Candidate Kinky Friedman is running as an independent in this year’s race for Texas Governor. Renowned for equal parts crustiness and independent thought, he was recently asked if he supported the new Texas constitutional amendment banning same gender marriages. Replied Kinky: “No. I think everyone should have equal access to misery.”
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Can an insurer intervene in a lawsuit between its insured and a third party and assert a defense the insured has declined to assert? In a rather shocking departure from Texas law, the Texas Supreme Court answered yes last Friday. Until last Friday, Texas did not permit insurers to join in tort actions between their insureds and a third party. See, e.g, Tex R. Civ. P 38 (c) and 51(b) (prohibiting joinder of a liability or indemnity insurance company unless the insurer is liable by statute or contract to the injured person). No more. Without discussing these rules of civil procedure, the court invoked the little used virtual representation doctrine and stated that a non-party could intervene, even on appeal, to protect its rights if it has a vested interest in the outcome of the suit and that right is not being asserted and protected by a named party to the suit.
In this case, families of Cudd employees killed in a Louisiana gas well explosion sued Sonat, the exploration company that contracted with Cudd for specialized drilling work. Cudd had agreed to indemnify and defend Sonat on any claims by Cudd employees and bought excess liability coverage from Lumbermens. When the families sued, Sonat asked for indemnity and a defense against the suit, but Cudd and Lumbermens refused. Sonat sued for breach of contract, then Cudd sued for a declaration on whether Texas or Louisiana law applied to the indemnity agreement. Under Louisiana law the indemnity provision was void, while under Texas law, the indemnity provision was valid. The trial court granted Sonat’s summary-judgment motion that Texas law applied and found Sonat entitled to indemnity and insurance coverage for personal-injury damages it had paid. In a jury trial on damages, Sonat won more than $20 million. During the appeal, however, Cudd and Sonat agreed that Cudd would not contest the trial court’s ruling applying Texas law, in exchange for Sonat’s dismissal of other claims against Cudd. Lumbermens moved to intervene more than two months after the parties completed briefing on the appeal and argued that Cudd’s agreement with Sonat was against Lumbermens’ interests because application of Louisiana law, if the trial court were reversed, would lead to dismissal of coverage claims against Lumbermens. Lumbermens sought mandamus relief from the supreme court after the court of appeals denied its motion to intervene.
The Supreme Court granted mandamus and said Lumbermens should be allowed to intervene on appeal and assert the dispositive choice of law issue. However, the court declined to go so far and say that an insurer would be entitled to intervene anytime it disagreed with the insured on case strategy. The court said that each case must be decided on a case by case basis and “our decision today is limited to the situation presented.” As for prejudice, the Supremes stated that if the trial court erred on the choice of Texas law applicable to the case, the prejudice to Lumbermens would be obvious and severe. In re Lumbermens Mutual Casualty Co. (Tex., February 3, 2006). This is a significant decision which should create all sort of mischief.
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ANOTHER CHAMBERLAIN McHANEY COURTHOUSE VICTORY: Attorney Ranelle Meroney represented clients who own a Texas Hill Country ranch on which a ranch hand lived in a mobile home. The ranch hand’s visiting girlfriend was severely injured when she burned household trash in an outside area. Something in the trash pile (perhaps an aerosol can) exploded and the plaintiff sustained severe second degree partial thickness burns over 22% of her body. She was hospitalized for over a month at the specialty burn unit of Brook Army Medical Center, where she had been air lifted after the explosion. Her 15 year old daughter and 9 year old ward didn’t see the explosion but did respond to her screaming and saw skin rolling off her arm. Both minors joined the suit against our clients as bystander plaintiffs.
Plaintiffs alleged that the ranch hand was an employee of the clients when he allowed the adult Plaintiff to burn household trash and therefore the ranch owners were vicariously liable for his negligence. The plaintiffs’ expert testified that allowing the household trash to be burned was an ultra hazardous activity. The plaintiffs proved up over $200,000 in past medical expenses and sought a recovery of well over $4 million.
Our clients denied that the ranch hand was an employee within the course and scope of employment and denied any knowledge that household trash was being burned on the premises. Our clients testified that the ranch hand had been instructed not to burn household trash and to use a commercial service to haul it from the premises.
After six days of trial, the jury found that the ranch hand was not in the course and scope of his employment of our clients when he authorized the plaintiff to burn the household trash. The jury found our clients to be blame free and found that the plaintiff and ranch hand were jointly responsible for the injuries. Ranelle was assisted by Arva Reyna.
Chamberlain McHaney has tried four jury trials in the last sixty days.
From the Texas Update Mailbag:
DEAR Tx/Up: I have two questions. First, I don’t think anyone cares about me. What do you think? Second, can an insured recover the 18% statutory penalty under Texas Insurance Code section 21.55 if I breach the duty to defend? Bubba, Lubbock.
Dear Bubba, According to one recent decision, an insured cannot recover the 18% statutory interest under section 21.55 because the claim for defense costs is not a first party insurance claim payable to the insured. Ulico Cas. Co. v Allied Pilots Ass’n ( Tex App.—Fort Worth 2005). Many other Texas appellate courts have reached the opposite conclusion and the Texas Supreme Court has not resolved the issue…so who knows. As to your first question, try missing a couple a couple of credit card payments and you’ll see.