Attorneys’ Fees and Fee Shifting in Texas Work Injury Case Involving Prescription Drug Use

Opinion issued March 31, 2011.
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-10-00271-CV
———————————
COMMERCE & INDUSTRY INSURANCE COMPANY, Appellant
V.
KIMBERLY FERGUSON-STEWART, BENEFICIARY TO BRUCE STEWART, DECEASED, Appellee
On Appeal from the 133rd District Court
Harris County, Texas
Trial Court Case No. 2006-45381
O P I N I O N
This appeal arises from a worker’s compensation case involving an injury to Bruce Stewart, deceased. After trial, the trial court entered judgment on the jury findings supporting the workers’ compensation award and also awarded attorneys’
2
fees in favor of Kimberly Ferguson-Stewart, Stewart’s beneficiary. On appeal, CIIC challenges the trial court’s exclusion of evidence showing Stewart’s history of prescription pain medication use. CIIC also claims, based on Transcontinental Insurance Co. v. Crump, 330 S.W.3d 211 (Tex. 2010), that Stewart waived her right to recover the fees by trying the reasonableness and necessity of those fees to the bench rather than the jury. We hold that the trial court did not abuse its discretion in excluding certain evidence of Stewart’s prescription drug use. We further hold that, under Crump, CIIC was entitled to have jury findings on the attorneys’ fees issues. We therefore reverse the attorneys’ fee award in light of the change in law occasioned by Crump and remand that issue to the trial court for a jury trial.
Background
On May 25, 2004, Stewart reported an on-the-job injury in which he sustained injuries when a large bolt fell from above, striking him on the neck and shoulder. No one witnessed the accident. Stewart went to the emergency room, where he received medical treatment and a prescription for pain medication. Stewart attempted to return to work, but the medication’s side effects made him unable to do so.
After exhausting its administrative remedies, CIIC sought judicial review of the findings that Bruce Stewart (1) sustained an injury in the course and scope of
3
employment on May 25, 2004, and (2) sustained disability from June 2, 2004 through September 21, 2004.1 The jury returned a verdict against CIIC, and the trial court entered judgment on the verdict. The trial court also entered an order granting Ferguson-Stewart’s motion for approval of attorneys’ fees, finding that the fees she incurred were reasonable and necessary. Discussion I. Workers’ Compensation Act Appeals
The Texas Supreme Court has held that a Texas Workers’ Compensation Commission (TWCC) Appeals Panel’s final decision may be appealed to the courts under a ―modified de novo review.‖ Texas Workers’ Compensation Comm’n v. Garcia, 893 S.W.2d 504, 530 (Tex. 1995). Under this modified de novo review, all issues regarding compensability of the injury may be tried by the jury or court. Id. at 528; see TEX. LAB. CODE ANN. §§ 410.301, .304 (Vernon 2006). The court, although informed of the TWCC’s decision, is not required to accord it any particular weight. Garcia, 893 S.W.2d at at 515. The fact finder does not review the Appeals Panel’s decision for ―reasonableness,‖ but rather independently decides the issues by a preponderance of the evidence. Id. at 531. The party
1 Stewart died after the period of disability, but before the administrative proceedings had concluded.
4
appealing the TWCC’s ruling bears the burden of proof by a preponderance of the evidence. TEX. LAB. CODE ANN. § 410.303 (West 2006). II. Evidentiary challenge
CIIC claims error in the trial court’s exclusion of: Medical records in which doctors described how Bruce Stewart engaged in drug-seeking behavior in connection with a prior work-related injury;
Pharmacy records demonstrating that between 2001 and 2004, Bruce Stewart received prescriptions from four different physicians for, among other drugs, hydrocodone’
The DWC’s unredacted order granting benefits in this case, which recites that Bruce Stewart’s death resulted from hydrocodone toxicity; and
Testimony from Bruce Stewart’s treating physician that Stewart’s ingestion of hydrocodone in excess of the prescribed amount did not comply with his treatment plan.
We review a trial court’s decision to exclude testimony under an abuse of discretion standard. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 906 (Tex. 2000). The test for abuse of discretion is whether the trial court acted without reference to any guiding rules and principles. C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d 768, 798 (Tex. App.—Houston [1st Dist.] 2004, no pet.). We must uphold an evidentiary ruling if there is any legitimate basis for it. Owens-Corning Fiberglas Corp. v. Malone, 972 S.W.2d 35, 43 (Tex. 1998). Even if the trial court erred in its evidentiary ruling, we reverse only if the error probably
5
caused the rendition of an improper judgment. Auld, 34 S.W.3d at 906; see TEX. R. APP. P. 81(b)(1).
The record shows that CIIC, invoking Texas Rule of Evidence 402, sought to admit this evidence on general relevance grounds and for purposes of impeachment. See TEX. R. EVID. 402. Ferguson-Stewart objected to its admission on the grounds that the evidence was irrelevant or would have an unfairly prejudicial effect that would substantially outweigh any probative value. TEX. R. EVID. 401, 403.
The workers’ compensation statute makes employees ineligible for benefits if they are intoxicated—by ingesting alcohol or other drugs—at the time of the injury. TEX. LAB. CODE ANN. § 406.032(a)(1) (West 2006) (providing that ―[a]n insurance carrier is not liable for compensation if the injury occurred while the employee was in a state of intoxication.‖); see Tex. Mut. Ins. Co. v. Havard, No. 01-07-00268-CV, 2008 WL 598347 (Tex. App.—Houston [1st Dist.] Mar. 6, 2008, no pet.) (mem. op.). CIIC did not raise intoxication as a defense in the administrative proceeding. When CIIC proffered the evidence to the trial court, Ferguson-Stewart responded that Bruce Stewart
may have failed a past drug screen, but the fact is when he went back to work there, he passed the drug screen to start working, and then after the accident he passed another one. So the fact that he ever failed one before wouldn’t be relevant.
6
CIIC contends that the proffered evidence is relevant for the purposes of impeachment because it identifies a possible motive for Bruce Stewart to falsify or fabricate a worker’s compensation claim. Texas courts have consistently upheld the exclusion of evidence of a witness’s prior drug use for general impeachment purposes. See TEX. R. EVID. 608(b) (prohibiting use of ―specific instances of conduct of a witness, for the purpose of attacking or supporting the witness’[s] credibility, other than conviction of crime . . .‖); Lagrone v. State, 942 S.W.2d 602, 612 (Tex. Crim. App. 1997) (noting that, in adopting Rule 608(b), Texas courts ―implicitly abolished the impeachment of witnesses with evidence of drug addiction‖). Any connection between Bruce Stewart’s use of prescription pain medication and his worker’s compensation claim rests on speculation.2 The record thus supports the trial court’s exercise of discretion in excluding the evidence on the grounds that the danger of unfair prejudice substantially outweighed the evidence’s probative value. TEX. R. EVID. 403.
2 In particular, CIIC points to evidence that Stewart expressed his intent to ask for prescription pain medication to replace over-the-counter ibuprofen recommended by the doctor if he ―start[ed] hurting‖ and called for the prescription two hours later. This evidence equally supports an inference that Stewart needed stronger medication to combat his pain. See Lozano v. Lozano, 52 S.W.3d 141, 148 (Tex. 2001). The trial court was within its discretion to exclude this evidence, given the issues the jury was to decide.
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III. Attorneys’ fees
Under section 408.221(c) of the Labor Code, an insurance carrier that seeks judicial review of an appeals panel decision is liable for a claimant’s reasonable and necessary attorneys’ fees as a result of the appeal if the claimant prevails on an issue on which the carrier seeks judicial review. See TEX. LAB. CODE ANN. § 408.221(c) (West 2006). In her answer, Ferguson-Stewart pleaded for reasonable and necessary attorneys’ fees and expenses ―[u]nder Chapter 408, Subchapter L, § 408.221(c) of the Texas Labor Code.‖
We first address CIIC’s contention that Ferguson-Stewart failed to plead for attorneys’ fees. In Texas, a pleading must give fair and adequate notice to the opposing party sufficient to prepare a defense. Hagberg v. City of Pasadena, 224 S.W.3d 477, 482 (Tex. App.—Houston [1st Dist.] 2007, no pet.). Where the opposing party fails to use special exceptions to identify alleged defects in a pleading, we construe the pleadings liberally in favor of the pleader. Horizon/CMS Healthcare Corp. v. Auld, 34 S.W.3d 887, 897 (Tex. 2000).
CIIC asserts that, by identifying some of her named attorneys in her fee request but not others, Ferguson-Stewart limited her recovery to the fees she incurred in connection with the named attorneys’ representation only. The pleading, however, contains no such exclusive language, and CIIC did not specially except to Ferguson-Stewart’s pleadings on that ground. We hold that
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Ferguson-Stewart’s pleading gave CIIC fair and adequate notice of her intent to seek recovery of all reasonable and necessary attorneys’ fees she incurred in her defense. In its main contention on this issue, CIIC claims that Ferguson-Stewart waived her right to recover attorneys’ fees because she failed to secure jury findings on the reasonableness and necessity of the fees, instead submitting the fee request to the trial court in a post-trial motion. CIIC relies on Transcontinental Insurance Co. v. Crump, decided after the conclusion of trial in this case, in which the Texas Supreme Court held that ―an insurance carrier is entitled to have a jury determine the disputed amount of reasonable and necessary fees for which it is liable under 408.221(c).‖ 330 S.W.3d 211, 232 (Tex. 2010).
We agree that, in light of Crump, CIIC was entitled to jury findings on fees. Thus, we hold that the attorneys’ fees award must be reversed. CIIC states that we must go further—and render judgment in its favor upon our reversal—because Ferguson-Stewart waived her claim for fees by failing to secure jury findings in its support. We disagree. The trial court’s order recites that it held a hearing on the reasonableness and necessity of Ferguson-Stewart’s attorneys’ fees, and the trial court found that the fees incurred were reasonable and necessary.3 Ferguson-
3 The reporter’s record does not include this hearing, and CIIC does not challenge the legal sufficiency of the evidence before the trial court on the reasonableness and necessity of Ferguson-Stewart’s attorneys’ fees. We presume the evidence
9
Stewart pursued her claim for fees and obtained findings, albeit from the incorrect factfinder. When a party produces some evidence of fees, and the trial court errs in determining them, remand is appropriate. Cf. Tony Gullo Motors v. Chapa, 212 S.W.3d 299, 314–15 (Tex. 2006) (holding that plaintiff did not waive her request for attorney’s fees by failing to segregate recoverable fees from unrecoverable ones and remanding for new trial on issue); Lubbock Cnty. v. Strube, 953 S.W.2d 847, 858 (Tex. App.—Austin 1997, pet. denied) (remanding for new trial on attorney’s fees issue).
Remand for a jury trial is appropriate when a trial court improperly fails to heed the request for a jury. See Gen. Motors Corp. v. Gayle, 951 S.W.2d 469, 477 (Tex. 1997) (instructing trial court to conduct jury trial where trial court refused to empanel a jury). The remedy here is not a judgment on the merits, but instead a trial before the appropriate fact finder. Unlike most fee-shifting statutes, which allow, but do not require, a prevailing party to recover attorneys’ fees, the provision applicable to this proceeding makes the insurer liable for the claimant’s fees when the insurer seeks judicial review of compensability or eligibility issues and the claimant prevails. Compare TEX. CIV. PRAC. & REM. CODE ANN. § 38.001 (providing that ―a person may recover reasonable attorneys’ fees from an
presented at the hearing supports the trial court’s ruling. See TEX. R. APP. P. 34.6(c); Mason v. Our Lady Star of Sea Catholic Church, 154 S.W.3d 816, 819 (Tex. App.—Houston [14th Dist.] 2005, no pet).
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individual or corporation . . .‖) with TEX. LAB. CODE ANN. § 408.221(c) (providing that ―an insurance carrier that seeks judicial review . . . of a final decision of the appeals panel regarding compensability or eligibility for, or the amount of, income or death benefits is liable for reasonable and necessary attorney’s fees . . . incurred by the claimant . . . if the claimant prevails on an issue on which judicial review is sought by the insurance carrier‖) (emphasis added). The supreme court’s analysis in Crump shows that its conclusion was not an obvious one. As the court observed, section 408.221 not only ―is silent on the critical judge-or-jury question,‖ but is also ambiguous, reasonably supporting conflicting conclusions on the issue. Id. at 229. The court also noted that, before the fee-shifting provision was added in 2001, the trial court, ―without the aid of a jury,‖ determined the amount of fees that a claimant’s attorney could recover. Id. at 229–30. We reverse the award of attorneys’ fees contained in the judgment and remand the issue of attorneys’ fees for jury trial.
Conclusion
We hold that the trial court did not abuse its discretion in excluding the evidence of Bruce Stewart’s history of prescription drug use. Following Crump,
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we also reverse the award of attorneys’ fees contained in the judgment and remand the issue of Ferguson-Stewart’s attorneys’ fees for trial. We affirm the remainder of the judgment.
Jane Bland
Justice
Panel consists of Chief Justice Radack and Justices Alcala and Bland.

 

 

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Martindale AVtexas[2]

Injury to Plaintiff’s Head/Skull in Texas Work Injury Defense Case

In The

 

Court of Appeals
Ninth District of Texas at Beaumont

____________________
NO. 09-06-305 CV

____________________
LIBERTY MUTUAL INSURANCE CO., Appellant

V.

MARIO CAMACHO, Appellee
On Appeal from the 359th District Court

Montgomery County, Texas

Trial Cause No. 01-10-06715-CV

 

OPINION

We resolve two principal questions in this appeal. First, we determine if the evidence in this workers’ compensation case is legally sufficient to support the jury’s finding that Mario Camacho suffered a skull injury. Second, we decide whether the trial court improperly instructed the jury to give the decision of the Texas Workers’ Compensation Commission no special weight. We answer both questions in the affirmative and reverse and remand the case for a new trial.

TRIAL TESTIMONY AND VERDICT

Camacho was a rancher with more than twenty years’ experience at the time of his injury and a long-term employee of JMR Ranching. In September 1991, Camacho’s horse reared up and struck him in the face. He fell from the horse to the ground. Selma Steele, co-owner of the ranch, received a telephone call about Camacho’s accident and arrived at the scene shortly thereafter. When she arrived, Camacho “had a big knot on his head and a knot over the left eye and his nose was bleeding.” While on the way to Steele’s home in her car, Camacho fell over and appeared to have gone to sleep. Steele took Camacho to the hospital. Camacho was initially treated at the Tomball Regional Hospital Emergency Room. Dr. John Sanders, the emergency room physician, diagnosed Camacho as having suffered a concussion. Dr. Sanders ordered the following tests: (1) a CT scan of the head, without contrast, which was reported as normal; (2) a bone scan, which was reported as normal with the exception of degenerative changes in the cervical spine; (3) an x-ray of the nasal bones, which was reported as showing no evidence of fracture; and (4) an x-ray of the cervical spine, which was reported as showing no acute fracture.

Dr. Susan Garrison, a physician certified by the American Board of Physical Medicine and Rehabilitation, reviewed Camacho’s records at Liberty Mutual’s request in 2005 in order to address whether Camacho suffered a skull injury due to his 1991 fall. Dr. Garrison, the only medical doctor to testify at trial, stated that Camacho’s tests, x-rays, bone scans, and CT scans showed “no evidence of injury to the skull as a result of that accident.” In her opinion, Camacho had a closed head injury but he “did not have an injury to the skull.” Dr. Garrison clarified that her opinions were based upon the reports of the tests administered at Tomball Regional because the actual films of the tests had been destroyed by the hospital. Dr. Garrison further testified that because the bone scan was done with contrast material, if Camacho had suffered a bone bruise of the skull, the test “would have lighted up, and it didn’t light up.” Dr. Garrison did not see or treat Camacho.

Dr. Richard Pollock, a neuropsychologist, testified that he began treating Camacho in 1994. According to Dr. Pollock, Camacho’s hospital records reflected that he suffered a closed head injury in the accident. Dr. Pollock categorized Camacho as an incurable imbecile and testified that Camacho’s condition was permanent. Dr. Pollock also opined that Camacho “is not capable of living independently.”

Camacho testified at trial regarding the effects of his injury on his ability to work and to engage in daily activities of living. He did not testify about how his injury occurred.

At the conclusion of the trial, the trial court submitted one issue to the jury accompanied by instructions. The court submitted the following instructions pertinent to this appeal:

You are instructed that the Texas Workers’ Compensation Commission Appeals found that the Plaintiff did not sustain an injury to the skull that resulted in incurable imbecility. The party dissatisfied with the decision of the Appeals Panel may file suit in District Court for Judicial Review. The decisions of the Texas Workers’ Compensation Commission are to be given no special weight. You, as jurors, decide the weight and credibility of the evidence submitted before you. The jury returned its verdict, finding that Camacho “sustained an injury to his skull that resulted in incurable imbecility.” Subsequently, the trial court awarded Camacho lifetime income benefits in accordance with the jury’s verdict.

 

SKULL INJURY ISSUE

Liberty Mutual contends that Camacho failed to present legally sufficient evidence establishing that he suffered a skull injury. Although at trial it challenged whether Camacho’s injury caused his imbecility, on appeal, Liberty Mutual does not challenge that aspect of the jury’s finding. Rather, Liberty Mutual argues that the lifetime benefits provision required Camacho to prove an injury to the bones of his skull in order to recover lifetime benefits. The statutory language in effect at the time of Camacho’s injury provided, in pertinent part:

(a) Income benefits shall be paid until the death of the employee for:

. . . .

 

(6) an injury to the skull resulting in incurable insanity or imbecility.

 

Act of Dec. 12, 1989, 71st Leg., 2d C.S., ch. 1 § 4.31, 1989 Tex. Gen. Laws 42 (amended 1997) (current version at Tex. Lab. Code Ann. § 408.161(6) (Vernon 2006)).

Liberty Mutual contends that an injury to the “skull” is an absolute requirement under the version of the statute at issue, and that a brain or head injury, without a skull injury, is insufficient. (1) In support of its argument, Liberty Mutual cites Barchus v. State Farm Fire & Casualty Co., 167 S.W.3d 575 (Tex. App.-Houston [14th Dist.] 2005, pet. denied), and asserts that the Fourteenth Court of Appeals decided that the statute at issue requires an injury to the skull. However, in Barchus, the trial court’s finding that Barchus had sustained an injury to his skull was not challenged on appeal. Id. at 580. Rather, the issue addressed was whether the Compensation Act required the claimant to prove that his skull had been fractured in order to receive lifetime income benefits. See id. In contrast, the case before us requires that we interpret the statute’s meaning in its use of the term “skull” in order to determine whether a blow to the head, which results in imbecility, fulfills the requirements of the statute.

Standard of Review

The jury found that Camacho sustained an injury to his skull that resulted in incurable imbecility. Because Camacho’s claim was denied at the administrative level, Camacho had the burden to prove by a preponderance of the evidence that he sustained an injury to his skull. Tex. Lab. Code Ann. § 410.303 (Vernon 2006). In reviewing a jury verdict for legal sufficiency, we consider all of the evidence in the light most favorable to the prevailing party, “crediting favorable evidence if reasonable jurors could, and disregarding contrary evidence unless reasonable jurors could not.” City of Keller v. Wilson, 168 S.W.3d 802, 807 (Tex. 2005); Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 285-86 (Tex. 1998). Thus, on this record we must credit favorable evidence for Camacho if reasonable jurors could, and disregard evidence contrary to the jury’s finding that Camacho suffered a skull injury, unless reasonable jurors could not.

Statutory Construction

To resolve this appeal, we must determine whether a severe blow to the head causing bruising and a concussion that renders an employee an imbecile constitutes a skull injury for purposes of the lifetime benefits provision of the Workers’ Compensation Act. See Act of Dec. 12, 1989, 71st Leg., 2d C.S., ch. 1 § 4.31, 1989 Tex. Gen. Laws 42 (amended 1997). The Act has never defined the term “skull.” See id.; see also Tex. Lab. Code Ann. § 401.011(Vernon 2006).

A court’s objective in construing a statute is to “determine and give effect to the Legislature’s intent.” Nat’l Liab. & Fire Ins. Co. v. Allen, 15 S.W.3d 525, 527 (Tex. 2000). When the meaning of a word in a statute is not ambiguous, we ordinarily give the word its common meaning. Id.; Fitzgerald v. Advanced Spine Fixation Sys., Inc., 996 S.W.2d 864, 865 (Tex. 1999). In ascertaining legislative intent, our review is not confined to isolated words, phrases, or clauses; rather, we examine the entire act. Meritor Auto., Inc. v. Ruan Leasing Co., 44 S.W.3d 86, 90 (Tex. 2001); see Tex. Gov’t Code Ann. § 311.011(a) (Vernon 2005) (instructing courts to construe words and phrases in context).

The Code Construction Act lists factors that may be considered in construing a statute, whether or not the statute is ambiguous on its face. Tex. Gov’t Code Ann. § 311.023 (Vernon 2005). These factors include, among other things, (1) the statute’s objectives; (2) the circumstances under which the statute was enacted; (3) the statute’s legislative history; (4) common law, former law, and similar provisions; (5) the consequences of the statutory construction; and (6) administrative construction of the statute. Id. § 311.023(1)-(6); In re Canales, 52 S.W.3d 698, 702 (Tex. 2001). We also presume that the Legislature intended a just and reasonable result. Tex. Gov’t Code Ann. § 311.021(3) (Vernon 2005); Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 493 (Tex. 2001).

Commonly used dictionaries assist in determining a word’s common use. See generally Powell v. Stover, 165 S.W.3d 322, 326 (Tex. 2005); Tex. Dep’t of Protective & Regulatory Servs. v. Mega Child Care, Inc., 145 S.W.3d 170, 196 (Tex. 2004). One dictionary defines “skull” to mean:

1 a: the skeleton of the head of a vertebrate : the bony or cartilaginous case or framework that encloses and protects the brain and chief sense organs, supports the jaws, . . . and consists of the cranium, the bony capsules of the nose, ear, and eye, and the jaws b: the cranium together with those bones that are immovably fused with it (as the mammalian upper jaw) 2 : the seat of understanding or intelligence : MIND . . . .

Webster’s Third New International Dictionary 2135 (2002). In construing a statute, we are also required to examine the context of the statute and the Legislature’s intent. The context of the statute at issue does not limit itself to injuries to the bones of the skull; in fact, an injury to the bones of the skull that did not result in imbecility would not result in the award of lifetime income benefits. Thus, the statute appears to be triggered by two events: a blow to the head and an injury to the brain that results in imbecility or insanity. Thus, the context of the statute supports defining the term “skull” in a manner that includes a blow to the head that causes imbecility.

“The primary purpose of the Texas Workers’ Compensation Act is to benefit and protect injured employees.” Barchus, 167 S.W.3d at 578. If we accepted Liberty Mutual’s contention regarding the meaning of the word “skull,” imbeciles receiving a fracture or bone bruise would receive lifetime benefits, while imbeciles whose skulls had been harmed by a blow but who had no demonstrable bone injury would not. Since the purpose of the statute is to benefit and protect injured workers, and because both of these classes suffer from severe, permanent, and disabling injuries, it appears more consistent with the purposes of the Act to apply the broader definition of the term “skull” to allow the recovery of lifetime benefits to both classes of injured employees. “It is well settled that the Workers’ Compensation Act should be liberally construed in favor of the worker.” Lujan v. Houston Gen. Ins. Co., 756 S.W.2d 295, 297 (Tex. 1988) (citing Hargrove v. Trinity Universal Ins. Co., 152 Tex. 243, 245, 256 S.W.2d 73, 75 (1953)). Construing the term “skull” to require an injury to the bones of the skull, as opposed to an injury to “the seat of understanding,” would not protect workers who receive severe blows to the head but who do not suffer a skull fracture or other identifiable injury to the bones of the skull.

Liberty Mutual argues that we should utilize the more narrow definition of the term “skull” used by the Texas Workers’ Compensation Commission. While we generally consider an administrative agency’s interpretation of a term, it is not binding and carries no presumption of validity. Barchus, 167 S.W.3d at 578. The Barchus court stated: “To the extent the Commission has concluded that a claimant must show evidence that he fractured his skull to be entitled to [lifetime income benefits], we find that such conclusion is inconsistent with the plain language of the statute.” Id. at 580. We agree that adopting a narrow definition of “skull injury” that would require evidence of skeletal damage is inconsistent with the Legislature’s intent to compensate for life severely injured employees who are injured directly by a blow to their head. See id.

Finally, we note that the lifetime benefits provision at issue requires proof of an “injury” to the skull. Act of Dec. 12, 1989, 71st Leg., 2d C.S., ch. 1 § 4.31, 1989 Tex. Gen. Laws 42 (amended 1997). The term “injury” was broadly defined as “damage or harm to the physical structure of the body and those diseases or infections naturally resulting from the damage or harm.” Id., 1989 Tex. Gen. Laws 3 (see current version at Tex. Lab. Code Ann. § 401.011(26) (Vernon 2006) wherein the term is similarly defined). In this case, it was not disputed that Camacho suffered a closed head injury. A blow to the head that causes bruising and unconsciousness and results in a diagnosis of a closed head injury is, in our opinion, sufficient harm to the skull to meet this statute’s requirement of a skull injury. Therefore, we overrule Liberty Mutual’s legal sufficiency challenge to the jury’s finding that Camacho sustained a skull injury. Issue one is overruled.

