INSURANCE LAW

FALL 2011

SIGNIFICANT DECISION

Haygood v. De Escabedo, W.L. 2601363; LEXIS 514 (Tex. 2011)

Paid and Incurred; Collateral Source Rule; Damages; Evidence: Haygood sued Escabedo for injuries he sustained when the car he was driving collided with Escabedo's minivan as she was pulling out of a grocery store parking lot, and Haygood’s injuries required neck and shoulder surgery. Twelve health care providers billed Haygood a total of $110,069.12, but he was covered by Medicare Part B, which generally "pays no more for . . . medical and other health services than the 'reasonable charge' for such service,” and as Federal law prohibits health care providers who agree to treat Medicare patients from charging more than Medicare has determined to be reasonable, Haygood's health care providers adjusted their bills with credits of $82,329.69, leaving a total of $27,739.43. At the time of trial, $13,257.41 had been paid, and $14,482.02 was due. “Invoking § 41.0105, Escabedo moved to exclude evidence of medical expenses other than those paid or owed. Haygood, asserting the collateral source rule, moved to exclude evidence of any amounts other than those billed, and of any adjustments and payments. The trial court denied Escabedo's motion and granted Haygood's. At trial, Haygood offered evidence from each of his health care providers that the charges billed were reasonable and the services necessary. The jury found that Escabedo's negligence caused the accident and that Haygood's damages were $110,069.12 for past medical expenses. . . . The trial court overruled Escabedo's objection to an award of past medical expenses in excess of those paid or owed and rendered judgment on the verdict.” Held: “§ 41.0105 of the Texas Civil Practice and Remedies Code, enacted in 2003 as part of a wide-ranging package of tort-reform measures, provides that ‘recovery of medical or health care expenses incurred is limited to the amount actually paid or incurred by or on behalf of the claimant.’ We agree with the court of appeals that this statute limits recovery, and consequently the evidence at trial, to expenses that the provider has a legal right to be paid.” Further Holding: “We hold that only evidence of recoverable medical expenses is admissible at trial. We disapprove the cases that have reached conflicting decisions. Of course, the collateral source rule continues to apply to such expenses, and the jury should not be told that they will be covered in whole or in part by insurance. Nor should the jury be told that a health care provider adjusted its charges because of insurance.” Note: This case is a “must read” for anyone involved with personal injury cases, thus the relative brevity of the comments set forth above in regard to this very significant case, wherein two justices dissented.

Lancer Ins. Co. v. Garcia Holiday Tours, W.L. 2586878; LEXIS 512 (Tex. 2011)

Business Auto Coverage; Communicable Disease; “Use” of Vehicle: “The insured operated a commercial bus company. It contracted with a school district to provide a bus and driver for a field trip. After the field trip, the bus driver was hospitalized with tuberculosis (TB). Several passengers from the field trip tested positive for latent TB. They sued the driver and the insured. The insurer refused to defend the claim. Damages were awarded to the passengers. The driver and the insured sued the insurer, seeking a declaration of rights under the business automobile policy. The passengers intervened in the action. The trial court granted the passengers' motion for summary judgment and denied the insurer's motion. The court of appeals reversed the summary judgment and remanded the case.”

Lancer conceded that the bus was a covered "auto," the passengers' claims involved an accident, and tuberculosis was a "bodily injury" under the policy's definitions. Lancer maintained, however, that the accident and the injuries did not result from the use of the bus, as the policy required, but rather from other causes, such as the use of a contagious bus driver. Lancer argued that the risk of being exposed to an infectious individual and contracting a disease was a general liability risk, not an auto liability risk, even when the infectious individual happened to be the vehicle's driver, contending that “the nexus between the passengers' injuries and the bus's use is insufficient to invoke the policy's coverage.” Held: “Here, the bus was the mere physical situs of the exposure to the infected person, which could have occurred anywhere. (citation omitted). . . . Exposure to the disease might have occurred in any number of other enclosed, air-conditioned locations, such as a classroom, theater or restaurant because the instrumentality causing the disease is the infected person, not the infected person's surroundings or the act of using the covered vehicle. We conclude then that the exposure of passengers to a communicable disease was not a risk covered by Lancer's business auto policy because the injury resulted from causes other than the use of the covered vehicle. The bus itself was not a substantial factor in causing the passenger's injuries. . . . We conclude that the transmission of a communicable disease from a bus driver to his passengers was not a risk assumed by the insurance carrier under this business auto policy because the passengers' injuries did not result from the vehicle's use but rather from the bus company's use of an unhealthy driver.”

