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Update on Insurance Law - September 2013

Author: H. Norman Kinzy

There have been a number of court decisions which are of significance to the practice of insurance law since our last update. These include cases dealing with workers' compensation extra-contractual claims and lifetime benefits, the interpretation of "all risk" policies, and toxic torts.

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.

Workers' Compensation Insurance - Extra-Contractual Claims – Substituted Opinion Upon Rehearing:  In Texas Mutual Insurance Company vs. Ruttiger, 08-0751 (Tex. 2011), the Texas Supreme Court examined earlier case law in light of Texas' current workers' compensation statutory scheme, and held (1) that an injured worker has no claim under the Insurance Code against a workers' compensation insurer for unfair claim settlement practices, (2) that claims under the Insurance Code may be made by a plaintiff against an insurer for misrepresenting provisions of an insurer's policy of workers' compensation insurance, and (3) the 2011 court sent the case back to the intermediate court of appeals to determine whether or not the currently existing common law remedy for breach of the covenant of good faith and fair dealing ("bad faith") against a workers' compensation insurer should be overruled in light of the current workers' compensation statutory scheme.

After a rehearing of the case by the Supreme Court in 2012, a new opinion has been handed down by the Supreme Court in 2012 reiterating its rulings on the first two points set forth above, but reversing its decision on the third point.

In its new 2012 opinion, the Supreme Court overruled Aranda v. Insurance Co. of North America, 748 S.W. 2nd 210 (Tex. 1988), and has now ruled “that an injured employee may not assert a common-law claim for breach of the duty of good faith and fair dealing against a worker’s compensation carrier.”

Insurance - Duty to Defend - Disposition of Remains of Decedent:  In Evanston Insurance Company v. Legacy of Life, Inc., 11-0519 (Tex. 2012), the Supreme Court dealt with a situation where Plaintiff daughter and her mother’s estate sued an organ donation charity for transferring Plaintiff’s mother’s organs to an entity which sold the tissues for profit. Defendant charity requested a defense from its insurer claiming a right to coverage under the policy provisions relating to coverage for “personal injury” and “property damage.” The insurer denied coverage, and the Supreme Court agreed that there was no duty to defend.

The court reasoned that since the decedent’s daughter had not suffered a physical injury, the daughter’s claim to mental anguish was not sufficient to trigger coverage with regard to the Defendant charity’s claim for coverage under the “personal injury” section of the policy. Similarly, the court held that under Texas statutes dealing with gifts of organs, human tissues are not the property of either the decedent’s next of kin or the decedent’s estate. Accordingly, there was no coverage under the insurer’s policy for “property damage” under the circumstances of this case.

Governmental Immunity – Failure to Use Safety Component:  In the City of North Richland Hills, Texas v. Friend, 11-0367 (Tex. 2012), the Supreme Court dealt with claims against a municipality alleging liability for its failure to use an available piece of property and held that the city could be held liable for negligently using harmful property, but not for failing to use it. The court noted that it had in earlier cases limited the “integral safety component doctrine” to cases where a safety component of a piece of property was completely lacking as opposed to being merely inadequate. Accordingly, the city was not liable for the death of an individual where the city employees responded with oxygen masks and other airway equipment, but did not use an available automatic external defibrillator device.

Governmental Immunity – “Special Defects” in Roadways:  In the City of Denton v. Paper, 11-0596 (Tex. 2012), the Supreme Court dealt with injuries arising from alleged “special defects” in roadways, and held that a two to three inch depression or sunken area in a roadway, which resulted from repairs to road by the city, of which depression the city had no actual knowledge, was not such a premises defect as to fall within the same class as an “excavation or obstruction,” which might impose liability upon a city to a bicyclist whose bicycle hit the hole in the road. The court noted that the class of special defects contemplated by the statute is narrow and “does not include common potholes or similar depressions in the roadway.” Accordingly the Supreme Court found in favor of the Defendant City.