JURY INSTRUCTION

In issue three, Liberty Mutual asserts that the trial judge improperly instructed the jury to “give no special weight” to the decision of the Texas Workers’ Compensation Commission. Camacho responds that the trial court’s instruction “was a correct statement of the law.” We review whether a trial court erred in giving a jury instruction under an abuse of discretion standard. Tex. Dep’t of Human Servs. v. E.B., 802 S.W.2d 647, 649 (Tex. 1990).

In jury trials, the Workers’ Compensation Act requires the trial court to inform the jury “of the appeals panel decision on each disputed issue . . . that is submitted to the jury.” Tex. Lab. Code Ann. § 410.304(a) (Vernon 2006). Following the Legislature’s enactment of the Act, the Texas Supreme Court in Texas Workers’ Compensation Commission v. Garcia, 893 S.W.2d 504, 528 (Tex. 1995), rejected a challenge to the constitutionality of this particular provision of the Act. The Supreme Court stated:

 

The Act does specify certain limiting procedures not found in a pure trial de novo. First, the jury is informed of the Commission’s decision. Because the jury is not required to accord that decision any particular weight, however, this procedure does not impinge on the jury’s discretion in deciding the relevant factual issues. We hold that this procedure does not violate a claimant’s right to trial by jury.

Id. The Supreme Court stated that the jury is not required to give the decision any “particular weight;” however, the Court did not affirmatively direct that juries are to give appeals-panel decisions “no special weight.” Id. Further, the Supreme Court did not direct trial courts to give an instruction to the jury regarding the weight, or lack thereof, of the appeals-panel’s decision. Id.

The Supreme Court’s language in Garcia suggests that a juror is free to give the appeals-panel decision no weight, some weight, or significant weight, depending on that particular juror’s view of the evidence. See id. Although the jury is not bound to follow the appeals-panel decision, it may give it weight if it so chooses. In this case, however, by affirmatively instructing the jury to give the decision “no special weight,” the jurors were instructed to all but disregard the decision of the appeals-panel. There is a material difference between an instruction that leaves the jury free to accord the decision of the appeals-panel the weight the jury thinks it deserves, and an instruction that tells the jury to discount, if not disregard, the decision. Lemos v. Montez, 680 S.W.2d 798, 801 (Tex. 1984) (“There is a material difference between an instruction that the happening ‘is not’ negligence and an instruction that the happening ‘does not necessarily imply’ negligence.”). “The jury does not need either instruction. This court has treated addenda to the charge as impermissible comments that tilt or nudge the jury one way or the other.” Id.

An instruction by a trial court that misstates the law or misleads the jury is improper. Steak & Ale of Tex., Inc. v. Borneman, 62 S.W.3d 898, 905 (Tex. App.-Fort Worth 2001, no pet.) (citing Jackson v. Fontaine’s Clinics, Inc., 499 S.W.2d 87, 90 (Tex. 1973)). “A requested instruction that is affirmatively incorrect is not ‘substantially correct’ as that term is used in Rule 278’s requirement that proposed questions and instructions be substantially correct.” Baylor Univ. v. Coley, 50 Tex. Sup. Ct. J. 621, 2007 WL 1162489, at *7 (Tex. April 20, 2007) (Johnson, J., concurring). Moreover, the Rules of Civil Procedure prohibit the trial court from making a “comment directly on the weight of the evidence” in its jury charge. See Tex. R. Civ. P. 277.

In some instances, it is error for the trial court to give the jury an instruction even when it is a substantially correct statement of the law. For example, in Acord v. General Motors Corporation, 669 S.W.2d 111 (Tex. 1984), the Supreme Court reversed a jury verdict based on charge error when the trial court instructed the jury that a manufacturer is not an insurer of the product it designs. 669 S.W.2d at 113, 116. Although the instruction was a correct statement of law, the Supreme Court found harmful error and said: “In a closely contested case as is the one at bar, to single out for the jury that General Motors was neither an insurer nor a guarantor of a perfect or accident-proof product, which incorporated ultimate safety features, was a comment on the case as a whole. As such, it constituted harmful error.” Id. at 116.

We hold that the instruction submitted by the trial court in this case constituted an impermissible comment that tilted or nudged the jury’s consideration of the decision of the appeals-panel. The instruction to the jury singled out one piece of evidence admitted at trial, and implied that the jury should treat the appeals-panel decision differently than it was to treat the other evidence admitted at trial; in that way, the instruction served to comment on the case as a whole. We further hold that the instruction the trial court submitted was not a substantially correct statement of law. For these two reasons, we conclude the trial court erred in instructing the jury to give the appeals-panel decision “no special weight.”

HARM

In cases involving an incorrect jury instruction, an appeals court reverses only if the instruction “‘was reasonably calculated to and probably did cause the rendition of an improper judgment.'” Bed, Bath & Beyond, Inc. v. Urista, 211 S.W.3d 753, 757 (Tex. 2006) (quoting Reinhart v. Young, 906 S.W.2d 471, 473 (Tex. 1995)). We examine the entire record to evaluate whether the instruction probably caused the rendition of an improper verdict. Id.

The appeals-panel decision involved both the issue of Camacho’s injury and the issue of his imbecility. The issue at trial regarding Camacho’s imbecility was closely contested. Dr. Garrison testified that Camacho was not an imbecile. The jury also heard Dr. Pollock’s testimony that Camacho’s testing showed that he functioned below a first grade level and that he had an IQ score in the upper 60’s. Dr. Pollock additionally testified that Camacho was not capable of independent living because of his severe cognitive impairment and that he functioned at an imbecilic level. However, Dr. Pollock acknowledged that the records of another neuropsychologist contained a contrary opinion that Camacho did not suffer from incurable imbecility. Liberty Mutual’s evidence also included a letter from Dr. Francisco Perez, a neuropsychologist. Dr. Perez’s letter states, “I don’t believe there is any evidence of a cerebral dysfunction or any sequela from a head injury.” The record also contains a report by Dr. Jeremiah Twomey, who practices occupational medicine, in which he opined, “I do not feel that the records I reviewed qualify him for lifetime benefits on the basis of psychological impairment to the level of imbecility.” Finally, the report of Dr. John Cassidy, a psychiatrist, states: “This patient does not meet [the] criteria of statute 408.161 (a) (6) of the TWCC Act for incurable insanity or imbecility.”

Camacho also addressed his physical limitations during his testimony at trial. Camacho testified that he continued to drive on the ranch, but not in the city, and that he could no longer train horses. Camacho indicated that he could bathe and dress himself, saddle and water horses, sometimes feed the cattle, load light things, participate in moving cattle from one pen to another, and assist in taking cattle to auctions.

The trial court instructed the jury that an imbecile was “a mentally deficient person, especially a feebleminded person having a mental age of three to seven years and requiring supervision in the performance of routine daily tasks or caring for himself.” From the above discussion, it is apparent that the evidence on whether Camacho functioned as an imbecile conflicted.

The purpose of instructing the jury on the decision of the appeals-panel distinguishes it from cases when courts have found general instructions to the jury improper, but nevertheless, harmless. See generally Urista, 211 S.W.3d at 756 (harmless error rule applied to improper submission of unavoidable accident instruction). In this case, the instruction regards a specific piece of evidence: the appeals-panel decision. Because the instruction applies to specific evidence, there is a danger that the jury may infer from the instruction given here, that the trial judge disagrees with the appeals-panel’s resolution of the dispute. Also, the instruction in Urista was a substantially correct statement of law; here, the instruction is not substantially correct. Finally, under Urista’s facts, it was unclear whether the instruction caused the jury to find as it did. See id. at 758. Here, the jury rejected Liberty Mutual’s case that was supported by evidence from several physicians while accepting Camacho’s case that relied on the testimony of one expert witness who was not a physician.

In conclusion, the jury was entitled to give the decision of the appeals-panel whatever weight it thought the decision deserved. The trial court’s instruction to give the decision “no special weight” was an incorrect statement of the law and served to nudge the jury toward responding affirmatively in deciding whether the injury resulted in incurable imbecility. We hold that the erroneous submission of the instruction at issue probably caused the rendition of an improper verdict.

In issues two, four and five, Liberty Mutual raises additional issues. Because reviewing these issues would afford Liberty Mutual no greater relief than the relief granted herein, we do not address these three issues. See Tex. R. App. P. 47.1. Because the trial judge improperly instructed the jury, we reverse the judgment and remand this cause for the purpose of a new trial.

REVERSED AND REMANDED.

 

____________________________

HOLLIS HORTON

Justice

 

Submitted on March 22, 2007

Opinion Delivered June 21, 2007

Before Gaultney, Kreger, and Horton, JJ.

1. In contrast, since 1997, the compensation statute provides for lifetime benefits for “a physically traumatic injury to the brain resulting in incurable insanity or imbecility.” Tex. Lab. Code Ann. § 408.161 (a)(6) (Vernon 2006).

 

 

 

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 work 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]

Insurance Coverage Issue in Renewal of Auto Policy–Texas Insurance Defense Lawyers

Court of Appeals of Texas,

Houston (14th Dist.).

Charles HARTLAND, Appellant

v.

PROGRESSIVE COUNTY MUTUAL INSURANCE COMPANY, Appellee.

No. 14-07-00955-CV.

April 23, 2009.

Chief Justice HEDGES and Justices ANDERSON and SEYMORE.

 

MAJORITY OPINION

 

JOHN S. ANDERSON, Justice.

 

Appellant, Charles Hartland, filed suit against appellee, Progressive County Mutual Insurance Company, after the denial of an auto-insurance claim for a single-car accident. The jury found appellant did not mail the premium to renew the policy until after the policy had expired; therefore, appellant did not have insurance when the accident occurred. On appeal, appellant contends the parties formed a contract under the terms of the original renewal policy when appellee accepted his premium payment, and therefore, the policy cov-ered the accident. In addition, appellant argues appellee violated the Texas Administrative Code when it denied his claim. We affirm.

 

  1. Factual and Procedural Background

 

Appellant, Charles Hartland, obtained auto insurance through appellee, Progressive County Mutual Insurance Company. Policy number 37156966-1 began on November 9, 2003, at 12:01 a.m. and ended on May 9, 2004, at 12:01 a.m. Appellee sent appellant a renewal bill on April 14, and a renewal reminder on April 23, stating the renewal policy period would run from May 9 to November 9. Appellant claimed he mailed a check in the amount of the renewal premium on May 8; appellee attached a lockbox report to its counter-claim for declaratory judgment showing the postmark date was May 11. Joan Hartland, appellant’s wife, was in a single-car accident on May 9, 2004 at approximately 8:00 a.m., damaging a car covered under the initial policy.

 

Appellee presented evidence that it received appellant’s check on May 16, and on May 18, appellee sent appellant a revised renewal declarations page. Policy number 37156966-2 listed coverage dates from May 12, 2004, at 12:01 a.m. to November 12, 2004, at 12:00 a.m., excluding coverage for the date of the accident. Appellant requested review by appellee of the denial of the claim. On August 6, appellee again denied the claim, stating the policy was not in effect at the time of the loss. On December 29, appellant’s attorney sent a letter asking appellee to reconsider; appellee denied the claim once again.

 

Appellant filed an original petition, alleging breach of contract, unfair claim-settlement practice, breach of duty of good faith and fair dealing, damages, and attorney fees. Appellee filed a counterclaim for declaratory judgment, stating it owed no duty or obligation to Hartland because the policy had expired. Appellee also filed a motion for summary judgment with the same contention as the declaratory judgment. The trial court denied the motion for summary judgment and the case went to trial. The jury answered “No” to the following question: “Do you find that Charles Hartland deposited his renewal policy premium payment with the post office on or before 12:01 a.m. on May 9, 2004?”Appellant then filed a motion for judgment notwithstanding the verdict and to disregard jury findings, arguing that even if he mailed his payment after the policy period ended, appellee formed a contract based on the original terms of the renewal by accepting his payment. The trial court denied appellant’s motion and entered final judgment on the verdict.

 

  1. Discussion

 

In three issues on appeal appellant contends the trial court erred when it denied appellant’s motion for judgment notwithstanding the verdict because: (1) the parties formed an enforceable contract as a matter of law; and (2) appellee violated sections of the Texas Administrative Code, making any attempts to restrict appellant’s coverage void.FN1Therefore, we will construe appellant’s three issues as actually raising two issues on appeal.

 

FN1. Appellant raised only the Administrative Code and has not based any assertion of error by the trial court on the provisions of the Texas Insurance Code. Therefore, we do not address what, if any, impact the Insurance Code might have on the facts found in this case. See Valadez v. Avitia. 238 S.W.3d 843, 845 (Tex.App.-El Paso 2007, no pet.)(holding that, in a civil case, an appellate court has no duty, or even the right to perform an independent review of the record and applicable law to determine whether there was error).

 

  1. The Standard of Review

 

A court may disregard a jury’s verdict and render judgment notwithstanding the verdict (JNOV) if no evidence supports the jury’s findings, or if a directed verdict would have been proper. Tiller v. McClure, 121 S.W.3d 709, 713 ( Tex.2003). To determine whether a JNOV is appropriate, we apply the standards that govern “no evidence,” i.e., legal-sufficiency review. See Keller v. Wilson, 168 S.W.3d 802, 823 ( Tex.2005); Wal-Mart Stores, Inc. v. Miller, 102 S.W.3d 706, 709 ( Tex.2003).

 

A legal-sufficiency point must be sustained: (1) when there is a complete absence of a vital fact; (2) when rules of law or evidence preclude according weight to the only evidence offered to prove a vital fact; (3) when the evidence offered to prove a vital fact is no more than a scintilla; or (4) when the evidence conclusively establishes the opposite of the vital fact. Keller, 168 S.W.3d at 810. Under the legal-sufficiency standard, we must credit evidence that supports the judgment if reasonable jurors could, and we must disregard contrary evidence unless reasonable jurors could not. See id. at 827.If the evidence falls within the zone of reasonable disagreement, we may not invade the fact-finding role of the jurors, who alone determine the credibility of the witnesses, the weight to give their testimony, and whether to accept or reject all or any part of that testimony. See id. at 822.Unless “there is no favorable evidence” to support the challenged finding or “if contrary evidence renders supporting evidence incompetent … or conclusively es-tablishes the opposite” of the finding, we must affirm. See id. at 810-11.

 

  1. Alleged Contract Formation

 

In his first issue, appellant argues that the jury’s answer to question one of the charge is immaterial because an enforceable contract exists as a matter of law. Specifically, appellant contends the parties formed a contract under the original terms of the renewal policy when appellee retained payment on the forfeited policy. Appellant raised this issue for the first time in his motion for judgment notwithstanding the verdict.

 

Appellee characterizes this argument as an affirmative defense of waiver and asserts that appellant cannot raise this argument on appeal because it must have been pleaded or tried by consent. Assuming without deciding that appellant has properly preserved his complaint on appeal, appellant’s first issue is without merit.

 

It is the general rule that a renewal of an insurance policy constitutes a separate and distinct contract for the period of time covered by the renewal. Zuniga v. Allstate Ins. Co., 693 S.W.2d 735, 738 (Tex.App.-San Antonio 1985, no writ). Any offer by the insurer to renew an insurance contract must be accepted by the insured completely and unequivocally to constitute a new contract. Viking County Mutual Ins. Co. v. Jones, No. 05-91-01815-CV, 1992 WL 211068, at *3 (Tex.App.-Dallas August 31, 1992, no writ) (not designated for publication). The payment of the premium in accordance with provisions of the insurance policy is a condition precedent to establishment of liability against the insurer. Id. The policy in this case states:

 

If we offer to renew or continue and you or your representative do not accept, this policy will automatically terminate at the end of the current policy period. Failure to pay the required renewal or continuation premium when due shall mean that you have not accepted our offer.

 

The renewal notice and bill sent by appellee provided the following payment instructions to appellant: “To renew your policy, please pay at least the minimum amount due by the due date.”The jury found that appellant did not pay his premium on time. Because appellant failed to timely pay the renewal premium, the condition for acceptance of the renewal policy was not met and the policy did not begin, leaving appellant without insurance coverage when the accident occurred. See Id. at *4 (holding because insured did not timely pay renewal premium, policy was not canceled but expired under its own terms and once insured paid renewal premium insurer properly renewed policy effective on the date of the insured’s payment); Zuniga, 693 S.W.2d at 738 (holding that since the renewal payment was not made in accordance with the terms of the policy, the renewal policy never came into existence); Southern Farm Bureau Cas. Ins. Co. v. Davis, 503 S.W.2d 373, 377 (Tex.App.-Amarillo 1973, writ ref’d n.r.e.) (stating offer for renewal of auto insurance could not come to fruition until premium paid); Trinity Universal Ins. Co. v. Rogers, 215 S.W.2d 349, 352 (Tex.App.-Dallas 1948, no writ) (stating no completed contract when insured did not indicate acceptance of renewal policy).

 

Relying heavily on the Texas Supreme Court case Bailey v. Sovereign Camp, W.O.W., appellant con-tends the parties formed an enforceable contract when appellee accepted appellant’s late premium payment. Bailey was a member of Sovereign Camp, W.O.W., a fraternal benefit society. Bailey v. Sovereign Camp, W.O.W., 116 Tex. 160, 165, 286 S.W. 456, 456 (1926). As part of his membership, Bailey was issued a benefit certificate for $2,000, payable to his wife upon his death. Sovereign Camp, W.O.W. v. Bailey, 277 S.W. 782, 783 (Tex.App.-Texarkana 1925), rev’d, 116 Tex. 160, 286 S.W. 456 (1926). After Bailey died, his wife made a claim for the benefit certificate. Id. at 783.The organization denied the claim, stating that Bailey was never legally reinstated after his suspension for failure to pay his May dues. Id.

 

Under the organization’s bylaws, Bailey could have been reinstated within 10 days after default if he paid all arrearages and dues and presented a warranty of good health. Bailey, 116 Tex. at 165, 286 S.W. at 456-57. Although Bailey mailed the money order on the tenth day, it was not received until the twelfth day. Bailey, 116 Tex. at 165, 286 S.W. at 457. As a result, Bailey’s payment was untimely because payment had to be received by the agent within the 10-day period. Bailey, 116 Tex. at 165-66, 286 S.W. at 457. Despite Bailey’s late payment, the organization reinstated his membership and did not require the warranty of good health. Bailey, 116 Tex. at 167, 286 S.W. at 457. The court held the organization waived the requirement of good health when it accepted the late payment. Bailey, 116 Tex. at 168, 286 S.W. at 458. In doing so, the court set forth three conditions for waiver of a forfeiture:

 

First. The insurer must have knowledge of the facts constituting the forfeiture of the certificate. Second. The forfeiture must be complete and absolute. Third. There must be some unequivocal act on the part of the insurer which recognizes the continuance of the policy, or which is wholly inconsistent with the forfeiture.

 

Bailey, 116 Tex. at 166, 286 S.W. at 457.

 

The Bailey case is distinguishable from the facts before us. Here, appellant failed to pay a premium to continue his auto-insurance coverage. Appellant’s initial policy had expired as indicated on the renewal bill: “Your current policy will expire on May 9, 2004 at 12:01 a.m.” Appellant has conceded, for the sake of this argument, that his payment was not made until after the expiration of the initial policy and after his wife’s accident. Appellant’s policy provides:

 

If we offer to renew or continue and you or your representative do not accept, this policy will automatically terminate at the end of the current policy period. Failure to pay the required renewal or continuation premium when due shall mean that you have not accepted our offer.

 

When the initial policy expired, the relationship between appellant and appellee had ended according to the terms of the initial policy. In Bailey, the organization chose to reinstate Bailey as a member, giving him the right to his existing benefit certificate. In this case, there was no policy in existence. When appellant paid the renewal premium, appellee issued a new policy effective on the date of payment. Unlike Bailey, appellant did not forfeit the right to an existing policy by not paying the premium and then resurrect it when appellee accepted the premium; the policy expired and a new policy did not begin until appellant paid the premium. See Davis, 503 S.W.2d at 377 (holding no insurance coverage on day of auto accident when insured paid renewal premium one day after accident); Rogers, 215 S.W.2d at 352, (holding no insurance coverage on day of auto accident when insured paid renewal premium three days after accident).

 

Therefore, we overrule appellant’s first issue on appeal.

 

  1. Alleged Texas Administrative Code Violations

 

In his second issue, appellant asserts appellee violated various sections of the Texas Administrative Code in its handling of appellant’s policy. Appellant did not raise this issue until his reply to appellee’s response to his motion for judgment notwithstanding the verdict. Assuming without deciding appellant properly preserved his complaint on appeal, appellant’s second issue is also without merit.

 

Appellant is correct that Texas Administrative Code section 5.7005(c) provides “[p]ersonal automobile policies which are written for a period of less than one year must be renewed, at the option of the insured, for additional periods so as to accumulate a minimum of 12 months’ continuous coverage.”28 Tex. Admin. Code § 5.7005(c) (2008). However, coverage can terminate if premium payments are not made to renew the policy before the initial policy expires. See Viking County Mutual Ins., 1992 WL 211068, at *3 (con-cluding that even though policies written for less than a year must be renewed at the option of the insured, a policy terminates under its own terms if the insured does not timely pay the renewal premium); Longoria v. Greyhound Lines, Inc., 699 S.W.2d 298, 304 (Tex.App.-San Antonio 1985, no writ) (concluding policies written for less than one year must be renewed unless premium payments are not made before expiration of initial policy). Here, appellee offered to renew appellant’s six-month policy for an additional six months; however, appellant exercised his option to not renew the policy by failing to make a timely payment to renew the policy, thus ensuring continuous coverage for a one year period of time. Therefore, because the policy expired under its own terms when appellant failed to timely remit his payment to renew his policy, appellee did not violate section 5.7005(c) of the Texas Administrative Code.

 

*5 Appellant also claims appellee violated section 5.7007 of the Texas Administrative Code. According to section 5.7007(a), “[a] policy must be renewed at expiration, at the option of the policyholder, unless the company has mailed written notice to the policyholder of its intention to decline renewal at least 30 days in advance of the policy expiration date.”28 Tex. Admin. Code § 5.7007(a). Appellee did not have an intention to decline renewal; in fact, appellee offered to renew the policy, at the option of appellant, by sending appellant the notice of renewal. A notice of cancellation is not required when a policy expires under its own terms. See Zuniga, 693 S.W.2d at 738. Because appellant’s policy had expired under its own terms, we hold appellee was not obligated to comply with the cancellation procedures found in section 5.7007(a) of the Texas Administrative Code.

 

Appellant next contends appellee violated sections 5.7011 and 5.7014 of the Texas Administrative Code. However, pursuant to section 5.7001(b), sections 5.7011 and 5.7014 apply to all automobile insurance policies except personal automobile policies. 28 Tex. Admin. Code § 5.7001(b). Since appellant’s policy was a personal automobile insurance policy, sections 5.7011 and 5.7014 do not apply and appellee was not required to comply with any procedures found therein.

 

Appellant also contends appellee’s conduct violated section 5.7004 of the Texas Administrative Code. Section 5.7004 provides:

 

Any company that declines to recognize or put into effect additional coverage to which an insured is entitled under the provisions of an existing policy, or that attempts to reduce or restrict coverage under the provisions of an existing policy by endorsements or by any other means, is in violation of these sections if such acts are performed without the consent of the insured, and shall be subject to the same penalties as a policy that is cancelled in violation of these sections.

 

28 Tex. Admin. Code § 5.7004.

 

Because appellant’s policy expired under its own terms, appellee did not (1) impose a restriction or reduction on his coverage; or (2) decline to recognize or put into effect additional coverage. See Zuniga, 693 S.W.2d at 738. Therefore, we hold appellee did not violate section 5.7004 and overrule appellant’s second issue on appeal.

 

III. Conclusion

 

Having overruled appellant’s issues on appeal, we affirm the judgment of the trial court.

 

SEYMORE, J., dissenting without opinion.

