Texas Insurance Law Newsbrief - November 6, 2024
MOTION TO DISMISS DENIED IN INSURANCE BROKERAGE DISPUTE WHEN BROKER THOUGHT THEY HAD OBTAINED WORKERS’ COMPENSATION COVERAGE FOR CLIENT BUT IN FACT HAD NOT
A Federal District Court in Dallas denied SRM Corporation d/b/a Sage Risk and Insurance Management’s motion to dismiss in insurance brokerage dispute and abated the case for 60 days to allow compliance with pre-suit Texas DTPA’s notice requirements.
In Rone Eng’g Servs., LLC v. SRM Corp., No. 3:24-cv-00225-N, 2024 U.S. Dist. LEXIS 198857 (N.D. Tex. 2024), Sage, as Rone’s insurance broker, agreed to acquire and maintain insurance coverage, including workers’ compensation coverage for Rone. Sage represented that they did and provided Rone with a Certificate of Liability Insurance. In 2021, a Rone employee named Heriberto Rodriguez was injured on the job and sued Rone for his injuries. Rone, having reported the suit to Sage demanding coverage from the WC carrier for defense costs, never received a response from the carrier to Rone’s demand. Rone proceeded to defend the suit at its own cost until it found out in the spring of 2023 from Sage’s President that despite Sage believing that it had obtained WC coverage for Rone, in fact Sage had not done so. Rone sued Sage in Texas state court alleging causes of action for breach of contract, promissory estoppel, negligence, negligent misrepresentation, violations of the Texas DTPA and violations of the Texas Insurance Code. The case was removed to federal court.
Sage moved to dismiss all claims under Rule 12(b)(6) for failure to state a claim in federal court, and alternatively to abate the case because Rone did not comply with the DTPA’s pre-suit notice requirement.
Sage initially argued that the Texas anti-fracturing rule precludes Rone’s claims other than the negligence claim, an argument the Court rejected. “The anti-fracturing rule prevents plaintiff from converting what are actually professional negligence claims against an attorney into other claims…” Won Pak v. Harris, 313 S.W.3d 454,457 (Tex.App.—Dallas 2010, pet. denied). No Texas state court has applied the anti-fracturing rule to claims against insurance brokers, and in fact, the Southern District of Texas refused to apply the anti-fracturing rule in a claim against an insurance agent and agency in Mia Reed & Co. Ltd. v. United Fire & Cas. Co., 2012 U.S. Dist. LEXIS 89412 (S.D. Tex. 2012). The Northern District court declined to extend the anti-fracturing rule to these claims against the insurance broker.
Next the Court went on to consider Sage’s argument that Rone’s claims, except the breach of contract claim, were time barred by the two-year statute of limitations because they accrued on January 25, 2021, which is when Sage provided the Certificate of Liability Insurance. Rone argued that the discovery rule tolled the statute of limitations. The Court agreed with Rone. The Court considered the fact that Sage made several representations that it acquired WC coverage, made multiple promises to Rone that it would determine why the WC carried did not respond to the demand, and only in the Spring of 2023 told Rone that it had not acquired WC coverage. Because Rone likely could not have discovered its injury until sometime between June 2022 and Spring 2023, and the suit was filed within two years of June 2022, the injury was either inherently undiscoverable or fraudulently concealed by Sage such that the discovery rule tolling of limitations applied.
Next the Court determined that Rone met its burden of pleading consideration in support of its breach of contract claim. In Texas, for a “contract to be valid, it must be supported by consideration.” Eurecat U.S., Inc. v. Marklund, 527 S.W.3d 367,387 (Tex.App.—Houston [14th Dist.] 2017, no pet.). Here, Rone agreed to pay Sage group insurance premiums in exchange for Sage acquiring and maintaining WC coverage. This constituted consideration even in the absence of Sage actually acquiring the coverage.
On the promissory estoppel claim, Sage argued that because there is a split among Texas courts as to whether promissory estoppel can be an affirmative cause of action and asked the court to dismiss this claim. The Court did not agree and held that Rone may plead promissory estoppel as an affirmative cause of action citing a Norther District of Texas decision where the court held that while promissory estoppel is normally a defensive theory, it is also available as a cause of action where there was reasonably reliance to ones detriment on an otherwise unenforceable promise. See Miller v. CitiMortgage, Inc., 970 F. Supp. 2d 568, 582 (N.D. Tex. 2013).