Ojo v. Farmers Group, Inc., W.L. 2112778; LEXIS 392 (Tex. 2011)

Insurance Rates; Credit Scoring; Discrimination: The United States Court of Appeals for the Ninth Circuit certified the following question to the Texas Supreme Court: Does Texas law permit an insurance company to price insurance by using a credit-score factor that has a racially disparate impact that, were it not for the [McCarran-Ferguson Act], would violate the federal Fair Housing Act, 42 U.S.C. §§ 3601-19, absent a legally sufficient nondiscriminatory reason, or would using such a credit-score factor violate Texas Insurance Code sections 544.002(a), 559.051, 559.052, or some other provision of Texas law? Held: The Texas Insurance Code was void of any language creating a cause of action for a racially disparate impact. Therefore, the Court answered the certified question by holding that Texas law did not prohibit an insurer from using race-neutral factors in credit-scoring to price insurance, even if doing so created a racially disparate impact. The Court noted the the conundrum the above situation created, to wit: without reverse-preemption of the federal FHA by Texas law, Ojo would have a disparate impact cause of action for insurance pricing under the federal FHA, and yet, reverse-preemption was only at issue if the federal FHA did not "specifically relate[] to the business of insurance." 15 U.S.C. § 1012(b). But, that was not an issue the certified question required the Court to resolve, so the Court focused its attention on whether Texas law provided for a disparate impact cause of action for insurance pricing based on credit scoring, and as indicated above, held that it did not. Note: As set forth in the opinion, “The Texas Insurance Code expressly prohibits "unfair discrimination" and specifically states that "[a] person may not charge . . . an individual a rate that is different from the rate charged to other individuals for the same coverage because of the individual's race, color, religion, or national origin." Tex. Ins. Code § 544.002(a)(2). An exception to this provision provided that "[a] person does not violate § 544.002 if the refusal, limitation, or charge is required or authorized by law or a regulatory mandate." Id. § 544.003(c).”

In re Universal Underwriters of Tex. Ins. Co., W.L. 1713278; LEXIS 357 (Tex. 2011)

Property Coverage; Appraisal; Waiver; Impasse; Prejudice: Grubbs Infiniti, a car dealership in the Dallas-Fort Worth area, suffered hail damage to buildings on its property, and filed a claim with its insurer, Universal Underwriters. After inspection, a payment was made by Universal, the property was reinspected, and a supplemental payment was made by Universal. Four months later, Grubbs sued Universal for underpayment of its claim, alleging various causes of action. Universal invoked the policy's appraisal clause, which provided, in pertinent part, “[i]f YOU or WE can't agree on the value of the property or the amount of YOUR property LOSS, either of us can demand in writing, an appraisal within 20 days of such demand. Then, each will select a competent and disinterested appraiser who will, in turn, select a competent and disinterested umpire. . . . The appraisal shall be then made at a reasonable time and place. Each appraiser will state his appraisal of the value or LOSS. If they can't agree, they will submit their differences to the umpire. The value of the property or amount of the LOSS will be determined by a written agreement of any two of them. Such an agreement is binding.” Universal moved to compel an appraisal and to abate all other proceedings in the interim. Grubbs alleged that Universal waived its right to appraisal by not invoking it sooner.” When the trial court denied the motion, Universal unsuccessfully sought mandamus relief from the court of appeals. Universal petitioned the Texas Supreme Court, and after hearing oral argument, the Court conditionally grant relief.

“Appraisal clauses, commonly found in homeowners, automobile, and property policies in Texas, provide a means to resolve disputes about the amount of loss for a covered claim. These clauses were generally enforceable, absent illegality or 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 was 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.” Or, as the Court more recently concluded, “[w]aiver requires intent, either the intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right.” Grubbs asserted that Universal waived its right to invoke appraisal by waiting eight months, from the date that Grubbs asked for a reinspection of its property to the date that Grubbs sued, before demanding an appraisal. Grubbs argued that this delay was unreasonable as a matter of law. According to the Texas Supreme Court, in discussing past waiver cases, a finding of waiver was not solely based on the delay, “but rather on the parties' conduct, as indications of waiver.” “[W]hile the time period may be instructive in interpreting the parties' intentions, it alone is not the standard by which courts determine the reasonableness of a delay.” (citation omitted). “Thus, while an unreasonable delay is a factor in finding waiver, reasonableness must be measured from the point of impasse . . .” “An impasse is not the same as a disagreement about the amount of loss. Ongoing negotiations, even when the parties disagree, 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, or to recognize additional damages upon reinspection.”

Factors to consider: “In deciding whether a demand for appraisal was made within a reasonable time, and consequently has not been waived even if suit was filed before the demand was made, courts have considered the timeliness of the demand in light of the circumstances as they existed at the time the demand was made. Pertinent circumstances include (1) the time between the breakdown of good faith negotiations concerning the amount of the loss suffered by the insured and the appraisal demand; and (2) whether there would be any prejudice to the other party resulting from the delay in demanding an appraisal.” “Using the point of ‘impasse,’ rather than the first sign of disagreement, correspond[ed] with [the Court’s] definition of waiver as an "intentional relinquishment of a known right or intentional conduct inconsistent with claiming that right; . . . [i]n other words, both parties must be aware that further negotiations would be futile, ‘or would be of no effect if performed.’" (citation omitted). “If one party genuinely believes negotiations to be ongoing, it cannot have intended to relinquish its right to appraisal (unless it expressly waives it).”