 

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 insurance 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]

Distribution and Credit to Insurance Policy Holder Questioned–Texas Insurance Defense Attorneys

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 08-10450
KIMBERLY-CLARK CORPORATION
Plaintiff – Appellee
v.
FACTORY MUTUAL INSURANCE COMPANY
Defendant – Appellant
Appeal from the United States District Court
for the Northern District of Texas
Before GARWOOD, DENNIS, and PRADO, Circuit Judges.
DENNIS, Circuit Judge:
This case concerns defendant-appellant Factory Mutual’s decision in
October 2003 to distribute to its policyholders a $325 million membership credit
that was contingent on policy renewal. Factory Mutual is a mutual insurance
company and plaintiff-appellee Kimberly-Clark was a policyholder for almost 1
United States Court of Appeals
Fifth Circuit
F I L E D
April 27, 2009
Charles R. Fulbruge III
Clerk
(unpublished) (same).
2
30 years with Factory Mutual and its predecessor company. The district court
concluded that Factory Mutual breached its contract with Kimberly-Clark when
it denied Kimberly-Clark its equitable share of the $325 million distribution.
The district court held that because Kimberly-Clark was a policyholder and
member in good-standing on the distribution’s record date, Kimberly-Clark
should be accorded its equitable share. We agree and AFFIRM the district
court’s judgment.
BACKGROUND
Factory Mutual’s charter stipulates that the company, like all mutual
insurance companies, will “establish and maintain a surplus against
extraordinary losses and other contingencies, by appropriating from time to time
such sums as the board of directors may determine” “in addition to any unearned
premium or reinsurance.” In accordance with the charter, Factory Mutual
maintains a surplus fund that includes appropriated sums and unearned
premiums to cover extraordinary losses and other contingencies. In mid-2003,
Factory Mutual initiated internal discussions regarding a membership credit for
its policyholders. One major reason for a membership credit was the unexpected
growth in the surplus funds.
At about the same time, after extensive discussions with Factory Mutual,
Kimberly-Clark indicated to Factory Mutual during a meeting with Factory
Mutual on August 26, 2003, that it intended not to renew its policy. Kimberly-
Clark’s policy expired on October 1, 2003.
On October 8, 2003, Factory Mutual informed the Rhode Island
Department of Business Regulation (“DBR”) that it was planning a proposed
membership credit. On October 9, 2003, Factory Mutual’s Board of Directors
3
approved the proposed $325 million membership credit. Factory Mutual publicly
announced the credit on October 20, 2003. In a series of documents, Factory
Mutual described the membership credit to its policyholders. Factory Mutual set
eligibility for the distribution as follows: “[a]ll Factory Mutual Insurance
Company policyholders . . . on the date of record will be eligible to receive the
membership credit when their policies renew during the membership credit
period.” (emphasis added). Factory Mutual thereby conditioned the distribution
of the membership credit on a policyholder’s future act — signing a policy
renewal before the policy expired. Factory Mutual also established the “date of
record” (or record date) as September 30, 2003.
In its notices to policyholders, Factory Mutual specifically linked the
membership credit to its surplus growth and framed the distribution as a reward
or return from that growth. In an October 20, 2003 press release, Factory
Mutual stated:
Policyholders of commercial and industrial property insurer FM
Global will receive a collective US$325 million in savings on their
premium beginning January 1, 2004 as a result of lower than
expected property losses during recent years, resulting in higher than
projected surplus growth. The return will be disbursed to FM Global
policyholders as a membership credit on premium for 2004 policy
renewals.
(emphasis added). Factory Mutual specifically apportioned shares of the
membership credit distribution based on the amount of each policyholder’s
premium contribution on the record date and the number of years the
policyholder held a policy with the company. The distribution acted akin to a
mutual insurance company’s typical distribution of surplus capital as a return
to policyholders in proportion to their past contributions, except that Factory
See, e.g., In re MetLife Demutualization 2 Litig. 495 F. Supp. 2d 310, 313 (E.D.N.Y.
2007) (“A mutual insurance company’s role with respect to its policyholders is to apportion the
company’s surplus — created in part from the payment of premiums paid by the policyholders
— equitably among policyholders in proportion to their contributions thereto.”); RUSS &
SEGALLA, 3 COUCH ON INS. § 39:18 (“As a general rule, the ‘surplus’ of a mutual company
belongs equitably to the policyholders who contributed to it, in the proportion in which they
contributed.”).
4
Mutual’s distribution was contingent on policy renewal.2
On the distribution’s record date, Kimberly-Clark was a Factory Mutual
policyholder in good standing, but it had decided not to renew its policy when the
policy expired on October 1, 2003. Because it was a policyholder in good standing
on the distribution’s record date, Kimberly-Clark requested a portion of the 2004
membership credit in cash, which Factory Mutual denied. Subsequent
negotiations between the parties failed to resolve the dispute. Kimberly-Clark
therefore filed suit on September 30, 2005, in the 116th Judicial District Court
of Dallas County, Texas, against Factory Mutual, alleging breach of contract,
fraud, negligent misrepresentation, unjust enrichment, and violations of the
Texas Insurance Code. On October 24, 2005, Factory Mutual filed a notice of
removal to the United States District Court for the Northern District of Texas.
On October 5, 2006, the parties entered into a joint stipulation, dismissing with
prejudice the fraud and negligent misrepresentation claims along with several
Texas Insurance Code claims. On December 15, 2006, both parties filed crossmotions
for summary judgment on the breach of contract, unjust enrichment,
and remaining Texas Insurance Code claims.
On September 21, 2007, the district court issued a Memorandum Order
granting summary judgment in favor of Kimberly-Clark on the breach of
contract claim awarding Kimberly-Clark $3,062,776.90 in damages. The
damages reflect the share of the distribution that Kimberly-Clark would have
received had it been accorded a share. The district court found that the charter
5
of the company, the by-laws, and the policy unambiguously confirmed that
Kimberly Clark “bargained for coverage by and membership in a mutual
insurance company (as opposed to a stock insurance company) and all of the
rights and benefits that typically accompany membership in a mutual insurance
company.” The district court therefore concluded that:
Thus, the Court infers that under the Policy, upon purchasing a
policy and obtaining membership in the Company, a policyholder
gains an interest in the surplus and has a right to its equitable
share in any distribution of such surplus as declared by the Board,
so long as the policyholder is a member of the company on the
relevant date. Consequently, refusing to provide Kimberly-Clark its
equitable share of the surplus, even though the company was a
member of Factory Mutual on the record date, breaches the Policy.
Factory Mutual timely appeals on two grounds: (1) that the district court
erroneously considered the plaintiff’s claims within a breach-of-contract
framework rather than under a corporate governance framework; and (2) if the
claims are considered within a breach-of-contract framework, the district court
erred in concluding that Factory Mutual breached its contract.
STANDARD OF REVIEW
This court reviews a district court’s grant of summary judgment de novo,
applying the same standards as the district court: A party is entitled to
summary judgment only if “the pleadings, the discovery and disclosure materials
on file, and any affidavits show that there is no genuine issue as to any material
fact and that the movant is entitled to judgment as a matter of law.” FED. R. CIV.
P. 56(c). On a motion for summary judgment, the court must view the facts in
the light most favorable to the non-moving party and draw all reasonable
inferences in its favor. See Hockman v. Westward Commc’ns, LLC, 407 F.3d 317,
325 (5th Cir. 2004). In reviewing the evidence, the court must therefore “refrain
from making credibility determinations or weighing the evidence.” Turner v.
“The pr 3 ecise content of the Business Judgment Rule is provided by state law but,
generally speaking, ‘[u]nder this familiar rule of American jurisprudence, the courts refrain
from second guessing business decisions made by corporate directors in the absence of a
showing of fraud, unfairness or overreaching.’” Hoffman v. Kramer, 362 F.3d 308, 317 n.4 (5th
Cir. 2004) (quoting Capital Bancshares, Inc. v. F.D.I.C., 957 F.2d 203, 207 (5th Cir. 1992))
(alteration in original).
6
Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir. 2007).
ANALYSIS
I. Kimberly-Clark’s claims are properly analyzed under contract law
Factory Mutual contends that Kimberly-Clark’s claims for a portion of the
surplus distribution implicate corporate governance law, specifically the
“business judgment rule,” and therefore should not be considered under a 3
breach-of-contract framework. This choice between viewing a mutual insurance
policyholder’s claims as a matter of contract or as a matter of internal corporate
governance originates with the policyholder’s dual roles vis-a-vis the mutual
insurance company: the policyholder is both an insured customer and also a
controlling member of the insurer-company. See, e.g., Keystone Auto. Club Cas.
Co. v. Comm’r, 122 F.2d 886, 889-90 (3d Cir. 1941); Ohio Farmers Indem. Co. v.
Comm’r, 108 F.2d 665, 667 (6th Cir. 1940); Hutchins Mut. Ins. Co. of D.C. v.
Hazen, 105 F.2d 53, 57 (D.C. Cir. 1939). Kimberly-Clark’s claims against Factory
Mutual can be framed as either a breach of Kimberly-Clark and Factory
Mutual’s contractual relationship or as Kimberly-Clark’s disagreement with
other co-members about corporate governance and internal affairs.
Kimberly-Clark’s underlying claims allege that Factory Mutual improperly
denied Kimberly-Clark’s right, or eligibility, to a share of an announced surplus
disbursement. Courts clearly consider a policyholder’s right to a share of a
surplus distribution as a matter governed by contract law whereas a
policyholder’s grievances with a surplus distribution’s “timing, amount, and
4 In its admissions below, Factory Mutual describes the corporate board as having
“discretion to determine the time, amount and method of distribution of the membership
credit.”
5 In Lopez v. State Farm Mutual Automobile Insurance Co., 2008 WL 2744609, at *4
(Tex. App.-Corpus Christi June 30, 2008) (unpublished), a Texas Court of Appeals in an
unpublished decision contrasted the policyholder’s contractual right to participate in
announced dividends and the corporate board’s discretion over the distribution of those
dividends: (1) “Mutual insurance policyholders do not purchase the right to receive dividends,
only the right to participate in dividends, if any, on terms and conditions fixed by the board”
and (2) “The relationship between a mutual insurance company and its policyholders is
contractual, not fiduciary, and the insurer owes no duties to the policyholders other than those
stated in the policy.”
7
method” are corporate governance matters and thereby insulated from most 4
policyholder lawsuits by the business judgment rule. See Equitable Life
Assurance Society of the U.S. v. Brown, 213 U.S. 25, 47 (1909); Brown v. Royal
Highlanders, 299 N.W. 467, 471 (Neb. 1941); see also Prudential Ins. Co. of Am.
v. Miller Brewing Co., 789 F.2d 1269, 1279 (7th Cir. 1986); Andrews v. Equitable
Life Assurance Soc. of U.S., 124 F.2d 788, 789 (7th Cir. 1941); Boynton v. State
Farm Mut. Auto. Ins. Co., 429 S.E.2d 304, 307 (Ga. Ct. App. 1993); Greeff v.
Equitable Life Assurance Soc. of U.S., 54 N.E. 712, 715 (N.Y. 1899). 5
The parties do not dispute the propriety of the timing or amount of the
distribution, but Factory Mutual contends that its corporate decisions in respect
to a policyholder’s eligibility for a surplus distribution should be considered as
part of its discretion over the “method” of a surplus distribution. At issue in this
case is whether Factory Mutual’s “method” of distribution discriminates against
a particular subset of policyholders because they chose not to renew their polices
but were otherwise in good standing and had contributed to the surplus. Such
discrimination would be clearly outside of the board’s discretion over surplus
distributions because it would contravene state policy and is thereby not
protected by the business judgment rule. See N.Y. Life Ins. Co. v. Street, 265
6 In its briefs, Factory Mutual emphasizes the fact that this case must be decided under
Rhode Island and not Texas law. However, Factory Mutual also concedes in its briefs and in
oral argument that Texas and Rhode Island’s formulations of the business judgment rule do
not conflict. Compare Cates v. Sparkman, 11 S.W. 846, 849 (Tex. 1889) with Lynch v. John W.
Kennedy Co., No. PB 03-3355, 2005 WL 1530469, at *6 (R.I. Super. Ct. June 23, 2005)
(unpublished) (announcing similar formulations of the business judgment rule). Factory
Mutual is correct that corporate governance issues must be adjudicated using the law of the
state of incorporation, in this case, Rhode Island. See Askanase v. Fatjo, 130 F.3d 657, 670 (5th
Cir. 1997). However, because the business judgment rules for Rhode Island and Texas do not
conflict, this court need not undertake a choice-of-law analysis. See Railroad Mgmt. Co., L.L.C.
v. CFS La. Midstream Co., 428 F.3d 214, 222 (5th Cir. 2005) (“Where there are no differences
between the relevant substantive laws of the respective states, there is no conflict, and a court
need not undertake a choice of law analysis.”). The parties also do not dispute that the
pertinent rules under Texas and Rhode Island contract law applicable to this case are not in
conflict. Accordingly, we also need not engage in a choice-of-law analysis for the contract
claims.
8
S.W. 397, 402-03 (Tex. Civ. App. 1924); TEX. INS. CODE § 544.052; RHODE ISLAND
GEN. LAWS § 27-8-4 (describing state policy against discrimination among
insureds of the same class). The question presented to us is therefore: whether
Factory Mutual’s discrimination breaches Kimberly-Clark’s right to a
distribution share if other policy-holders, with materially identical contracts and
materially identical rights to a share, had received their shares. Accordingly,
Kimberly-Clark’s claims for a distribution share must be analyzed under a
breach-of-contract rubric and not under the business judgment rule. 6
II. Factory Mutual breached its contract with Kimberly-Clark when it
denied Kimberly-Clark its share of the surplus distribution
The policy contract is clearly labeled a “mutual insurance” contract. The
policy is silent as to the board’s discretion over the distribution of excess surplus,
but states that “[t]his policy is issued by a mutual company having special
regulations lawfully applicable to its organization, membership, policies, or
contracts of insurance.” It also states that “[t]he insured by accepting this policy
hereby becomes a member of this Company and subject to the provisions of its
charter and by-laws, with power to vote at its meetings.” Section 5 of Factory
9
Mutual’s Charter states:
[E]ach natural person, partnership, association, corporation or legal
entity insured on the mutual plan by the Corporation shall be a
member of the Corporation during the term of its policy, but no
longer, and at all meetings of the members shall be entitled to one
vote either in person or by proxy; provided, however, that where
there is more than one insured under any policy, such insureds shall
nevertheless be deemed to be a single member of the Corporation for
all purposes. The Corporation may issue policies which do not
entitle the insured to membership in the Corporation nor to
participate in its surplus.
(emphasis added). Finally, section 10 of Factory Mutual’s charter states: “Upon
termination of the membership of any member, all his or its right and interest
in the surplus, reserves and other assets of the Corporation shall forthwith
cease.” In sum, Factory Mutual and Kimberly-Clark’s contract (1) is a “mutual
insurance” policy; (2) acknowledges the “special regulations” applicable to
mutual insurance companies; and (3) grants policyholders an entitlement as a
member for “all purposes,” which includes (4) rights and interests in the surplus
until the policy’s termination (unless the policy states otherwise, which is not the
case here).
Courts consistently describe “mutual insurance” contracts as creating
certain settled expectations between the parties. As the Wisconsin Supreme
Court noted:
Every policy-holder [of a mutual insurance company] knows, or
ought to know, that he will remain a member so long as he remains
a policy-holder and no longer. He knows, or ought to know, that as
soon as his membership relation is established he becomes
possessed of an equitable interest in the assets of the company
consisting of all accumulations prior to his time, and such as may be
added thereto during his membership, but which cannot be realized
on in possession in the absence of a necessary distribution of the
surplus on account of the company going out of business, or in some
proper way.
10
Huber v. Martin, 105 N.W. 1031, 1039 (Wis. 1906); see also Fid. & Cas. Co. of
N.Y. v. Metro. Life Ins. Co., 248 N.Y.S.2d 559, 565 (N.Y. Sup. Ct. 1963). The
Supreme Court in Pennsylvania Mutual Life Insurance Co. v. Lederer described
the mutual company in this way:
In a mutual company, whatever the field of its operation, the
premium exacted is necessarily greater than the expected cost of the
insurance, as the redundancy in the premium furnishes the
guaranty fund out of which extraordinary losses may be met, while
in a stock company they may be met from the capital stock
subscribed. It is of the essence of mutual insurance that the excess
in the premium over the actual cost as later ascertained shall be
returned to the policy holder.
252 U.S. 523, 525 (1920); see also Nat’l Chiropractic Ins. Co. v. United States,
494 F.2d 332, 334 (8th Cir. 1974); Thompson v. White River Burial Ass’n, 178
F.2d 954, 957 (8th Cir. 1950); Keystone Mut. Cas. Co. v. Driscoll, 137 F.2d 907,
911 (3d Cir. 1943). Basically, the settled expectations when entering a contract
with a mutual insurance company are: (1) the policyholders pay premiums into
a common fund to cover contingencies, and (2) if there is an accumulated excess
of capital beyond what is necessary to cover contingencies (i.e., excess surplus),
the insurance company returns the excess in surplus distributions to the
policyholders. This essential aspect of the mutual insurance company’s
relationship with its policyholders is so-called insurance at actual cost or
“insurance at cost.” See White River Burial Ass’n, 178 F.2d at 957 (“To say that
an essential of mutual insurance is that the excess of premiums received over
the actual cost of insurance shall be returned to the policyholders is but another
way of saying that the essential of mutuality is insurance at cost.”). We have
stated that “[t]he furnishing of insurance to members at cost is the chief aim and
function of a mutual insurance company, and any company which does not
return to the policyholders or members the excess of the premium over the cost
11
cannot be said to be a mutual insurance company.” Am. Ins. Co. of Tex. v.
Thomas, 146 F.2d 434, 436 (5th Cir. 1945). Texas courts also agree with
describing the mutual insurance company’s purpose as providing policyholders
insurance “at cost.” See Mercury Life & Health Co. v. Hughes, 271 S.W.2d 842,
845 (Tex. Civ. App. 1954) (“While the [mutual insurance] policyholders do not
receive dividends, they get other equally valuable benefits. It is the duty of the
directors to operate the company as economically as possible and furnish
insurance to its policyholders as near actual cost as possible.”). Other authorities
unanimously agree in describing the purpose of a mutual insurance company as
providing insurance “at cost.” See, e.g., Mut. Fire Ins. Co. of Germantown v.
United States, 142 F.2d 344, 347 (3d Cir. 1944); Fid. & Cas. Co. of N.Y., 248
N.Y.S.2d at 566 (“The distribution of divisible surplus is in reality an adjustment
of the premium in retrospect of the amount found to have been actually
necessary to cover the contingencies which materialized and it effects a
reduction in the cost of the insurance.”); Dryden v. Sun Life Assurance Co. of
Can., 737 F. Supp. 1058, 1062-63 (S.D. Ind. 1989); C.J. Simons & Co. v. Am.
Mut. Liab. Ins. Co., 257 A.2d 743, 745 (N.J. Sup. Ct. 1969); McQuade v. Thacher,
198 N.Y.S.2d 715, 718 (N.Y. Sup. Ct. 1960). See generally RUSS & SEGALLA, 1
COUCH ON INS. § 1:32 (“The object [of mutual insurance] is to provide insurance
protection at cost.”).
Consequently, because they contracted for “at cost” insurance,
policyholders who contribute to a surplus are equitably “entitled” to a share of
any announced surplus distribution as a proportionate return on their prior
contributions to the accumulated capital stock. See, e.g., In re MetLife
Demutualization Litig. 495 F. Supp.2d 310, 313 (E.D.N.Y. 2007); RUSS &
SEGALLA, 3 COUCH ON INS. § 39:18 (“As a general rule, the ‘surplus’ of a mutual
company belongs equitably to the policyholders who contributed to it, in the
12
proportion in which they contributed.”). Consistent with these authorities, we
have stated, in a diversity case involving Texas law, that:
Dividends normally belong to the stockholders, which in a mutual
company are the policyholders, but the insured though not a
stockholder may by contract be allowed to participate. This share in
profits more naturally belongs to the insured than to the
beneficiary, and is a return to him of a part of his premium which
the year’s results have shown was not necessary to have been paid
to maintain the insurance with its legal reserve.
Union Cent. Life Ins. Co. v. Williams, 65 F.2d 240, 243 (5th Cir. 1933). Similarly,
Rhode Island has defined “mutual insurance company” to “mean[ ] a corporation
in which shares are held exclusively by members to whom profits are distributed
as dividends and members are both the insurer and the insured” in a health
insurance act. R. I. GEN. LAWS § 27-66-4(9) (emphasis added). Here, Factory
Mutual’s surplus distribution was apportioned based on past contributions, and
therefore policyholders who contributed, like Kimberly-Clark, should be entitled
to a share.
Because the right to the surplus is dictated by contract and is the
policyholder’s equitable right based on past contributions, the corporate board
has no competing right to the surplus assets once they announce the surplus to
policyholders. The Kentucky Supreme Court has stated:
[W]here the company is a mutual, being conducted on the plan of
giving the cheapest safe insurance to its members, all surplus ought
to belong to the members, the policy holders. For in a purely mutual
company there are no stockholders, and no one else therefore to
whom the surplus could go than its policy holders. And it should in
equity go to those who had contributed it. The officers of such a
corporation being paid salaries for their services have no interest as
such in the surplus.
U.S. Life Ins. Co. v. Spinks, 96 S.W. 889, 894 (Ky. 1906) (emphasis added); see
13
also Carlton v. S. Mut. Ins. Co., 72 Ga. 371, 1884 WL 2172, at *21 (Ga. June 10,
1884); RUSS & SEGALLA, 3 COUCH ON INS. § 39:37. Like a trustee, the board
manages and holds the funds until the funds are distributed to the insuredbeneficiary,
at which point it no longer has a competing interest over the funds.
Summarizing these principles, Russ & Segalla, 3 Couch on Insurance § 39:40,
concludes:
Although the legal title to the property of a mutual company
is held by the company, the property is held for the benefit of its
members, policyholders, and stockholders. The funds of the company
are to be treated as a trust fund for the members. . . .
Each member has the same proportionate interest that every
other member possesses. Policyholders are entitled to participate
in the annual surplus of the company and if there is an inequitable
distribution of surplus a policyholder may sue to obtain his or her
proportionate share. The right to share in a surplus may, however,
be restricted to current policyholders.
(footnotes omitted); see also Huber, 105 N.W. at 1032. Accordingly, a corporate
board has the discretion to manage the “timing, amount, and method” of a
surplus distribution but once a distribution’s timing, amount and method is
declared, the distribution funds no longer constitute the company’s property;
instead, the funds become the joint asset held by the members who are
policyholders at the distribution’s operative date. The Wisconsin Supreme Court
stated:
All this results in a necessity that some definite time be adopted
when the rights of individuals become fixed, after which may be
applied the arithmetical process by which they become known. In
deference to such necessity, the rule has become settled as to stock
corporations that a dividend belongs to those who own the stock
when it is declared. Complete analogy exists between rights of
members in a mutual insurance company and stockholders in a
stock company in and to such a surplus. Declaring a dividend is
nothing but authoritatively deciding to distribute some or all of the
14
surplus. We therefore think it entirely logical to apply the foregoing
well-established rule, and to hold that on March 19, 1906,[the
dividend distribution] became separated from the corporate assets
and became the property of the several members then existing,
payable to each on demand when the amount to which he was
entitled had been ascertained.
Zinn v. Germantown Farmers’ Mut. Ins. Co.,111 N.W. 1107, 1108 (Wis. 1907)
(emphasis added) (citations omitted). As the Wisconsin Supreme Court
acknowledged, there is a “complete analogy” between the “rights of members in
a mutual insurance company and stockholders in a stock company in and to such
a surplus.” Id. As this court has stated in the analogous context of stockholder
dividends:
Under the law of Texas, a declaration of dividends creates a debt
owed by the corporation in favor of each stockholder which cannot
be rescinded. Although the declaration of this dividend provided
that the sums thereunder were payable to the stockholders of record
at such times and in such installments during the year as the
directors saw fit, the liability of the company accrued as of the date
of the declaration.
C.I.R. v. Cohen, 121 F.2d 348, 349 (5th Cir. 1941) (footnote omitted). In short,
when a distribution is declared, the company becomes liable to pay the
policyholders because they collectively own any announced distribution from the
surplus. Because the corporate board controls the timing of the distribution, it
necessarily establishes “some definite time . . . when the rights of [policyholders]
become fixed” and the distributed funds are owned by those policyholders who
have rights at that time. Zinn,111 N.W. at 1108.
The parties dispute the date when rights of the policyholders became fixed
for the distribution, i.e., the distribution’s operative date. Factory Mutual
contends the operative date that fixes the rights of the policyholders is the date
the corporate board declared its approval of the distribution (i.e., the
The corporate board of a mutual insurance company does not necessarily have to 7
restrict a distribution to “current policyholders” at the time of the decision or announcement;
it may choose to set a retroactive operative date. See RUSS & SEGALLA, 3 COUCH ON INSURANCE
§ 39:40 (“The right to share in a surplus may, however, be restricted to current policyholders.”
(emphasis added)). The dissent relies on a provision of the Charter that simply provides that
a policy is effective only during the effective life of the policy. The corporate board decided to
set the operative date, i.e., the “record date,” for its distribution on a date within the effective
life of Kimberly-Clark’s policy. The board also stated that “[a]ll Factory Mutual Insurance
Company policyholders . . . on the date of record will be eligible to receive the membership
credit when their policies renew during the membership credit period.” (emphasis added).
Unlike the cases cited by the dissent, the board here clearly set a record date that was
different from the declaration date. In fact, the corporate board in Spence v. Medical Mutual
Liability Insurance Society of Maryland, 500 A.2d 1066, 1067 (Md. Ct. Spec. App. 1985)
emphasized the date of record and not the declaration date as the operative date of the
distribution. As we noted above, the record date defines the set of policyholders entitled to the
distribution and the timing of the distribution, i.e., setting the record-date, is protected by the
“business judgment rule,” a point conceded by Factory Mutual.
15
“declaration date”), which was October 9. Kimberly-Clark contends the operative
date was the date of record or the record-date as described in the public notices
to members describing the distribution details, which is September 30. Factory 7
Mutual’s contention is without merit. Again, the “complete analogy” between
stockholders in stock companies and mutual insurance policyholders, as to the
distribution of a surplus, is useful. The distribution materials specifically
establish the record date as September 30, 2003, and on that date Kimberly-
Clark was a policyholder in good standing. The “declaration date” is important
only because the company incurs liability to pay its promised distribution on the
declaration date. However, we have defined the “record date” as the operative
date one uses to determine the set of stockholders who can participate in a stock
corporation’s dividend distribution, i.e., the stockholders “of record.” See, e.g.,
Caruth Corp. v. United States, 865 F.2d 644, 648 (5th Cir. 1989) (“In general,
dividend income is taxed to the shareholder who, on the record date, owns the
stock with respect to which dividends are paid and who is entitled to receive the
16
dividend.”); Cohen, 121 F.2d at 349 (noting that the company incurred its
liability to pay dividends on the declaration date to the stockholders “of record”).
See generally BLACK’S LAW DICTIONARY 423 (8th ed. 2004)(defining “record date”
to mean the “[t]he date on which a stockholder must own shares to be entitled
to vote or receive a dividend. — Also termed date of record”). The relevant state
statutes also emphasize the importance of the “record date” as the operative date
to ascertain the stockholders of record for a capital distribution in stock
corporations. See TEX. BUS. CORP. ACT ANN. art. 2.26 (describing the record date
as determining which shareholders have rights to a stock dividend); R. I. GEN.
LAWS § 7-1.2-614(a)(2) (same). Accordingly, the record date is the effective date
to determine which stockholders can partake in the distribution even though the
company accrues its liability to pay the announced distribution to those
stockholders of record on the declaration date. See, e.g., Cohen, 121 F.2d at 349.
In accordance with these general principles and the complete analogy, as to the
right to receive surplus distributions, between stockholders and mutual
insurance policyholders, Kimberly-Clark, as a policyholder of good-standing on
the record date, was entitled to participate in the distributed surplus.
Factory Mutual’s final argument against according Kimberly-Clark its
share is based on the fact that Kimberly-Clark did not renew its policy before it
expired, which the board had established as a condition precedent for
participating in the distribution. The Kentucky Court of Appeals and a New
York court, the only courts to directly confront this issue, barred the conditioning
of surplus distributions on future renewal by relying on the general principles
underlying mutual insurance we described above. See Mut. Ben. Liab. Ins. Co.
v Davis, 73 S.W. 1020, 1021 (Ky. Ct. App. 1903); Wells v. Metro. Life Ins. Co., 13
N.Y.S.2d 22, 25-26 (N.Y. City Ct. 1939); see also Aetna Liab. Ins. Co. v Hartley,
67 S.W. 19, 21, opinion modified on other grounds, 68 S.W. 1081 (Ky. Ct. App.
Factory Mutual cites Bryant v. Mutual Benefit Life Insurance Co., 109 F. 748, 756 8
(M.D. Tenn. 1901), and Petrie v. Mutual Benefit Life Insurance Co., 100 N.W. 236, 238-39
(Minn. 1904), as espousing opposing positions, i.e., permitting mutual insurance companies
to condition distributions on renewal. We disagree with Factory Mutual’s reading of those
cases. The corporate board in each case conditioned a surplus dividend on a future premium
payment because the policyholder was in arrears. In other words, the policyholders in those
cases were not members “in good standing” and therefore not on equal footing with other
members who actually contributed to the capital surplus and were therefore entitled to an
equitable share. E.g., Wells, 13 N.Y.S.2d at 25. In Bryant, the court allowed a mutual company
to refuse to credit an anticipated dividend before that same year’s contribution was paid. See
Bryant, 109 F. at 755-57. In Petrie, the Minnesota court similarly permitted the corporate
board to only apply a dividend credit to the policyholder’s delinquent account if the
policyholder paid the premium due in the year of the dividend. 100 N.W. at 239. In both cases,
the policyholders loaned from the mutual company against their policy and were in arrears;
the policyholders were thereby borrowing against and depleting the company’s capital stock.
See Bryant, 109 F. at 749-50; Petrie, 100 N.W. at 237-38. In such circumstances, a mutual
company, consistent with its general principles, can condition the policyholder’s right to
anticipated dividends on the payment of existing debts and policy renewal, because dividends
derive from accumulated contributions and excess capital stock; in other words, the past
failure to pay those contributions and the taking out of loans that deplete the capital stock can
justify the adjustment of those members’ equitable right to a dividend distribution unless they
promise to pay premiums that reduce their debt to the capital stock. See RUSS & SEGALLA,
COUCH ON INSURANCE § 77:7 (citing Bryant, 109 F. at 748; Petrie, 100 N.W. at 236). It is
undisputed that Kimberly-Clark was a policyholder in good standing on the record date and
had contributed to the accumulated capital stock. Therefore, these cases are inapposite.
Factory Mutual also references an unpublished memorandum order from a district
court in Ohio for further support. See Andersons, Inc. v. Factory Mut. Ins. Co., No. 3:01 CV
7620 (Memorandum Opinion) (N.D. Ohio Sept. 3, 2003) (unpublished).Not only is this
unpublished order’s precedential value limited, it does not provide any reasons for its
conclusion that Factory Mutual’s membership credit program is a “unilateral contract.” It also
does not consider the fact that Factory Mutual is a mutual insurance company. For these
reasons, the order is not persuasive.
17
1902). We agree with these authorities. As we noted earlier, once a surplus 8
distribution is announced, the policyholders on the record date own the surplus
and the corporate board no longer has any rights or interests in the distributed
amounts. Accordingly, Kimberly-Clark, as a policyholder of record, owned a
share of the surplus, and Factory Mutual cannot then disentitle Kimberly-Clark
based its subsequent failure to renew its policy — presumably, Kimberly-Clark
could have changed its mind and decided to renew its policy on October 1, which
18
is after the distribution’s record date. As a practical matter, Factory Mutual’s
eligibility rules effectively bar any return of excess capital to members on the
record date who no longer need insurance or cannot afford to renew their
insurance, thereby directly contravening members’ equitable rights to a
distribution from a surplus that was created, in part, by their past contributions.
Conditioning a right to a distribution on renewal would add a new condition to
the policy that substantially limits and encumbers a policyholder’s rights to a
surplus distribution without any contractual basis and undermines the settled
expectation that mutual insurance provides insurance “at cost.”
In this case, Factory Mutual declared a $325 million distribution from
excess surplus funds as a return to policyholders and it apportioned the
distribution based on the policyholders’ contribution to the accumulated capital
stock, i.e., their past premiums. Factory Mutual segregated this amount from its
capital stock on October 9, 2003, for existing policyholders of the record date:
September 30, 2003. Once Factory Mutual’s corporate board segregated the $325
million from the surplus and marked it for distribution to existing members on
the record date, those existing members became entitled to the whole amount
based on their equitable share as calculated pursuant to the board’s formulas.
The corporate board also became liable to follow through with the distribution
on the date of declaration. Furthermore, after declaring the surplus, the board
could not then condition a policyholder’s right to a share of the distribution on
a future, post-record-date act, such as policy renewal, because the board no
longer had any competing interests or rights to the distribution funds. Since
Kimberly-Clark was a policyholder on the record date, it equitably owns a share
of the distribution calculated pursuant to the board’s formula whether or not it
had renewed its policy before the policy’s expiration. Therefore, the district court
properly awarded Kimberly-Clark its properly calculated share of the
19
distribution.
For these reasons, we AFFIRM the district court’s judgment.
20
GARWOOD, Circuit Judge, dissenting.
I respectfully dissent. It is undisputed that Kimberly-Clark’s only
relevant Factory Mutual policy expired by its terms on September 30, 2003,
that prior to that time Kimberly-Clark had determined not to renew the
policy, so informing Factory Mutual in late August 2003, and that Kimberly-
Clark never attempted to renew the policy. On October 9, 2003, after the
Kimberly-Clark policy had indisputably expired, the Factory Mutual’s Board
of Directors declared a some $325 million surplus all of which would be
credited to policyholders as of September 30, 2003 as a reduction of the
premium payable on the renewal of their policy. As Kimberly-Clark’s policy
had already expired, and there was never any attempt to renew it, Kimberly-
Clark received nothing by virtue of the October 9, 2003 board action, but
nevertheless claims an entitlement to a share of the $325 million surplus.
Kimberly-Clark’s relevant policy expressly states that it is subject to
the terms of the Charter of Factory Mutual. Section 5 of the Charter provides
that a policyholder of the corporation “shall be a member of the Corporation
during the term of its policy, but no longer,” and section 10 of the Charter
states that “upon termination of the membership of any member, all his or its
right and interest in the surplus, reserves and other assets of the Corporation
shall forthwith cease.” There is no evidence that these Charter provisions
ever read otherwise at any relevant time, nor has their validity been
challenged in this case. For example, in Zinn v. Germantown Farmers’
Mutual, 111 NW 1107 (Wis. 1907), a mutual insurance company on March 19,
1906 declared a $50,000 surplus to be distributed to members “entitled
thereto.” It was held that only those who were policyholders on March 19,
1906 – the date the surplus was declared and ordered distributed – were
entitled to participate, specifically excluding, inter alia, those “who had held
21
policies and contributed toward the surplus, but whose policies had lapsed
and expired, and who were not policyholders on March 19, 1906.” See also,
e.g., Spence v. Medical Mut. Liab. Ins. Soc’y of Maryland, 500 A2d 1066, 1067
(Md. App. 1985) (“former policyholders of a mutual company . . . are not
entitled to participate in the distribution of a dividend from earned surplus
stemming from a year from which they had policies in effect.” (emphasis
added)); Russ & Segalla, 3 Couch on Insurance (2005) § 39.40 (“The right to
share in surplus may, however, be restricted to current policyholders.”).
This is not to suggest that charter provisions such as those of section 5
and 10 of the Factory Mutual Charter must be included in every mutual
insurance company’s charter. A charter which does not include such
provisions would likely not thereby be invalid. However, it strains logic well
past the breaking point to suggest, as does the majority in its footnote 7,
which simply ignores section 10 of the Charter and misreads section 5, that
once the choice is made to include such provisions in the charter of a mutual
insurance company, its Board of Directors is thereafter free to disregard
them.
At no time since September 30, 2003, has Kimberly-Clark been a
member of Factory Mutual. Consequently, Kimberly-Clark was entitled to no
share of the distribution of surplus provided for in the October 9 Board
resolution. The Board had no power to itself amend the Factory Mutual
Charter, and did not purport to do so. On October 9, the Factory Mutual
Board could have declared a surplus distribution payable to, and only to, all
who were members on that date, which would have included nothing for
Kimberly-Clark.
The fact that Factory Mutual conditioned receipt of the surplus
distribution on policy renewal, providing the distribution be only a credit on
22
the renewal premium, is nothing of which Kimberly-Clark has any right to
complain, because it had no right to any distribution of any of the surplus.
Kimberly-Clark was not a member on October 9, 2003, and was entitled
to no part of the surplus determined to then exist and then ordered to be
distributed, and it has not been a member at any time since September 30,
2003, and thus its rights were not in any way infringed by the Board
resolution of October 9, 2003.
I accordingly respectfully dissent.

