuine issue of material fact regarding the issue upon which the summary judgment was granted. Dow Chem. Co. v. Francis, 46 S.W.3d 237, 241-42 (Tex. 2001) (per curiam). This is the same standard utilized in reviewing a directed verdict. See King Ranch, Inc. v. Chapman, 118 S.W.3d 742, 750-51 (Tex. 2003). In determining if the evidence raises a genuine issue of material fact, we review the evidence in the light most favorable to the party against whom the verdict is rendered. Morgan v. Anthony, 27 S.W.3d 928, 929 (Tex. 2000).

Insurers contend that, because Diatom was unable to pay any damages awarded by the judgment, the Segers cannot prove that Diatom suffered any harm as a result of Insurers’ negligent refusal to settle the Segers’ claims when demand was made within policy limits. The record does establish that Diatom is and was judgment proof. Diatom ceased doing business in 1993, sold all of its assets to make payments to creditors, and was involuntarily dissolved. As a result, Diatom possessed no assets from which it could pay any damages awarded to the Segers.

Insurers’ contention is analogous to the argument made by the insurer in YMCA of Metro. Fort Worth v. Commercial Standard Ins. Co., 552 S.W.2d 497 (Tex.Civ.App.-Fort Worth 1977, writ ref’d n.r.e.). In YMCA, the insurer argued that, because its insured had entered into a covenant with the plaintiffs not to execute the judgment against the insured, the insured had no obligation to pay the judgment and, consequently, was not harmed by the insurer’s negligent refusal to settle. Id. at 501. The court analyzed the language in the policy at issue and concluded that the policy was a liability policy rather than an indemnity policy. Id. at 504. Notably, the court cited the policy’s provision that, “The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages . . . .” After discussing the differences between a liability policy and an indemnity policy, (22) the court concluded that the policy was a liability policy and that the covenant not to execute did not release the insurer from liability, even though the insured was under no legal obligation to pay the damages awarded. See id.

The CGL insurance policy involved in the present case includes the exact language cited above in the YMCA policy. From this and other provisions of the policy, we conclude that the CGL policy is a liability policy rather than an indemnity policy. Therefore, we conclude that Diatom’s inability to pay the damages awarded in the underlying judgment does not affect Diatom’s liability under the judgment. See id. at 504. Thus, the fact that Diatom was judgment proof does not establish Insurers’ right to directed verdict on damages.

As support for its contention, Insurers cite Foremost County Mut. Ins. Co. v. Home Indem. Co., 897 F.2d 754, 757 (5th Cir. 1990), as holding that an underlying judgment constitutes no evidence of damages in a Stowers action if the judgment is accompanied by a covenant not to execute against the insured. (23) The Foremost court, however, recognized the general rule that “[i]n Texas a covenant not to execute by an insured does not release an insurance carrier from liability.” Id. at 758 (citing YMCA, 552 S.W.2d at 504-05). Further, the Foremost court specifically indicated that, “under our decision not to extend the YMCA rule the insurer who negligently refuses to settle will be able to use a covenant not to execute only to the disadvantage of another insurer that has breached its duty to the insured . . . and not to the disadvantage of its insured.” Id. at 760 (emphasis added). We conclude that the Foremost opinion is not controlling because it is clearly distinguishable from the present case. See Tex. Farmers Ins. Co. v. Soriano, 844 S.W.2d 808, 824-25 (Tex.App.-San Antonio 1992), rev’d on other grounds, 881 S.W.2d 312 (Tex. 1994) (discussing the limited application of the holding in Foremost). We affirm the trial court’s denial of Insurers’ motion for directed verdict as to damages.

Next, we must consider whether the trial court erred in giving conclusive effect to the damages found in the underlying judgment. (24) By directing verdict on the issue of damages in accordance with the damages found in the underlying judgment, it is evident that the trial court found that the judgment set Diatom’s damages as a matter of law. Insurers’ contention that directed verdict was an inappropriate vehicle to establish damages is premised on their position that the evidence that Diatom was judgment proof raised a fact issue regarding whether Diatom was damaged by the excess damages awarded in the underlying judgment. However, for the reasons discussed above, we conclude that Diatom’s financial status is immaterial to Diatom’s liability and, therefore, fails to raise a fact issue regarding damages in the present suit.

