Texas Insurance Law Newsbrief - February 20, 2024
FEDERAL COURT DISMISSES FRAUD, BREACH OF CONTRACT, DTPA AND TEXAS INSURANCE CODE CLAIMS AGAINST INSURER
The U.S. District Court in Waco, Texas analyzed an insurer’s motion to dismiss, the pleadings filed and then dismissed all claims asserted against the insurer, with prejudice.
In Transportation Management Services, Inc. v. Hiscox Insurance Company, 2024 U.S. Dist. LEXIS 24160 (W.D. Tex. February 12, 2024), the insured, Transportation Management Services, Inc. (TMS) was sued for “negligence and gross negligence after a subcontractor’s parking attendant raped a woman while working.” Hiscox insured TMS under a professional liability insurance policy which excludes coverage for any claims based on abuse or maltreatment of a sexual nature. Hiscox reserved its rights and TMS defended the claims and ultimately resolved the underlying lawsuit.
TMS then sued its insurer Hiscox, alleging in part that they misrepresented the policy coverage, “unconscionably controlled the legal counsel of the underlying litigation, and ultimately breached the contract by threatening to take away the policy benefits Hiscox promised to pay.” TMS alleged fraud, Texas Insurance Code and DTPA violations and breach of contract. Hiscox removed the matter to federal court and filed a Rule 12(b)(6) motion to dismiss. To survive the motion, the insureds “pleadings language must, on its face, demonstrate that there exists plausibility for entitlement of relief.” And fraud claims raise a heighted standard requiring a demonstration of the “who, what, when and where.” Interestingly, the insured amended its petition before removal but failed to serve Hiscox, so the court considered the original petition as the operative pleading.
As is often the case, the insured asserted minimal facts combined with conclusory allegations and recitation of the elements of the causes of action asserted. The court noted, however, that to meet the heightened standard for pleading fraud, the insured must plead “with particularity, the time, place and contents of the false representations, as well as the identity of the person making the misrepresentation and what the person obtained thereby.” And that “general allegations of fraud or failure to perform, without more” fail to meet the heightened pleading standard. Further, because TMS based its DTPA and Texas Insurance Code violation claims on “the same factual background and alleged conduct,” the claims were “inextricably intertwined” with the fraud claims and the same heightened standard applied. In this case, the standard was not met and the Texas Insurance Code and DTPA claims were also dismissed. Lastly, TMS failed to “allege the specific policy provisions” Hiscox allegedly breached, nor did they attach the policy to the original petition. The court noted that “without more” it could not plausibly assess the breach of contract claim and dismissed it, along with all remaining claims, with prejudice.
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COURT ANALYZES VICARIOUS LIABILITY – REVERSES SUMMARY JUDGMENT FAVORING EMPLOYER
The Austin Court of Appeals reversed summary judgment granted in favor of an employer on vicarious liability claims and remanded the case to the trial court for further proceeding.
In Cook v. Texas Highway Walls, LLC, 2024 Tex. App. LEXIS 1227 (Civ. App. – Austin February 16, 2024), the insured driver, Blake Cervenka was driving a company owed Ford F250 pickup truck which he as Vice President of the company, used for both business and personal reasons. He testified in deposition that he was “pretty confident” he was not headed to a job site, because he was looking for something in the passenger seat, when he failed to notice the Cook vehicle coming to a stop and rearended her car. Ms. Cook sued Mr. Cervenka and his company for vicarious liability, negligence and gross negligence. The company (THW) was granted summary judgment, and the case was severed allowing it to go up on appeal.
The Court of Appeals engaged in a detailed analysis of vicarious liability claims, examining indicia both supporting and undermining the claims as alleged. The court observed that the truck had a THW decal on it, that THW reimbursed Cervenka for his monthly lease payments and provided a fuel card to cover the cost of gas. Cervenka did not track mileage distinguishing business from personal use. The court also noted that although Cervenka was “pretty confident” he was not headed to a jobsite, there were some jobsites in the vicinity which were inspected two days later. The court also examined Cervenka’s phone records before and after the call which reflect calls to a business partner. He called his wife after calling his business partner following the accident, “then went home, picked up a rental car, and went to my office.”
Considering all the evidence in a light most favorable to the claimant, the court concluded that “a lattice of circumstances that would enable reasonable and fair-minded people to develop more than a mere suspicion or surmise that Cervenka was acting within his role as an agent of THW at the time of the accident.” Accordingly, the court reversed summary judgment on the vicarious liability claims. But shifting its focus to the direct negligence and gross negligence claims against THW, the court noted that they had an Employee Handbook and vehicle safety policy. As to the negligence and gross negligence claims the court agreed that THW had “no duty to warn or caution employees or officers about a danger unless the job is dangerous or complex” and, has reason to know the officer or employee is unaware of the danger. As such, the court found “no authority or evidence supporting the imposition of a duty on THW to train Cervenka to avoid distractions while driving his vehicle.” Accordingly, the court upheld summary judgment on the direct negligence and gross negligence claims asserted against THW.
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