 

 

 

1 “Mutual insurance, as its name implies, exists where several persons have joined
together for their united protection, each member contributing to a fund for the payment of
the losses and expenses. Under such an organization, each member is in a sense both an
insured and an insurer . . . The policyholders in a mutual are equivalent to stockholders in a
stock corporation in so far as rights and remedies are concerned. Like stockholders,
policyholders participate in the operation of the mutual through voting rights, and share in
the company’s financial success or failure.” LEE RUSS & THOMAS SEGALLA, 3 COUCH ON INS.
§ 39:15 (3d ed. 2008) (footnotes omitted); see also Heritage Healthcare Servs., Inc. v. Beacon
Mut. Ins. Co., No. C.A. 02-7016, 2004 WL 253547, at *4 (R.I. Super. Ct. Jan. 21, 2004)

 

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 insurance 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]

Reasonable Investigation Requirement and Waiver of Appraisal Right Issue–Texas Insurance Defense Litigation Attorneys

EDM Office Services, Inc. v. Hartford Lloyds Ins. Co.
United States District Court,
S.D. Texas,
Houston Division.
EDM OFFICE SERVICES, INC., Plaintiff,
v.
HARTFORD LLOYDS INSURANCE
COMPANY, et al., Defendants.
Civil Action No. H–10–3754. July 1, 2011.

Opinion
MEMORANDUM AND ORDER
LEE H. ROSENTHAL, District Judge.
*1 This is a suit to recover insurance proceeds and damages
under the Texas Insurance Code and common law. The
insurer, Hartford Lloyds Insurance Company (“Hartford”)
has moved to compel appraisal under an insurance policy
issued to EDM Office Services, Inc. (“EDM”). (Docket Entry
No. 13). EDM opposes the motion on the grounds that
Hartford has not complied with the conditions precedent
identified in the insurance policy for appraisal because
it has not conducted a reasonable investigation of his
claims. Alternatively, EDM argues that Hartford waived its
contractual right to seek appraisal. EDM also argues that this
court should wait to order appraisal. (Docket Entry No. 19).
Based on a careful consideration of the record and the
applicable law, this court finds that this case involves a
dispute over the cost of repairing damaged property that is
subject to appraisal. This court also finds that EDM did not
waive its right to invoke appraisal or fail to comply with the
conditions precedent to do so. The motion to compel appraisal
is granted. The litigation is stayed pending the appraisal
process as to the valuation issues, but will proceed as to the
coverage issues.
The reasons for this ruling are set out below.
I. Background
EDM conducts its business operations from a building
in Houston, Texas. Hartford issued the insurance policy
covering the property. Hurricane Ike hit the Gulf Coast area
in September 2008. EDM claims that the hurricane damaged
the property roof and that water intrusion caused damage
throughout the building, including damages to its ceiling,
walls, insulation, flooring, and inventory. On September
22, 2008, EDM notified Hartford of the property damage.
Hartford sent Stephen Scott, an insurance adjuster, to EDM’s
property. Scott estimated that the property damages totaled
$8,136.57, though EDM points out that this estimate did not
include “overhead & profit.” (Docket Entry No. 19, Ex. C,
Scott’s First Estimate and Report); (Docket Entry No. 19, at
12). Scott’s report also stated that the damages were likely
related to “wind driven rain” and from water entering the
property under doors. (Docket Entry No. 19, Ex. C, Scott’s
First Estimate and Report). Hartford applied a recoverable
depreciation of $1,283.27 and the policy’s $50,160.00 and
did not issue payment for the building portion of the claim
because it was below the deductible.
EDM has also not been compensated for its businessloss
claims. The parties dispute the reasons for this. EDM
argues that Hartford denied the business-loss claims because
it determined that the losses were not covered under the
policy. Hartford responds that EDM failed to submit “all the
requested information from Plaintiff in order to adjust the
business personal property loss, including signed Release of
Information and/or documentation to support the cost paid by
Plaintiff for the items claimed.” (Docket Entry No. 13, at 4).
EDM filed suit in state court on September 2, 2010, and
Hartford removed to this court. The state-court petition
alleges both coverage and valuation claims. It alleges that
“Hartford wrongfully denied Plaintiff’s claim for repairs of
the property, even though the Policy provided coverage
for losses such as those suffered by Plaintiff. Furthermore,
Hartford underpaid some of Plaintiff’s claims by not
providing full coverage for the damages sustained by
Plaintiff, as well as underscoping the damages during its
investigation.” (Docket Entry No. 1, Ex. 2, State–Court
Petition, ¶ 20). The parties attempted to mediate their dispute,
but failed to reach an agreement.
*2 On May 25, 2011, Hartford moved to compel appraisal.
The policy’s appraisal provision states:
EDM Office Services, Inc. v. Hartford Lloyds Ins. Co., Slip Copy (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 2
1. Appraisal
….
If we and you disagree on the amount of loss (or
net income or operating expense as regards Business
Income Coverage), either may make written demand for an
appraisal of the loss. In this event, each party will select a
competent and impartial appraiser and notify the other of
the appraiser selected within 20 days of such demand. The
two appraisers will select an umpire. If they cannot agree
within 15 days upon such umpire, either may request that
selection be made by a judge of a court having jurisdiction.
Each appraiser will state the amount of the loss. If they fail
to agree, they will submit their differences to the umpire.
A decision agreed to by any of the two will be binding as
to the amount of loss…. If there is an appraisal … we will
still retain our right to deny the claim.
(Docket Entry No. 13, Ex. A).
In his response to the motion to compel, EDM argues that
Hartford cannot demand appraisal because it failed to conduct
a reasonable investigation of his claims, which EDM asserts is
a condition precedent to invoking appraisal. EDM argues that
the following language from the insurance policy obligates
Hartford to conduct a reasonable investigation before seeking
appraisal:
(1) Claims Handling
(a) Within 15 days after we receive written notice of the claim,
we will:
(i) Acknowledge receipt of the claim. If we do not
acknowledge receipt of the claim in writing we will
keep a record of the date, method and content of the
acknowledgment;
(ii) Begin any investigation of the claim; and
(iii) Request a signed, sworn proof of loss, specify the
information you must provide and supply you with the
necessary forms. We may request more information at a
later date, if during the investigation of the claim such
additional information is necessary.
(b) We will notify you in writing as to whether:
(i) The claim or part of the claim will be paid;
(ii) The claim or part of the claim has been denied, and inform
you of the reasons for denial;
(iii) More information is necessary; or
(iv) We need additional time to reach a decision. If we need
additional time, we will inform you of the reasons for such
need.
We will provide notification, as described in (b)(i) through
(b)(iv) above within:
(i) 15 business days after we receive the signed, sworn proof
of loss and all information we requested; or
(ii) 30 days after we receive the signed, sworn time to reach
a decision, we must then either approve or deny the claim
within 45 days of such notice.
If we notified you that we need additional time to reach a
decision, we must then either approve or deny the claim
within 45 days of such notice.
(Docket Entry No. 19, Ex. H). EDM also argues that
Hartford’s investigation was not reasonable because it did
not comply with sections 542.056 and 541.060 of the Texas
Insurance Code. Section 542.056 states:
*3 (a) Except as provided by Subsection (b) or (d), an
insurer shall notify a claimant in writing of the acceptance
or rejection of a claim not later than the 15th business day
after the date the insurer receives all items, statements, and
forms required by the insurer to secure final proof of loss.
(b) If an insurer has a reasonable basis to believe that a loss
resulted from arson, the insurer shall notify the claimant
in writing of the acceptance or rejection of the claim not
later than the 30th day after the date the insurer receives all
items, statements, and forms required by the insurer.
(c) If the insurer rejects the claim, the notice required
by Subsection (a) or (b) must state the reasons for the
rejection.
(d) If the insurer is unable to accept or reject the claim within
the period specified by Subsection (a) or (b), the insurer,
within that same period, shall notify the claimant of the
reasons that the insurer needs additional time. The insurer
shall accept or reject the claim not later than the 45th day
after the date the insurer notifies a claimant under this
subsection.
EDM Office Services, Inc. v. Hartford Lloyds Ins. Co., Slip Copy (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 3
TEX. INS.CODE § 542.056. Section 541.060 states:
(a) It is an unfair method of competition or an unfair or
deceptive act or practice in the business of insurance to
engage in the following unfair settlement practices with
respect to a claim by an insured or beneficiary:
….
(2) failing to attempt in good faith to effectuate a prompt, fair,
and equitable settlement of:
(A) a claim with respect to which the insurer’s liability has
become reasonably clear;
….
(3) failing to promptly provide to a policyholder a reasonable
explanation of the basis in the policy, in relation to the facts
or applicable law, for the insurer’s denial of a claim or offer
of a compromise settlement of a claim;
(4) failing within a reasonable time to:
(A) affirm or deny coverage of a claim to a policyholder; or
(B) submit a reservation of rights to a policyholder;
….
(7) refusing to pay a claim without conducting a reasonable
investigation with respect to the claim; ….
TEX. INS.CODE § 542.060(a)(2)-(4), (7). EDM argues
that Hartford failed to comply with these contractual and
statutory duties by: “not send[ing] a written acknowledgment
of the claim within 15 days of notice”; “unreasonably delay
[ing] [denial of] Plaintiff’s building damage claim, although
Plaintiff had provided Defendant with all the information
and documents requested to evaluate and settle the claim
[and] [misrepresenting] on November 20, 2008 that it had not
received the Adjuster’s report even though it was received
on October 28, 2008”; “fail[ing] to include any amount for
overhead and profit in its estimate of the damages to Plaintiffs’
building”; “misrepresent[ing] to Plaintiffs that BPP claim
was covered under the policy when Hartford in fact denied
liability for lack of coverage”; and “unreasonably delay[ing]
in denying Plaintiff’s BPP claim by sending a denial letter
on August 11, 2009, although Hartford already decided on
January 23, 2009 that no coverage existed.” (Docket Entry
No. 19, at 20). Finally, EDM argues that Hartford’s delay in
paying the claim waived its right to appraisal because the
delay prejudiced him.
II. Analysis
*4 Texas insurance policies frequently include provisions
specifying appraisal to resolve disputes about the amount of
loss under the policy. See State Farm Lloyds v. Johnson, 290
S.W.3d 886, 888–89 (Tex.2009). “An appraisal clause ‘binds
the parties to have the extent or amount of the loss determined
in a particular way .’ “ Id. at 895 (quoting In re Allstate
County Mut. Ins. Co., 85 S.W.3d 193, 195 (Tex.2002));
see also Lundstrom v. United Servs. Auto. Ass’n–CIC, 192
S.W.3d 78, 87 (Tex.App.-Houston [14th Dist.] 2006, pet.
denied) (“The effect of an appraisal provision is to estop one
party from contesting the issue of damages in a suit on the
insurance contract, leaving only the question of liability for
the court.”). An appraiser must “decide the ‘amount of loss,’
not to construe the policy or decide whether the insurer should
pay.” Johnson, 290 S.W.3d at 890. “Unless the ‘amount of
loss’ will never be needed … appraisals should generally go
forward without preemptive intervention by the courts.” Id.
at 895.
A. Conditions Precedent
Assuming, but not deciding, that Hartford failed to comply
with the “Claims Handling” provisions of the insurance
policy and with provisions of the Texas Insurance Code, this
does not prevent it from seeking appraisal because alleged
noncompliance with the “Claims Handling” provisions and
the Texas Insurance Code does not allege a failure to meet a
condition precedent to exercising appraisal rights. “In order to
determine whether a condition precedent exists, the intention
of the parties must be ascertained; and that can be done only
by looking at the entire contract.” Solar Applications Eng’g,
Inc. v. T.A. Operating Corp., 327 S.W.3d 104, 109 (Tex.2010)
(quoting Criswell v. European Crossroads Shopping Ctr.,
Ltd., 792 S.W.2d 945, 948 (Tex.1990)). “In order to make
performance specifically conditional, a term such as ‘if’,
‘provided that’, ‘on condition that’, or some similar phrase
of conditional language must normally be included.” Id.
(citing Criswell, 792 S.W.2d at 948). “While there is no
requirement that such phrases be utilized, their absence is
probative of the parties intention that a promise be made,
rather than a condition imposed.” Id. (citing Criswell, 792
S.W.2d at 948). The appraisal clause does not use conditional
language and EDM has not identified any provision in the
contract showing that the parties intended that Hartford
fully comply with the “Claims Handling” provisions and
EDM Office Services, Inc. v. Hartford Lloyds Ins. Co., Slip Copy (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 4
Texas Insurance Code before seeking appraisal. See also
Butler v. Prop. and Cas. Ins. Co., Civ. A. No. H–10–3613,
2011 WL 217495, at *1 (S.D.Tex. June 3, 2011) (finding
that a similar insurance-policy appraisal provision does not
require compliance with claims handling provision before
seeking appraisal). Compliance with the “Claims Handling”
provisions and the Texas Insurance Code is not a condition
precedent to compelling appraisal.
B. Waiver
*5 The contractual right to appraisal may be waived. See,
e.g., In re Slavonic Mut. Fire Ins. Ass’n, 308 S.W.3d 556,
561 (Tex. App .-Houston [14th Dist.] 2010, orig. proceeding).
Waiver is defined as the “intentional relinquishment of a
known right.” JM Walker LLC v. Acadia Ins. Co., 356
F. App’x 744, 748 (5th Cir.2009) (per curiam) (summary
calendar) (unpublished). Courts applying Texas law follow
the standard articulated long ago in Scottish Union & Nat.
Ins. Co. v. Clancey, 71 Tex. 5, 8 S.W. 630, 632 (Tex.1888),
to determine whether an insurer’s acts amount to waiver:
“To constitute waiver, the acts relied on must be such as are
reasonably calculated to induce the assured to believe that a
compliance by him with the terms and requirements of the
policy is not desired, or would be of no effect if performed.
The acts relied on must amount to a denial of liability, or
a refusal to pay the loss.” 1 See, e.g., Woodward v. Liberty
Mut. Ins. Co., No. 3:09–CV–0228–G, 2010 WL 1186323,
at *4 (N.D.Tex. Mar.26, 2010); In re Sec. Nat’l Ins. Co. .,
No. 14–10–00009–CV, 2010 WL 1609247, at *5 (Tex.App.-
Houston [14th Dist.] Apr. 22, 2010, orig. proceeding) (mem.
op., not designated for publication); In re Slavonic Mut. Fire
Ins. Ass’n, 308 S.W.3d at 563.
1 Other cases quote similar language from Scottish Union
& Nat. Ins. Co. v. Clancey, 83 Tex. 113, 18 S.W. 439,
441 (Tex.1892): “[T]he acts relied on as constituting
a waiver should be such as are reasonably calculated
to make the assured believe that a compliance on his
part with the stipulations providing the mode of proof
of loss, and regulating the appraisement of the damage
done, is not desired, and that it would be of no effect
if observed by him.” See, e.g., JM Walker LLC, 356
F. App’x at 748; Sanchez v. Prop. & Cas., Ins. Co.
of Hartford, No. H–09–1736, 2010 WL 413687, at *4
(S.D.Tex. Jan.27, 2010).
“[W]hile an unreasonable delay is a factor in finding
waiver, reasonableness must be measured from the point of
impasse.” In re Universal Underwriters of Tex. Ins. Co.,
––– S.W.3d ––––, 2011 WL 1713278, at *3 (Tex. May
6, 2011). Determining whether the parties have reached an
impasse “requires an examination of the circumstances and
the parties’ conduct, not merely a measure of the amount of
time involved in seeking appraisal.” Id. “An impasse is not
the same as a disagreement about the amount of loss. Ongoing
negotiations … do not trigger a party’s obligation to demand
appraisal. Nor does an insurer’s offer of money to cover
damages necessarily indicate a refusal to negotiate further ….“
Id. “[M]ere delay is not enough to find waiver; a party must
show that it has been prejudiced.” Id. at *5. “Prejudice to
a party may arise in any number of ways that demonstrate
harm to a party’s legal rights or financial position.” Universal
Underwriters, ––– S.W.3d ––––, 2011 WL 1713278, at *5.
The Texas Supreme Court has observed that “it is difficult to
see how prejudice could ever be shown when the policy …
gives both sides the same opportunity to demand appraisal. If
a party senses that an impasse has been reached, it can avoid
prejudice by demanding an appraisal itself.” Id. at *7.
Waiver is an affirmative defense, and the party alleging
waiver has the burden of proof. JM Walker LLC, 356 F.
App’x at 748; Sanchez, 2010 WL 413687, at *4. Whether
certain circumstances constitute waiver is a question of law.
JM Walker LLC, 356 F. App’x at 748; see also Sanchez, 2010
WL 413687, at *4 (holding that although waiver is typically
a fact question, when the relevant facts are undisputed and
clearly established, a court may decide whether a party has
waived its contractual right to appraisal as a question of
law). “The trial court may determine whether an appraisal has
been waived as a matter of law at the preliminary stages of
litigation.” Sanchez, 2010 WL 413687, at *4 (quoting Laas v.
State Farm Mut. Auto. Ins. Co., No. 14–98–00488–CV, 2000
WL 1125287 at *6 (Tex.App.-Houston [14th Dist.] Apr. 22,
2010, orig. proceeding) (unpublished)).
*6 The parties have reached an impasse. They could
not successfully mediate their claims. EDM argues that
Hartford delayed seeking appraisal. EDM, however, has not
demonstrated prejudice. See Universal Underwriters, –––
S.W.3d ––––, 2011 WL 1713278, at *5 (“[M]ere delay is not
enough to find waiver; a party must show that it has been
prejudiced.”).
The Texas Supreme Court has explained that:
[to] constitute waiver the acts relied on must be such as
are reasonably calculated to induce the assured to believe
that compliance by him with the terms of the policy … is
not desired, or would be of no effect if performed. The acts
EDM Office Services, Inc. v. Hartford Lloyds Ins. Co., Slip Copy (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 5
relied on must amount to a denial of liability or refusal to
pay the loss.
Universal Underwriters, ––– S.W.3d ––––, 2011 WL
1713278, at *2 (quoting Scottish Union, 8 S.W. at 632). “Or,”
as the court “more recently concluded, ‘[w]aiver requires
intent, either the intentional relinquishment of known right or
intentional conduct inconsistent with claiming that right.’ “
Id. (quoting In re Gen. Elec. Capital Corp., 203 S.W.3d 314,
316 (Tex.2006). The court has also explained that prejudice
can rarely be found on facts similar to those present here.
Id. at *5; see also Perry Homes v. Cull, 258 S.W.3d 580,
597 (Tex.2008) (defining prejudice for purposes of waiver
of arbitration as “the inherent unfairness in terms of delay,
expense, or damage to a party’s legal position” (quoted
in Universal Underwriters, –––S.W.3d ––––, 2011 WL
1713278, at *5)); In re Tyco Int’l Ltd. Sec. Litig., 422 F.3d
41, 47 n. 5 (1st Cir.2005) (“[A] party should not be allowed
purposefully and unjustifiably to manipulate the exercise of
its arbitral rights simply to gain an unfair tactical advantage
over the opposing party.” (quoted in Universal Underwriters,
––– S.W.3d ––––, 2011 WL 1713278, at *5); Menorah Ins.
Co., Ltd. v. INX Reinsurance Corp., 72 F.3d 218, 222 (1st
Cir.1995) (finding prejudice where party “incurred expenses
as a direct result of [opponent’s] dilatory behavior” (cited and
quoted in Universal Underwriters, ––– S.W.3d ––––, 2011
WL 1713278, at *5)). EDM has not shown prejudice. 2
2 EDM argues that Hartford’s delay prejudiced it because
“any appraisal award at this juncture would be
outside of the policy deadline for making a claim for
replacement cost.” (Docket Entry No. 19, at 24). EDM
points to a provision in his insurance policy stating that
an insured who elects, as EDM did, to make a claim
on an actual-cash-value basis has 180 days to change
the claim to a replacement-cost basis. EDM argues that
Hartford’s motion to compel appraisal prevents it from
exercising this right. EDM has identified no provision
in the insurance policy stating that an appraisal prevents
it from making its claim on a replacement-cost basis,
or that it cannot ask for a replacement-cost basis at
appraisal. This is not prejudice.
C. Whether to Stay the Litigation Pending Appraisal
EDM argues that this court should allow it additional
discovery pending appraisal on its claims that Hartford
violated the Texas Insurance Code and on its coverage claims.
“While [a] trial court has no discretion to deny the appraisal,
the court does have some discretion as to the timing of the
appraisal.” In re Allstate, 85 S.W.3d at 967. In many cases,
the litigation is stayed while appraisal is completed. See, e.g.,
Molzan, Inc. v. United Fire & Cas. Co., Civ. A. No. H–09–
01045, 2009 WL 2215092, at *5 (S.D.Tex. July 23, 2009); cf.
Johnson, 290 S.W.3d at 895 (“Unless the ‘amount of loss’ will
never be needed … appraisals should generally go forward
without preemptive intervention by the courts.”); Universal
Underwriters, ––– S.W.3d ––––, 2011 WL 1713278, at *2
(“Appraisals can provide a less expensive, more efficient
alternative to litigation ….”). But courts have held that when
a dispute involves both coverage and valuation disputes,
a court should stay the valuation portion of the case and
proceed with the coverage portion. See Glenbrook Patiohome
Owners Ass’n v. Lexington Ins. Co., 2011 WL 666517, at *10
(S.D.Tex. Feb.14, 2011) (“In this case, however, the record
makes clear that there are issues of both coverage and of loss
valuation. Under such circumstances, the part of the litigation
that involves loss valuation is appropriately stayed. The
part of the litigation that involves coverage issues, however,
should continue pending the appraisal.”). In this case, the
record makes clear that there are issues of both coverage
and of loss valuation. Under such circumstances, the part
of the litigation that involves loss valuation is appropriately
stayed. The part of the litigation that involves coverage issues,
however, should continue pending the appraisal.
III. Conclusion
*7 Hartford’s motion to compel appraisal, (Docket Entry No.
13), is granted. During the appraisal, this case will proceed on
coverage issues; the litigation on the loss valuation issues is
stayed. 3 The parties must notify this court when the appraisal
is concluded and the result within 14 days after the appraisers
issue their report.
3 In light of this court’s ruling, Hartford’s motion for
protection, (Docket Entry No. 14), is denied as moot.
EDM’s motion for leave to file excess pages, (Docket
Entry No. 18), is also denied as moot.