A directed verdict is appropriate only when “reasonable minds can draw only one conclusion from the evidence.” Collora v. Navarro, 574 S.W.2d 65, 68 (Tex. 1978). Review of a directed verdict requires that the evidence be viewed in the light most favorable to the party against whom judgment was entered and that all reasonable inferences from that evidence be resolved in that party’s favor. Morgan, 27 S.W.3d at 929.

The general rule is that, in a Stowers action, damages are fixed as a matter of law in the amount of the excess of the judgment rendered in the underlying suit in favor of the plaintiff over the applicable limits of the policy. See Allstate Ins. Co. v. Kelly, 680 S.W.2d 595, 606 (Tex.App.-Tyler 1984, writ n.r.e.). See also Rocor Int’l, Inc. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 77 S.W.3d 253, 271 (Tex. 2002) (Baker, J., dissenting); State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696, 713 (Tex. 1996). Thus, absent evidence that the underlying judgment is not reliable evidence of the damages suffered by the insured in the underlying suit, the judgment conclusively establishes the damages suffered by the insured and is sufficient evidence to support a directed verdict.

While the general rule is that a judgment obtained by a plaintiff against an insured is conclusive to establish the amount of damages suffered by the insured in a subsequent Stowers action, see Kelly, 680 S.W.2d at 606, the Texas Supreme Court has created an exception to this general rule when the insured assigns his Stowers action to the plaintiff in the underlying suit, see Gandy, 925 S.W.2d at 714. When such an assignment occurs, the underlying judgment is not only not conclusive, but is inadmissible as evidence of damages, unless rendered as the result of a “fully adversarial trial.” Id. Insurers contend that they presented evidence that would raise a fact question as to whether the judgment from the underlying suit was the result of a fully adversarial trial and, therefore, that the trial court erred in directing the verdict on damages in accordance with the underlying judgment.

Prior to trial, the Segers filed a motion for partial summary judgment in which they contended, inter alia, that the evidence established that the parties to the underlying suit were in a “fully adversarial relationship at the time of trial” and that an “actual trial” had occurred. The trial court granted the Segers’ motion. However, we conclude that these findings by the trial court do not resolve whether the judgment in the underlying suit was the result of a fully adversarial trial. (25)

At the close of evidence in the Stowers action, the Segers offered the judgment in the underlying suit for the court’s review only and moved the trial court for directed verdict on damages based on the judgment. Insurers objected to admission of the judgment contending that it was not the result of a fully adversarial trial. The trial court overruled Insurers’ objection and granted the Segers’ motion for directed verdict on damages.

Directed verdict was proper, in this situation, only if no probative evidence was presented that would raise a genuine issue of material fact regarding the amount of damages suffered by Diatom as a result of Insurers’ negligent failure to settle the underlying suit. See Dow Chem. Co., 46 S.W.3d at 242. As the Segers’ only evidence of damages in the Stowers action was the judgment in the underlying suit, the trial court could only direct the verdict on damages if Insurers failed to raise a genuine issue of material fact regarding the reliability of the judgment as evidence of Diatom’s damages.

Insurers raised the question of whether the judgment in the underlying action was the result of a fully adversarial trial. As evidence that it was not, Insurers correctly indicated that Diatom was not represented by counsel at the trial in the underlying suit, made no opening or closing statements, offered no evidence, and conducted no cross-examination of the Segers’ witnesses. Further, Insurers cite the trial court’s own characterization of this proceeding as a nihil dicit prove up.

We conclude that this evidence is sufficient to raise a genuine issue of material fact regarding whether the underlying judgment upon which the trial court directed the verdict on damages was the result of a fully adversarial trial. See Gandy, 925 S.W.2d at 714. (26) As such, we reverse the damages portion of the judgment.

Evidentiary Exclusions

Insurers contend that they were denied evidence of collusion between the Segers and Diatom in the underlying proceeding because the trial court abused its discretion in sustaining Diatom’s assertions of attorney-client privilege and work product privilege. As Insurers’ issue challenges the exclusion of those documents that specifically relate to the underlying judgment and subsequent assignment, we will limit our review to those documents. (27) We must determine whether the trial court abused its discretion in upholding Diatom’s assertions of privilege and, if so, whether the exclusion of this evidence harmed Insurers. See May v. Barton’s Pump Serv., Inc., 153 S.W.3d 469, 477-78 (Tex.App.-Amarillo 2004, no pet.).

Some of the evidence sought by Insurers was included in the appellate record in this cause. These documents were made part of the record on December 28, 2004. They were included in the appellate record after Diatom asserted its claims of privilege. Nothing in this court’s file evidences any attempt by Diatom to recall these documents as privileged. (28) See Tex. R. Civ. P. 193.3(d). Therefore, for the present litigation, we conclude that Diatom’s prior assertion of privilege as to these documents has been waived.