Sage also argued that Rone cannot simultaneously plead both breach of contract and promissory estoppel. In Texas, breach of contract and promissory estoppel claims are mutually exclusive. Richter, RMS v. Wagner Oil Co., 90 S.W.3d 890, 899 (Tex.App.—San Antonio 2022, no pt.). However, the Court held that Rone may proceed with both claims at this stage even though it ultimately cannot recover on both claims because pleading inconsistent theories is allowed.
Finally, the Court granted a 60-day abatement because Rone did not satisfy the written notice required under the DTPA before filing suit. Rone did not oppose the abatement.
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THE DIFFERENCE BETWEEN A TRANSPORTATION CARRIER AND A TRANSPORTATION BROKER IS OFTEN BLURRY AND NOT FREQUENTLY WELL-SUITED FOR SUMMARY JUDGMENT
A Federal District Court in Houston denied ACE American Insurance Company’s motion for summary judgment in a case that arose from a fire on Interstate 10 in Houston that resulted in the complete loss of telecommunications equipment being transported from Houston to Miami by Logicalis Group Storage.
In Ace Am. Ins. Co. v. Rhenus Logistics LLC, No. 4:22-cv-2687, 2024 U.S. Dist. LEXIS 197511 (S.D. Tex. 2024), ACE sued as subrogee for Logicalis Group Storage. Logicalis tendered a claim to Plaintiff, who paid out $641,864. ACE, as subrogee of Logicalis, sought to hold Rhenus responsible for that amount under the Carmack Amendment to the Interstate Commerce Act, 49 U.S.C. § 14706, et seq.
Defendant initially argued the motion for summary judgment was untimely. The first scheduling order set the deadline for dispositive motions on July 3, 2023. Two amended scheduling orders followed, but the amended scheduling orders did not modify the initial deadline. Plaintiff missed the initial deadline. Plaintiff also missed the Court’s Rules of Civil Procedure which state that “[u]nless otherwise indicated in the Scheduling Order entered at the Initial Pretrial Conference, dispositive motions must be filed at least 120 days…before the date set for final pretrial conference.” Hanen, J., Civ. P. 7(B). While the Court acknowledged that Plaintiff’s motion was indeed late, the Court still opted to rule on the dispositive motion in order “to focus the parties on certain issues of concern,” and admonished the parties to heed the Court’s orders, the Local Rules, and the Rules of Civil Procedure in the future.
The Court next addressed the Carmack Amendment and definitions, which provides that “[a] carrier … [is] liable … for the actual loss or injury to the property caused by (A) the receiving carrier, (B) delivering carrier, or (C) another carrier over whose line or route the property is transported.” § 14706(a)(1). Carrier is defined as a “motor carrier, a water carrier, and a freight forwarder.” Id. § 13102(4). Freight forwarder is defined as “a person holding itself out to the general public (other than as a pipeline, rail, motor, or water carrier) to provide transportation of property for compensation and in the ordinary course of its business—(A) assembles and consolidates, or provides for assembling and consolidating, shipments and performs or provides for break-bulk and distribution operations of the shipments; (B) assumes responsibility for the transportation from the place of receipt to the place of destination; and (C) uses for any part of the transportation a carrier subject to jurisdiction under this subtitle.” Id. §131102(8). Broker means “a person, other than a motor carrier or an employee or agent of a motor carrier, that as a principal or agent sells, offers for sale, negotiates for, or holds itself out by solicitation, advertisement, or otherwise as selling, providing, or arranging for, transportation by motor carrier for compensation.” Id. §131102(2).
To fall under the Carmack statute, the Court ruled the defendant must be a carrier, which includes a freight forwarder. The Court further held that if defendant is merely a broker, it is not liable under the Carmack Amendment. To survive summary judgment, the Court said the defendant must raise a genuine issue of material fact that it was not a freight forwarder. The Court then denied the summary judgment.
The Court noted that the defendant held itself out to the general public as a carrier. Rhenus’ website stated that Rhenus “develops transport solutions on all routes,” offers “efficient, reliable, and safe door-to-door transportation of your goods,” and is a “partner for international freight forwarding and transportation.” Defendant’s own witness agreed that Rhenus is a “service agent, freight forwarder.” Therefore, the Court reasoned that the defendant failed to raise a fact issue here.
