Many opinions have addressed the fact that a court in Texas has no discretion to ignore an appraisal clause that allows either the insurer or the policyholder to invoke it. The next wave of cases will likely address whether the timely payment of an umpire award moots all other causes of action brought by the policyholder. Bad faith litigation has matured to the point where it is "good law" that without a breach of contract, there can be no cause of action for bad faith. It is also "good law" that prompt payment of an umpire award estops the policyholder from bringing a breach of contract cause of action. So, where does that leave matters? If an insurer timely pays the full amount of an umpire award and moves for summary judgment on estoppel by contract argument, is there any justification, other than to run up fees and expenses, for the case to continue? Is there any discovery that is relevant to the estoppel argument that should be allowed? Although I believe the courts have already answered these questions, I anticipate that the answers to these questions will be reaffirmed in the
I have had my fair share of insurance adjusters that have contacted me in a panic based on threats by a claimant's attorney to file suit based on the Stowers doctrine. Oftentimes, the adjuster forgot to respond to a time-sensitive demand, and based on that fact alone, the claimant's lawyer begins to salivate over the potential to obtain an excess judgment. Although there are occasions where I get the call to assist after it is too late to cure the calendaring error, more times than not, after reviewing what was called a Stowers demand, it is learned that it is not one at all.
Texas courts have consistently demanded that parties asserting Stowers claims must fully comply with each of the elements necessary to demonstrate Stowers liability. Those elements are as follows:
1. The claim must be within the scope of coverage afforded by the policy;
2. The demand must be within policy limits; and
3. The terms of the demand must be such that an ordinarily prudent insurer would accept it, taking into consideration the likelihood and degree of the insured’s potential exposure to an excess judgment.
Under the third requirement, the settlement demand must be an unconditional demand that agrees to release the insured fully in exchange for a stated sum of money. Trinity Universal Ins. Co. v. Bleeker, 966 S.W.2d 489 (Tex. 1998). An insured’s Stowers duty is only triggered by a settlement demand offers a full release to the insured. Id. At 491. Before an insurer incurs Stowers liability, the settlement demand must indicate that the insured will be fully released in exchange for either a stated sum of money or the limits of the policy.
Subsequent decisions by the Texas Supreme Court impose additional Stowers requirements. In Trinity Universal Ins. Co. v. Bleeker, the Texas Supreme Court held that the “full release” requirement of Stowers is not met where legitimate third-party claims, e.g., hospital liens, are not satisfied. Bleeker commands that any and all hospital charges be paid in full before execution and delivery of the release, or the hospital must be made a party to the release, or its claim must be otherwise resolved in connection with any settlement between the patient and the alleged tortfeasor.
The articles discussing Stowers are voluminous. Let me just say that I have seen more than one purported Stowers letter that fails to include what I would consider boilerplate - - it fails to state that the claimant "will release the insured fully in exchange for a stated sum on money." So, if you are an adjuster that has just been told you have busted a Stowers deadline, take a look at the original letter and see if it unconditionally offers to release the insured fully.
In an unpublished opinion, dated October 9, 2012, the 14th Court of Appeals in Houston addressed whether a trial court can render judgment based upon an appraisal award without a summary judgment proceeding, trial, or an agreed judgment. See Security Nat. Ins. Co. v. Waloon Inv., Inc., 2012 WL 4788114 (Tex. App. - - Houston [14th Dist.] Oct. 9, 2012). Without getting into too much detail about the facts, the case involved hurricane-related damages to a Ramada Inn. The appraisal process resulted in a $3 million plus umpire award, and the day after the award was issued, the policyholder moved to have it enforced by the trial court. In response, the trial court ordered payment to be made in accordance with the umpire award. Subsequently, upon Plaintiff's Motion for Entry of Judgment on All Contractual Claims, the trial court converted its earlier order enforcing the umpire award into a final judgment. Incidentally, the extra-contractual claims were severed from the contractual claims so the contractual claims could be converted into a final judgment.