Using these disclosed documents, Insurers contend that other documents relating to the underlying proceeding are discoverable and admissible. After reviewing all of the documents provided to the trial court for in camera inspection, the documents Insurers seek by this issue are duplicates of the documents that were included in the appellate record. As Diatom’s prior assertions of privilege regarding these documents have been waived, we overrule Insurers’ issue as moot.

Recusal of Judge

Insurers contend that the denial of their motion to recuse Judge LaGrone was an abuse of discretion because, as the judge that presided over the underlying trial, Judge LaGrone was a vital material witness in the Stowers suit and had personal knowledge of disputed material facts. The denial of a motion to recuse is reviewed for abuse of discretion. Brosseau v. Ranzau, 81 S.W.3d 381, 399 (Tex.App.-Beaumont 2002, pet. denied). Insurers contend that the Segers’ citation to Judge LaGrone’s statement in the underlying trial transcript that “The Court will call for trial in Cause No. 30,110, . . .” made Judge LaGrone a vital material witness in the Stowers action. However, the complete transcript of the underlying proceeding, which includes the statement Insurers complain of, was admitted into evidence in the Stowers action. Further, Judge LaGrone’s calling the underlying proceeding for trial did not constitute his participation “as . . . material witness in the matter in controversy.” Tex. R. Civ. P. 18b(2)(d). Certainly, as addressed above, Insurers may refute Judge LaGrone’s characterization of the underlying proceeding as a “trial,” but we do not conclude that the trial court abused its discretion in denying Insurers’ motion for recusal on this basis.

Additionally, Insurers contend that Judge LaGrone must have knowledge of disputed evidentiary facts regarding whether the underlying proceeding was, in fact, a fully adversarial trial. However, Insurers fail to identify any specific knowledge of disputed evidentiary facts purportedly held by Judge LaGrone. We will not find recusal appropriate solely on the basis of speculation regarding facts that may or may not be known by the presiding judge.

We overrule Insurers’ challenge to the denial of their motion to recuse.

Disqualification of Counsel

Finally, Insurers contend that two attorneys in the Segers’ counsel, Brian Heinrich and Joe Hayes, were disqualified from representing the Segers in their Stowers action because each (1) were witnesses in the Stowers action, see Tex. Disc. R. Prof. Cond. 3.08, and (2) were to be paid on a contingent basis, see Tex. Disc. R. Prof. Cond. 3.04. The denial of a motion for disqualification is reviewed for abuse of discretion. See Metro. Life Ins. Co. v. Syntek Fin. Corp., 881 S.W.2d 319, 321 (Tex. 1994). As both parties to the present dispute acknowledge, the disqualification of counsel is a severe remedy, which is not to be invoked lightly. See In re Nitla S.A. de C.V., 92 S.W.3d 419, 422 (Tex. 2002). Even if challenged counsel has committed a disqualifying act, the party requesting disqualification must demonstrate that counsel’s conduct caused actual prejudice. Id.

Assuming, without deciding, that Heinrich and/or Hayes were lawyer-witnesses such that they would be disqualified from representing the Segers in the Stowers action, Insurers have failed to present any evidence that they were harmed. Insurers cite a deposition of Professor Bob Schuwerk, which is not a part of the record, as concluding that Heinrich and Hayes violated Rules 3.04 and 3.08 of the Texas Disciplinary Rules of Professional Conduct. However, proof that an attorney violated a Rule of Professional Conduct, without a further showing of harm, is insufficient to justify disqualification. Id. Nothing in Insurers’ discussion of Schuwerk’s deposition identifies how they were harmed by any alleged violation of the Rules by either Heinrich or Hayes.

Insurers contend that the trial court took certain unrelated actions to avoid having to rule that Heinrich and Hayes were disqualified to represent the Segers in the Stowers action, however, this contention is wholly unsupported by evidence and is purely speculative. See Miller v. Hood, 536 S.W.2d 278, 285 (Tex.Civ.App.-Corpus Christi 1976, writ ref’d n.r.e.) (presumption of regularity and validity of trial court rulings unless facially invalid or invalidity shown in the record). Additionally, while Insurers contend that Hayes and Heinrich were disqualified because they were witnesses whose payment was contingent upon the outcome of the case, Insurers fail to identify any evidence establishing that Hayes or Heinrich were being paid on a contingent basis.

