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Update on Insurance Law - August 2014

Author: H. Norman Kinzy

There have been a number of recent court decisions which are of significance to the practice of insurance law. These include cases dealing with insurance coverage, defamation, products liability, mesothelioma, health-care claims, premises liability, and sovereign immunity.

Always, each case involves different facts and law, and accordingly the following must be taken for general information purposes only rather than for action upon any specific fact situation.

Insurance – CGL – Construction Defects – Consent to Settle:  In Lennar Corporation v. Markel American Insurance Company, 413 S.W.3d 750 (Tex. 2013), the Texas Supreme Court dealt with damage resulting over time to homes built with an exterior insulation and finish system (“EFIS”).  Although the home builder undertook to remove the EFIS from all of the homes it had built and replace all EFIS with conventional stucco, the homebuilder’s insurers refused to participate in that remediation program, waited until the homeowners sued, and denied coverage for the costs.  Our Texas Supreme Court held that (1) not having consented to the homebuilder’s remediation program or to the settlements made by the homebuilder with the homeowners as a part thereof, the excess insurer was nevertheless responsible for the costs if the insurer suffered no prejudice as a result (as was determined by the jury), and (2) the insurer was responsible for both (i) costs incurred to determine property damage as well as to repair it, and (ii) costs to remediate damage that began before and continued after the policy period. 

Insurance – CGL – Contractual Liability Exclusion: In Ewing Construction Company v. Amerisure Insurance Company, No. 12-0661 (Tex. 2014), the Texas Supreme Court held that a general contractor which enters into a contract in which it agrees to perform its construction work in a “good and workmanlike manner,” without more specific provisions enlarging this “general law” obligation, does not “assume liability” for damages arising out of the contractor’s defective work so as to trigger the contractual liability exclusion of the general contractor’s CGL insurance policy.

In other words, for the contractual liability exclusion to come into play, an insured must have “assumed a liability for damages that exceeds the liability it would have under general law.”  Since claims that a contractor failed “to perform in a good and workmanlike manner” and claims that a contractor “negligently performed” under the contract are substantively the same, the contractual liability exclusion is inapplicable.

Defamation – Libel – Broadcaster’s Liability – “Limited Purpose Public Figure”: In Neely v. Wilson, No. 11-0228 (Tex. 2014), the Texas Supreme Court dealt with a summary judgment granted to media defendants in a suit stemming from their investigative broadcast involving a physician.  The court reiterated that truth is a defense, and in the case of media defendants, “there is no defamation liability if the gist of the broadcast is substantially true.”  The court then discussed the meaning of “gist,” held that the plaintiff physician is not a “limited purpose public figure” for defamation purposes, and reversed and remanded the case to the trial court for further proceedings.

Defamation – Libel – Reputation of Corporation:  In Waste Management of Texas, Inc., v. Texas Disposal Systems Landfill, Inc., No. 12-0522 (Tex. 2014), the Texas Supreme Court dealt with a suit by a corporation plaintiff for libel, holding that a corporation may suffer reputation damages, such damages are “noneconomic” in nature, and such damages can be recovered by the corporation. Inasmuch as reputational damages are noneconomic in nature, however, the amount of recovery thereof results in a lower allowable statutory cap on exemplary damages, which limits exemplary damages to an amount equal to twice the amount of economic damages plus noneconomic damages not to exceed $750,000.00.

Products Liability – Generic Drugs – Federal Preemption: In Mutual Pharmaceutical Co., Inc. v. Bartlett, No. 12-142, (U.S. 2013), the United States Supreme Court dealt with a Massachusetts state law which required the manufacturer of a generic drug to change and strengthen warnings placed on the product in order to make it adequate under New Hampshire law. Noting, however, that the Federal Food, Drug and Cosmetic Act prohibited a manufacturer from making any “unilateral changes to a drug’s label,” the United States Supreme Court held that New Hampshire’s state law governing design-defect claims, which turned on the adequacy of a drug’s warning label, was preempted with respect to FDA–approved drugs sold in interstate commerce, and New Hampshire’s law was therefore “without effect.”

Healthcare Liability Claims – Include Laser Treatments – Expert Report Required to Avoid Dismissal: In two cases, Bioderm Skin Care, LLC, v. Sok, No. 11-0773, (Tex. 2014), and Rio Grande Valley Vein Clinic v. Guerrero, No. 12-0843, (Tex. 2014), the Texas Supreme Court concluded that (1) claims for improper laser hair removal and damage resulting therefrom are healthcare liability claims, (2) clinics “associated” with physicians are “healthcare providers” under the Medical Liability Act, (3) expert healthcare testimony is necessary to prove or to refute the claim that the laser hair removal procedure was performed improperly, (4) the plaintiffs had not rebutted, through expert testimony, the presumption that their claims for improper hair removal are healthcare liability claims, and (5) because the plaintiffs had failed to serve the statutorily-required expert report within the statutory period of 120 days after defendants’ answers were filed, the claims against the healthcare providers must be dismissed and the case remanded to the trial court for awards of attorney’s fees and costs against the plaintiffs in favor of the medical healthcare providers.

