In Weeks Marine, Inc. v. Standard Concrete Products, Inc., 737 F.3d 365 (2013),theU.S. Fifth Circuit Court of Appeals addressed issues relating to indemnity agreements and the scope of the duty to defend. The court discussed the applicability of the “eight corners” rule, and concluded that there was no duty to indemnify where “the same reasons that negate the duty to defend likewise negate any possibility that the [indemnitor] will ever have a duty to indemnify”.
The court reviewed an Agreement, stating that the requirement under Texas law obligating the subcontractor to indemnify the general contractor only with respect to claims related to workmanship of the subcontractor’s product did not require the subcontractor to defend the general contractor in the underlying action brought by an employee of the subcontractor under the circumstances of this case. Here, the action attributed the accident to the construction process used by the employee and his crew and, alternatively, the action alleged defects in certain steel modules that were a component that subcontractor used to make its product, but were not the subcontractor’s product itself.
The court stated that, unlike the duty to defend, the duty to indemnify “is triggered by the actual facts that establish liability in the underlying lawsuit.” Guar. Nat’l Ins. Co., 211 F.3d at 243. As a result, the court may consider facts outside of those alleged in the complaint to determine the scope of the duty to indemnify. Gilbane Bldg. Co., 664 F.3d at 594.
Under Texas law, the duties to defend and indemnify “are distinct and separate duties” and “enjoy a degree of independence from each other.” D.R. Horton–
Texas, Ltd. v. Markel Int’l Ins. Co., 300 S.W.3d 740, 743–44 (Tex.2009). The “duty to defend” is the broader of the two. Northfield Ins. Co. v. Loving Home Care, Inc., 363 F.3d 523, 528 (5th Cir.2004).
The duty to defend is “circumscribed by the eight-corners doctrine,” so that it is determined solely by the language of the indemnity provision and the allegations in the third-party pleadings. Gilbane Bldg. Co. v. Admiral Ins. Co., 664 F.3d 589, 594 (5th Cir.2011). Moreover, the court must review the third-party pleadings “without regard to the truth or falsity of those allegations.” GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305, 308 (Tex.2006). The duty to indemnify, by contrast, “is triggered by the actual facts that establish liability in the underlying lawsuit.” Guar. Nat’l Ins. Co. v. Azrock Indus. Inc., 211 F.3d 239, 243 (5th Cir.2000).
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.
An issue that has received a great deal of attention over the past few years is whether punitive/exemplary damage awards can be covered by insurance policies under Texas law.
Texas is not one of the eight states which expressly prohibit insurance coverage for exemplary damages. The Texas Supreme Court sets forth a method of analysis which calls for an examination of the insurance policy first. If it is determined that the policy provides coverage for exemplary damages, a determination must be made whether the public policy of Texas allows or prohibits coverage in the circumstances of the underlying suit. Fairfield Ins. Co. v Stephens Martins Paving, 246 S.W.3d 653 (Tex. 2008). The Fairfield matter involved a worker’s compensation policy (which provided both worker’s compensation insurance and employer’s liability insurance) which was approved by the Texas Department of Insurance. The policy in question in the Stephens Martins matter included “all sums” language in the employer’s liability portion of the policy, and the Court points to this as indicative of the Legislature’s intent not to prohibit coverage for claims based on gross negligence (the policy also had language explicitly excluding coverage for intentional acts).
In an extensive survey of the law nationwide, the Texas Supreme Court summarized the public policy of practically every jurisdiction that has addressed the insurability of punitive damages, finding that 45 states’ highest courts or legislatures have spoken to the issue. Of those jurisdictions:
25 states have generally indicated their public policy does not prohibit coverage for punitive damages;
Eight states prohibit coverage for exemplary damages;
Seven states permit coverage for such damages, but only when the insured’s liability is vicarious;
Three states allow insurance coverage of punitive damages in the uninsured motorist context but have not addressed the issue under other circumstances; and
Two states prohibit insurance coverage of punitive damages in the context of uninsured motorists but have not addressed the issue with respect to other forms of coverage.
Of the five remaining jurisdictions, four of them (which until Stephens Martin included Texas) have yet to address the insurability of punitive damages, and one state (Nebraska) prohibits the imposition of punitive damages.