We overrule Insurers’ issue regarding the denial of their motion to disqualify Hayes and Heinrich.

Conclusion

We affirm the trial court’s denial of Insurers’ motion to recuse, denial of Insurers’ motion to disqualify counsel, and grant of summary judgment on the issue of whether the Segers made a sufficient settlement demand within the CGL policy limits. In all other respects, we reverse the judgment and remand this cause for new trial consistent with this opinion.

 

Mackey K. Hancock

Justice

 

  1. John T. Boyd, Chief Justice (Ret.), Seventh Court of Appeals, sitting by assignment.
  2. See generally G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544, 548 (Tex.Comm’nApp. 1929, holding approved).
  3. We note that the trial court also entered summary judgment regarding issues related to damages, but, as the damages issue was ultimately decided by directed verdict, we will address it separately.
  4. Further reference to current provisions of the Insurance Code will be by reference to “section __” or “§ __.”
  5. Further citation to the pre-amendment version of article 1.14-1 will be by reference to “former article 1.14-1, § __.” Further citation to the post-amendment version of article 1.14-1 will be by reference to “amended article 1.14-1, § __.”
  6. Further citation to the pre-amendment version of article 1.14-2 will be by reference to “former article 1.14-2, § __.” Further citation to the post-amendment version of article 1.14-2 will be by reference to “amended article 1.14-2, § __.”
  7. Recently, the Texas Supreme Court clarified that the effect of the post-amendment provisions applicable to this case is to preclude unauthorized insurers from enforcing its policies. See Lexington Ins. Co. v. Strayhorn, 209 S.W.3d 83, 89 (Tex. 2006). Thus, we conclude that the Texas Supreme Court has specifically rejected Insurers’ contention that the applicable provisions do no more than preclude an unauthorized insurer from bringing suit.
  8. Other Texas courts have likewise applied post-amendment unauthorized and surplus lines insurance provisions retroactively, even when the policies were issued prior to 1993. See Lexington Ins. Co., 209 S.W.3d at 85, 89-90 (applying post-amendment article 1.14-1, § 11, to case involving insurance tax dispute covering taxes accruing from 1992 through 1995); Mid-Am. Indem. Ins. Co., 22 S.W.3d at 325 (requiring eligibility under post-amendment article 1.14-2 as prerequisite to bond exemption, even though the exemption specifically required eligibility at the time coverage issued, which was prior to 1993 amendments); Wheelways Ins. Co. v. Hodges, 872 S.W.2d 776, 779, 784 n.10 (Tex.App.-Texarkana 1994, no writ) (applying amended article 1.14-1, § 8, to case involving accident occurring in 1989 with suit against insurer filed in 1991).
  9. The same restriction on the enforcement of unauthorized insurance contracts may be found in both the former and amended law. See amended article 1.14-1, § 8; former article 1.14-1, § 8.
  10. Reference to the pre-amendment version of article 1.14-2, reveals that there was no section 6A. As section 6A was added by the 1993 amendments, but it did no more than authorize the establishment of the Surplus Lines Stamping Office. See amended article 1.14-2, § 6A.
  11. Specifically, the certification provides that Yorkshire was “an unlicensed insurer which is an eligible insurer for providing surplus lines insurance under article 1.14-2, Texas Insurance Code from September 1, 1989 thru November 12, 2001 and from July 1, 2002 thru the present.”
  12. Specifically, the certification provides that Ocean Marine was “an unlicensed insurer which is an eligible insurer for providing surplus lines insurance under article 1.14-2, Texas Insurance Code from November 1, 1989 thru the present.”
  13. Further, we note that the Segers do not contest Insurers’ general eligibility to provide surplus lines insurance.
  14. Relating to local recording agent licenses.
  15. We note that evidence was offered relating to this issue by Insurers, but this evidence was objected to by the Segers, the objection was sustained by the trial court, and Insurers failed to challenge the trial court’s ruling on appeal.
  16. By their appeal, Insurers urge error only in regard to the leased-in worker exclusionary defense to coverage. Thus, any objection to any other contractual defense has been inadequately briefed and is waived. See Knie v. Piskun, 23 S.W.3d 455, 460 (Tex.App.-Amarillo 2000, pet. denied); Lewis v. Deaf Smith Elec. Co-op., Inc., 768 S.W.2d 511, 512-13 (Tex.App.-Amarillo 1989, no writ.).
  17. As we have previously determined that Insurers have failed to establish their right to assert their contract-based defenses, Insurers would not be entitled to summary judgment on coverage, even if they established that a contractual provision excluded coverage as a matter of law. See Tex. R. App. P. 47.1.
  18. We focus on the term “worker” in an effort to harmonize the provisions of the policy. Claims for bodily injury by a leased-in worker that concurrently holds the status of an employee would be covered under the standard employee exclusion contained in the CGL policy. Thus, an exclusion for a leased-in employee would be redundant.
  19. We note that the Segers’ present no alternative interpretation of the phrase “leased-in employee/worker.” Other than the interpretation identified in this opinion, we can identify no other reasonable interpretation of this phrase and, therefore, conclude that the phrase is unambiguous.
  20. No issue has been raised regarding the timely payment of these premiums.
  21. We express no opinion regarding what, if any, effect the insolvency of certain severally liable insurers would have on whether a demand within stated policy limits, but exceeding the solvent insurers’ proportionate share of coverage, would have on the establishment of a “demand within limits” in the context of a subsequent Stowers action. In the present case, it is undisputed that, when the Segers made their $250,000 demand, the demand was within the available policy limits of the solvent CGL insurers.
  22. An insurer in a liability policy agrees to defend the insured and protect it from liability. If the insurer is unsuccessful in protecting insured from liability and must settle or, if a judgment is rendered against the insured, the insured is not required to pay the obligation before the insurer is required to pay. If a judgment is rendered against the insured, the insurer’s liability to pay attaches at that time. This obligation to pay continues until the judgment is satisfied.

