SAN ANTONIO COURT OF APPEALS REVERSES TRIAL COURT’S DEATH PENALTY SANCTIONS AGAINST INSURER

Late in December 2013, the San Antonio Court of Appeals granted Farmer County Mutual Insurance Company’s (“Farmers”) Writ of Mandamus overturning a trial court’s granting of death penalty sanctions striking all of Farmer’s affirmative defenses three weeks before trial. In re Farmers Texas County Mut. Ins. Co., 04-13-00644-CV, 2013 WL 6730094 (Tex. App.—San Antonio Dec. 20, 2013, no. pet. h.).

The underlying suit arises out of a vehicle-bicycle collision where Luke Jajou was driving a vehicle owned by his father and struck an 11-year-old boy riding his bicycle. Prior to the lawsuit being filed, the driver, Luke Jajou provided a recorded statement to his liability insurer. Jajou was later served with Plaintiffs’ Original Petition, which included a Request for Disclosure.  Allstate, Jajou’s liability insurer, defended him in the litigation, and responded to the Request for Disclosure regarding witness statements that “he would supplement if any statements were taken”.  Approximately three weeks later, Plaintiffs settled with Jajou and Allstate for policy limits. Due to the settlement, Jajou never provided any supplemental responses to his Requests for Disclosure.

Plaintiffs then sued their own insurance carrier, Farmers, for breach of contract, late payment of claims, and unfair settlement practices in relation to their claim for underinsured motorist.  Plaintiffs asserted that Jajou’s insurance policy was insufficient to cover all of their boy’s injuries, and Farmers was obligated to provide underinsured motorist benefits under their own policy.  In response to Plaintiffs’ Request for Disclosure, Farmers stated that it did not have any witness statements.

Farmers issued a deposition of written questions to Allstate, and after pursuing its inquiry for recorded statements, it obtained the recorded statement that Luke Jajou had given Allstate—which had not been previously produced.  The recorded statement was provided to Plaintiffs’ counsel within 10 days of Farmers learning of its existence.  Nonetheless, Plaintiffs’ counsel moved for sanctions asking that Farmer’s affirmative defenses be stricken because of their alleged discovery abuse in the late production of Jajou’s recorded statement.  The trial granted Plaintiffs’ Motion for Sanctions.

The Court of Appeals determined that Farmer’s production of the recorded statement was reasonable given the circumstances of production, and the trial court abused its discretion granting death penalty sanctions against Farmers.  The Court noted that the Texas Supreme Court requires sanctions to be “just,” and require a two component test in determining whether the sanction is just: (1) there must be a direct relationship between the offensive conduct and the sanction imposed; and (2) the sanction must not be excessive.  Further, the Court noted that regardless of the offending conduct, the trial court must consider the availability of less stringent sanctions.

Here, the Court noted that no party refused to produce material evidence, and Plaintiffs were not prejudiced by the late production of the recorded statement.  The Court reversed the trial court’s grant of death penalty sanctions and determined that Farmers, which had no prior relationship with Jajou and no involvement in the prior suit prior to Jajou’s settlement agreement, produced the recorded statement promptly upon discovery of its existence.  Further, the Court determined that the recorded statement may be used in trial.