As you would expect, the insurer appealed and argued that a trial court is not permitted to convert an appraisal award, standing alone, into a final judgment. The Houston Court of Appeals agreed with the insurer and disagreed with the policyholder's argument that an appraisal award entitled it to an interlocutory order that the insurer make full payment of the award. The Court noted that under the policyholder's argument, appraisal awards would effectively be treated as if they were arbitration awards, but for over one hundred and twenty years, Texas courts have distinguished appraisals from arbitrations. Although both procedures are contractual creatures that are designed to resolve disputes without recourse to the courts, there are significant differences between an arbitration and an appraisal.
An arbitration may encompass the entire controversy between the parties or it may be tailored to certain legal or factual disputes. By contrast, an appraisal determines only the amount of loss, without resolving issues such as whether the insurer is liable under the policy. Simply put, the Court held that under Texas precedent, an appraisal award, by itself, does not entitle either the insured or the insurer to judgment in its favor as to the insured’s claim against the insurer for breach of contract. A party must prove, through a summary judgment proceeding or at trial, each of the elements of its breach of contract action. That would require the party to establish the following elements: (1) the existence of a valid contract, (2) the plaintiff performed or tendered performance, (3) the defendant breached the contract, and (4) the plaintiff was damaged as a result of the breach.
It appears that Zurich is writing insurance coverage that pays for attorneys' fees if the covered party loses at trial or summary judgment. The "pilot program" was started in California, but has now been rolled out to Texas, Illinois, Florida, New Jersey, and New York. In Texas, if proper presentment is made pursuant to the Texas Civil Practice and Remedies Code, a party that is sued for breach of contract is responsible for paying for the prevailing party's attorney's fees. In commercial disputes, attorney's fees can often exceed the amount of the underlying amount in controversy. In addition, it is not uncommon for an attorney representing the plaintiff in a commercial dispute to threaten to run up the attorney's fees in an effort to squeeze the defendant into settling early to avoid the uncertainty of a considerably larger verdict following a trial on the merits. Coverage for "loser pays" attorney's fees would certainly counter any leverage the plaintiff had in negotiating a settlement based on the uncertainty of future costs and expenses. With this coverage, a business owner who is sued for breach of contract would be able to assess the company's risk based solely on the amount of the contract damages and not based on the uncertainty of what amount a jury might award for attorney's fees following a trial on the merits. I am interested in seeing a copy of the policy that Zurich has previously issued to see what exclusions exist. I am curious whether an insured's knowledge or notice of "potential" or "threatened" breach of contract litigation is excluded and how the policy defines those terms.
Texas courts are in general agreement that failure to comply with a demand for an Examination Under Oath is a condition precedent to filing suit. The courts also agree that the case should be abated until such time as the insured provides her EUO. Texas courts also agree that failure to comply with a demand for appraisal is a condition precedent. Yet, although a court has no discretion to deny an insurer its right to proceed to appraisal, it does not have to abate the case pending the appraisal. Why is a distinction made between an EUO as a condition precedent that requires abatement and an appraisal as a condition precedent that does not require abatement?
..... Yu Darvish. Let's hope that the Texas Rangers $110 million dollar insurance policy pays off. You can find me tonight in Section 137, Row 36.
While Josh Hamilton Recalls How to Catch a Fly Ball, I Take this Time Out to Remind You that in Insurance Coverage, Every Word Has A Purpose.
A fight breaks out on the insured’s front lawn, and the homeowner’s child is involved in a scuffle with a neighbor’s child. The insured reports the incident as a precaution before any indication that claim might result. Subsequently, the insured receives a $10,000 medical bill from the parents of the other child for treatment of a detached retina, with a threat to sue the homeowner for negligent supervision if the bill is not paid immediately. Although the claim sounds in negligence, coverage under the insured’s homeowner’s policy is not a certainty.