Further, a genuine issue of material fact existed as to whether Defendant assembles or consolidates, or provides for assembling and consolidating of, shipments and provides for break-bulk and distribution of the shipment. Plaintiff argued that Defendant agreed to break-bulk and distribute shipments. At the deposition of Defendant’s witness, the witness testified that “Freight Logistics [acquired by Rhenus] will repackage or prepare for international shipment as necessary.” This was during the interpretation of a Logistics Services Agreement. But Defendant pushed back stating that there was not just one Logistics Services Agreement but at least 7 such that interpreting one contract dealing with break-bulking and distribution may not resolved fact issues regarding transportation under another contract. The Court agreed. The Court decided that these contracts raise fact issues also because they specifically disclaim Defendant’s status as a freight forwarder and reference unspecified freight forwarders as third parties to the contract.
Next the Court determined that a genuine issue of fact existed as to whether Defendant took responsibility for the transportation from the place of receipt to the destination. The key factor is whether Defendant “accepted and legally bound [itself] to transport” the shipment. 49 C.F.R. §371.2(a). The party cannot outsource its contractual responsibility. The question the Court asked was with whom did the shipper entrust the cargo. Essex Ins. Co. v. Barrett Moving & Storage, Inc., 885 F.3d 1292, 1301 (11th Cir. 2018). The Court considered deposition testimony. For instance, a transportation manager testified that it was Defendant’s “responsibility is to bring the cargo to Miami.” Plaintiff argued that this is an admission of legal responsibility. The Court declined to impute on the testimony of a non-lawyer the legal weight that ACE sought stating that “responsible” carried many meanings. The Court pointed out that the witness specifically denied that that Defendant was a freight forwarded and stated that they were “a service agent for Logicalis brand.” These assertions raise genuine issues of fact as to whether Defendant was a freight broker or a service agent. ACE also pointed out that the Bill of Lading even bore a Freight Logistics logo, therefore making Defendant a forwarder. But the Bill of Lading was silent as to Defendant’s status. The presence of the log, without more, does not resolve genuine fact issues. There were several other arguments attempted by ACE, but the Court concluded by stating that the difference between a carrier and a broker is often blurry, involves a fact-intensive inquiry, and therefore often not well suited for summary judgment. ACE’s motion for summary judgment was denied.
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COURT GRANTS IN PART AND DENIES IN PART INSURER’S RULE 12(b)(6) MOTION TO DISMISS EXTRA-CONTRACTUAL CLAIMS
A Federal District Court in San Antonio granted in part and denied in part Philadelphia Indemnity Insurance Company’s 12(b)(6) motion to dismiss Plaintiff’s Chapter 541 and DTPA extra-contractual claims.
In Woodstone Condo. Owners Ass’n v. Phila. Indem. Ins. Co., No. 5:24-CV-0364-JKP-ESC, 2024 U.S. Dist. LEXIS 196062 (W.D. Tex. 2024), Woodside Condominium Owners Association sued Philadelphia Indemnity Insurance Company under a commercial insurance policy covering five buildings located in Seguin, Texas. Plaintiff alleged that after Defendant inspected the property, Plaintiff submitted a Sworn Proof of Loss for structure replacement only in the amount of $414,832, and because of Defendant’s breach of contract and failure to promptly pay benefits, it has been damaged in the sum of at least $404,941. Plaintiff also set out alleged unfair settlement practices under Chapter 541 without identifying any additional damages and set out alleged violations of the DTPA without identifying any amount of additional damages. Defendant argued that Plaintiff must plead more.