In Stephens Martin, the Texas Supreme Court observed that in light of the foregoing statistics, “the majority of states that have considered whether public policy prohibits insurance coverage of exemplary damages for gross negligence, either by legislation or under the common law, have decided that it does not.”
Given insurers’ ability to exercise freedom of contract by expressly excluding punitive damages, agents should certainly carefully scrutinize liability policies for such exclusions, particularly if their clients have expressed an interest in procuring such coverage, or are in parts of the State where punitive damages are commonly awarded. Employers should verify with their insurance agent exactly what is covered, and excluded, with regard to exemplary damages.
Previous Texas cases had reached varying results as to the insurability of punitive damages. For example, in The Philadelphia Indemnity Insurance Company v. Stebbins Five Companies, No. 3:02-CV-1279-M, 2004 U.S. Dist. LEXIS 6374 (N.D. Tex. Jan. 27, 2004), the United States District Court for the Northern District of Texas held that punitive damages are covered under Commercial General Liability (“CGL”) and Professional Liability policies. The court used a two-prong test to find that punitive damages are covered. First, the court asked whether the policy’s terms provided for, and failed to exclude coverage of, punitive damages. Second, the court inquired whether Texas public policy prohibits coverage for punitive damage awards. As to the first inquiry, the court concluded that because the policy’s terms failed to expressly exclude punitive damages, and the insuring clause provided coverage of “all sums” or “those sums” “that the insured becomes legally obligated to pay,” the liability policy was broad enough to encompass punitive damages. Similarly, the court held that a finding of malice and a determination of grossly negligent conduct against the insured in the underlying case does not automatically trigger the intentional or expected injury exclusion. As to the second inquiry, the court determined that insuring punitive damages was not contrary to the public policy of Texas.
On the other hand, in Comsys Information Technology Services, Inc. v. Twin City Fire Insurance Company, 130 S.W.3d 181 (Tex. App. – Houston [14th Dist.] 2003, pet. denied), the Houston Appeals Court determined that punitive damages were excluded from an Excess Temporary Employment Contractors Errors or Omissions Liability Policy. The relevant portions of the policy excluded coverage for:
a. Intentional acts, errors or omissions by or at the direction of the insured.
. . .
b. Any injury or damage arising out of willful, dishonest, fraudulent, criminal or malicious acts, errors or omissions by or at the direction of the insured.
The court determined that because the policy excluded intentional acts, damages for actions committed with malice were excluded under section I.2.a of the policy, and that punitive damages supported by a finding of malice were excluded by section I.2.c. The court also concluded coverage for DTPA violations was similarly excluded as dishonest, fraudulent, or criminal acts under Section I.2.c of the policy.
This Supreme Court decision in Fairfield Ins. Co. v Stephens Martins Paving has substantial impact for nonsubscriber employers with insurance. For example, one employer’s liability plan obtained by one of our Texas nonsubscriber employer clients provides for coverage for “Bodily Injury Damages” which includes “all reasonable amounts paid to obtain a release of liability, settle a claim or pay a judgment based on an action for workplace injury brought against you by an employee.” The policy also excludes coverage for intentional acts. This language is similar to or virtually the same as much of the policy language we see.
Texas courts tend to interpret such a policy to include coverage for gross negligence including any exemplary damages which could be assessed. If you are a nonsubscriber Texas employer and would like us to take a look at your non-subscriber insurance policy, it would probably be useful to your risk management and risk forecasting model for us to do so.
If in our preliminary determination, if we conclude that coverage for exemplary damages is available under the policy, we would then proceed to an analysis of the facts and circumstances in a specific case, on a case by case basis, to determine whether provision of coverage in each particular instance would run afoul of public policy concerns, which will be an important consideration in determining the likelihood of punitive damages coverage. We will be pleased to discuss with you any matters which have prompted concern regarding potential exposure for punitive damages, in order that we may help you complete your nonsubscriber company’s risk management analysis.
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 nonsubscriber 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.
In McAteer v. Silverleaf Resorts, Inc., 514 F.3d 411 (5th Cir. 2008) the United States Court of Appeals, 5th Circuit , rejected arguments by a Nonsubscriber to Texas workers’ compensation that the Employee Retirement Income Security Act (ERISA) preempts state law on the issue of liability in a negligence claim.