 

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 insurance defense law 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]

Pre-lawsuit Insurance Policy Limit Disclosures

Law in Nevada Requiring Disclosure Of Insurance Policy Limits Repealed

 

Insurance companies writing policies in Nevada have for years been required to disclose their insured’s policy limit to Plaintiff’s attorneys if certain conditions were met.  However, Nevada’s 2015 legislature repealed the law, known as NRS 690B.042.  At this point, in Nevada, insurance companies no longer are required to disclose the liability limits of their insured before a lawsuit is filed.

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 insurance defense lawyers 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]

Intoxication Exclusion in Group Life Insurance Policy With Accidental Death Benefit–Fort Worth Texas Contracts Lawyers

Likens v. Hartford Life and Acc. Ins. Co., — F.Supp.2d —- (2011)

United States District Court,
S.D. Texas,
Houston Division.
Cheryl LIKENS, Plaintiff,
v.
HARTFORD LIFE AND ACCIDENT
INSURANCE COMPANY, Defendant.
Civil Action No. H–10–155. June 29, 2011.

Opinion
MEMORANDUM OPINION AND ORDER
GRAY H. MILLER, District Judge.
*1 This is a removal action wherein plaintiff seeks payment
of accidental death benefits under a policy of insurance.
Before the court are the parties’ cross-motions for summary
judgment. Dkts. 10, 11. After consideration of the motions,
responses, replies, exhibits, and the applicable law, plaintiff’s
motion (Dkt.10) is DENIED and defendant’s motion (Dkt.11)
is GRANTED.
BACKGROUND
Wesley Wood Vincent (“Vincent”) fell at his home on the
evening of February 23, 2008, and suffered injuries to his
cervical spine. Dkt. 1–1 at 10. He died as a result of that
injury on February 27, 2008. Id. The discharge summary from
the hospital listed his cause of death as “anoxic brain injury
secondary to cardiopulmonary arrest.” Id.
Vincent had a group life insurance policy with defendant
Hartford Life and Accident Insurance Company (“Hartford”),
obtained through Vincent’s employer, which provided a
benefit for “accidental” death. Dkt. 10–1 at 10. Plaintiff
Cheryl Likens is the listed beneficiary on the policy, and
she sought payment of the benefits. Id. Hartford denied the
claim due to Vincent’s intoxication at the time of his injury.
Dkt. 13–3 at 1–3. More specifically, Hartford relied upon
provisions of the Policy requiring that the injury must arise
from an accident “independently of all other causes,” and that
the policy excludes injuries “sustained as a result of being
legally intoxicated from the use of alcohol.” Dkt. 13–3 at
1–2. In Hartford’s view, Vincent’s death was “as a result of
being legally intoxicated from the use of alcohol,” Vincent
therefore “did not suffer bodily injury independent of all other
causes,” and no benefits were due. Id. at 2–3. Plaintiff sued in
state court to recover under the policy, and Hartford removed
the matter to this court on January 18, 2010, on the basis of
diversity of citizenship.
RELEVANT FACTS
1. The insurance policy.
The insurance policy in this case is a Group Benefits policy
issued by Hartford (“Policy”). Dkt. 10 at 12–29. The Policy,
which the parties agree was issued in August, 2004, provides
for an accidental death and dismemberment benefit for an
injury leading to death in the maximum amount of $300,000.
Dkt. 12 at 5–9. 1 An “injury” is defined as “bodily injury
resulting directly from accident and independently of all other
causes which occurs while [Vincent] is covered under the
Policy. Loss resulting from: a) sickness or disease …; or
b) medical or surgical treatment of a sickness or disease;
is not considered as resulting from injury.” Id. at 5. The
“Exclusions” section of the Policy provides in relevant part
as follows:
1 Plaintiff asserts that application of other applicable
Policy provisions results in a death benefit of $263,500
for Vincent. Dkt. 10 at 30. Hartford asserts that the death
benefit available for a covered injury is $250,000. Dkt.
11 at 3. Resolution of this dispute is not necessary to the
court’s ruling on the pending motions.
The Policy does not cover any loss resulting from … 8.
Injury sustained as a result of being legally intoxicated
from the use of alcohol. (For residents of Minnesota,
Exclusion 8 is deleted and is replaced by the following:
8. Injury sustained while operating a motor vehicle while
legally intoxicated from the use of alcohol.)
*2 Id. at 6.
2. Circumstances of Vincent’s death.
Likens v. Hartford Life and Acc. Ins. Co., — F.Supp.2d —- (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 2
Vincent drank alcohol at a local bar on February 22, 2008,
and he arrived back home at approximately 11:30 p.m. Dkt.
12 at 14. An EMS report contains the following description
of events:
[F]amily state that [Vincent] went out drinking tonight and
that he was brought home by the bartender around 11 or
11:30. [Vincent’s] wife states that [he] was very intoxicated
and keep [sic] falling down, she states that she tried to help
him, but he told her that he was fine and that he was going
to sit out on the porch … her granddaughter came home and
found [Vincent] between the bbq pit and the hedge … she
moved him onto his back … [and] realized that he was not
breathing….
Dkt. 12 at 19. A hospital report confirms that plaintiff reported
an initial fall by Vincent, and that she also reported that
Vincent was unable to make it from the yard into the house.
Dkt. 12 at 26. A sheriff’s report for that same incident states
that it was Vincent’s daughter, Kayla Hutson, who later found
him on the ground, but she reported she was “not alarmed
[be]cause this was a regular occurrence.” Dkt. 12 at 32.
Vincent was transported to the hospital, and his serum blood
alcohol content shortly after the incident was reported as
being .328 mg/dl. Id. at 16. He never regained consciousness,
and his life support was removed on February 27, 2008. Dkt.
12 at 37. The cause of death was reported as “anoxic brain
injury secondary to cardiopulmonary arrest.” Id.
A Certificate of Death dated March 17, 2008, lists the
“immediate cause” of his death as “complications following
blunt trauma with fracture of cervical spine,” and the “manner
of death” is listed as “accident.” Dkt. 10 at 32. Also listed
under “significant conditions contributing to death but not
resulting in the underlying cause” is “chronic ethanolism.” Id .
ANALYSIS
I. Summary Judgment
A timely motion for summary judgment shall be granted “if
the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and
that the moving party is entitled to a judgment as a matter
of law.” FED.R.CIV.P. 56(c); see also Carrizales v. State
Farm Lloyds, 518 F.3d 343, 345 (5th Cir.2008). Upon a
defendant’s motion for summary judgment, the plaintiff “must
set forth specific facts showing that there is a genuine issue
for trial. If he does not so respond, summary judgment, if
appropriate, shall be entered against him.” FED.R.CIV.P.
56(e). Ultimately, “[w]here the record taken as a whole could
not lead a rational trier of fact to find for the nonmoving
party, there is no ‘genuine issue for trial.’ “ Matsushita Elec.
Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct.
1348 (1986). An issue is “material” if its resolution could
affect the outcome of the action. Burrell v. Dr. Pepper/Seven
Up Bottling Group, Inc., 482 F.3d 408, 411 (5th Cir.2007).
“[A]nd a fact is genuinely in dispute only if a reasonable jury
could return a verdict for the non-moving party.” Fordoche,
Inc. v. Texaco, Inc., 463 F.3d 388, 392 (5th Cir.2006).
*3 The moving party bears the initial burden of informing
the court of all evidence demonstrating the absence of a
genuine issue of material fact. Celotex Corp. v. Catrett, 477
U.S. 317, 323, 106 S.Ct. 2548 (1986). Only when the moving
party has discharged this initial burden does the burden shift
to the non-moving party to demonstrate that there is a genuine
issue of material fact. Id. at 322. If the moving party fails
to meet this burden, then it is not entitled to a summary
judgment, and no defense to the motion is required. Id.
“For any matter on which the non-movant would bear the
burden of proof at trial …, the movant may merely point to the
absence of evidence and thereby shift to the non-movant the
burden of demonstrating by competent summary judgment
proof that there is an issue of material fact warranting trial.”
Transamerica Ins. Co. v. Avenell, 66 F.3d 715, 718–19
(5th Cir.1995); see also Celotex, 477 U.S. at 323–25. To
prevent summary judgment, “the non-moving party must
come forward with ‘specific facts showing that there is a
genuine issue for trial.’ “ Matsushita Elec. Indus. Co., 475
U.S. at 587 (quoting FED.R.CIV.P. 56(e)).
When considering a motion for summary judgment, the court
must view the evidence in the light most favorable to the
non-movant and draw all justifiable inferences in favor of
the nonmovant. Envtl. Conservation Org. v. City of Dallas,
Tex., 529 F.3d 519, 524 (5th Cir.2008). The court must review
all of the evidence in the record, but make no credibility
determinations or weigh any evidence; disregard all evidence
favorable to the moving party that the jury is not required
to believe; and give credence to the evidence favoring the
non-moving party as well as to the evidence supporting
the moving party that is uncontradicted and unimpeached.
Moore v. Willis Ind. Sch. Dist., 233 F.3d 871, 874 (5th
Cir.2000). However, the non-movant cannot avoid summary
judgment simply by presenting “conclusory allegations and
denials, speculation, improbable inferences, unsubstantiated
Likens v. Hartford Life and Acc. Ins. Co., — F.Supp.2d —- (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 3
assertions, and legalistic argumentation.” See TIG Ins. Co. v.
Sedgwick James of Wash., 276 F.3d 754, 759 (5th Cir.2002);
see also Little v. Liquid Air Corp., 37 F.3d 1069, 1075
(5th Cir.1994) (en banc). By the same token, the moving
party will not meet its burden of proof based on conclusory
“bald assertions of ultimate facts.” Gossett v. Du–Ra–Kel
Corp., 569 F.2d 869, 872 (5th Cir.1978); see also Galindo v.
Precision Amer. Corp., 754 F.2d 1212, 1221 (5th Cir.1985).
II. Contract Interpretation
“Texas courts interpret insurance policies according to the
rules of contract construction.” de Laurentis v. U.S. Auto.
Ass’n, 162 S.W.3d 714, 721 (Tex.App.-Houston [14th Dist.]
2005, pet. denied). The primary objective of the court is
to ascertain the parties’ intent, as expressed in the written
instrument. See Forbau v. Aetna Life Ins. Co., 876 S.W.2d
132, 133 (Tex.1994). “[T]he parties’ intent is governed by
what they said, not by what they intended to say but did
not.” Nautilus Ins. Co. v. Country Oaks Apartments, Ltd., 566
F.3d 452, 455 (5th Cir.2009) (quoting Fiess v. State Farm
Lloyds, 202 S.W.3d 744, 746 (Tex.2006)) (internal quotation
omitted).
*4 If an insurance policy is worded so that it can be
given a definite meaning or certain legal meaning, then
the policy is not ambiguous and is construed by the court
as a matter of law. Am. Mfrs. Mut. Ins. Co. v. Schaefer,
124 S.W.3d 154, 157 (Tex.2003). An ambiguity exists
where a policy is susceptible to more than one meaning.
Coker v. Coker, 650 S.W.2d 391, 393 (Tex.1983). Courts
interpreting contractual provisions give terms their plain,
ordinary, and generally accepted meanings, unless otherwise
defined by the parties. “ ‘Both the insured and the insurer
are likely to take conflicting views of coverage, but neither
conflicting expectations nor disputation is sufficient to create
an ambiguity.’ “ Nat’l Union Fire Ins. Co. of Pittsburgh, PA
v. U.S. Liquids, Inc., 271 F.Supp.2d 926, 932 (S.D.Tex.2003)
(quoting Forbau, 876 S.W.2d at 134). “[I]f, and only if,
the court finds an ambiguity in the contract provisions,
particularly in exclusionary clauses, the court should construe
the policy strictly against the insurer.” Nat’l Union Fire Ins.
Co. of Pittsburgh, PA, 271 F.Supp.2d at 932; see also Waffle
House, Inc. v. Travelers Indem. Co. of Ill., 114 S.W.3d
601, 607 (Tex.App.-Ft. Worth 2003, pet. denied) (cautioning
that exclusionary provisions “must be clearly expressed and
must not be ambiguously worded”). And, “if the insured’s
construction of an exclusionary provision is reasonable, it
must be adopted, even if the insurer’s construction is more
reasonable.” Nat’l Union Fire Ins. Co. of Pittsburgh, PA, 271
F.Supp.2d at 931.
Under Texas law, an insured has the burden of establishing
coverage under the terms of an insurance policy. Gilbert Tex.
Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d
118, 124 (Tex.2010). If the insured proves coverage, then to
avoid liability the insurer must prove that the loss is within an
exclusion. Id. If the insurer proves that an exclusion applies,
the burden shifts back to the insured to show that an exception
to the exclusion brings the claim back within coverage. Id.
III. Application
In this case, no reasonable jury could find facts that would
avoid the intoxication exclusion of the Policy. 2 The facts of
this case clearly establish that Vincent’s intoxication on the
night he fell in his front yard is the proximate cause of his
death, and this prevents plaintiff from recovering under the
Policy.
2 The court will not, therefore, address Hartford’s
argument that plaintiff failed to establish that Vincent’s
death was caused by an accident independent of other
causes.
“The Policy does not cover any loss resulting from … [i]njury
sustained as a result of being legally intoxicated from the use
of alcohol.” Dkt. 12 at 6. Hartford’s evidence conclusively
establishes that the injuries Vincent sustained on February
23, 2008, and which led to his death, were caused by his
extreme intoxication. Plaintiff asserts that the autopsy report
on Vincent’s body discounts alcohol consumption as a cause
of his death. Plaintiff’s argument is premised upon a form
where “chronic ethanolism” is listed in box pre-labeled for
“significant conditions contributing to death but not resulting
in the underlying cause.” Dkt. 10 at 32. A review of the
more complete report of the findings, however, reveals that
the medical examiner made no finding that intoxication did
not cause the injuries. Dkt. 13–1 at 2–9. In fact, the medical
examiner’s notes reflect that the “blunt force trauma” occurred
because “[d]ecedent fell at home while intoxicated and hit his
head on a barbecue pit.” Id. at 9. Thus, the medical examiner
did not make any finding that would permit a jury to conclude
that intoxication did not cause Vincent’s injuries. Indeed, such
a finding is compelled by the record evidence.
*5 The sole question remaining, then, is one of interpretation
of the exclusion at issue. More specifically, what is meant by
the term “legally intoxicated” as used in the Policy? Plaintiff
asserts that this language is ambiguous and, accordingly,
Likens v. Hartford Life and Acc. Ins. Co., — F.Supp.2d —- (2011)
© 2011 Thomson Reuters. No claim to original U.S. Government Works. 4
presents her own proposed definition. There is no challenge to
whether Vincent met the legal definition in terms of the level
of his intoxication. Indeed, the record reflects that Vincent
was approaching the level of blood alcohol content that is
considered medically “toxic.” Dkt. 12 at 16. Rather, plaintiff
points to Hartford’s reliance in its briefing on the definition
of legal intoxication from the Texas Penal Code, and asserts
that “legal intoxication” therefore necessarily requires that
Vincent be not only intoxicated, but intoxicated in a legally
relevant fashion. Dkt. 10 at 9. More specifically, the exclusion
would only apply in plaintiff’s view if Vincent were driving,
or otherwise “operating a motor vehicle, motorboat or vessel”
in violation of Texas law. Id.
Hartford responds that there is no indication in the Policy that
intoxication must involve a violation of Texas law, or that
operation of a motor vehicle is required for such a finding.
Indeed, Hartford is correct. In fact, the exclusion at issue is
immediately followed in the Policy by an alternate version
of the exclusion applicable only in Minnesota and which
specifically limits the exclusion to injuries sustained while
“operating a motor vehicle while legally intoxicated from the
use of alcohol.” Dkt. 12 at 6. Thus, there is no support for
plaintiff’s argument in the language of the Policy itself.
For purposes of Texas law, “intoxicated” is defined as:
(A) not having the normal use of mental or physical
faculties by reason of the introduction of alcohol,
a controlled substance, a drug, a dangerous drug, a
combination of two or more of those substances, or any
other substance into the body; or
(B) having an alcohol concentration of 0.08 or more.
V.T.C.A., Penal Code § 49.01 (emphasis added). While
Hartford relies upon this definition, drawn from the Texas
Penal Code, for purposes of establishing a definition
of “legal intoxication” in the Policy exclusion, Hartford
points out that Texas law also provides for similar
definitions of “intoxicated” for determining issues in workers’
compensation cases, Tex. Labor Code § 401.103, and for
determining when a customer may no longer be served
alcoholic beverages. Tex. Admin. Code § 50.2. This broad
application of the definition of “intoxicated” in Texas law
distinguishes cases such as MacDonald v. Unicare Life
& Health Ins. Co., No. 3:07–0345, 2008 WL 169142
(S.D.W.Va. Jan. 18, 2008) and cases cited therein where the
state law referenced in, or applicable to, a policy exclusion
required an adjudication or a finding that the intoxication
was actually in violation state law. Here, Texas defines
“intoxicated” in more than just a criminal context, and the
court finds no basis to read into the Policy such an additional
provision.
*6 Not every difference in interpretation of an insurance
policy amounts to an ambiguity. Kelley–Coppedge, Inc. v.
Highlands Ins. Co., 980 S.W.2d 462, 465 (Tex.1998). Here,
the court does not perceive an ambiguity in the Policy as
written. The exclusion applies if Vincent’s death was caused
by his being “legally intoxicated,” i.e., being “intoxicated”
as that term is defined in Texas law. Texas law provides a
uniform definition of “intoxicated” that Vincent easily met at
the time he fell and struck his head.
And, in any event, even if some ambiguity existed in
the exclusionary language, an insured’s construction of the
exclusion will only be adopted if it is reasonable. Nat’l Union
Fire Ins. Co. of Pittsburgh, PA, 271 F.Supp.2d at 931. In
this case, there is simply no basis for reading into the Policy
exclusion an additional requirement that Vincent not only be
impaired as described in Texas law, but that he also have been
committing a crime.
Finally, plaintiff argues in the alternative that it is improper to
utilize a definition of intoxication drawn specifically from the
Texas Penal Code unless there was an express adoption of that
standard in the Policy. This is a potential ambiguity, however,
that does not benefit plaintiff. A contractual clause that is
ambiguous as applied to certain facts may be unambiguous as
applied to others. State Farm Fire and Cas. Co. v. Vaughan,
968 S.W.2d 931, 934 (Tex.1998). Vincent met any definition
of “intoxicated” during the relevant time frame. Choosing one
that differs slightly from the one found in the Texas Penal
Code would not avail plaintiff in this case.
CONCLUSION
After consideration of the motions, responses, replies,
exhibits, and the applicable law, plaintiff’s motion for
summary judgment (Dkt .10) is DENIED, and defendant’s
motion for summary judgment (Dkt.11) is GRANTED.

