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.”