Happy New Year! There is already great news for Kevin Federline this new year. Congress is considering raising the minimum wage.
WARNING: THE TEXAS SUPREME COURT RULES THAT CERTIFICATES OF INSURANCE ARE WORTHLESS: The Supremes handed down an opinion last week that should get almost everyone’s attention. Think you are an additional insured? Think again.
Safety Lights Company notified its vendors in 1996 that it would no longer buy from them unless it was added as an additional insured under their commercial general liability policies. Via Net agreed to do so, and its insurance agent issued a certificate of insurance listing Safety Lights a “holder” and stating that “holder is added as an additional insured re: general liability.” As most certificates do, this certificate also stated: “This certificate is issued as a matter of information only and confers no rights on the certificate holder.”
You can guess where the story goes from here. Less than a year later, Safety Lights drops a 3,000 pound steel plate on the hand of a Via Net employee. He sues Safety Lights for personal injuries. Safety Lights demands that Via Net’s insurer honor the additional insured certificate and defend and indemnify it against the suit by the Via Net employee. Via Net’s insurer, Lumbermans, denies the claim stating that the policy itself does not name Safety Lights as an additional insured. Although the procedural history of this dispute is twisted, the lower courts essentially agreed with Lumbermans.
On appeal to the Texas Supreme Court, Safety Lights argued that there is little use for certificates of insurance if contracting parties must verify them by reviewing the full policy. The Supremes blithely agreed that certificates of insurance are essentially worthless. Said the court: “Given the numerous limitations and exclusions that often encumber insurance policies, those who take such certificates at face value do so at their own risk.” Safety Lights can now use that certificate to wrap fish. Via Net v TIG (Tex. 2006).
Message to all Risk Managers and Compliance Departments: You don’t need a $750 an hour New York lawyer for this advice. Get a copy of the policy and make sure it says what the certificate has promised. Otherwise, you and your own insurance company may be picking up the tab. For all you brokers out there, you are good to go for churning out more bogus certificates. Get on it.
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TEXAS SUPREME COURT LIMITS RECOVERABILITY OF ATTORNEYS FEES AND PRE-JUDGMENT INTEREST IN UIM CASES: In a trilogy of opinions handed down last week, the Supremes held that a policyholder is not entitled to recover attorneys fees in a suit against his or her underinsured motorist insurance (UIM) carrier unless the UIM carrier refuses to pay the judgment within 30 days.
As a matter of background you should be aware that Texas statutory law has long allowed a plaintiff to recover attorneys fees in a successful breach of contract suit. Over the years many plaintiffs lawyers have argued that a breach of a UIM policy is a breach of contract entitling them to recover fees in addition to policy benefits. And many intermediate Texas appellate courts have agreed with those plaintiffs attorneys and have awarded them lucrative fees whenever they could. Other more courageous and intelligent courts have disagreed, denying the recovery of fees in such cases. The Texas Supreme Court remained mum on the subject until late last week. In a timely Christmas present to insurers everywhere, the high court ruled that the policyholder’s right to recover fees is sharply limited in a UIM case.
In July of 1999, Ed Brainard was fatally injured in a head-on automobile accident. His widow brought suit against the other driver and added Ed’s underinsured motorist insurance company (Trinity Insurance Co) to the suit as well. The other driver’s insurer settled for its $1 million policy limits. Brainard then demanded the $1 million UIM limits from Trinity. Trinity countered with $50,000, which Brainard rejected, and the case proceeded to trial. The jury returned a liability finding against the other driver and found damages in the amount of $1,050,000 and attorneys fees in the amount of $100,000.
On appeal to the Texas Supreme Court, Brainard contended that her suit was like any other breach of contract suit, and therefore, she was entitled to recover attorney’s fees. Trinity, on the other hand, argued that a UIM policy is different than an ordinary contract because the insurer’s duty to pay does not arise until the underinsured motorist’s liability, and the insured’s damages, are legally determined by trial. The court agreed, stating that unlike many first party insurance contracts, in which the policy alone dictates coverage, UIM insurance utilizes tort law to determine coverage. Consequently, the insurer’s contractual obligation to pay benefits does not arise until liability and damages are judicially determined. As long as the insurer pays the damages within 30 days of when the judgment is signed, attorneys fees are not recoverable.
Also, in this same opinion, the court limited the amount of pre-judgment interest that can be recovered under a UIM policy. This part of the opinion is a Byzantine Maze of judges attempting to do math. We understand it, but we can’t and won’t explain it here. If you have this issue come up, call us. Brainard v Trinity Universal Insurance Co (Tex. 2006).
David Chamberlain of our firm is scheduled to speak on this case and other insurance coverage issues in Dallas on March 30, 2007 at the Advanced Insurance Law Course sponsored by the State Bar of Texas.
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TEXAS SUPREME COURT HOLDS JURY’S EXEMPLARY DAMAGES AWARD IS UNCONSTITUTIONALLY EXCESSIVE: Ms. Chapa paid Gullo Motors for a Toyota Highlander Limited and instead Gullo provided her with a Toyota Highlander, a vehicle of lesser value. When she complained and tried to return the vehicle, the dealership’s manager refused and told her: “You are a nobody….nobody will dare go against me!” and threatened to have the car towed off at Chapa’s expense. Chapa brought suit alleging fraud and other causes of action. At trial, she put on evidence that Gullo committed multiple acts of misconduct leading up to and during the transaction including switching contracts, altering documents, destroying evidence, engaging in deceptive and threatening behavior, and forging signatures of her and her deceased husband. The jury agreed with Chapa, finding Gullo committed fraud and awarded $7,213 for the difference in market value of the vehicle paid for and the vehicle actually delivered, $7,123 for fraud, $21,639 for mental anguish, $250,000 in exemplary damages and $20,000 in attorney’s fees. On appeal to the intermediate appellate court, the award of exemplary damages was reduced by that court to $125,000 and the trial court judgment for Chapa was otherwise affirmed. Both sides appealed to the Texas Supreme Court.
Our Texas Supreme Court can vacate an award of exemplary damages quicker than gossip. In this case, a majority of the Supremes ruled that the award of exemplary damages in the amount of $125,000 was still unconstitutionally excessive. Although the evidence supported a finding that Gullo committed fraud on Ms. Chapa and although $125,000 was $75,000 less that the Texas statutory cap on exemplary damages in cases of this nature, the award was too much to pass muster “under the federal constitutional check for exorbitancy.” The court observed that the U.S. Supreme Court had previously written that an award of exemplary damages “four times the amount of compensatory damages might be close to the line of constitutional impropriety.” Since the exemplary damages award in this case was 4.35 times the amount of compensatory damages, the award was excessive under the federal constitution.
One judge dissented and another judge concurred with the majority, both questioning majority’s analysis and conclusion. Dissenting Judge O’Neill reviewed the evidence of the defendant’s “borderline criminal conduct” and would uphold the intermediate appellate court’s award of $125,000 in exemplary damages. The dissent also observed that “a punitive damage award that comports with a statutory cap provides strong evidence that a defendant’s due process rights have not been violated.” Since the $125,000 award is considerably less that the applicable Texas statutory exemplary damages cap of $200,000 for cases of this nature, the award is well below constitutional limits. [TxUp’s take: We don’t accept “exorbitancy” as a word. If it’s a word, then we don’t like it.] Tony Gulla Motors v Chapa (Tex 2006).