 

 

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 insurance defense and contract law 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]

Demand For Appraisal in Texas Homeowner’s Insurance Policy Lawsuit–Ft Worth, Texas Insurance Defense Attorneys

REVERSE and REMAND; Opinion issued July 11, 2007

In The
Court of Appeals
Fifth District of Texas at Dallas
……………………….
No. 05-06-00100-CV
……………………….
LINDA RICHARDSON, Appellant
V.
ALLSTATE TEXAS LLOYD’S, Appellee
…………………………………………………….
On Appeal from the 160th Judicial District Court
Dallas County, Texas
Trial Court Cause No. 02-01779-H
…………………………………………………….
MEMORANDUM OPINION
Before Justices Moseley, O’Neill, and Lagarde
Opinion By Justice Lagarde   See Footnote 1

Appellant Linda Richardson sued Allstate Texas Lloyd’s (Allstate), seeking to overturn an appraisal award entered on her insurance claim for sewer damage to her home. After originally denying Allstate’s successive motions for summary judgment, upon reconsideration, the trial court granted Allstate’s second motion and dismissed Richardson’s claims with prejudice.
Richardson appeals the summary judgment order and the trial court’s denial of her motion to designate experts. For reasons that follow, we conclude the summary judgment was improperly granted and we remand this case to the trial court for further proceedings. Because all dispositive issues are settled in law, we issue this memorandum opinion. Tex. R. App. P. 47.2(a), 47.4.

Factual and Procedural Background
In December 2001, “a catastrophic pressurized infusion of raw sewage spewed through every plumbing opening” in Richardson’s home in Lancaster, Texas. Richardson’s home was insured by Allstate. Immediately after her home was flooded with sewage, Richardson contacted Allstate to make a claim under her insurance policy. Shortly thereafter, a dispute arose between Richardson and Allstate concerning the amount of Richardson’s insured loss. Accordingly, Allstate sent Richardson a written notice informing her that Allstate was invoking the appraisal provision of her insurance policy. The terms of that provision read, in pertinent part, as follows:

Appraisal. If you and we fail to agree on the actual cash value, amount of loss, or cost of repair or replacement, either can make a written demand for appraisal. Each will then select a competent, independent appraiser and notify the other of the appraiser’s identity within 20 days of receipt of the written demand. The two appraisers will choose an umpire. If they cannot agree upon an umpire within 15 days, you or we may request that the choice be made by a judge of a district court of a judicial district where the loss occurred. The two appraisers will than [sic] set the amount of loss, stating separately the actual cash value and loss to each item.
. . .

If the appraisers fail to agree, they will submit their differences to the umpire. An itemized decision agreed to by any two of these three and filed with us will set the amount of such loss. Such award shall be binding on you and us.

Allstate selected Jim Greenhaw as its independent appraiser. Richardson selected C.R. Johnson as her independent appraiser. The parties then agreed to use Sally Montgomery as the umpire, and she was appointed by the trial court in March 2002. On March 25, 2002, Johnson and Greenhaw signed their names on a blank form “Appraisal Award.” The top of that one-page form contains general information about the claim, including the names of the parties, the appraisers, and the umpire. The appraiser’s signatures are in the middle of the page beneath that general information. Directly underneath the appraisers’ signatures on the form award is a chart with three columns. The first column is titled “ITEM,” and the phrase “to be determined by hygienist” is hand- written beneath that title on the first numbered line. The next two columns, titled “LOSS REPLACEMENT COST” and “LOSS ACTUAL CASH VALUE,” are blank.
According to the record, after they signed the blank form, Greenhaw and Johnson each conferred separately with the umpire during the next few months. It appears, however, that neither appraiser prepared an itemized list of the cash value and loss to each item in Richardson’s house. According to Richardson, sometime prior to June 21, 2002, Johnson sent Montgomery a written estimate totaling approximately $141,000. The written estimate itself is not in the record. On June 21, 2002, Montgomery met with Greenhaw at Greenhaw’s office. During that meeting, Montgomery or Greenhaw wrote “$39,650.75” on the form appraisal award under the column “LOSS REPLACEMENT COST,” next to the phrase “to be determined by hygienist” previously written on the form award. Montgomery and Greenhaw then dated the award June 21, 2002 and both signed it. There is no evidence in the record that Montgomery or Greenhaw discussed this award with Johnson either before or after it was entered.
On July 16, 2002, Allstate sent Richardson a check for $27,813.95, the net amount of the award after deducting the amounts already paid to Richardson and half of the umpire’s fee. The next day, Johnson and Richardson wrote to the trial court complaining about the impropriety of the appraisal award and requested a meeting with the trial judge. There is no evidence in the record about whether such meeting occurred. On October 2, 2002, Richardson cashed Allstate’s check.         Thereafter, Richardson filed a petition seeking to set aside the appraisal award. In her suit against Allstate, Richardson asserted claims against Allstate for breach of contract, breach of the duty of good faith and fair dealing, negligence, negligence per se, and violation of articles 21.21 and 21.55 of the Texas Insurance Code.         Allstate moved for summary judgment twice. In its second motion for summary judgment, Allstate asserted it was entitled to summary judgment because (i) Richardson could not establish any grounds for setting aside the appraisal award, (ii) Richardson’s claims were barred by the affirmative defense of accord and satisfaction, (iii) Richardson was estopped to assert a breach-of-contract claim, and (iv) Richardson’s extra-contractual claims were “unsupportable, as a matter of law.” The trial court denied Allstate’s first and second motions; but upon Allstate’s one-page motion to reconsider, the trial court granted Allstate’s second motion and dismissed Richardson’s claims with prejudice.
In this appeal, Richardson asserts five main points of error, each with multiple subpoints. In her first point, Richardson argues the summary judgment order is improper because the appraisal award is “void as a matter of law,” based, inter alia, on her contention that the appraisal procedure was not followed. In her second point, Richardson argues she is entitled to summary judgment on Allstate’s affirmative defense of accord and satisfaction. In her third issue, Richardson argues she is not estopped to assert her breach of contract claim. In her fourth issue, Richardson argues genuine issues of material fact preclude summary judgment dismissing her extra-contractual claims. Finally, in her fifth point, Richardson argues the trial erred in denying her motion to designate experts.

The Appraisal Procedure

 

  1. Applicable Law

Because courts “seek to implement the intention of the parties as expressed in the language of a contract,” it has long been the rule in Texas that “[a]ppraisal awards made pursuant to the provisions of an insurance contract are binding and enforceable.” Providence Lloyds Ins. Co. v. Crystal City Ind. Sch. Dist., 877 S.W.2d 872, 875 (Tex. App.-San Antonio 1994, no writ) (citing Scottish Union and Nat’l Ins. Co. v. Clancy, 8 S.W. 630 (Tex. 1888)). “Although every reasonable presumption will typically be made in favor of an appraisal award, when reviewing a summary judgment proceeding, that rule must yield to the degree its application conflicts with the presumptions required to be made in favor of the nonmovant.” Wells v. Am. States Preferred Ins. Co., 919 S.W.2d 679, 683 (Tex. App.-Dallas 1996, writ denied) (citing Hennessey v. Vanguard Ins. Co., 895 S.W.2d 794, 797-98 (Tex. App.-Amarillo 1995, writ denied)). There are three circumstances in which an appraisal award may be set aside on appeal: (1) the award was made without authority, (2) the award was made as a result of fraud or accident, or (3) the award was not make in substantial compliance with the terms of the insurance policy. Crystal City, 877 S.W.2d at 875-76.

  1. Analysis

In her first issue, Richardson argues the award in this case should be set aside because it was not made in substantial compliance with the policy. We agree. The policy expressly requires that the appraisers each make an itemized list, “stating separately the actual cash value and loss to each item.” It also requires the appraisers to submit to the umpire only the items on which the two appraisers fail to agree. The policy then requires at least two of these individuals must agree on the final appraisal award, and the final award must be “itemized.”
The record in this case does not reflect substantial compliance with this required procedure. There is no evidence in the record the appraisers made the requisite itemized lists or that they submitted only disputed items to the umpire for a decision. Instead, the record contains testimony that, prior to Montgomery and Greenhaw signing the award, Johnson never saw any written estimate from Greenhaw and did not meet with Greenhaw or Montgomery to discuss the appraisers’ disputed items. The record contains no itemized list prepared by either appraiser. There is testimony in the record that Johnson prepared a written estimate and forwarded it to the umpire, but that estimate is not in the record. There is no evidence that Johnson ever met with Greenhaw to discuss their itemized estimates so the appraisers could determine their differences. Moreover, the appraisal award signed by Montgomery and Greenhaw is not an “itemized decision” as required by the terms of the insurance policy. Instead, it merely reflects a lump-sum award written next to the phrase “to be determined by hygienist.”
Allstate argues that a document prepared by Greenhaw several days after Greenhaw and Montgomery signed the award “comprises the itemized decision upon which the appraisal award was based.” We reject this argument. A document prepared after the appraisal award was issued cannot, as a matter of common sense and law, constitute the itemized list Greenhaw was supposed to prepare before any award was issued. Allstate also argues the award is proper because “nothing in the policy requires that the two individuals agreeing on the award delineate every item to be replaced.” We agree that in a situation like this, in which raw sewage may have contaminated the entire contents of a home, it would not be necessary to list and separately appraise, for example, every item of clothing and kitchen utensil in the home. Nevertheless, we reject Allstate’s contention that the appraisers were entirely relieved of their obligation to make an itemized list that at least categorized the contents of the home in a manner customary in the insurance industry.
Under these facts, we conclude the appraisal award should be set aside because the award was not made in substantial compliance with the terms of the insurance policy. E.g., Fisch v. Transcon. Ins. Co., 356 S.W.2d 186, 189-90 (Tex. Civ. App.-Houston 1962, writ ref’d n.r.e.) (setting aside appraisal award because record contained no evidence appraisers failed to agree and only submitted disagreements to umpire, as required by policy) .

Conclusion
We reverse the trial court’s summary judgment and remand this case for further proceedings consistent with this opinion. Tex. R. App. P. 43.2(d). The ultimate disposition of this case, including Richardson’s extra-contractual claims and Allstate’s affirmative defenses, will depend on the facts developed and decisions made during the further proceedings in the trial court. Accordingly , we need not address Richardson’s remaining issues at this time. Tex. R. App. P. 47.1.

SUE LAGARDE
JUSTICE, ASSIGNED

060100F.P05

Footnote 1 The Honorable Sue Lagarde, Justice, Court of Appeals, Fifth District of Texas at Dallas, Retired, sitting by assignment.

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 insurance defense lawyers 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]

 

Insurance Liability Coverage and Limits Issues in Texas Trucking Accident Litigation–Texas Trucking Defense Attorneys

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
SHERMAN DIVISION
MARIA del CARMEN ESPARZA, §
Individually and as Next Friend of, §
MIGUEL ANGEL ESPARZA, a Minor, §
JUAN ESPARZA MANCILLA, a Minor, §
MANUEL ESPARZA-MANCILLA, a Minor, §
MELISSA ESPARZA MANSILLAS, a Minor, §
ROLANDO ESPARZA, a Minor, §
MICHELLE ESPARZA, a Minor, and as the §
Representative of the Estate of Manuel Esparza,§
Deceased, CANDELARIO ESPARZA, §
JAVIER ESPARZA, BRIGIDA CADENA, §
Individually and as Personal Representative §
of the Estate of J. MARCOS ESPARZA, §
CELIA MERCADO ESPARZA, §
Individually and as Representative of the §
Estate of MANUEL ESPARZA, Deceased §
and A/N/F of MANUEL ESPARZA §
MERCADO, a Minor, MANEOR ESPARZA §
ESPARZA and MA SANTOS ESPARZA § Case No. 4:05-CV-315
ZAPATA, Individually and as §
Representatives of the Estates of §
JUAN MARCOS ESPARZA and §
GERMAN ESPARZA, Deceased, and §
A/N/F of GRISELDA ESPARZA, a Minor, §
§
Plaintiffs, §
§
v. §
§
EAGLE EXPRESS LINES, INC., §
KV EXPRESS, INC., MIROSLAW JANUSZ §
JOZWIAK, ILLINOIS NATIONAL §
INSURANCE COMPANY, CONTINENTAL §
CASUALTY COMPANY, and §
LEXINGTON INSURANCE COMPANY, §
§
Defendants. §
MEMORANDUM OPINION AND ORDER GRANTING IN PART PLAINTIFFS’
Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 1 of 20

-2-
JOINT MOTION FOR SUMMARY JUDGMENT AND DENYING IN PART
DEFENDANTS CONTINENTAL CASUALTY COMPANY, LEXINGTON
INSURANCE COMPANY AND ILLINOIS NATIONAL INSURANCE
COMPANY’S JOINT MOTION FOR SUMMARY JUDGMENT
The following are pending before the court:
1. Defendants Continental Casualty Company, Lexington Insurance Company and
Illinois National Insurance Company’s joint motion for summary judgment and brief
in support (docket entry #74);
2. Contractor Plaintiffs’ joint response to carrier Defendants’ joint motion for summary
judgment (docket entry #108);
3. Martin Plaintiffs’ joinder in Contractor Plaintiffs’ joint response to Carrier
Defendants’ joint motion for summary judgment (docket entry #109);
4. Defendants Lexington Insurance Company, Continental Casualty Company and
Illinois National Insurance Company’s joint reply to Plaintiffs’ response to Carrier
Defendants’ joint motion for summary judgment (docket entry #123); and
5. Contractor Plaintiffs’ sur-reply to the Carrier Defendants’ joint motion for summary
judgment (docket entry #127).
1. Plaintiffs’ joint motion for summary judgment and brief in support thereof (docket
entry #’s 91 & 94);
2. Defendants Continental Casualty Company, Lexington Insurance Company and
Illinois National Insurance Company’s response to Plaintiffs’ joint motion for
summary judgment and supplement to Defendants Continental Casualty Company,
Lexington Insurance Company and Illinois National Insurance Company’s joint
motion for summary judgment (docket entry #110);
3. Contractor Plaintiffs’ amended joint reply brief to Carriers’ response to Plaintiffs’
joint motion for summary judgment (docket entry #130); and
4. Carrier Defendants’ joint sur-reply to Plaintiffs’ reply to Carrier Defendants’
response to Plaintiffs’ motion for summary judgment (docket entry #128).
Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 2 of 20