The carrier first argued that Plaintiff failed to state any plausible violation of Chapter 541 or the DTPA because it did not allege damages that resulted independently from its extra-contractual claims. “Actual damages under the Insurance Code are those damages recoverable at common law, which include benefit-of-the-bargain damages representing the difference between the value as presented and the value received.” USAA Tex. Lloyds Co. v. Menchaca, 545, S.W.3d 479, 489 (Tex. 2018). In Menchaca, the Texas Supreme Court sought to clarify the law of recovering policy benefits for statutory violations. Whether “an insured can recover policy benefits as ‘actual damages’ caused by an insurer’s statutory violation absent a finding that the insured had a contractual right to the benefits under the insurance policy,” the general “answer to this question is ‘no,’ but the issue is complicated so the Texas Supreme Court identified five rules to be applied. Those five rules are: (1) An insured cannot recover policy benefits as damages for an insurer’s statutory violation if the policy does not provide the insured a right to receive those benefits; (2) an insured who establishes a right to receive benefits under the insurance policy can recover those benefits as actual damages under the Insurance Code if the insurer’s statutory violation causes the loss of the benefits; (3) even if the insured cannot establish a present contractual right to policy benefits, the insured can recover benefits as actual damages under the Insurance Code if the insurer’s statutory violation caused the insured to lose that contractual right; (4) if an insurer’s statutory violation cause an injury independent of the loss of policy benefits, the insured may recover damaged for that injury even if the policy does not grant the insured a right to benefits; and (5) an insured cannot recover any damages based on an insurer’s statutory violation if the insured had no right to receive benefits under the policy and sustained no injury independent of a right to benefits. See Menchaca at 489.
The Court went on to explain that under Menchaca, a plaintiff may recover policy benefits as actual damages through multiple alternatives. For example, plaintiff who succeed on a breach of contract claim cannot recover for the same injury though an extra-contractual claim. See Tony Gullo Motors I, LP v. Chapa, 212 S.W.3d 299, 303 (Tex. 2006). Still, plaintiff may assert alternative bases for damages and Menchaca provides for multiple pathways. Notably, Defendant’s argument regarding damages did not render the extra-contractual claim implausible, according to this Court. A plaintiff may have a plausible DTPA claim even absent independent damages, according to the Court.
Defendant argued two reasons for dismissal of Plaintiff’s §541.060(a)(1) claim and DTPA claim premised on alleged misrepresentations (Tex. Bus. & Com. Code §17.50(a), §17.46(b)(5) and §17.50(a)(3)): 1) Plaintiff failed to sufficiently plead that it relied on the misrepresentations and that they were the source of its damages and 2) post-loss representations are not actionable as extra-contractual claims. The Court disagreed with the latter statement. Many cases have found allegations of post loss representations are sufficient to state a claim under Tex. Ins. Code 541.060(a)(1). See Glidewell v. Safeco Ins. CO. of Ind., No. 3:15-CV-1099-G, 2015 U.S. Dist. LEXIS 106795, (N.D. Tex. Aug. 13, 2015). But the first premises had merit, according to this Court. “Under Texas law, if the insured does not rely to his detriment on the misrepresentation when making a decision, there is no actionable claim.” Taboada v. State Farm Lloyds, No 2:18-CV-453, 2020 U.S. Dist. LEXIS 8224, (S.D. Tex. Jan. 17, 2020). Plaintiff failed to allege any reliance in its pleading. Defendant also argued that the absence of reliance in the pleadings is a basis for dismissing the DTPA claims under §17.46(b)(5) and §17.50(a)(3). Here, the Court held that neither §17.50(a)(3) nor §541.151(a) require detrimental reliance and therefore Plaintiff has no plausible claim under §17.50(a)(3). Plaintiff cannot maintain a §17.50(a)(4) claim under the DTPA without an underlying violation of Chapter 541 of the Insurance Code.
Finally, the Court refused to grant Plaintiff’s request to amend its complaint when it already had amended the complaint prior to the filing of the motion to dismiss. And “if the Court finds any Motion to Dismiss has merit, the Plaintiff shall not be allowed an additional opportunity to amend its Complaint following a properly filed Motion to Dismiss.” U.S. ex. Rel. Willard v. Humana Health Plan of Tex., Inc., 336 F.3d 375, 387 (5th Cir. 2003). The Court pointed out too that the Plaintiff’s request to file another amendment provides no reason why the procedure applied through the Court’s standing order failed to provide an adequate opportunity to present its best case. The Court concluded that justice does not require serial amendments in response to motions to dismiss and exercised its discretion to deny the request.
The Court granted the motion to dismiss any claim based on Tex. Ins. Code §541.060(a)(1) and Tex. Bus. & Com. Code §17.46(b)(5) and §17.50(a)(3). But the claims under §541.060(a)(2)(A), (3), (4), and (7) as well as the DTPA claim under §17.50(a)(4) remained.
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