Texas Insurance Law Newsbrief - May 9, 2024
U.S. DISTRICT COURT CONCLUDES THAT COMPANY WAS NOT AN ADDITIONAL INSURED; DISMISSES COMPANY’S DECLARATORY JUDGMENT ACTION AGAINST INSURER
The United States District Court for the Southern District of Texas concluded that an oil well control services company was not an additional insured on the insurance policy and dismissed the company’s declaratory judgment action against the insurer.
In Antares Underwriting Ltd. v Magellan E&P Holdings Inc., No. 4:21-CV-00904, 2024 U.S. Dist. LEXIS 79343 (S.D. Texas [Houston Division], May 1, 2024, mem. op.), Magellan E&P Holdings, Inc. (“Magellan”) had insurance coverage under a policy with Antares Underwriting Limited (“Antares”) covering certain costs incurred by Magellan in the event of a well blowout to regain control of the blowout. The policy covered the period effective June 30, 2020, to June 30, 2021. On August 31, 2020, the well suffered a blowout. On September 1, 2020, Magellan entered into a contract with Great White Well Control ("GWWC") for well control services. GWWC was added to the Antares policy by Magellan as an "additional insured."
Antares filed a declaratory judgment suit against Magellan challenging the costs associated with GWWC’s well-control work. Subsequently, GWWC filed a complaint in intervention against Antares, seeking a declaratory judgment that GWWC was an additional insured under the Antares policy.
“The issue before the Court [was] whether GWWC ha[d] stated a plausible right to bring an independent or ‘stand alone’ lawsuit against Antares.” The court concluded that “GWWC's claim for relief fail[ed] because the undisputed facts show[ed] that GWWC was not an ‘additional insured’ under the Policy at or before the time of the blow out. GWWC could not have been added as an additional insured during the progress of the blowout. The evidence [was] undisputed that at the time GWWC entered into the Agreement with Magellan in September of 2020, the Well was out of control and had been so since effective August 31, 2020. Thus, the event that gave rise to a claim occurred before GWWC was added … as an additional insured.”
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U.S. DISTRICT COURT CONCLUDES THAT BAD-FAITH CLAIM AGAINST THIRD-PARTY INSURER IS NOT RECOGNIZED BY TEXAS LAW; DISMISSES PLAINTIFF’S BAD-FAITH CLAIM AGAINST THIRD-PARTY INSURER
The United States District Court for the Western District of Texas dismissed the plaintiff’s bad-faith claim against the third-party insurer, concluding that such a claim is not recognized by Texas law.
In Hall v Altec, Inc., No. 1:24-CV-159-DII, 2024 U.S. Dist. LEXIS 80323 (W.D. Texas [Austin Division], May 2, 2024, mem. op.), Hall alleged that her vehicle was rear-ended by a driver driving for Altec, Inc. ("Altec"). Hall sued Altec and its insurance company, Esis. Hall alleged that Esis acted in bad faith in handling her claim. Hall stated in her petition that Esis committed "bad faith handling of the claim, despite full transparency regarding the incident's impact, exacerbating [Hall’s] hardships." In response, Esis filed a motion to dismiss, which the court quickly granted, concluding that:
Texas law does not recognize this cause of action in the context of a third-party claim. When handling a third-party claim, an insurer owes the insured no duty of good faith and fair dealing. The Texas Supreme Court has recently held that an insurer owes no duty of good faith and fair dealing to investigate and defend claims against its insured. Esis, as the insurer for Altec, cannot be liable for bad-faith dealing against [Hall], who is a third-party. Because [Hall] assert[s] a claim of bad faith against the third-party insurer, her claim is not recognized by Texas law.
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RECOVERY OF ATTORNEY’S FEES PROHIBITED UNDER CHAPTER 542A WHEN APPRAISAL AND INTEREST PAID IN FULL
The Texas Supreme Court recently resolved a split in state authority in its answer to the Fifth Circuit’s certified question on the recovery of attorney’s fees under Chapter 542A of the Insurance Code.
Rodriguez v. Safeco Ins. Co. of Ind., 2024 U.S. App. LEXIS 9189 (5th Cir. April 16, 2024). An insured who suffered property damage following a tornado at his home believed he was owed more money under his policy than the cash value assigned by his insurer, so he filed suit against his insurer for violation of the Texas Prompt Payment of Claims Act (“TPPCA”), seeking additional payment under the policy, plus interest and attorney’s fees. After a year of litigation, the insurer invoked a provision in the policy that permitted appraisal by a disinterested third party, had the loss appraised by a third party, and paid the full amount of the appraisal (less any money already paid, deductibles, and policy limits), plus any possible interest under the TPPCA.