Negligent Hiring and Supervision Cause of Action:  In Wansey v. Hole, 11-0348 (Tex. 2012), the Supreme Court held, as in negligent entrustment cases, that a negligent hiring claim requires that some harmful or negligent conduct of an employee – hired pursuant to the Defendant’s negligent hiring or supervision practice – proximately caused an injury, and that where a Plaintiff has not suffered any harm at the hands of the employee who was allegedly negligently hired, the Plaintiff may not recover.

Seamen: Available Claims for Personal Injury and Defenses thereto:  In Weeks Marine, Inc. v. Garza, 10-0435 (Tex. 2012), the Supreme Court dealt with remedies available to injured seamen, and held that a seaman has four potential claims and causes of action and that these include: (1) a Jones Act negligence claim, (2) an unseaworthiness claim, (3) a claim for unpaid maintenance and cure, and (4) a claim for personal injuries caused by the employer’s failure to provide maintenance and cure. Thus, before a seaman may recover an “unreasonable-failure-to-pay” award, the seaman must show that the employer’s unreasonable failure to pay was a cause of the injury. Further, a seaman may, upon proper proof, recover punitive damages when an employer’s failure to pay is willful and wanton. Moreover, although a seaman’s claim is governed by rules of comparative fault, the seaman can avoid a comparative-fault reduction in a negligence award by proving that he was complying with his superior’s specific orders, but this rule applies only when the seaman is ordered to do a specific task in a specific manner or is ordered to do a task that can be accomplished in only one way.

Age Discrimination Litigation:  In Mission Consolidated Independent School District v. Garcia, 10-0802 (Tex. 2012), the Supreme Court considered the question of whether a Plaintiff can establish a prima facie case of age discrimination when the undisputed evidence shows that the Plaintiff had been replaced by someone older. The court held that in this situation such a Plaintiff is not entitled to a presumption of age discrimination but is not precluded from proving a claim of age discrimination by direct evidence of discriminatory animus. In connection with this holding, the Supreme Court held that in order to allege a prima facie case of age discrimination, a plaintiff in a true replacement case must show that he or she was (1) a member of the protected class, (2) qualified for his or her employment position, (3) terminated by the employer, and (4) replaced by someone younger. Absent those facts, Plaintiff is not entitled to the presumption of age discrimination, but rather must, as aforesaid, prove same by direct evidence of discrimination.

Products Liability – Prescription Drugs:  In Centocor, Inc. v. Hamilton, 10-0223 (Tex. 2012), the Texas Supreme Court dealt with the “learned intermediary doctrine” within the context of prescription drugs where a patient-physician relationship exists. Under the facts of that case and within that context, our Supreme Court held that: (1) the “learned intermediary doctrine” is not an affirmative defense, but is an element of proof which that the plaintiff must prove to establish plaintiff’s cause of action against a manufacturer of prescription drugs, (2) that a prescription drug manufacturer may fulfill its duty to warn end users of its product’s potential risks by providing an adequate warning to the prescribing physician, (3) that Texas does not recognize an exception to the learned intermediary doctrine for “direct-to-consumer (DTC) advertising,” (4) that since all of the patient’s claims turned on the prescription drug manufacturer’s alleged failure to warn, that the learned intermediary doctrine applied to all of the plaintiff’s claims and causes of action, (5) that the patient was required to show an inadequate warning to the prescribing physician which caused the plaintiff’s injuries, (6) that if the warning to the prescribing physician is inadequate or misleading, a prescription drug manufacturer retains liability for the injuries sustained by the patient, (6) that the only exceptions recognized by Texas courts are those situations involving “mass inoculations” where no physician-patient relationship exists, and/or when a prescription drug manufacturer distributes intentionally misleading information directly to patients or prospective patients, and (7) that a non-prescribing physician has no duty to warn, i.e., on the facts of this case, our Supreme Court declined to create a “shared intermediary duty to warn.”