The Court noted that expert testimony is required, particularly in the case of the use of medical devices, where such information “is not a matter plainly within the common knowledge of laymen,” and it is only where the mode or form of treatment is a matter of common knowledge or is within the experience of the laymen that expert testimony is not necessary. Because medical lasers have been classified by the United States Food and Drug Administration as surgical devices and declared not safe for use except under the supervision of a practitioner licensed by law to direct the use of such devices, the Supreme Court held that medical testimony was required to establish plaintiffs’ claims and thus plaintiffs’ failure to provide the statutory 120 day expert report was fatal to their causes of action.

Insurance – Recoupment by Insurer of Paid Claims – Contractual vs. Equity Causes of Action: In Gotham Insurance Co., v. Warren E&P, Inc., No. 12-0452 (Tex. 2013), the Texas Supreme Court dealt with whether an insurer had an equitable right to reimbursement from its insured where the insurer had paid claims to the insured resulting from an oil well blowout fire.  The insurer’s claim was based upon the insured’s alleged misrepresentation regarding its working interest. Since the insurance contract itself contained several clauses containing misrepresentations, reporting, salvage and recoveries, subrogation, and due diligence, the Supreme Court held that the insurer was limited to contractual claims (which were addressed in the policy itself) and could not rely on its equity claims for reimbursement.

Conversely, the Supreme Court held the insurer could rely on an equity claim if it prevailed on its misrepresentation theory and elected the remedy avoiding the policy, ab initio.

Premises Liability – Trespassers – Lack of Duty – Gross Negligence: In Boerjan v. Rodriguez, No. 12-0838 (Tex. 2014), the Texas Supreme Court addressed the duty of a landowner to illegal immigrants who were trespassing on private ranch property.  After being confronted by a ranch employee, the trespassing driver and his occupants fled at high speed resulting in a vehicle rollover and the deaths of several illegal immigrants.  The Supreme Court noted that the “unlawful acts doctrine” has been abrogated by the adoption of the Texas comparative responsibility scheme, and thus was unavailable in defense of the landowner.  However, the Supreme Court further noted that the “only duty the premises owner or occupier owes a trespasser is not to injure him willfully, wantonly, or through gross negligence.”  Because the ranch personnel did not owe plaintiffs’ decedents an “ordinary negligence” duty, their claim failed as presented in terms of ordinary negligence.  Commenting further upon plaintiffs’ claims of liability based upon gross negligence, the court held that under the facts, simply following a trespasser’s truck was “a far cry from the sort of objective risk that would give rise to gross negligence,” and thus overruled plaintiffs’ claims for gross negligence liability.

Sovereign Immunity – Arrest – Battery – No Waiver: In The City of Watauga v. Gordon, No. 13-0012 (Tex. 2014), the Texas Supreme Court dealt with whether a city had waived governmental immunity for personal injuries allegedly caused by the negligent use of property. The suit arose out of an arrestee’s lawsuit against the city for injuries caused by a police officer’s intentional but improper use of handcuffs.  The issue was whether or not applying handcuffs too tightly thereby causing injury was a claim for negligence for which recovery might be had, or a claim for battery for which sovereign immunity had not been waived, and  the court held that no waiver of immunity had occurred since the application of handcuffs, even where the application was excessive in force, constituted a battery, rather than negligence, stating that “when an arrest, lawful in its inception, escalates into excessive–force allegations, the claim is for battery alone.”

Products Liability – Mesothelioma – Causation – Burden of Proof: In Bostic v. Georgia-Pacific Corporation, No. 10-0775 (Tex. 2014), the Texas Supreme Court held that the standard of “substantial factor causation” applies also to mesothelioma cases and plaintiffs were not required to prove that “but for” plaintiff’s decedent’s exposure to a defendant’s asbestos–containing joint compound, the decedent would not have contracted mesothelioma.  In summary, the Court held that in all asbestos cases involving multiple sources of exposure, including mesothelioma cases, the standards of proof of causation in fact are the same, and that:

(1)  proof of “any exposure” to a defendant’s product will not suffice and instead the plaintiff must establish the dose of asbestos fibers to which he was exposed by his exposure to the defendant’s product;

(2)  the dose must be quantified but need not be established with mathematical precision;

(3)  the plaintiff must establish that the defendant’s product was a substantial factor in causing the plaintiff’s disease;

(4)  the defendant’s product is not a substantial factor in causing the plaintiff’s disease if, in light of the evidence of the plaintiff’s total exposure to asbestos or other toxins, reasonable persons would not regard the defendant’s product as a cause of the disease; and

(5)  to establish substantial factor causation in the absence of direct evidence of causation, the plaintiff must prove with scientifically reliable expert testimony that the plaintiff’s exposure to the defendant’s product more than doubled the plaintiff’s risk of contracting the disease.