-3-
1. Contractor Plaintiffs’ joint motion to strike exhibits from Carriers’ joint response and
supplemental motion for summary judgment (docket entry #125);
2. Defendants Continental Casualty Company, Lexington Insurance Company and
Illinois National Insurance Company’s response to Plaintiffs’ joint motion to strike
exhibits from Carriers’ joint response and supplemental motion for summary
judgment and, alternatively, motion for leave to supplement the record (docket entry
#’s 134 & 135); and
3. Plaintiffs’ response to Carriers’ response to Plaintiffs’ joint motion to strike exhibits
from Carriers’ joint response and supplemental motion for summary judgment and,
alternatively, motion for leave to supplement the record (docket entry #’s 156 &
157).
1. Contractor Plaintiffs’ motion to strike affidavits of Cline Young and Patricia
Strickland and objections thereto (docket entry #147);
2. Contractor Plaintiffs’ first amended motion to strike affidavits of Cline Young and
Patricia Strickland and objections thereto (docket entry #160);
3. Defendants Continental Casualty Company, Lexington Insurance Company and
Illinois National Insurance Company’s response to Contractor Plaintiffs’ amended
motion to strike affidavits of Cline Young and Patricia Strickland and objections
thereto (docket entry #167);
4. Contractor Plaintiffs’ reply to Carriers’ response to Contractor Plaintiffs’ motion to
strike affidavits of Cline Young and Patricia Strickland and objections thereto
(docket entry #172); and
5. Illinois National’s sur-reply to Contractor Plaintiffs’ reply to Carriers’ response to
motion to strike the affidavits of Cline Young and Patricia Strickland and objections
thereto (docket entry #179).
1. Contractor Plaintiffs’ motion to strike affidavit of Tina Jahn and objections thereto
(docket entry #149);
2. Continental Casualty Company’s response to Contractor Plaintiffs’ motion to strike
affidavit of Tina Jahn and objections thereto (docket entry #166); and
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3. Contractor Plaintiffs’ reply to Continental Casualty Company’s response to
Contractor Plaintiffs’ motion to strike affidavit of Tina Jahn and objections thereto
(docket entry #174).
1. Contractor Plaintiffs’ motion to strike the response of Illinois National to the joinder
of Eagle Express Lines, Inc. in part of Plaintiffs’ summary judgment motion and to
strike the affidavit of Harrison Yoss and objections thereto (docket entry #162);
2. Illinois National’s response to Contractor Plaintiffs’ motion to strike the response of
Illinois National to the joinder of Eagle Express Lines, Inc. in part of Plaintiffs’
summary judgment motion and to strike the affidavit of Harrison Yoss and objections
thereto (docket entry #171); and
3. Contractor Plaintiffs’ reply to Illinois National’s response to Contractor Plaintiffs’
motion to strike the response of Illinois National to the joinder of Eagle Express
Lines, Inc. in part of Plaintiffs’ summary judgment motion and to strike the affidavit
of Harrison Yoss and objections thereto (docket entry #181).
1. Illinois National’s motion to substitute the affidavit of Harrison H. Yoss in
connection with its response to the joinder of Eagle Express Lines, Inc. in part of
Plaintiffs’ summary judgment motion (docket entry #175); and
2. Contractor Plaintiffs’ response to Illinois National’s motion to substitute the affidavit
of Harrison H. Yoss (docket entry #182).
1. Continental Casualty Company’s motion for leave to file affidavit of Tina Jahn
(docket entry #189);
2. Contractor Plaintiffs’ response to Continental Casualty Company’s motion for leave
to file affidavit of Tina Jahn (docket entry #192); and
3. Continental Casualty Company’s reply to Contractor Plaintiffs’ response to
Continental Casualty Company’s motion for leave to file affidavit of Tina Jahn
(docket entry #193).
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1. Plaintiffs’ motion for leave to file supplemental summary judgment evidence in
support of motion for summary judgment and response to motion for summary
judgment (docket entry #196);
2. Martin Plaintiffs’ joinder in Contractor Plaintiffs’ motion to supplement Plaintiffs’
joint motion for summary judgment (docket entry #200); and
3. Defendants Continental Casualty Company, Lexington Insurance Company and
Illinois National Insurance Company’s response to Plaintiffs’ motion for leave to file
supplemental summary judgment evidence in support of motion for summary
judgment and response to motion for summary judgment (docket entry #203).
1. Contractor Plaintiffs’ motion to supplement Plaintiffs’ joint motion for summary
judgment (docket entry #199); and
2. Defendants Continental Casualty Company, Lexington Insurance Company and
Illinois National Insurance Company’s response to Plaintiffs’ motion to supplement
Plaintiffs’ joint motion for summary judgment (docket entry #201).
The court will address the above-referenced motions in turn.
OBJECTIONS, MOTIONS TO STRIKE AND MOTIONS TO SUPPLEMENT
A. DR. CLINE YOUNG
In response to the Plaintiffs’ joint motion for summary judgment, the Carrier Defendants, for
the first time, introduced the expert opinion of Dr. Cline Young. See Def. Resp. to Pl. Mtn. for
Summ. Judg., Exhs. Y(1), Y(2) & Y(3). The Carrier Defendants also sought to supplement their
motion for summary judgment with the same.
In his report, Dr. Young opines about the September 20, 2004 events which form the basis
of this lawsuit. Although the facts of this case are more specifically set forth below, Dr. Young, in
his March 15, 2006 report, provides the following opinions about the facts of this case:
2. The time between the collision of the truck with the Expedition
and the collision of the truck with the Pickup was approximately
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0.1 ± 0.1 seconds with the collision between the truck and the
pickup occurring first. This time was calculated based on the points
of impact between the vehicles, the separation distances associated
with those points of impact, the angle at which the truck was crossing
the roadway at the impacts and the speed of the truck. A computer
simulation reflecting this analysis is attached. Note: Some of these
measurements were taken from a scaled drawing. More precise
measurements are possible from the actual measured data itself.
The author would like to have that data.
3. For all practical purposes, the two collisions can be considered to
be simultaneous. As can be seen from the data items wherein a
combined perception / reaction time of 1.5 seconds is generally used
in accident reconstruction, there is no possibility of Mr. Jozwiak
responding to the collision of his truck with Mr. Esparza’s pickup,
regain control and then have a second collision with Ms. Martin’s
vehicle. 1/10th of a second is essentially the time span of a blink of
the eye. Furthermore, besides the time needed for perception and
reaction, there is additional time needed for driver controls to take
effect on the motion of the vehicle.
Def. Resp. to Pl. Mtn. for Summ. Judg., Exh. Y(1).
The Carrier Defendants seek to introduce Dr. Young’s report to show that the collisions
occurred within approximately 1/10th of a second apart and that, as such, the collisions occurred
virtually simultaneously. Additionally, the Carrier Defendants seek to introduce Dr. Young’s report
to demonstrate that Jozwiak could not have regained control of his truck between the two collisions.
The Plaintiffs object to the introduction of Dr. Young’s report on several bases, most
important of which is that Dr. Young’s report is not based on an adequate factual foundation. The
court agrees. In addition to the above-referenced remarks, Dr. Young further states in his report that
he understands
. . . that discovery is still ongoing and thereby reserve[s] the right to alter or augment
this report and the opinions contained within should additional information become
available that warrants such action. More specifically, I would like to have the
government documents containing the measurements of the vehicles and the accident
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1The court notes, however, that even if it did consider Dr. Young’s report, the result would not
change. Although Dr. Young’s report indicates that the collisions were, for all practical purposes,
simultaneous, Dr. Young’s opinions reveal that the collisions were separated in time, albeit a short period
of time. As such, the fact remains that the collisions did not result from a simultaneous impact.
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site in both printed and electronic formats.
Def. Resp. to Pl. Mtn. for Summ. Judg., Exh. Y(1). Although Dr. Young, in a later filed affidavit,
states that his conclusions and opinions are based on “all available measurements,” Dr. Young did
not mention any review of the actual measured data from the vehicles and the accident site. Since
Dr. Young specifically noted that more precise measurements were possible from the actual
measured data and since there is no indication that Dr. Young reviewed such data, the court
concludes that Dr. Young’s report is not based on an adequate factual foundation. Accordingly, the
court declines to consider Dr. Young’s report and hereby strikes it from the record.1
B. THE NTSB REPORT
The Carrier Defendants have further offered as summary judgment evidence the National
Transportation Safety Board’s (“NTSB”) report. The Plaintiffs object to the admission of the same
because “[n]o part of a report of the [NTSB], related to an accident or an investigation of an accident,
may be admitted into evidence or used in a civil action for damages resulting from a matter
mentioned in the report.” 49 U.S.C. § 1154(b). The Carrier Defendants argue, however, that the
report was not offered for the truth of the matter asserted but, rather, to show that the NTSB referred
to the events which transpired on September 20, 2004 as a single accident. Since consideration of
the NTSB report appears to be prohibited by statute, the court hereby declines to consider the same
and strikes the report from the record.
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2The court notes that resolution of the Plaintiffs’ affirmative defenses of waiver and estoppel
cannot be accomplished via a motion for summary judgment because genuine issues of material fact have
been raised regarding the same.
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C. RESERVATION OF RIGHTS LETTERS AND EVIDENCE RELATED THERETO
In their joint motion for summary judgment and in their response to the Carrier Defendants’
motion for summary judgment, the Plaintiffs raised the affirmative defenses of waiver and estoppel.
The Plaintiffs argue that the Carrier Defendants waived (or are estopped from raising) their right to
assert that the events which transpired on September 20, 2004 resulted in a single accident. As
discussed more fully below, the court concludes that the events which transpired on September 20,
2004 resulted in two accidents. As such, it is not necessary for the court to reach the Plaintiffs’
affirmative defenses of waiver and estoppel.2 Accordingly, the court overrules the Plaintiffs’
objections to Exhibits Z and CC of the Carrier Defendants’ response to the Plaintiff’s joint motion
for summary judgment as moot. Additionally, the court denies as moot all other motions related to
the affirmative defenses of waiver and estoppel.
D. SUPPLEMENTAL EVIDENCE
The Plaintiffs seek to supplement their summary judgment evidence with certain deposition
testimony which refutes the expert opinions of Dr. Young. Since the court is not considering Dr.
Young’s expert opinions, it is not necessary for the Plaintiffs to supplement their summary judgment
evidence with this additional testimony. Likewise, it is not necessary for the Carrier Defendants to
supplement said deposition testimony with additional portions of the same.
BACKGROUND
On September 20, 2004, Miroslaw Janusz Jozwiak (“Jozwiak”) was driving a tractor-trailer
rig (“tractor-trailer”) northbound on U.S. Highway 75 near Sherman, Texas. KV Express, Inc.
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(“KV”) owned the tractor while Eagle Express Lines, Inc. (“Eagle Express”) owned the trailer.
Jozwiak crossed the median on U.S. Highway 75 and collided with two vehicles traveling
southbound on U.S. Highway 75. Those two vehicles were a Ford F-150 pick-up truck (“the truck”)
and a Ford Expedition (“the Expedition”). Although it is unclear which vehicle was first impacted
by the tractor-trailer, the resolution of that issue is not relevant to the determination of the issues
currently before the court.
It is clear, however, that the tractor-trailer (apparently, the trailer portion of the rig) collided
with the truck while the truck was traveling southbound in the left lane. Of the seven individuals
traveling in the truck, five were fatally injured. The two survivors were seriously injured.
It is also clear that the tractor-trailer (apparently, the tractor portion of the rig) collided with
the Expedition while the Expedition was traveling southbound in the right lane. At some time after
impact, the Expedition and tractor, as well as a portion of the trailer, burst into flames. Five
individuals were traveling in the Expedition; none survived. Jozwiak survived with minimal
injuries.
At the time of the September 20, 2004 events, Illinois National Insurance Company provided
truckers’ liability insurance coverage to KV (the “Illinois National Policy”) under policy number
SFT165302601. The Illinois National Policy provides $1,000,000 in primary coverage for each
“accident.”
Additionally, Continental Casualty Company provided truckers’ liability insurance coverage
to Eagle Express (the “Continental Casualty Policy”) under policy number 0 1080827873. The
Continental Casualty Policy provides for $1,000,000 in coverage for each “accident.”
Finally, Lexington Insurance Company provided excess insurance coverage to Eagle Express
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3Additionally, in the event the court concludes that the September 20, 2004 events involved a
single accident / occurrence under the terms of the insurance policies, the Plaintiffs seek a declaration
that the MCS-90 endorsements contained within the primary insurance policies provide for either
$1,000,000 per judgment or, in the alternative, that the endorsements require a finding of two distinct
collisions. Since the court concludes that the plain language of the policies mandates a finding of two
accidents / occurrences, the court need not reach the issues concerning the MCS-90 endorsements.
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(the “Lexington Policy”) under policy number 3167729. The Lexington Policy provides for
$1,000,000 in coverage for each “occurrence.” In this declaratory judgment action, the parties seek
a declaration under the terms of the insurance policies as to whether the events which transpired on
September 20, 2004 involved one or two accidents / occurrences.3
LEGAL STANDARD
The purpose of summary judgment is to isolate and dispose of factually unsupported claims
or defenses. See Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). Summary judgment is proper
if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party
is entitled to a judgment as a matter of law.” FED. R. CIV. P. 56(c). 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.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The trial court must resolve all
reasonable doubts in favor of the party opposing the motion for summary judgment. Casey
Enterprises, Inc. v. American Hardware Mut. Ins. Co., 655 F.2d 598, 602 (5th Cir. 1981)(citations
omitted). The substantive law identifies which facts are material. See id. at 248.
The party moving for summary judgment has the burden to show that there is no genuine
issue of material fact and that it is entitled to judgment as a matter of law. See id. at 247. If the
movant bears the burden of proof on a claim or defense on which it is moving for summary
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judgment, it must come forward with evidence that establishes “beyond peradventure all of the
essential elements of the claim or defense.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir.
1986). But if the nonmovant bears the burden of proof, the movant may discharge its burden by
showing that there is an absence of evidence to support the nonmovant’s case. Celotex, 477 U.S.
at 323, 325; Byers v. Dallas Morning News, Inc., 209 F.3d 419, 424 (5th Cir. 2000). Once the
movant has carried its burden, the nonmovant “must set forth specific facts showing that there is a
genuine issue for trial.” FED. R. CIV. P. 56(e). The nonmovant must adduce affirmative evidence.
See Anderson, 477 U.S. at 257.
CHOICE OF LAW
In the Carrier Defendants’ motion for summary judgment, the Carrier Defendants refer the
court to both Texas law and Illinois law. The Carrier Defendants argue that this court should apply
Illinois law because, under the most significant relationship test, the insurance policies at issue were
purchased by, and issued to, the insureds in Illinois. Accordingly, the Carrier Defendants reason that
“Illinois law applies to the interpretation of the insurance policies at issue, as Illinois bears the most
significant relationship to such policies.” Def. Reply, p. 2, ¶ 2. The Carrier Defendants note,
however, that since both Illinois and Texas apply the same analysis to determine whether the events
herein involve one accident or two, the results would be the same under both states’ laws.
“‘If the laws of the states do not conflict, then no choice-of-law analysis is necessary.’”
Schneider National Transport v. Ford Motor Co., 280 F.3d 532, 536 (5th Cir. 2002), quoting W.R.
Grace and Co. v. Continental Cas. Co., 896 F.2d 865, 874 (5th Cir. 1990); National Union Fire Ins.
v. CNA Ins. Companies, 28 F.3d 29, 32, n. 3 (5th Cir. 1994). Accordingly, in this diversity suit, the
law of the forum state, Texas, should apply here because there is no conflict between the substantive
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state law of Texas and Illinois. See Schneider National Transport, 280 F.3d at 536.
DISCUSSION AND ANALYSIS
“A contract of insurance is generally subject to the same rules of construction as other
contracts.” H.E. Butt Grocery Co. v. National Union Fire Ins. Co. of Pittsburgh, PA, 150 F.3d 526,
529 (5th Cir. 1998) (citation omitted). “The court’s primary concern is to give effect to the written
expression of the parties’ intent.” Id. (citation omitted). “If the written contract is worded so that
it can be given a definite or certain legal meaning, it is not ambiguous and will be enforced as
written.” Id. (citation omitted).
“If the court is uncertain as to which of two or more meanings was intended, a provision is
ambiguous.” Id. (citation omitted). “An ambiguity in a contract is either ‘patent’ or ‘latent.’” Id.
(citation omitted). “‘A patent ambiguity is evident on the face of the contract. A latent ambiguity
arises when a contract which is unambiguous on its face is applied to the subject matter with which
it deals and an ambiguity appears by reason of some collateral matter.’” Id., quoting National Union
Fire Ins. Co. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex. 1995). “Only after a court has
determined a contract is ambiguous can it consider the parties’ interpretations.” Id. (citation
omitted). “When a contract is not ambiguous, the court will construe the contract as a matter of
law.” Id. (citation omitted).
The outcome of this case depends on the meaning of “accident” and “occurrence” as defined
by the policies herein. See H.E. Butt Grocery Co., 150 F.3d at 529. The Carrier Defendants argue
that the plain language of the polices results in a finding of one accident or occurrence. Conversely,
the Plaintiffs contend that the plain language of the policies results in a finding of two accidents or
occurrences. Alternatively, the Plaintiffs argue that the policies’ provisions are ambiguous;
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accordingly, the court should interpret the ambiguity in favor of coverage and find two accidents or
occurrences as a matter of law.
The Lexington Policy provides coverage as follows:
I. COVERAGE
A. We will pay on behalf of the Insured that portion of the loss which the
Insured will become legally obligated to pay as compensatory
damages (excluding all fines, penalties, punitive or exemplary
damages) by reason of exhaustion of all applicable underlying limits,
whether collectible or not, as specified in Section II of the
Declarations, subject to:
1. the terms and conditions of the underlying policy listed in
Section IIA of the Declarations, AND
2. our Limit of Liability as stated in Section 1C of the
Declarations.
III. LIMITS OF LIABILITY
A. Aggregate
This policy is subject to an aggregate limit of liability as stated in the
Declarations. This aggregate limit of liability is the maximum
amount which will be paid under this policy for all losses in excess
of the underlying policy limits occurring during the policy period,
except automobile liability for which there is no applicable aggregate
limit of liability.
B. Occurrence Limit
Subject to the above provision respecting aggregate, the Limit of
Liability stated in the Declarations as per occurrence is the total limit
of our liability for ultimate net loss including damages for care, loss
of services or loss of consortium because of personal injury and
property damage combined, sustained by one or more persons or
organizations as a result of any one (1) occurrence.
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C. Limit Exhaustion
This policy shall cease to apply after the applicable limits of liability
have been exhausted by payments of defense costs and / or judgments
and / or settlements.
In the event of exhaustion of the aggregate limits of liability of the
underlying insurance as stated in Section II of the Declarations, this
policy will continue in force as underlying insurance.
The aggregate limits of the underlying insurance will only be reduced
or exhausted by payment of claims that would be insured by this
policy.
Def. Jt. Mtn. for Summ. Judg., Exh. A, pp. 1-2. The Lexington Policy defines “occurrence” as
follows:
The word occurrence means an event, including continuous or repeated exposures to
conditions, neither expected or intended from the standpoint of the Insured. All such
exposure to substantially the same general conditions shall be deemed one
occurrence.
Id. at 4.
The Continental Casualty Policy and the Illinois National Policy provide coverage as follows:
SECTION II – LIABILITY COVERAGE
A. Coverage
We will pay all sums an “insured” legally must pay as damages because of
“bodily injury” or “property damage” to which this insurance applies, caused
by an “accident” and resulting from the ownership, maintenance or use of a
covered “auto”.
C. Limit Of Insurance
Regardless of the number of covered “autos”, “insureds”, premiums paid,
claims made or vehicles involved in the “accident”, the most we will pay for
the total of all damages and “covered pollution cost or expense” combined,
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4Again, the court notes that the Plaintiffs seek a finding of ambiguity only in the alternative.
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resulting from any one “accident” is the Limit of Insurance for Liability
Coverage shown in the Declarations.
All “bodily injury”, “property damage” and “covered pollution cost or
expense” resulting from continuous or repeated exposure to substantially the
same conditions will be considered as resulting from one “accident”.
Id. at Exh. B, pp. 2, 5; Exh. C, pp. 2, 5-6. The Continental Casualty Policy and the Illinois National
Policy define “accident” as follows:
“Accident” includes continuous or repeated exposure to the same conditions resulting
in “bodily injury” or “property damage”.
Id. at Exh. B, p. 10, § VI(A), Exh. C, p. 11, § VI(A).
Here, none of the parties primarily contend that the terms “accident” and “occurrence” as
defined by the policies are ambiguous.4 See U.E. Texas One-Barrington, Ltd., v. General Star
Indemnity Co., 332 F.3d 274, 277 (5th Cir. 2003). Further, the parties do not argue that the court’s
determination of the number of accidents or occurrences hinges on the resolution of a factual dispute.
See id. Accordingly, “Texas courts agree that the proper focus in interpreting ‘occurrence’ is on the
events that cause the injuries and give rise to the insured’s liability, rather than on the number of
injurious effects.” H.E. Butt Grocery Co., 150 F.3d at 530, quoting Maurice Pincoffs Co. v. St. Paul
Fire & Marine Ins. Co., 447 F.2d 204, 206 (5th Cir. 1971).
In H.E. Butt Grocery Co., an insurance coverage dispute arose from an H.E. Butt Grocery
Company’s (“HEB”) employee’s sexual abuse of two children in an HEB store. H.E. Butt Grocery
Co., 150 F.3d at 528. An HEB employee sexually assaulted two different children approximately
one week apart in the restroom of an HEB store. Id. Litigation ensued which subsequently led to
HEB seeking a declaratory judgment against National Union Fire Insurance Company. HEB argued
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that each instance of sexual abuse arose from the same “occurrence”, i.e., HEB’s negligence in
overseeing its pedophilic employee. Id. Conversely, National Union Fire Insurance Company
argued that the two separate instances of sexual abuse constituted two occurrences under the policy.
Id. The policy defined “occurrence” as follows:
“Occurrence” means an event, including continuous or repeated exposure to
conditions, which result[s] in Personal Injury or Property Damage during the policy
period, neither expected nor intended from the standpoint of the Insured. All
Personal Injury or Property Damage arising out of the continuous or repeated
exposure to substantially the same general conditions shall be considered as arising
out of one occurrence.
H.E. Butt Grocery Co., 150 F.3d at 529. The court concluded that “the two independent acts of
sexual abuse ‘caused’ the two children’s injuries and gave rise to HEB’s separate and distinct
liability in each case.” Id. at 531.
Likewise, in Maurice Pincoffs Co., supra., an insurance coverage dispute arose from the sale
of contaminated birdseed. Maurice Pincoffs Co., 447 F.2d at 205. Maurice Pincoffs Company
imported 110,000 pounds of canary seed from Argentina. Id. The birdseed was sold in the original
110 pound bags to eight different feed and grain dealers in Texas and Oklahoma. Id. The dealers,
in turn, sold the birdseed to bird owners. Id. The birdseed, apparently contaminated with a chemical
insecticide toxic to birds, killed many birds. Id. Litigation ensued which eventually led to a
declaratory judgment action. The central issue was whether there was one “occurrence” of liability
or more than one “occurrence” of liability under the insurance policy at issue. Id. at 206. The policy
defined “occurrence” as follows:
“Occurrence” means an accident, including injurious exposure to conditions, which
results, during the policy period, in bodily injury or property damage neither expected
nor intended from the standpoint of the insured.
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Id. In finding that there was more than one occurrence of liability, the court reasoned as follows:
We think that the ‘occurrence’ to which the policy must refer is the
occurrence of the events or incidents for which Pincoffs is liable. It was the sale of
the contaminated seed for which Pincoffs was liable. Although the cause of the
contamination is not clear, it seems apparent that Pincoffs received the seed in a
contaminated condition and did not itself contaminate the seed. However, it was not
the act of contamination which subjected Pincoffs to liability. If Pincoffs had
destroyed the seed before sale, for instance, there would be no occurrence at all for
which the insured would be liable. But once a sale was made there would be liability
for any resulting damages. It was the sale that created the exposure to ‘a condition
which resulted in property damage neither expected nor intended from the standpoint
of the insured,’ under the definition of the policy. And for each of the eight sales
made by Pincoffs, there was a new exposure and another occurrence.
Id.
Moreover, in Liberty Mutual Ins. Co. v. Rawls, 404 F.2d 880 (5th Cir. 1968), the single
question presented to the court was whether the insured had been involved in one accident or two
accidents. As the insured was proceeding north upon a public highway at a high rate of speed, he
collided with the left rear of a northbound automobile and knocked it off the highway to the right.
Id. The insured continued northerly, veering across the centerline and collided head-on with a
southbound automobile. Id. The impacts were separated by both time (two to five seconds) and
distance (30 to 300 feet apart). Id. In finding as a matter of law that there were two accidents, the
court reasoned as follows:
There were two distinct collisions, or more than a single sudden collision. There is
no evidence that the [insured’s] automobile went out of control after striking the rear
end of appellees’ automobile. On the contrary, the only reasonable inference is that
[the insured] had control of his vehicle after the initial collision.
Id. at 880.
Here, the Carrier Defendants argue that both the truck and the Expedition were exposed to
continuous or repeated exposure to the same condition, that is, Jozwiak crossing the median into the
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5The Carrier Defendants have provided the court with numerous newspaper articles which refer
to the events which transpired on September 20, 2004 as a single accident. The court notes, however,
that the authors of those articles were not construing the terms of the insurance policies herein.
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southbound lanes of U.S. Highway 75. The Carrier Defendants contend that the tractor-trailer
crossed into southbound traffic in one continuous event. The Carrier Defendants further argue that
the evidence does not indicate that the tractor-trailer stopped and then started again, nor does the
evidence indicate that Jozwiak lost control of the tractor-trailer and then subsequently regained
control. The Carrier Defendants apply the following reasoning:
There is no evidence showing that Jozwiak regained control between the two
collisions. In fact, as the entire accident occurred within seconds, . . ., it would have
been impossible for Jozwiak to regain control after hitting the Expedition and before
hitting the pickup truck.
Based on the distance between the cars in the southbound lanes prior to the
first collision, the rapid succession of the collisions and the absence of any evidence
showing that Jozwiak ever regained control of the tractor-trailer after the first
collision, . . ., this Court must find that there was only one accident / occurrence. . .
The collisions in this case resulted from the same cause – namely, a tractor-trailer
that struck two cars before coming to rest. Thus, under the terms of the insurance
policies at issue, there was a single accident / occurrence.
Def. Jt. Mtn. for Summ. Judg., p. 13.5
The court concludes that the Carrier Defendants’ arguments are over-reaching. First, as
likened to the facts of Maurice Pincoffs, if the tractor-trailer had crossed the median into the
southbound lanes of traffic but there were no oncoming vehicles, then the insureds would not be
subject to liability. Under the theory propounded by the court in Maurice Pincoffs, it was each
collision in the instant case that created the continuous or repeated exposure to the same, or
substantially the same, conditions, not the fact that the tractor-trailer crossed the median. Second,
it is clear that each collision occurred independently. Regardless of which collision occurred first,
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6In the Plaintiffs’ joint motion for summary judgment, the Plaintiffs raise the issue that the
Carrier Defendants appear to contend that the policy limits have been exhausted as a result of a
settlement reached with certain Plaintiffs. The court, however, denied the motion to approve that
settlement. Furthermore, the policies state that exhaustion occurs upon payment of any judgments or
settlements. Since the court has neither approved any settlements nor entered any judgments, the policy
limits have not yet been exhausted.
-19-
the collision between the tractor-trailer and the truck did not cause or affect the collision between
the tractor-trailer and the Expedition. The truck’s collision with the tractor-trailer did not cause the
truck to spin out of control into the Expedition. Likewise, the Expedition’s collision with the tractortrailer
did not cause the Expedition to spin out of control into the truck. Similarly, neither the truck’s
nor the Expedition’s collision with the tractor-trailer caused the tractor-trailer to lose control and
collide with any other vehicle. In following the teachings of H.E. Butt Grocery Co., the court must
conclude that each individual collision with the tractor-trailer created the continuous or repeated
exposure to the same, or substantially the same, conditions. See H.E. Butt Grocery Co., 150 F.3d
at 533. Finally, as in Rawls, the collisions were separated by both time and distance. All of the
foregoing leads the court to the conclusion that, as a matter of law, the events which transpired on
September 20, 2004 resulted in two separate accidents or occurrences. The court reaches this
conclusion by looking to the events that caused the injuries and gave rise to the insureds’ liability,
not to the number of injuries or the number of victims. H.E. Butt Grocery Co., 150 F.3d at 535.6
CONCLUSION
Based on the foregoing, the court concludes as follows:
1. Defendants Continental Casualty Company, Lexington Insurance Company and
Illinois National Insurance Company’s joint motion for summary judgment and brief
in support (docket entry #74) is DENIED IN PART;
2. Plaintiffs’ joint motion for summary judgment and brief in support thereof (docket
entry #’s 91 & 94) is GRANTED IN PART;
Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 19 of 20

-20-
3. Contractor Plaintiffs’ joint motion to strike exhibits from Carriers’ joint response and
supplemental motion for summary judgment (docket entry #125) is GRANTED IN
PART;
4. Defendants Continental Casualty Company, Lexington Insurance Company and
Illinois National Insurance Company’s motion for leave to supplement the record
(docket entry #135) is DENIED;
5. Contractor Plaintiffs’ motion to strike affidavits of Cline Young and Patricia
Strickland and objections thereto (docket entry #147) and Contractor Plaintiffs’ first
amended motion to strike affidavits of Cline Young and Patricia Strickland and
objections thereto (docket entry #160) are GRANTED IN PART;
6. Contractor Plaintiffs’ motion to strike affidavit of Tina Jahn and objections thereto
(docket entry #149) is DENIED AS MOOT;
7. Plaintiffs’ motion for leave to supplement the record (docket entry #156) is
DENIED;
8. Contractor Plaintiffs’ motion to strike the response of Illinois National to the joinder
of Eagle Express Lines, Inc. in part of Plaintiffs’ summary judgment motion and to
strike the affidavit of Harrison Yoss and objections thereto (docket entry #162) is
DENIED AS MOOT;
9. Illinois National’s motion to substitute the affidavit of Harrison H. Yoss in
connection with its response to the joinder of Eagle Express Lines, Inc. in part of
Plaintiffs’ summary judgment motion (docket entry #175) is DENIED AS MOOT;
10. Continental Casualty Company’s motion for leave to file affidavit of Tina Jahn
(docket entry #189) is DENIED AS MOOT;
11. Plaintiffs’ motion for leave to file supplemental summary judgment evidence in
support of motion for summary judgment and response to motion for summary
judgment (docket entry #196) is DENIED; and
12. Contractor Plaintiffs’ motion to supplement Plaintiffs’ joint motion for summary
judgment (docket entry #199) is DENIED.
Case 4:05-cv-00315-RAS Document 232 Filed 03/28/2007 Page 20 of 20

 

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 trucking defense lawyers 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 Asset Purchase Agreement and Indemnification For Injuries Caused By Fire—-Texas Civil Litigation Attorneys

Court of Appeals of Texas,Houston (1st Dist.).

 

MEMC ELECTRONIC MATERIALS, INC., and MEMC Pasadena, Inc., Appellants

v.

ALBEMARLE CORPORATION, Lexington Insurance Co., and Travelers Property Casualty Group, Appellees.

No. 01-05-00420-CV.

 

Feb. 15, 2007.

 

Justices TAFT, ALCALA, and HANKS.

 

OPINION

ELSA ALCALA, Justice.

 

Appellants, MEMC Electronic Materials and MEMC Pasadena (collectively MEMC), appeal the trial court’s order that granted a motion for partial summary judgment urged by appellees, Albemarle Corporation and its insurers, Lexington Insurance and Travelers Property Casualty Group, and that denied MEMC’s cross-motion for partial summary judgment.FN1 After Albemarle indemnified Ethyl Corporation for claims paid by Ethyl to three people who were injured in a fire at a manufacturing plant, Albemarle sought indemnification from MEMC for Albemarle’s payment to Ethyl. MEMC refused to indemnify Albemarle, contending that the Asset Purchase Agreement between MEMC and Albemarle does not require the indemnification. In a single issue on appeal that challenges the trial court’s rendition of summary judgment in favor of Albemarle, MEMC asserts three reasons that the trial court should have rendered judgment in its favor. First, MEMC contends that Albemarle’s right to obtain indemnification from MEMC under the Asset Purchase Agreement was not triggered by the claims against Ethyl because every claim for which Ethyl was held liable arose out of Ethyl’s design and operation of the plant prior to the closing date of the Asset Purchase Agreement. Second, MEMC asserts that the Ethyl Indemnity Agreement was not an obligation that it assumed under the terms of the Asset Purchase Agreement. Third, MEMC states that Albemarle’s claim for indemnity is unenforceable under Texas and Virginia law. Albemarle replies by asserting that its indemnification of Ethyl was required under Virginia law, that the indemnification provision of the Asset Purchase Agreement is not modified by any other part of the agreement, and that the indemnification’s before-and-after nature provides for the indemnification that it seeks here.FN2

 

 

FN1. The trial court granted the parties’ Joint Motion to Sever and Abate the damages portion of the case, rendering the grant of partial summary judgment a final, appealable judgment.

