Pirates of the Caribbean, Part 2, is playing in Texas right now. The pirates arrived at the state capital a couple of weeks ago disguised as Texas Legislators and have proceeded to pillage the unsuspecting village with new business and consumer taxes. While this sequel is not nearly as entertaining or humorous as the original, it is certainly more gruesome. Yikes!
WHEN MAY AN INSURED SELECT DEFENSE COUNSEL UNDER A GENERAL LIABILITY POLICY? This is a question that has been kicking around the state for quite of few years. Insurers naturally insist that they have the right to select defense counsel in all instances because that’s what the GL policy allows. The insureds, on the other hand, have taken the position that they have the right to select defense counsel anytime the insurer has issued a reservation of rights as to coverage. The insureds reason that it is their assets at stake so they should be empowered to select whomever they want to defend the case, no matter how high the fee, and have the insurer foot the tab. The insurers reason that if they have to pay the tab, they should be able to select defense counsel. So, what gives?
We may be getting closer to the answer in Texas. Recently, the insured in Rx.com v. Hartford Fire Ins. Co., 2006 U.S. Dist. LEXIS 18811 (S.D. Tex 2006) claimed that under Texas law, an insured may choose its own counsel at the insurer’s expense any time the insurer agrees to defend subject to a reservation of rights. The court disagreed and held that Texas law is narrower than that. Said the court: An insurer’s “right to defend” a lawsuit encompasses “the authority to select the attorney who will defend that claim and to make other decisions that would normally be vested in the insured as the named party to the law suit.” Not every reservation of rights creates a conflict of interest allowing an insured to select independent counsel. Rather, the existence of a conflict depends on the nature of the coverage issue as it relates to the underlying case. If the insurance policy gives the insurer the right to control the defense, the insured cannot choose independent counsel and require the insurer to reimburse the expenses unless “the facts to be adjudicated in the [underlying] liability lawsuit are the same facts upon which coverage depends.” If the issue on which coverage turns is independent of the issues in the underlying case, counsel selected by the insured is not required. A conflict of interest does not arise unless the outcome of the coverage issue can be controlled by counsel retained by the insurer for the defense of the underlying claim. According to the court, this rule allows insurers to control costs while permitting insureds to protect themselves from an insurer-hired attorney who may be tempted to develop facts or legal strategy that could ultimately support the insurer’s position that the underlying lawsuit is not covered.
Our Take: This is a nifty, fair sounding rule that ultimately may be difficult to apply in every day practice. Does the insurer have to relinquish the right to select defense counsel if it notifies the insured that any damages awarded in excess of policy limits will not be covered? We mean, is it really realistic for a court to say that insurer selected counsel would be “tempted to develop facts or legal strategy” to increase damages beyond policy limits? Good grief. What about reservations of rights as to issues involving intentional conduct, gross negligence and punitive damages? Obviously, this nifty rule will not work in all situations. Moreover, the Texas Supreme Court has yet to rule directly on this issue. So, we may be closer to an answer, but we are not quite there yet.
Footnote: Chamberlain-McHaney took over the defense of the insured, Rx.com in the underlying shareholder oppression lawsuit at the request of The Hartford Insurance Company after the insured’s personally selected counsel, the nationwide law firm of Brobeck Phleger and Harrison, ran up over $600,000 in attorneys fees despite the fact that they had not taken a single deposition. After conducting discovery, we were able to secure a dismissal of Rx.com without any settlement payment whatsoever. And we did it at a fraction of the cost. The Brobeck law firm later disbanded and filed for bankruptcy. We are doing fine.
We are happy to see Big Oil is starting to feel our pain. We appreciate the addition of the SUV Owners’ Suicide Hotline. When we went to fill up the other day, our station said they accepted Visa, MasterCard and Discover cards. Good thing. We had to use all three to pay the bill.