Coverage under a homeowner’s liability policy for a claim of negligent supervision can turn on whether the “intended injury exclusion” uses the word “the” or the word “an” or “any.” Undoubtedly, there are policies now that are explicit in terms of who is covered for bodily injury caused by an intentional act. The a purpose of this article is not to address the nuances of various homeowner’s policies, or frankly, whether a majority of policies cover claims of negligent supervision or not. This article is meant to highlight the fact that in addressing coverage issues, every word has a purpose.
A typical homeowner’s policy provides liability coverage for claims made against an “insured” for damages because of “bodily injury” caused by an “occurrence.” In those policies, an “occurrence” is defined as an accident which results in “bodily injury,” and although “accident” is usually not defined, Texas courts have supplied its meaning. Generally, “where acts are voluntary and intentional and the injury is the natural result of the act, the result was not caused by accident even though that result may have been unexpected, unforeseen, and unintended.” Trinity Universal Ins. Co. v. Cowan, 945 S.W.2d 819, 826–28 (Tex 1997). Under the scenario portrayed in the opening paragraph, the child’s intentional act of striking another child is not an accident under any definition, and as such, no liability coverage would exist to cover any liability claims brought against the child.
The lack of liability coverage for the child does not necessarily preclude coverage for the parent. Again, every word has a purpose. The reason that coverage for the parent may exist for the intentional act of the child is because of the common “severability of insurance” or “separation of insureds” clause. That provision states that “[t]his insurance applies separately to each insured.” See King v. Dallas Fire Insurance Company, 85 S.W. 3d (Tex. 2002). Thus, there can be an “occurrence” from the standpoint of the parents even when there is not an “occurrence” from the standpoint of the child.
The intent of the severability clause is to provide each insured with separate coverage, as if each were separately insured with a distinct policy, subject to the liability limits of the policy. Utica Mut. Ins. Co. v. Emmco Ins. Co., 309 Minn. 21, 243 N.W.2d 134, 142 (1976). The severability clause serves to provide coverage when there is an “innocent” insured who did not commit the conduct excluded by the policy. State Farm Fire & Cas. Ins. Co. v. Keegan, 209 F.3d 767, 769 (5th Cir.2000) (construing Texas law; citing Walker v. Lumbermens Mut. Cas. Co., 491 S.W.2d 696 (Tex. Civ. App.-Eastland 1973, no writ)).
In King, Dallas Fire Insurance Company brought a declaratory judgment under a commercial general liability policy seeking a declaration that the underlying claims by an individual who was assaulted by the insured’s employee were not covered. The Supreme Court of Texas held that the severability clause created separate insurance policies for the insured and the insured’s employee, and the employee’s assault on a third person who alleged negligent supervision by the employer was to be viewed from the perspective of the insured employer in determining whether the event was an “occurrence” within the meaning of either the general liability policy or whether the intentional injury exclusion applied.
King unequivocally supports coverage for a negligent supervision claim against an innocent parent, right? There are post-King cases that seem to agree with that proposition. However, those cases overlook an important segment of the King opinion detailing with the actual wording of the “expected or intended injury” exclusion. The “expected or intended injury” exclusion in King excluded coverage for “bodily injury expected or intended from the standpoint of the insured.”
Although there are post-King opinions where the courts miss the significance of the word “the” contained in the Kingexclusion, one court aptly noted its significance, albeit in addressing an auto exclusion. See Bituminous Casualty Corp. v. Maxey, 110 S.W.3d 203 (Tex. App. - - Houston [1st Dist.] 2003, rev. den’d). In a case of first impression, the well reasoned opinion in Maxey held that the severability of insurance clause, which required the policy to be read as if each insured were the only insured, did not require the auto exclusion applying to “any insured” to be read any differently from its grammatically accepted meaning. The court summarized the general rules of contract construction, which I will not retread, and held that the term “any insured” means what it says. In other words, the severability clause did not require the courts to replace the words “any insured” in the policy with the words “the insured.”
The rule to remember is that just because one case finds coverage under a general liability clause for negligent supervision does not mean that your policy will provide the same coverage.