Texas courts were split on the issue of awarding and calculating attorney’s fees, so the Fifth Circuit submitted the following certified question to the Texas Supreme Court:
In an action under Chapter 542A of the [TPPCA], does an insurer’s payment of the full appraisal award plus any possible statutory interest preclude recovery of attorney’s fees? The [Texas Supreme] Court answered the question in the affirmative … and held that [S]ection 542A.007 of the Insurance Code prohibits an award of attorney's fees when an insurer has fully discharged its obligations under the policy by voluntarily paying the appraised amount, plus any statutory interest, in compliance with the policy's appraisal provisions.
The Fifth Circuit affirmed the district court’s judgment and held that the insured was not entitled to attorney’s fees because the insurer discharged its policy obligations and paid the necessary statutory interest.
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FAILURE TO DISTINGUISH BETWEEN COVERED AND EXCLUDED PERILS RESULTS IN SUMMARY JUDGMENT IN FAVOR OF INSURER AND DISMISSAL OF ALL CLAIMS WITH PREJUDICE
The Northern District held an insured could not recover as a matter of law for its claims because the insured failed to distinguish between covered and excluded damage.
Gibbs v. State Farm Lloyds, 2024 U.S. Dist. LEXIS 71674 (N.D. Tex. April 19, 2024). An insured filed a claim on its homeowners’ policy, which excluded coverage for losses due to ongoing water leaks, and the insurer agreed to pay for some of the damage, namely for repairs to the hardwood flooring at the home. The insured used this remediation to make improvements to other areas of the home that had not been included in the insurer’s evaluation and, in doing so, identified additional water damage for which they sought coverage. The insurer believed the additional damage to be related to a water event that occurred (and was remediated) prior to the insured purchasing this policy, and when the insurer refused to pay additional money for the uncovered work, the insured filed suit alleging unfair settlement practices in violation of Section 541.060 and Section 541.061 of the Texas Insurance Code and violations of the Texas Deceptive Trade Practices––Consumer Protection Act (“DTPA”).
Because [the insured has] not shown that [the insurer] owed them benefits under their homeowners’ policy, they cannot prevail on their unfair settlement practices claims … [and] To the extent [the insured is] claiming [the insurer] denied coverage based on a misleadingly narrow description of their homeowners’ policy, these claims run into the same problem as their unfair settlement practices claims: [the insured has] not shown any wrongful denial of coverage.
The court granted the insurer’s motion for summary judgment and dismissed the insured’s claims with prejudice because the insured did not provide the necessary evidence to distinguish between the damage from separate water events and the work performed that was not required remediation, but rather elective improvements to the home.
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NORTHERN DISTRICT CONFIRMS THAT SUPPLEMENTAL DISCOVERY RESPONSES CONSTITUTE ‘OTHER PAPER’ FOR PURPOSES OF DETERMINING TIMING FOR REMOVAL OF AN ACTION TO FEDERAL COURT
The Northern District Court affirmed that supplemental discovery responses constitute a voluntary act by the plaintiff such that the clock for removal of an action restarts.
D Reynolds Co. LLC v. AGCS Marine Ins. Co., 2024 U.S. Dist. LEXIS 68842 (N.D. Tex. April 16, 2024). The insured initiated a lawsuit against its insurer seeking insurance coverage for alleged hail and windstorm damage to its commercial building, the insurer removed the matter to federal court, and the case was remanded due to a lack of sufficient information on the insured’s citizenship. After the insured objected and seemingly refused to answer the question of its citizenship through discovery, the Court compelled the information, the insured supplemented its discovery responses, and the insurer again removed the case to federal court. In response to a motion to remand, the court observed:
If a case is not removable based on the initial pleading, ‘a notice of removal may be filed within 30 days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable’… and the ‘other paper’ conversion requires a voluntary act by the plaintiff.
The Court held the case was properly removed to federal court after the insured supplemented its discovery responses because this supplementation constituted an ‘other paper’ which restarted the clock for removal.
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PARTIES ARE NOT ENTITLED TO AN INSURER’S FULL CONTRACTS AND BILLING DETAILS WITH MEDICAL PROVIDERS
The Eastern District determined that while an insurer’s rates for medical services are relevant and discoverable to determine the reasonableness of rates charged to uninsured patients, the request for an insurer’s full contracts and billing details with medical providers is overbroad.
Muhammed v. Shelton, 2024 U.S. Dist. LEXIS 70887 (E.D. Tex. April 18, 2024). In a personal injury case involving a vehicular collision of two semi-trailer trucks, the defendants sent subpoenas and notices of intent to take depositions by written questions to medical providers seeking to discover the rates each provider charges insurance companies for the same services that the uninsured patient received, and the plaintiff objected.