Chamberlain McHaney Scores Summary Judgment in Big Case. The plaintiff sued our client, the homebuilder, after he was injured in a fall from an unguarded interior balcony of an unfinished home. The plaintiff sustained a permanent brain injury and hundreds of thousands of dollars in past and future medical expenses. As an employee of an independent contractor, the plaintiff claimed the homebuilder owed a duty to provide a safe workplace including erecting temporary guardrails for fall prevention. We argued the unguarded balcony was a dangerous condition that was open and obvious and that the homebuilder was not required to either correct the dangerous condition or warn of its existence, relying on a string of recent Texas appellate decisions. The trial court agreed and granted summary judgment for the homebuilder. David Chamberlain represented the defendant homebuilder at the request of Mid-Continent Insurance Company.
JURY REJECTS PLAINTIFF’S BIG INJURY CLAIMS: Plaintiff sued Defendant for several hundred thousand dollars due to injuries sustained when the defendant failed to yield the right of way at an intersection. On behalf our client, we alleged the accident was caused by the plaintiff’s contributory negligence and that plaintiff’s injuries were mostly pre-existing. Plaintiff’s treating doctor testified that Plaintiff’s neck and back injuries were due to the accident, and that Plaintiff currently needed an anterior cervical discectomy. He further testified that Plaintiff might need a lumbar laminectomy in the future. Our medical expert testified that Plaintiff’s neck and back injuries were due to pre-existing conditions and the natural aging process. The jury found 90% negligence against Defendant for failure to yield right-of-way, and 10% against Plaintiff for speeding under the conditions. The jury sided with defendant on all damages issues and awarded $2,000 past medical expenses, $0 for future medical costs and $0 for pain and suffering and mental anguish. The plaintiff’s pretrial demand was $150,000. This case was defended by our lawyers, Ranelle Meroney and Frank King, at the request of USAA.
DISMISSAL IN MILLION DOLLAR FIRE CASE: Last week, we secured the dismissal of a commercial tenant whose HVAC was alleged by the landlord and other neighboring tenants to have ignited a major structure fire causing over a million dollars in damages. Our client owned and operated a lingerie modeling studio in an Austin strip shopping center (don’t snicker). Lawyers David Chamberlain and Cathy Kyle represented the client at the request of Hanover Insurance Company.
MAN BITES DOG (THAT IS, DEFENDANT RECOVERS DAMAGES FROM PLAINTIFF): Plaintiff sued Defendant, alleging that Defendant had turned left into a parking lot from the right lane and struck Plaintiff’s vehicle. On behalf of the Defendant, we counterclaimed for damages, alleging Plaintiff was guilty of contributory negligence in crossing over the center stripe into our client’s lane of traffic. The jury agreed with our Defendant, assessing 70% negligence against Plaintiff, and awarding damages to Defendant plus court costs. Our lawyer, Frank King, represented the defendant at the request of USAA.
David Chamberlain recently led a seminar discussion in Houston for the State Bar of Texas regarding trends in personal injury and tort litigation. Chamberlain, who is immediate Past President of the Texas Association of Defense Counsel and a Texas Monthly Magazine SuperLawyer, has recently been named Regional Marketing Director of DRI, the largest national defense organization in the nation. Attorney Jon Law has rejoined our firm as Of Counsel and Brad Compere has joined the firm as an Associate Attorney. Jon Law will assist the firm in oil and gas litigation (yes, it is on the increase again) and complex products liability litigation. Brad Compere will practice in general litigation. Our lawyer, Tim Poteet, has recently solidified Zurich Insurance Company as a client of the firm.
TX/UP HISTORY UPDATE: After 175 years, we are finally even. In the 1830’s, Tennessee sent Davy Crockett and Sam Houston to Texas. Last weekend, Texas sent Vince Young to Tennessee.
MARK YOUR CALENDAR NOW: Our annual, full-day, fully accredited, widely acclaimed ULTIMATE CLAIMS HANDLING SEMINAR is scheduled for October 6, 2006 at CityPlace Conference Center in Dallas. Over 150 attended last year’s seminar and most of them won the Lotto soon thereafter. Don’t be left out this year. Make your wildest dreams come true.