In matters of insurance coverage, every word has a purpose, and coverage can turn on something a simple as the words “the,” “an,” or “any.”
As mentioned in prior posts, Texas courts recognize “three situations in which the results of an otherwise binding appraisal may be disregarded: (1) when the award was made without authority; (2) when the award was made as a result of fraud, accident, or mistake; or (3) when the award was not in compliance with the requirements of the policy.” See Lundstrom v. USAA, 192 S.W.3d 78, 87 (Tex. App. - - Houston [14th Dist.] 2006, pet. denied).
What does it mean for an appraisal award to be made without authority? See Toonen v. USAA, 935 S.W.2d 937 (Tex. App. - - San Antonio 1996). Well, according to Toonen, a contest based on lack of authority is exactly as it sounds. It is a claim by one of the parties that the appraiser that was selected did not have authority to act on behalf of the party. Unfortunately, for Toonen, the argument, although valid, failed to impress. Before Toonen had hired an attorney, she hired a private adjusting firm that contacted the insurance company claiming that it was the insured's authorized appraiser. The appraisal process moved forward, and the insurance company tendered the full amount of the agreed upon appraisal award.
Toonen eventually filed suit and claimed that although she had agreed for the private adjusting company to handle her insurance claim, she did not authorize the company to agree to the appraisal process. The Court examined whether the private adjusting company, as an admitted agent of the insured, had authority to act on behalf of the insured. The Court noted that an agent’s authority to act for its principal may be demonstrated in any one of three ways: express actual authority, implied actual authority, or apparent authority. E.g., Insurance Co. of North America v. Morris, 928 S.W.2d 133, 144 (Tex.App.—Houston [14th Dist.] 1996, writ requested). The Court agreed that USAA did not conclusively establish that the private adjuster acted with express actual authority, and it went on to examine whether the private adjuster acted with implied actual authority or apparent authority.
Implied actual authority arises when “appearances justify a finding that in some manner the agent was authorized to do what he did.” Morris, 928 S.W.2d at 144. Apparent authority “is a form of estoppel where a third party relies on conduct of the principal which would lead a reasonably prudent person to believe the agent had authority to act.” Id. The Court noted USAA put forth sufficient evidence that it believed the private adjuster had authority to act on the insured’s behalf in invoking the appraisal clause, and moreover, the insured, upon learning that the private adjuster had participated in the appraisal process, took no action to disavow the conduct. See Land Title Co. of Dallas v. F.M. Stigler, Inc., 609 S.W.2d 754, 756 (Tex.1980) (principal can ratify agent’s unauthorized acts by failing to repudiate agents actions once principal acquires actual or constructive knowledge of facts, even if knowledge acquired after transaction in question); Diamond Paint Co. of Houston v. Embry, 525 S.W.2d 529, 535 (Tex.Civ.App.—Houston [14th Dist.] 1975, writ ref’d n.r.e.) (ratification by silence).
This case demonstrates the potential problems that policyholders can encounter when they engage the services of a public adjuster but later also retain legal counsel. The left hand (attorney) often does not know what the right hand (the public adjuster) has already done.
What Happens After the Appraisal is Completed? Contesting Enforcement Because of Fraud, Accident, or Mistake.
As mentioned in a prior post, Texas courts recognize “three situations in which the results of an otherwise binding appraisal may be disregarded: (1) when the award was made without authority; (2) when the award was made as a result of fraud, accident, or mistake; or (3) when the award was not in compliance with the requirements of the policy.” See Lundstrom v. USAA, 192 S.W.3d 78, 87 (Tex. App. - - Houston [14th Dist.] 2006, pet. denied). I have previously discussed contesting enforcement of the award when the award was not in compliance with the requirements of the policy, and I discussed the specific argument under this category that the appraisers were not "independent" or "impartial." Here, I discuss the meaning of an award was the result of "fraud, accident, or mistake."