The rates that medical providers charge insurance companies for the same treatments that an uninsured patient receives are relevant to determining the reasonableness of charges to an uninsured patient.
The Court held that while these requests are discoverable, they must be proportional to the needs of the case.
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TEXAS COURT OF APPEALS FINDS CLAIMS WERE WITHIN SCOPE OF ADDITIONAL-INSURED PROVISIONS
On March 18, 2024, the United States District Court for the Southern District of Texas granted summary judgment for LM Insurance Corporation(“LMI”) as to the duty to defend but denied as to the duty to indemnify.
In, LM Ins. Corp. v. Nautilus Ins. Co., No. 4:22-CV-3723, 2024 U.S. Dist. LEXIS 46933, 2024 WL 1185122 (S.D. Tex. 2024), the case involved an insurance coverage dispute incorporating additional-insured provisions of a commercial general liability policy (“CGL”). The insurer, LM Insurance Corporation (“LMI”), insured a general contractor named Blazer Building Texas, LLC (“Blazer”) while Nautilus Insurance Company (“Nautilus”) insured a subcontractor of Blazer named Ranger Fire, Inc. (Ranger”) that installed fire sprinklers. Ramiro Morin (“Morin”) was an employee of Ranger who sued Blazer in state court for negligence and alleged that he sustained injuries when he fell into an open elevator shaft while walking through an apartment construction site “operated by and/or controlled by” Blazer.
In this lawsuit, LMI sought a judicial declaration that Nautilus had a duty to defend and indemnify Blazer in the state court suit as an additional insured under Ranger’s CGL policy. The contract between Blazer and Ranger stipulated that Ranger would name Blazer as an additional insured on Ranger’s CGL policy and both parties agreed that Ranger did so. LMI and Nautilus filed cross-motions for summary judgment. Nautilus argued that it had no duty to defend Blazer because the state court suit fell outside the scope of the additional-insured provisions of Ranger’s CGL policy. Nautilus mentioned that (1) “Ranger is not named as a defendant in the [state court suit] and is not mentioned in [Morin’s pleadings;]” and (2) “There are no facts alleged in the [state court suit] implicating Ranger’s work with [Morin’s] injuries…[e]ven if extrinsic evidence were considered to identify Ranger as the sprinkler installer” for whom Morin was working. The Court disagreed with Nautilus and agreed that LMI met its burden of showing that Morin’s claims against Blazer were potentially within scope of the additional-insured provisions of Ranger’s CGL policy.
Extrinsic evidence can be considered to establish Morin’s connection to Ranger under the “eight-corners rule” in Monroe Guaranty Insurance Co. v. BITCO General Insurance Corp., 640 S.W.2d 195, 204 (Tex. 2022) to determine whether a duty to defend Blazer was triggered by the policy language. The parties differed on the meaning of the phrase “resulting from” but agreed that Ranger’s CGL policy made Blazer an additional insured for claims or suits “resulting from” Ranger’s work performed for Blazer. Under Lancer Insurance Co. v. Garcia Holiday Tours, 345 S.W.3d 50 (Tex. 2011), “resulting from” is equivalent to “arising out of”. Ultimately, the court denied Nautilus’ motion for summary judgment, granted LMI’s motion as to the duty to defend but denied as to the duty to indemnify as the state court suit fell within the scope of the additional-insured provisions of Ranger’s CGL policy.
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APPELLATE COURT REVERSES DECISION – FINDS IN FAVOR OF INSURED ON CONTRACT AND PROFESSIONAL SERVICES EXCLUSIONS
The United States Court of Appeals for the Fifth Circuit, reversed the district court’s decision to grant summary judgment to the insurance company and remanded for further proceedings.
In SXSW, L.L.C. v. Fed. Ins. Co., No. 22-50933, 2024 U.S. App. LEXIS 6771 (5th Cir. 2024), this appeal involved an insurance coverage dispute between SXSW, LLC (“SXSW”) and Federal Insurance Company (“Federal”). SXSW hosts a yearly “South by Southwest” festival and faced a class-action lawsuit over requests for refunds for its canceled show in 2020 due to COVID-19. Some ticket holders asked for a refund for their purchases, but SXSW declined and cited their no-refund clause in the terms and conditions of the ticket agreement. On April 24, 2022, the Bromley Plaintiffs, two ticket holders that filed a class action lawsuit (the “Bromley Complaint”) against SXSW for breach of contract, unjust enrichment, and conversion. In 2022, this case settled for over $1 million, and SXSW requested but was denied coverage from Federal Insurance Company, its insurance carrier, for settlement costs.