 

FN2. Both parties filed post-submission supplemental briefs with this Court. We allow this supplementation in accordance with Rule 38 .7 of the Texas Rules of Appellate Procedure. See Tex.R.App. P. 38.7 (“A brief may be amended or supplemented whenever justice requires, on whatever reasonable terms the court may prescribe.”)

 

Considering the entire agreement and all individual provisions in the context of the whole instrument, we conclude that the Asset Purchase Agreement does not obligate MEMC to indemnify Albemarle for its payment to Ethyl for Ethyl’s liability for injuries caused by a fire at the plant. We do not reach the issue of whether the laws of Texas and Virginia make the indemnity agreement unenforceable as matter of law. We reverse and render judgment in favor of MEMC.

 

 

Background

 

Ethyl designed and built a polysilicon manufacturing plant located in Pasadena, Texas. In 1994, Ethyl created Albemarle as a separate company and transferred various of its businesses, including the plant, to Albemarle’s ownership and control. The transfer was under a “Reorganization and Distribution Agreement.” Ethyl and Albemarle also entered into an “Indemnification Agreement,” under which Albemarle agreed to “indemnify, defend and hold harmless Ethyl … from and against any and all Indemnifiable Losses of the Ethyl Indemnitees arising out of or due to the failure or alleged failure of Albemarle or any of its Affiliates to pay, perform, or otherwise discharge in due course any of the Albemarle Liabilities.” The agreements between Ethyl and Albemarle are governed by the laws of the state of Virginia.

 

In 1995, Albemarle sold the plant to MEMC pursuant to an “Asset Purchase Agreement” that is governed by Texas law. The closing date for the agreement was July 31, 1995. Under a separate agreement, MEMC and Albemarle agreed that Albemarle would continue to operate the plant.

 

The Asset Purchase Agreement describes the transfer of the plant and other assets and liabilities in Sections 3.3 and 3.4. Some assets and liabilities were specifically excluded from the transfer, and only certain liabilities were assumed by MEMC. Section 3.4(b) specifies that MEMC “shall not assume any other Liabilities of Seller whatsoever” except “those Liabilities specifically assumed” in Section 3.4(a). Section 3.4(a) does not mention the agreement between Ethyl and Albemarle, nor was that agreement a contract that was assumed by MEMC in the accompanying Schedule 3.4(a)(i). The agreement further specified that MEMC did not assume any liability that results or arises from the operation of the plant prior to the closing date.

 

Albemarle made certain representations and warranties to MEMC. Under Section 4.16, labeled “Contracts and Commitments,” Albemarle represented that, except as set forth in Schedule 4.16, it was “not a party to” and the transferred assets “are not bound by” and the Assumed Obligations “shall not include, any written or oral, formal or informal … agreements between or among Seller and any Affiliate of Seller ….“ Schedule 4.16 did not mention the indemnity agreement between Ethyl and Albemarle.

 

The Asset Purchase Agreement between Albemarle and MEMC included an indemnity provision. Generally speaking, depending on whether the damages arose out of the operation of the plant “prior to the closing date” or “on or after the closing date,” MEMC would indemnify Albemarle for the damages, or Albemarle would indemnify MEMC for the damages. In Section 7.3, Albemarle agreed to indemnify MEMC from and against all damages incurred by MEMC directly or indirectly by reason of or resulting from liabilities, obligations or claims, with respect to the plant arising out of operations of the plant prior to the Closing Date. Similarly, Section 7.4 provided that MEMC would indemnify Albemarle from and against all damages asserted against, resulting to, imposed upon or incurred by Albemarle, directly or indirectly by reason of or resulting from liabilities, obligations or claims with respect to the plant arising out of the operations of the plant on or after the Closing Date.

 

In 1996, three Albemarle employees were injured when a fire broke out at the plant. The employees, collectively referred to as the the Damewood plaintiffs, filed a lawsuit against a number of parties, including Ethyl and MEMC.FN3 Albemarle, which carried worker’s compensation coverage, was not subject to suit. MEMC settled with the Damewood plaintiffs. Of the parties relevant to the present case, only Ethyl went to trial in the underlying litigation. Pursuant to the agreement between Ethyl and Albemarle, Albemarle defended Ethyl in the Damewood litigation. At the close of the trial, Ethyl was the only remaining defendant, and a jury rendered a verdict in excess of six-and-a-half million dollars against Ethyl. Ethyl appealed, and while the appeal was pending, it settled with the Damewood plaintiffs for approximately five million dollars. Ethyl sought indemnification from Albemarle under the terms of their agreement. Albemarle indemnified Ethyl for its losses, which is the amount that Albemarle now seeks from MEMC in this lawsuit.

 

 

FN3. Larry Damewood, Gary Woodard, and Roy Moss v. Ethyl Corporation, Cause No. 96-38521, in the 189th District Court of Harris County, Texas.

 

MEMC filed for summary judgment, which was denied. Albemarle then filed a motion for partial summary judgment on the issue of whether MEMC was obligated to indemnify Albemarle, and MEMC re-urged its motion as a cross-motion for partial summary judgment. The trial court ruled in Albemarle’s favor. The trial court severed the summary judgment order and abated the question of damages so the parties could bring the present appeal.

 

 

Standard of Review

 

When reviewing cross-motions for summary judgment, we consider both motions and render the judgment that the trial court should have entered. Coastal Liquids Transp., L.P. v. Harris County Appraisal Dist., 46 S.W.3d 880, 884 (Tex.2001). Further, in a contract action where, as here, neither party contends that a contract is ambiguous, a court should construe the contract as a matter of law, and, on appeal, the court’s ruling is subject to de novo review. See J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229 (Tex.2003) (citing Coker v. Coker, 650 S.W.2d 391, 394 (Tex.1983)) (applying rule to arbitration agreement); C.M. Asfahl Agency v. Tensor, Inc., 135 S.W.3d 768, 780 (Tex.App.-Houston [1st Dist.] 2004, no pet.) (interpreting asset purchase agreement); Tesoro Petroleum Corp. v. Nabors Drilling USA, Inc., 106 S.W.3d 118, 125 (Tex.App.-Houston [1st Dist.] 2002, pet. denied) (interpreting indemnity agreement); Webb v. Lawson-Avila Constr., Inc., 911 S.W.2d 457, 459-60 (Tex.App.-San Antonio 1995, writ dism’d w.o.j.).

 

“An indemnity agreement is a promise to safeguard or hold the indemnitee harmless against either existing and/or future loss liability.” Dresser Indus., Inc. v. Page Petroleum, Inc., 853 S.W.2d 505, 508 (Tex.1993). Indemnity provisions are to be strictly construed, pursuant to the usual principles of contract interpretation, in order to give effect to the parties’ intent as expressed in the agreement. See Ideal Lease Serv., Inc. v. Amoco Prod. Co., 662 S.W.2d 951, 953 (Tex.1984). In construing a written contract, the court’s primary concern is to ascertain the true intent of the parties as expressed in the instrument. J.M. Davidson, Inc., 128 S.W.3d at 229; see C.M. Asfahl Agency, 135 S.W.3d at 780. Accordingly, the court must examine and consider the entire writing in an effort to harmonize and give effect to all provisions so that none is rendered meaningless. J.M. Davidson, Inc., 128 S.W.3d at 229. The court may not consider any single provision, taken in isolation, as controlling, but must consider all provisions in the context of the entire instrument. Id.

 

 

Obligations Assumed by MEMC Under the Agreement

 

MEMC contends that, in its Asset Purchase Agreement with Albemarle, it did not assume an obligation for the indemnity agreement between Ethyl and Albermarle. MEMC contends that Sections 3.4, 4.16 and 3.3(b) exclude the agreement between Albemarle and Ethyl from the agreement between Albemarle and MEMC. Albemarle does not dispute that the agreement between Ethyl and Albemarle is never mentioned specifically in the agreement between Albemarle and MEMC. Albemarle, however, asserts that it is entitled to indemnification from MEMC under Section 7.4, the section of the agreement that pertains to indemnification.

 

 

  1. MEMC Does Not Assume Obligation for Ethyl-Albemarle Agreement

 

MEMC points to Section 3.4 of the Asset Purchase Agreement to show that it did not assume any obligation for the indemnity agreement between Ethyl and Albermarle. As noted above, Albemarle does not dispute that Section 3.4 does not mention the agreement between Ethyl and Albemarle.

 

 

  1. Section 3.4(a)

 

The Asset Purchase Agreement describes the transferred business and transferred assets. Section 3.4(a) specifically describes “Assumed Obligations.” These are obligations, assumed by MEMC, of liabilities that belong to Albemarle. The only obligations that are assumed by MEMC are those that are listed in Schedule 3.4(a)(i), the “Assumed Contracts[.]” FN4 The agreement between Ethyl and Albemarle was not listed in Schedule 3.4(a)(i) as a contract that was assumed by MEMC. Moreover, the agreement between Albemarle and MEMC specifically provided that MEMC would “assume no liabilities relating to the Assumed Contracts which result or arise from operation of the Transferred Business or the Transferred Assets prior to the Closing Date.” MEMC thus correctly points out that Section 3.4(a) provides that MEMC is assuming an obligation for only the liabilities of Albemarle that “are listed in Schedule 3.4(a)(i) [,]” and that the agreement between Ethyl and Albermarle is not listed in that Schedule. We agree with MEMC’s representation that under Section 3.4(a), it has not assumed liability for the agreement between Ethyl and Albemarle.

 

 

FN4. The Asset Purchase Agreement states,

Section 3.4 Assumptions by MEMC Pasadena

(a) Liabilities Being Assumed. Except as otherwise expressly provided herein and subject to the terms and conditions of the Agreement, simultaneously with the sale, transfer, conveyance and assignment to MEMC Pasadena of the Transferred Assets, MEMC Pasadena shall assume and agree and undertake in writing to pay, perform, and discharge as and when due … the following Liabilities of Seller (collectively, “Assumed Obligations” ):

(i) those Liabilities of Seller under all contracts, leases, subleases, commitments, supply contracts, agreements and orders relating primarily to the operation of the Transferred Business or the Transferred Assets, but in all such cases only to the extent the same are listed in Schedule 3.4(a)(i) attached hereto (the “Assumed Contracts” ) provided, however, that MEMC Pasadena shall assume no liabilities relating to the Assumed Contracts which result or arise from operation of the Transferred Business or the Transferred Assets prior to the Closing Date ….

 

  1. Section 3.4(b)

 

The Asset Purchase Agreement specifies under Section 3.4(b) that liabilities of Albermarle are not being assumed by MEMC. The only exception is that MEMC is assuming liability for items listed in Schedule 3.4(a)(i), which is the schedule included within 3.4(a). Section 3.4(b) states that MEMC “shall not assume any other Liabilities” of Albemarle, unless the liability is “specifically assumed in writing” under Section 3.4(a). The agreement between Albemarle and Ethyl is not listed in Schedule 3.4(a)(i) and is therefore excluded from the obligations assumed by MEMC. MEMC thus accurately represents that under Section 3.4(b), it has not assumed liability for the agreement between Ethyl and Albemarle.FN5

 

 

FN5. Section 3.4(b) of the Asset Purchase Agreement states,

(b) Liabilities Not Being Assumed. Except for those Liabilities specifically assumed in writing by MEMC Pasadena pursuant to Section 3.4(a) hereof, MEMC Pasadena shall not assume any other Liabilities of Seller whatsoever such as (by way of example and without limitation of the scope of the preceding portion of this sentence), the following (collectively, “Excluded Obligations” ).

(i) any Liabilities of Seller (other than Assumed Obligations) of any nature whatsoever (regardless of whether the existence of such Liability (A) is or was at any time known or unknown to MEMC Pasadena, MEMC or Seller or (B) constitutes or does not constitute a breach of any representation or warranty of Seller to MEMC or MEMC Pasadena) to the extent arising or incurred or which arose or were incurred on or before the Closing, or which are based on (1) events occurring on or before the Closing, or (2) the operation of the Transferred Business on or before the Closing, notwithstanding that the date on which the claim, demand or Liability arose is after the Closing …

 

In summary, Sections 3.4(a) and (b) provide that MEMC is not assuming obligation for liabilities of Albemarle that are not specifically set forth in Schedule 3.4(a). The agreement between Ethyl and Albemarle is not mentioned in Schedule 3.4(a). We conclude that Section 3.4 of the agreement does not provide for MEMC to assume obligation for the indemnity agreement between Ethyl and Albermarle. Our task, however, is not merely to examine a single provision of the agreement, but to look at all the provisions in the context of the entire instrument in an effort to harmonize and give effect to all provisions so that none is rendered meaningless. See J.M. Davidson, Inc., 128 S.W.3d at 229.

 

 

  1. Albemarle Did Not Disclose Ethyl-Albermarle Agreement

 

MEMC contends that the failure of Albemarle to disclose the existence of the indemnity agreement between Ethyl and Albemarle shows that there was never any obligation by MEMC for that agreement. Albemarle makes representations and warranties to MEMC in the Asset Purchase Agreement. Under Section 4.16(a)(x) of the Asset Purchase Agreement, Albemarle represents that it is not “a party to” and is “not bound by” any “agreements between or among” Albemarle and any “Affiliate.” The indemnification agreement between Ethyl and Albemarle showed that Albemarle was Ethyl’s “wholly-owned subsidiary[,]” which meets the definition of affiliate in the agreement between Albemarle and MEMC.FN6 Further, Section 4.16(xiii) includes Albemarle’s representation that it is not “a party to” and is “not bound by … any other agreement, contract, commitment, arrangement or instrument that relate[s] to or may affect the plant.” FN7 The only exception to these provisions concerns agreements listed in schedules accompanying the Asset Purchase Agreement. As noted above, the indemnity agreement between Ethyl and Albemarle was never disclosed in any schedule, nor was it ever mentioned in the Asset Purchase Agreement. We conclude that Section 4.16 called for Albemarle to disclose contract and commitments that “relate to or may affect” the plant, but Albemarle did not disclose its indemnity agreement with Ethyl. We also conclude that Albemarle failed to disclose in Section 4.16 the indemnity agreement it had with its affiliate, Ethyl. Albemarle’s failure to disclose its indemnity agreement with Ethyl suggests that MEMC was not aware of that agreement and did not obligate itself to cover any liability imposed under that agreement. We conclude that terms of Section 4.16 support MEMC’s position that it is not obligated for the indemnity agreement between Albemarle and Ethyl.

 

 

FN6. “Affiliate” is defined in the agreement as “in the case of an entity, any person who or which, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, any specified Person (the term “control” for these purposes means the ability, whether by ownership of shares or other equity interest, by contract or otherwise, to elect a majority of the directors of a corporation … or have the power to remove and then select, a majority of those Persons exercising governing authority over an entity).”

 

FN7. The Asset Purchase Agreement states,

Section 4.16 Contracts and Commitments

(a) Except as set forth in Schedule 4.16 or in other Schedules to this Agreement hereof, to Seller’s knowledge, Seller is not, with respect to the Transferred Business or the Transferred Assets, a party to, and the Transferred Assets and the Transferred Business are not bound by, and the Assumed Obligations shall not include, any written or oral, formal or informal …

[the section lists a number of possible contractual obligations]

(x) agreements between or among Seller and any Affiliate of Seller;

(xiii)any other agreement, contract, commitment, arrangement or instrument that relate to or may affect the Transferred Business, except for the Assumed Contracts.

 

In view of Sections 3.4 and 4.16 of the Asset Purchase Agreement, we conclude that those sections suggest that MEMC was not obligated to indemnify Albemarle for the payment that it made to Ethyl.FN8

 

 

FN8. We disagree with MEMC that Section 3.3(b) supports its position that it is not obligated to Albemarle here, because we conclude that the section is inapplicable. Section 3.3(b) states that Albemarle continues to have responsibility for certain assets, including “(v) all indemnification rights against and indemnification agreements with other parties arising out of the Transferred Business or the Transferred Assets prior to the Closing Date.” The indemnity agreement between Ethyl and Albemarle is not an asset of Albemarle’s, but is rather a liability, and that Section, therefore, does not aid in our analysis of the issues here.

 

The Indemnification Portion of the Agreement

 

Albemarle contends that the indemnification terms specified by Section 7.4 of the agreement require MEMC to indemnify Albemarle, and that under the rules of contract construction, we must favor an interpretation that affords some consequence to each part of the instrument so that none of its provisions will be rendered meaningless. Albemarle contends Section 7.4(a) requires MEMC to indemnify it for its obligation to Ethyl so long as that obligation FN9 (1) is with respect to the transferred business,FN10 and (2) arose out of the operation of the transferred business, (3) on or after the closing date.

 

 

FN9. MEMC does not challenge Albemarle’s assertion that it met the term “Liabilities, Obligations or Claims” because the lawsuit arising out of the January 1996 fire would qualify as an obligation, claim, or liability. The Asset Purchase Agreement defines Liabilities as: “any and all debts, claims, liabilities and obligations of any kind, regardless of whether disclosure thereof would be required to be made in accordance with [Generally Accepted Accounting Principles], whether accrued or fixed, absolute or contingent or determined or determinable.”

 

FN10. Albemarle contends that it is undisputed that the Damewood plaintiffs were injured while performing polysilicon manufacturing operations for the Pasadena business, and thus the injuries were “with respect to the Transferred Business.” The agreement between Albemarle and MEMC defines “Transferred Business” as “all of the business of Seller related to the manufacture of granular polysilicon, silane, sodium aluminum fluoride, and sodium ethyl silicate at the manufacturing facilities of Seller located in Pasadena, Texas, but specifically excluding Seller’s sodium aluminum hydride business[.]”

 

MEMC’s challenge on appeal focuses on the term “arising out of the operations of the Transferred Business … on or after the Closing Date.” MEMC contends that the undisputed evidence shows that Albemarle’s payment to Ethyl was due to the agreement between them, which occurred prior to the Closing Date of the Asset Purchase Agreement between Albemarle and Ethyl, and that the payment did not arise out of the operations of the plant on or after the Closing Date. In short, the tort claims by the Damewood plaintiffs are not the legal basis for Albemarle’s indemnity claim here. MEMC also asserts that the undisputed summary judgment record indicates that every claim for which Ethyl was held liable arose out of Ethyl’s design and operation of the plant prior to the closing date of the Asset Purchase Agreement.

 

Albemarle responds that we should rely on the specific indemnity provision in Section 7.4(a) of the Asset Purchase Agreement, despite the fact that the Asset Purchase Agreement fails to mention the indemnity agreement between Ethyl and Albemarle. Albemarle contends that “Resolution of the meaning of the term ‘arising out of’ is, perhaps, the central and controlling issue presented to this Court.” Albemarle asserts that it is asking this Court to give “arising out of” the “normal inclusive” reading that “reasonable mutual indemnitors would have accorded the phrase.”

 

Under Section 7.4(a) of the Asset Purchase Agreement, MEMC must indemnify Albemarle for all damages asserted against, resulting to, imposed upon or incurred by Albemarle directly or indirectly by reason of or resulting from liabilities, obligations or claims with respect to the plant arising out of the operations of the plant on or after the Closing Date.FN11 The Damewood plaintiffs were injured after the Closing Date of the Asset Purchase Agreement and there is no dispute that those injuries arose out of the operations of the plant. The damages at issue here, however, consist of the payment made by Albemarle to Ethyl pursuant to their indemnity agreement, which was an agreement in existence before the Closing Date of the Asset Purchase Agreement. We conclude that the payment made to indemnify Ethyl was not a liability, obligation or claim arising out of the operations of the plant, but rather a payment that arose out of the prior contractual relationship between Albemarle and Ethyl.

 

 

FN11. Section 7.4 of the Asset Purchase Agreement provides that MEMC will indemnify Albemarle under certain circumstances. The agreement states,

Section 7.4 MEMC’s and MEMC Pasadena’s Agreement to Indemnify. Subject to the terms and conditions of this Article 7, MEMC and MEMC Pasadena jointly and severally agree to indemnify, defend and hold harmless Seller from and against all Damages asserted against, resulting to, imposed upon or incurred by Seller, directly or indirectly (collectively, “Seller Claims” ), by reason of or resulting from:

(a) without prejudice to any obligations of Seller under the Operating Agreement or the Utilities and Services Agreement, liabilities, obligations or claims with respect to the Transferred Business or the Transferred Assets (whether absolute, accrued, contingent or otherwise) arising out of the operations of the Transferred Business or the Transferred Assets (including the Facility and the Facility Site) on or after the Closing Date;

(b) liabilities with respect to the Assumed Obligations and the Assumed Contracts;

(c) a breach of any representation, warranty or agreement of MEMC or MEMC Pasadena contained in or made pursuant to this Agreement ….

 

We disagree with the assertion by Albemarle that we will render Section 7.4(a) meaningless if we interpret the Asset Purchase Agreement to deny recovery here. The Asset Purchase Agreement plainly provides for MEMC to indemnify for damages arising out of the operations of the plant on or after the Closing Date. That indemnity agreement remains in place for any liabilities, obligations or claims that arise out of the operations of the plant on or after the closing date. Our holding merely denies recovery for any Albemarle liabilities, obligations or claims that arise out of unidentified, contractual obligations in existence prior to the Closing Date that were not specifically mentioned by the Asset Purchase Agreement with MEMC.FN12

 

 

FN12. In its most recent supplemental brief, Albemarle contends that the language in Section 7.4. which states that the section is “[s]ubject to the terms and conditions of this Article 7 ” requires us to read Section 7.4 independently of Articles 3 and 4. To the contrary, we note that the term “subject to the terms and conditions” appears throughout the agreement, and nowhere requires any section to be read in isolation. We also note that Section 7.1 expressly incorporates all other agreements between the parties into Article 7:

All representations, warranties and agreements made by any party to this Agreement or pursuant hereto shall be true, complete, and correct as of the date hereof and at and as of the Closing Date as though such representations, warranties, covenants and agreements were made at and as of the closing date.

 

Viewing the indemnity provision in context with the agreement as a whole, our conclusion is consistent with the other sections of the agreement. As we noted above, Section 3.4 of the agreement does not provide for MEMC to assume an obligation for the indemnity agreement between Albemarle and Ethyl. Additionally, Albemarle’s failure to disclose the agreement under Section 4.16, suggests that MEMC was not aware of the agreement. We further noted that Section 4.16(a)(x) suggests that MEMC is not obligated to Albemarle for its payment to Ethyl because it is a “wholly-owned subsidiary” of Ethyl, which would qualify as an “Affiliate of Seller” under the Asset Purchase Agreement.

 

Albemarle refers us to decisions that interpret “arising out of” language to require only a causal nexus between the action and the result. For its broad interpretation, Albemarle calls this court’s attention to a number of cases construing insurance contracts. See Mid-Century Ins. Co. of Tex. v. Lindsey, 997 S.W .2d 153, 156 (Tex.1999); Utica Nat’l Ins. Co. v. Am. Indem. Co., 141 S.W.3d 198, 203 (Tex.2004); McCarthy Bros. Co. v. Cont’l Lloyds Ins. Co., 7 S.W.3d 725, 730 (Tex.App.-Austin 1999, no pet.); Gen. Agents Ins. Co. v. Arredondo, 52. S.W.3d 762, 767 (Tex.App.-San Antonio 2001, pet. denied); Sport Supply Group, Inc. v. Columbia Cas. Co., 335 F.3d 453, 458 (5th Cir.2003). In interpreting an insurance policy, when that policy “is subject to more than one reasonable interpretation, we must adopt the construction most favorable to the insured when we resolve the uncertainty.” State Farm Fire & Cas. Co. v. Vaughan, 968 S.W.2d 931, 933 (Tex.1998). Albemarle presents no authority that requires us to interpret the terms of contractual indemnity in a commercial setting-terms which neither party contends are subject to multiple reasonable interpretations-to favor the indemnitee.

 

MEMC relies on an unpublished decision from this Court in Union Tex. Petroleum Energy Corp. v. Kelly Operating Co., No. 01-96-00346-CV, 1997 WL 476322 (Tex.App.-Houston [1st Dist.] Aug. 21, 1997, no pet.) (not designated for publication). In August 1990, four men were injured by a well and sued Union Texas for negligent dredging of an oil well extension canal that occurred in 1975. Id. at *1. Kelly refused to indemnify Union Texas under their May 1990 agreement that provided that Kelly would discharge all obligations arising out of the purchased property with respect to all occurrences on or after the Effective Date of the agreement. Id. This Court held that the agreement that provided for indemnity after May 1990 did not apply because the negligent conduct-the 1975 dredging of the oil well-occurred prior to the effective date of the agreement. Id. at *3. Here, similarly, the liability, obligation or claim arises from the contractual relationship between Albemarle and Ethyl, which occurred before the Closing Date of the Asset Purchase Agreement. See id.

 

Examining the entire writing in order to give effect to the intent of the parties as expressed in the agreement, and in order to render no clause meaningless, we conclude that the Asset Purchase Agreement does not obligate MEMC to indemnify Albemarle for the payment to Ethyl under the agreement between Albemarle and Ethyl. The trial court therefore erred by granting partial summary judgment for Albmarle, and also erred by failing to grant partial summary judgment in favor of MEMC.

 

 

Conclusion

 

We reverse and render judgment for MEMC.

 

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]