Under this category, litigants have sometimes argued that the appraisal award is the result of "fraud, accident, or mistake" when the appraisal does not use sound, reasonable or reliable appraisal methodology. In my opinion, this particular argument should really fall under the category "when the award was not in compliance with the requirements of the policy." It would fall under a "lack of competence" argument that is similar to the assertion that the appraiser was not "independent" or impartial." Nevertheless, this argument was addressed in a in a recent case from the Southern District of Texas, and the argument was rejected. See MLCSV10 v. Stateside Enterprises, Inc., 2012 WL 1098415 (S.D. Texas March 30, 2012). In that case, the plaintiffs argued that the award should not be enforced because the appraiser selected by the insurer did not submit expert reports to support his loss valuation. No challenge was made to the appraisers qualifications or expertise. The Court held that "[a]n appraiser’s loss valuation is not methodologically unsound simply because another appraiser submits supporting documentation, especially when there is evidence that the former appraiser was qualified to assess the loss."
The District Court went on to discuss the real meat of the "mistake" and "fraud" argument. The District Court held that "a court may set aside an award on the ground of mistake [or accident] only 'upon a showing that the award does not speak to the intention of the appraisers." An umpire that completely chooses one appraiser's valuation over the other is no indication of accident or mistake.
The Court then discussed a Fort Worth Court of Appeals case demonstrating when an award should be set aside on the grounds of "fraud." See Barnes v. Western Alliance Insurance Co., 844 S.W.2d 264 (Tex. App. - - Fort Worth 1992, writ dism’d by agr.) In Barnes, the appellants were insureds under a property insurance policy and argued that there was insufficient evidence supporting the jury’s determination that an appraisal award resulted from fraud, mistake, or accident. At trial, the insurer presented evidence that during the appraisal process, the appellants had lied about the damage their roof sustained in a hailstorm. The appellants’ misrepresentations created “a great deal of confusion about which part of the roof ... was actually damaged during the ... hailstorm, so much so that the appraisers and umpire could not tell which part needed to be replaced because of the storm.” The Texas Court of Appeals concluded that the insureds “dishonesty and the resultant confusion” were “sufficient for the jury to have reasonably concluded that the appraisal award was the result of accident or mistake.”
To establish fraud, a party must show: (1) a material misrepresentation, (2) that the misrepresentation was false, (3) that the misrepresentation was either known to be false when made or was asserted without knowledge of its truth, (4) that the misrepresentation was intended to be acted upon, (5) that the misrepresentation was relied upon, and (6) that the misrepresentation caused injury. Formosa Plastics Corp. USA v. Presidio Eng’rs and Contractors, Inc., 960 S.W.2d 41, 47 (Tex.1998). Presumably, if a party could prove that the appraiser himself misrepresented square footage, industry price standards, etc., with the intent to convince the umpire to issue an inflated award, then evidence of fraud would exist.
I ran across an article explaining the personality trails of a good lawyer. The article was written by Marilyn Kennedy Melia and published on September 27, 2012 on bankrate.com. In it, here is what she writes about lawyers. Is it accurate?
How to tell: Watching the nightly news with you is a downer, because you tend to see everything from political upheaval to unusual weather as pervasive and uncontrollable. Your pessimistic nature is suited for the law.
Why: If you're an optimist -- someone who views negative news events as "local, temporary and changeable," you have an attitude that will help you succeed in most professions, writes Martin E. P. Seligman in his book, " Authentic Happiness: Using the New Positive Psychology to Realize Your Potential for Lasting Fulfillment."
However, being a pessimist is a plus for lawyers, Seligman writes, "because seeing troubles as pervasive and permanent is a component of what the law profession deems as prudence. A prudent perspective enables a good lawyer to see every conceivable snare and catastrophe that might occur in any transaction." It's this approach that enables an attorney to help his or her clients defend against any eventuality, Seligman says.
However, this pessimistic trait doesn't have to be inborn because "law school will teach it to you," Seligman says. But it's a big reason lawyers tend to be more unhappy than other professionals, Seligman writes.