Healthcare – Non-Subscriber Employer Liability:  In Texas West Oaks Hospital, LP, et al v. Williams, 10-0603 (Tex. 2012), a plaintiff who was himself a healthcare provider sued his employer, which was both a non-subscriber employer under the Texas Workers’ Compensation Act, and a healthcare provider as well, alleging injuries arising out of inadequate training, supervision, risk-mitigation and safety. Our Supreme Court held that the healthcare-provider-employee-Plaintiff was properly characterized as a “claimant” under the Texas Medical Liability Act (TMLA) and that his allegations against his non-subscribing healthcare employer were all healthcare and safety claims under the TMLA, thus requiring Plaintiff to serve a statutory expert report to maintain his lawsuit.

In so holding, our Supreme Court found no conflict between the TMLA and the Texas Workers’ Compensation Act and accordingly, the plaintiff employee’s failure to provide the expert report required by the TMLA required dismissal of all of his claims against his healthcare non-subscribing employer.

Healthcare Claims – Suicide:  In Diego Rodriguez-Escobar, M.D. v. Goss, 10-0511 (Tex. 2013), the Supreme Court dealt with claims against a psychiatrist for his negligent failure to involuntarily commit Plaintiff’s decedent to a state mental health care facility, which allegedly was the cause of her subsequent suicide three days after the psychiatrist’s evaluation of the decedent, and the Supreme Court held that a physician’s failure to hospitalize a person who later commits suicide is a proximate cause of the suicide only if the suicide probably would not have occurred if the decedent had been hospitalized. The court noted that a defendant-actor’s negligence “may be too attenuated from the resulting injuries to the plaintiff to be a substantial factor in bringing about the harm,” and held that the factual evidence in this case was legally insufficient to support the jury’s finding that absent the negligence of the defendant psychiatrist, the decedent would not have committed suicide. In other words, the court held that there was no evidence that an involuntary hospitalization of the decedent, by the defendant psychiatrist, had it occurred, probably would have prevented her death.

Healthcare Claims – Informed Consent:  In Felton v. Lovett, 11-0252 (Tex. 2013), the Supreme Court dealt with claims against a doctor of chiropractic and held that a healthcare provider may be liable for failing to disclose to a patient the risks “inherent” in the proposed treatment. The court discussed differences between chiropractors and physicians under Texas’ Medical Liability Statute and under the common law of Texas and held that chiropractors are required under common law to satisfy the duty of informing a patient of such risks, i.e.,  a reasonable healthcare provider must disclose the risks that would influence a reasonable patient in deciding whether to undergo treatment, but not those that would be unduly disturbing to an unreasonable patient. The court also discussed what risks may or may not be an “inherent risk” in medical treatment, and held that an “inherent risk” is one that “exists in and is inseparable from the procedure itself.” Accordingly, the chiropractor’s failure to inform his patient that a chiropractic neck manipulation could result in “vertebral artery dissection” was a breach of the duty to obtain a patient’s informed consent and that such a risk was “inherent” in the chiropractic treatment being administered.

Moreover, since the duty to provide information about such risks is separate and apart from negligence in performing the procedure itself, the court ruled that a jury’s failure to find that the chiropractor’s negligence actually caused the injury did not preclude the chiropractor’s liability for non-disclosure.

Healthcare Claims: Sufficiency of Expert Reports – Vicarious Liability Claims:  In Certified EMS, Inc. v. Potts, 11-0517 (Tex. 2013), the Supreme Court dealt with expert reports in a vicarious liability setting and clarified the law in view of differing rulings from our various courts of appeals. Specifically, the Supreme Court held that an expert’s report, which is required under the Texas Medical Liability Act, is sufficient if the expert report satisfies the three elements required to be a valid expert report, even if only as to one pleaded theory, and such an expert report will then entitle the Plaintiff to proceed with a suit against the physician or healthcare provider as to the entire case. In other words, the Supreme Court held that an expert report need not cover every alleged liability theory to be sufficient, and that an expert report which adequately addresses at least one pleaded liability theory satisfies the statutory requirements. Dealing further and specifically with claims of vicarious liability, our Supreme Court stated that “when a healthcare liability claim involves a vicarious liability theory, either alone or in combination with other theories, an expert report that meets the statutory standards as to the employee is sufficient to implicate the employer’s conduct under the vicarious theory and if any liability theory has been adequately covered, the entire case will proceed.”