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Update on Recent Insurance Law – September 2011
Author: H. Norman Kinzy
There have been a number of recent court decisions and at least one statutory enactment which are of significance to the practice of insurance law. These include cases dealing with policy appraisal clauses, arbitration agreements, duties of contractors, and healthcare claims, inter alia.
As 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.
Statutory Tort Reform: Broad “Loser Pays” proposal not adopted:
Texas has just enacted, for cases filed on or after September 1, 2011, Revised Senate, House Bill 274, and despite consideration of a broad “loser pays” rule (which would have required a general requirement that losing litigants pay their opponent’s fees), such a rule was not adopted by Texas. However, a new procedure for a motion to dismiss applicable to cases “that have no basis in law or fact” will be promulgated by our Supreme Court, and this new rule will provide for awarding of costs and attorney’s fees to the prevailing party.
Appraisal Clauses in Insurance Policies:
Insurance policy appraisal clauses were the subject of In re: Universal Underwriters of Texas Insurance Company, 10-0238 (Tex. 2011). The Texas Supreme Court held that to establish a waiver of one party’s rights under an appraisal clause, the opposing party must show that (1) an "impasse" was reached in settlement negotiations, and (2) that the failure to timely demand appraisal caused prejudice to the opposing party. The Supreme Court further stated that if a party senses that an impasse has been reached, that party should pursue appraisal before resorting to the courts.
Tort Duties of General Contractor to Motorist:
In Allen Keller Company v. Foreman, 09-0955 (Tex. 2011), our Supreme Court dealt with whether a general contractor owed a duty to a motorist who was killed as a result of an allegedly dangerous condition created by the contractor's work on a Texas highway. The court held that since the general contractor was working under a contract that required strict adherence to the terms of the contract and since the contractor had no discretion to vary from the contract's terms, the contractor had no duty to rectify the dangerous condition. Moreover, since the premises were not under the general contractor's control at the time of the accident and since the condition was known by the property owner, the general contractor owed no duty to warn either the public or the property owner.
Arbitration under Texas General Arbitration Act:
In NAFTA Traders, Inc., v. Quinn, 08-0613 (Tex. 2011), the Texas Supreme Court held that allowable arbitration practices under the Texas General Arbitration Act ("TAA") differ from arbitration under the Federal Arbitration Act ("FAA"), and that the parties to an arbitration agreement governed by the TAA may by contractual agreement supplement the provisions of the TAA to limit the authority of the arbitrator and to allow for expanded judicial review of an arbitration award by Texas Courts of Appeals for reversible error under state rules of law. The Court held that the FAA does not pre-empt enforcement of such contractual agreements under the TAA, but cautioned that a reviewing appeals court must have a sufficient record of the arbitral proceedings, and that appellate complaints must have been preserved just as if the arbitration award were a trial court judgment on appeal. Conversely, the Court ruled that arbitration parties cannot agree under the TAA to a different standard of judicial review than a Texas appellate court would employ in a judicial proceeding involving the same subject matter.
Healthcare Liability Claims - Slip and Fall:
In Harris Methodist Fort Worth v. Ollie, 09-0025 (Tex. 2011), our Supreme Court addressed a claim arising from a patient's slip and fall on a wet bathroom floor in a hospital during the patient's post-operative confinement, and held that damages flowing from such a slip and fall constitutes a healthcare liability claim under the Texas Medical Liability Act which requires a plaintiff to serve an expert report in accordance with the Texas Medical Liability Act. Since the plaintiff had not served an expert report, the Supreme Court held that the plaintiff's claim should be dismissed.
Healthcare Liability Claims - Brown Recluse Spider Bite:
In Omaha Healthcare Center, LLC v. Johnson, 08-0231 (Tex. 2011), the Supreme Court dealt with injuries to a patient in a nursing home who was bitten by a poisonous brown recluse spider and died. The court ruled that a failure of a nursing home to have an adequate pest control program is a safety issue directly related to healthcare. Since the plaintiff was therefore required under the Texas Medical Liability Act to timely serve a statutory expert report, but did not do so, the Supreme Court held that plaintiff's decedent's claim for damages arising from death by spider bite must be dismissed.
Insurance Company - Premium Pricing Factors:
In Ojo v. Farmers Group, Inc., 10-0245 (Tex. 2011), our Supreme Court held that Texas law prohibits insurance companies from using race-based credit scoring, per se, to price insurance policies and premiums, but Texas permits insurers to use race-neutral credit scoring even if such use has a racially disparate impact.
Products Liability - Manufacturing Defect - Expert Testimony:
In Bic Pen Corporation v. Carter, 09-0039 (Tex. 2011), the Texas Supreme Court dealt with evidentiary issues arising from alleged manufacturing defects, and held that evidence which showed only (1) that a component of a product deviated from a manufacturing specification, (2) that an accident occurred, and (3) that the deficient part was involved in the accident, does not constitute sufficient evidence to support a causation finding. Rather, expert testimony is generally required in a manufacturing defect case to prove that the specific manufacturing defect caused the accident.
Admissible Evidence of Medical Expenses is Limited to Amount "Actually Paid or Incurred":
In Haygood v. Escabedo, 09-0377 (Tex. 2011), our Supreme Court dealt with Texas Civil Prac. and Rem. Code, section 41.0105, which limits recovery of medical or healthcare expenses to the amount "actually paid or incurred by or on behalf of the claimant." The Supreme Court made clear that (1) the undiscounted portion of medical bills which a medical healthcare provider has no right to collect from a plaintiff, because of law or contract, is not recoverable by the plaintiff from a third party defendant, and (2) that evidence of such full and undiscounted amount of medical expenses is irrelevant to a determination of a plaintiff's recoverable damages and is not admissible at trial. In other words, only the "net" or discounted portion of medical charges which a healthcare provider is in fact entitled to collect (e.g., from Medicare or from an healthcare insurer) should be admitted before the jury in a third party liability trial. The Supreme Court stated that "since a claimant is not entitled to recover medical charges that a provider is not entitled to be paid, evidence of such charges is irrelevant to the issue of damages."
Business Auto Policy - Coverage Arising from "Use" of Vehicle - Communicable Disease:
In Lancer Insurance Company v. Garcia Holiday Tours, 10-0096 (Tex. 2011), the Supreme Court held that the transmission of a communicable disease, such as tuberculosis, by the driver of a tour bus to passengers on the bus, was not such a claim which "resulted from" the "use" of the bus, since the bus provided only the "situs" of the injury and was not a cause of the transmission of the disease. In reaching its decision, the Supreme Court held that there is no appreciable - or legal - difference between policies which use "arising from" language and policies which use "resulting from" language, within the context of this case. Hence, no coverage existed under the business auto policy for claims based upon negligent infection of passengers.