Held: “Universal invoked appraisal within a reasonable time after the parties reached an impasse. The policy contained no time limit for the appraisal request, and Universal never denied liability for the loss. At no point did Grubbs notify Universal that it refused to discuss the matter further, despite Universal's statement that it would leave its file open for further discussions should Grubbs care to do so. Whether Universal was aware of Grubbs' disagreement as to the estimate of damages is also irrelevant, since mere disagreement does not in itself signal an unwillingness to negotiate further.” “Once the parties have reached an impasse—that is, a mutual understanding that neither will negotiate further—appraisal must be invoked within a reasonable time. Here Universal sought appraisal approximately one month after Grubbs sued. We conclude that Universal demanded appraisal within a reasonable time after the parties reached an impasse.” Note: Based on the Court’s discussion of impasse, an insurer’s indication that it is leaving its file open, as compared to advising an insured that it is closing its file, may be significant to the issue of waiver in regard to the “explicit language” or “conduct” that may or would indicate that waiver was the party’s intent. And, importantly: Delay alone is not enough; a party must also show prejudice, to wit: “Even if Universal had waited to request appraisal, mere delay is not enough to find waiver; a party must show that it has been prejudiced.”

Weingarten Realty Mgmt. Co. v. Liberty Mut. Fire Ins. Co., W.L. 2043027; LEXIS 3972 (Tex. App.—Houston [14th Dist.] 2011, pet. filed)

Duty To Defend; Eight-Corner’s Rule; Extrinsic Evidence: This case involved an insurance-coverage dispute arising from an underlying lawsuit, Johnson, et ux. vs. Weingarten Realty Management Co, wherein Connie Johnson, a manager of a Fashion Cents retail store, was assaulted by an unknown man who entered the store after business hours. Johnson sued her employer and Weingarten Realty Management Company the entity she alleged leased the retail space occupied by Fashion Cents, however the actual lessor was an entity separate and distinct from Weingarten Management. Weingarten Realty sought a defense under a liability insurance policy which contained an endorsement naming "all lessors of the premises leased to [Norstan] as additional insureds under the policy.” The defense was, ultimately, refused. Weingarten Management and its insurer Scottsdale conceded Weingarten Management is not actually a lessor of the property, but argued that the mistaken allegation gave rise to a duty to defend because the "eight-corners rule" restricted the trial court from looking outside the pleadings and insurance policy to determine Weingarten Management was not the true lessor.

The Supreme Court of Texas has never expressly recognized an exception to the eight-corners rule, but it has acknowledged “that other courts have drawn a ‘very narrow exception’ allowing extrinsic evidence ‘only when relevant to an independent and discrete coverage issue, not touching on the merits of the underlying third-party claim,’ citing GuideOne Elite Ins. Co. v. Fielder Road Baptist Church, 197 S.W.3d 305, 308 (Tex. 2006); see also Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 654 (Tex. 2009). The court discussed the rationale behind the eight-corners rule, noting that it is to require insurers to defend the insured against all claims, even those without merit. According to the court, “to the insured, a meritless claim still requires a defense,” but the protection the eight-corners rule provides exists for the benefit only of the insured. It is the insured who is entitled to trust that his insurer will defend him against all covered claims, meritorious or not. A stranger to the policy neither needs nor should expect this benefit.” Importantly, Liberty Mutual did not argue that the claim brought against Weingarten Management was without merit. Rather, they argued that Weingarten Management was not an insured under the Norstan policy and, as a total stranger to the policy, was not entitled to a defense against any claim. Enforcing the eight-corners rule under that circumstance “[did] not further the policy underlying the eight-corners doctrine. This is a ‘pure coverage’ question in which Liberty Mutual does not question the merits of the underlying third-party claim, citing to GuideOne.

Held: “In light of the facts of this case, we are persuaded of the need for a very narrow exception to the eight-corners rule. The exception applies only when an insurer establishes by extrinsic evidence that a party seeking a defense is a stranger to the policy and could not be entitled to a defense under any set of facts. Under this exception, the extrinsic evidence must go strictly to an issue of coverage without contradicting any allegation in the third-party claimant's pleadings material to the merits of that underlying claim.” Further, “[i]f a contract does not exist, a duty to defend should not be allowed to spring into existence based on artful or inartful pleading.” Note: This case contains a pretty extensive discussion of various cases in regard to the “eight-corners” issue presented, including in the dissenting opinion. Further note in re: recent federal case: See Guideone Specialty Mut. Ins. Co. v. Missionary Church, W.L. 2670009; LEXIS 73089 (N.D. Tex. 2011), wherein the Court, referencing GuideOne, in an extrinsic evidence duty to defend case, said “The eight-corners-rule language ‘even if the allegations of the suit are groundless, false or fraudulent’ that is absent from the policy issued by plaintiff is essential to applicability of the eight-corners rule.”