Conversely, an indemnity policy provides that the insurer’s liability does not attach unless the judgment against the insured has actually been paid.

See id. at 504.

  1. While the Segers entered into a covenant not to execute the judgment against Gillman in the present case, we understand Insurers’ argument to analogize a covenant not to execute with a judgment proof insured. However, we conclude that the analysis and the result would be the same if Insurers were contending that the covenant not to execute precluded proof of harm to Diatom.
  2. Insurers contend that it was error for the judgment to have been admitted into evidence for the judge’s eyes only. However, the judgment was admitted into evidence. Because the trial court gave the judgment conclusive effect on the issue of damages and rendered a directed verdict in accordance with that judgment, the fact issue of the amount of damages suffered by Diatom was removed from the jury’s consideration. Therefore, whether the trial court erred in the manner in which it admitted the judgment is subsumed within the issue of whether the trial court erred in directing damages in accordance with this judgment and will be addressed below.
  3. In reviewing the Segers’ motion relating to these points, we note that the “fully adversarial relationship” issue in no way addressed the events occurring at the underlying trial. While the Court did not define “fully adversarial trial” in Gandy, we believe that a determination of whether a hearing constitutes a “fully adversarial trial” requires a review of the extent to which the parties to the proceeding participated. See Gandy, 925 S.W.2d at 713. When the judgment is an agreed judgment, default judgment, or when the underlying defendant’s participation is so minimal as to evidence that the hearing was not adversarial, the judgment resulting from that hearing may not be admitted as evidence of damages in the Stowers action. See id. at 713, 714. As such, the determination of whether the hearing was fully adversarial requires review of the underlying proceedings.
  4. In no event, however, is a judgment for plaintiff against defendant, rendered without a fully adversarial trial, binding on defendant’s insurer or admissible as evidence of damages in an action against defendant’s insurer by plaintiff as defendant’s assignee” (emphasis added).
  5. The documents submitted for the trial court’s in camera review include documents that were prepared for the purpose of facilitating the rendition of legal services in defense of Insurers’ third-party action against Diatom. These documents appear to be privileged under Texas Rule of Evidence 503(b), but, in any event, are not sought by Insurers through this issue.
  6. However, the conclusion that Diatom has not attempted to “snap back” these documents is not a determination that it has waived its claim of privilege. Because Diatom is no longer a party to the present action, Insurers’ identification of the disclosure of these documents does not necessarily result in Diatom’s actual knowledge of the disclosure.

Williams, McClure & Parmelee is dedicated to high quality legal representation of businesses and insurance companies in a variety of matters. We are experienced Fort Worth, Texas civil litigation and injury defense attorneys in Tarrant County who know Texas courts and Texas law. For more information, please contact the law firm at 817-335-8800. The firm’s office location is 5601 Bridge Street, Suite 300, Fort Worth, Texas 76112.

Martindale AVtexas[2]