The Policy contained both a Contract Exclusion and Professional Services Exclusion. For the Contract Exclusion, the court adopted SXSW’s interpretation that the exclusion barred claims arising from the contractual liability, not merely because of a casual connection to the contract. SXSW contended that unjust enrichment and conversion claims fell outside this exclusion. For the Professional Services Exclusion, Federal argued that it precluded coverage for SXSW’s loss related to the Bromley Complaint. The Policy defined “professional services” to include “services which are performed for others for a fee.” SXSW argued that “professional services” would not extend to SXSW’s actions in refunding or not, because they are not services SXSW performed for a fee. The Court of Appeals agreed with SXSW’s reasoning because the Bromley Complaint arose from SXSW’s refusal to offer refunds, a decision that did not constitute a “professional service”. The court further reasoned that failure to render professional services had to give rise to the specific claims in that complaint. Thus, the Professional Service Exclusion did not apply and the case was remanded to the trial court for further proceedings.
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1ST CHOICE ACCIDENT & INJURY COULD POTENTIALLY BE FRAUDULENT, BUT NOT NECESSARILY RACKETEERING
In Farmers Tex. Cnty. Mut. Ins. Co. v. 1st Choice Accident & Inj., LLC, 2024 US. Dist. LEXIS 45605 (S.D. Tex. March 12, 2024), Farmers Texas County Mutual Insurance Company (Farmers) and other insurance companies settled personal injury claims for some insureds, then noticed patterns in the billing and medical records from 1st Choice Accident & Injury.
Specifically, they alleged that 1st choice and its subsidiaries and affiliates issued examination and billing records that were unusually similar, regardless of age, gender, weight, past medical history, or current injuries. The alleged fraud was further evidenced by the creation of reports within seconds of each other, uniform gaits, family histories, exercise, and nutritional habits, and symptoms prior to their accidents, performance of the same tests, and uniformity of neurological findings, treatment recommendations and medical imaging.
Based on their findings, Farmers filed a Racketeering Influenced and Corrupt Organizations (RICO) action alleging these records to have been fraudulent, causing them over $14,000,000 in damages, and having been performed by an Enterprise under the RICO Act. But these serious allegations will unfortunately not be addressed in this lawsuit, because the court held that there was nothing binding the association(s) together to constitute an Enterprise under the act. This was not an Enterprise-in-fact because “[a]side from the commission of the alleged predicate acts, there appears to be nothing which binds the association together” nor did it function as a consensual, decision-making unit. The Court therefore granted the defendant medical providers’ 12(b)(1) Motion to dismiss.
Editor’s note: regardless of whether this claim falls under RICO, this case should put us all on alert to review all medical providers’ examination and billing records with the utmost scrutiny.
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SUBSEQUENT SETTLEMENT AGREEMENT SUPERSEDES POLICY SECTION STIPULATING ARBITRATION
In AIG Specialty Ins. Co. v. Exxonmobil Oil Corp., 2024 Tex. App. LEXIS 1825, (Tex. App.—Dallas March 13, 2024), Exxonmobil had an excess liability policy issued to it by American International Specialty Lines (ISSLIC).
The policy had an ADR endorsement that required the parties to arbitrate if they disagreed “on an issue concerning this policy.” In August 2015, AISLIC, Exxonmobil, and others had a coverage dispute over methyl t-butyl ether- related claims, and then entered into a settlement agreement that required AISLIC to make a lump-sum payment for the methyl t-butyl ether claims. The settlement agreement had a forum selection clause that stated that “[a]ny claims that arise under or relate to this Settlement Agreement and Release shall be brought only in the State of Texas District courts in Dallas Couty, or in the United States District Court for the northern District of Texas.” In 2020, five years after the execution of the settlement agreement, Exxonmobil sought coverage for benzene-related claims, and Exxonmobil and AISLIC disputed whether the settlement agreement had discharged Exxonmobil’s retention obligations. When they were unable to resolve their dispute, Exxonmobil sought a declaratory judgment in state court in Dallas County. Exxonmobil argued that the settlement agreement’s forum-selection clause permitted such suit, while AISLIC argued that the policy’s ADR Endorsement required this dispute to be resolved in arbitration.
The Dallas trial court denied AISLIC’s motion to compel arbitration, and the Dallas court of appeals affirmed that court’s decision. In doing so, the Dallas court of appeals applied the settlement agreement’s forum-selection clause over the policy’s ADR Endorsement because (1) the court was not convinced that the ADR Endorsement covering “an issue concerning this policy,” intended to apply to an issue that arose from a settlement agreement coming fifteen years after the original policy was written and (2) by contract rules, the settlement agreement constituted the parties’ subsequent amendment of the policy. It remains to be seen what the trial court will decide about Exxonmobil’s retention; however, it will be a court and not arbitrator, deciding it.
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