The Plaintiff in that case alleged that she suffered a job-related injury when she tripped over a parking block while using a landscape trimmer in July 2005. She fell on her back and was later diagnosed with a herniated disc that required surgery. She allegedly did not report the on the job injury to her employer and left employment with the company in August 2005. She did not notify the employer of the injury until September 2005, some two months after the alleged injury.
The Plaintiff’s claim was denied by her employer. The reasons offered by the employer for the denial included the following: because she did not report the injury in a timely manner, because did not she seek advance approval for her medical treatment and because she did not use a plan-approved medical provider.
Plaintiff filed suit against her employer in Texas state court alleging that the employer’s failure to provide a safe place to work caused her injuries. Her employer was a Nonsubscriber under Texas workers’ compensation law. The employer removed the suit to federal court asserting that federal subject matter jurisdiction existed because ERISA preempted Plaintiff’s causes of action. Plaintiff filed a motion to remand. Plaintiff put forth the argument that ERISA did not preempt her causes of action because she was alleging state law negligence claims only.
The district court ruled that ERISA barred Plaintiff’s injury claims and dismissed her case.
On appeal, the U.S. Circuit Judge’s opinion stated that state law negligence claims for failing to maintain a safe workplace are independent of ERISA.
In the court’s opinion, the judge stated that Plaintiff’s claim under Texas law was preserved despite the fact that she added an ERISA claim to her action after it was dismissed by the district court. The judge ruled that Plaintiff’s “state law negligence claims in this case are not pre-empted by ERISA and must be remanded,” and that “she did not make her argument moot by adding an ERISA claim,” thereby reversing and remanding the district court decision.
The long range impact of McAteer will likelyinclude keeping nonsubscriber cases in Texas, based in allegations of negligence, largely within the purview of our Texas state courts.
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 nonsubscriber 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.
The “venue” of a lawsuit can potentially have a significant impact on insurance and business litigation. Venue is simply concerned with the proper place (which county) to litigate the lawsuit. In Texas state courts, the proper venue can be established in more than one county based on rules regarding venue. Typically, the plaintiff chooses where to file the lawsuit initially, but a defendant might have reasons to transfer the lawsuit to another venue. In some situations, the convenience of the parties might dictate that venue is proper in one particular county. There may also be a strategic advantage in transferring a lawsuit to another venue because some venues are more favorable to a defendant than others. Texas lays out three rules for determining venue: general venue rules, permissive venue rules, and mandatory venue rules. The mandatory venue rules override the general rules in certain suits while the permissive rules provide more venue options than the general rules.
Unless a mandatory or permissive provision applies, the general rules say that a lawsuit should be brought in either the county in which “all or a substantial part or part of the events or omissions giving rise to the claim occurred,” or the county in which the defendant resides (if the defendant is a “natural born person”), or in the county of the defendant’s principal office in Texas, if the defendant is not a natural person. If none of the options are available, however, a plaintiff may file his suit in the county where he resided when the loss occurred. Thus, there are potentially four different counties where a plaintiff can file his lawsuit under Texas’s general venue rule.
Texas affords more flexibility in venue options to a defendant in certain circumstances through its permissive venue rules. The permissive venue rules allow some defendants the choice of being sued in a particular county. Some examples of permissive provisions include: (i) suits involving property coverages disputes against insurance carriers; (ii) suits against an estate; and (iii) suits alleging breach of warranty by a manufacturer of consumer goods.
Under the mandatory venue rules, there is only one place where a lawsuit can be filed. The Texas Codes provide several mandatory venue provisions. Some examples of lawsuits that have mandatory venue provisions include: (i) suits involving uninsured or underinsured motorist coverage; (ii) suits reviewing a workers’ compensation decision; and (iii) suits for the recovery of damages to real property.
A motion to transfer venue is the most common way to obtain a proper or more favorable venue but the timing is critical when moving to transfer venue. A defendant must file its motion before its answer or risk waiving its venue challenge.
If you need help navigating the intricacies of the Texas venue rules, contact Williams, Lacy, McClure & Parmelee. With over 90 years of combined experience, Williams, Lacy, McClure & Parmelee is prepared to discuss the options available to you.
James L. Williams, Jr.
Williams, Lacy, McClure & Parmelee
May, 2012
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.
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