future-focused

Texas — Right to Arbitate Waived Without Proof of Prejudice to Opposing Party

3 minute read

 

The Supreme Court of Texas has never before found a waiver of the right to arbitrate, but in a recent five-to-four decision likely to attract multiple friend-of-the court briefs on rehearing, the court vacated an $800,000 arbitration award in favor of two homeowners and remanded their claims for trial based on the conclusion of five justices that the homeowners had waived their right to arbitrate by their pre-arbitration litigation conduct.  Perry Homes v. Cull, No. 05-0882, 2008 Tex. LEXIS 423, 2008 WL 1922978 (Tex. May 2, 2008).  The court reaffirmed its prior holding that prejudice to the opposing party must be shown to establish a waiver of the right to arbitrate, but in this instance the five-justice majority inferred that prejudice resulted from the homeowners’ litigation conduct.

Robert and Jane Cull bought a house from Perry Homes with an accompanying warranty from Home Owners Multiple Equity, Inc. and Warranty Underwriters Insurance Company.  The warranty agreement included a broad arbitration clause providing that all claims the Culls might have against Perry Homes or the warranty companies were subject to the Federal Arbitration Act, and would be submitted to the American Arbitration Association (AAA) or another arbitrator agreed upon by the parties.

After experiencing a number of unresolved problems with the house over several years, the Culls sued Perry Homes and the warranty companies.  The warranty companies requested arbitration, which the Culls opposed.  In their 79-page opposition to the request for arbitration, the Culls complained of fees charged by the AAA and asserted that the AAA “is incompetent, is biased, and fails to provide fair and appropriate arbitration panels.”  Nobody pressed the trial court for a ruling on the request for arbitration, and the Culls proceeded with discovery in the lawsuit, including requests for disclosures, requests for documents, a number of depositions, and five motions to compel.  Perry Homes filed two motions for protection.  After completing discovery and shortly before a scheduled trial date, the Culls asked the trial court to stay the lawsuit and compel arbitration.

The trial court granted the Culls’ motion based on Perry Homes’ and the warranty companies’ failure to show they had suffered prejudice as a result of proceedings in the lawsuit.  Perry Homes and the warranty companies sought mandamus relief, but were unsuccessful.  After a year in arbitration, the arbitrator awarded the Culls $800,000, which included restitution of the purchase price of their home, mental anguish damages, exemplary damages, and attorney’s fees.  Perry Homes and the warranty companies moved to vacate the arbitrator’s award, arguing (among other things) that the case should never have been sent to arbitration after so much activity in court.  The trial court overruled their objections and confirmed the arbitration award.  The court of appeals affirmed the trial court’s judgment.  The Supreme Court of Texas reversed the judgments below, vacated the arbitration award, and remanded the case “for a prompt trial.”

All nine justices on the supreme court joined in holding that (1) an order compelling arbitration is subject to appellate review after completion of arbitration, even if pre-arbitration review was sought by mandamus, (2) whether conduct in litigation amounts to a waiver of the right to arbitrate is a question for decision by courts, not arbitrators, (3) whether a party waives an arbitration clause by substantially invoking the judicial process is to be determined from the totality of the circumstances on a case-by-case basis, and (4) prejudice to the opposing party must be shown to establish a party’s waiver of the right to arbitrate.

But only five justices agreed that the Culls’ litigation conduct alone demonstrated prejudice to Perry Homes and the warranty companies sufficient to hold that the Culls had waived the right to arbitrate:  “[M]anipulation of litigation for one party’s advantage and another’s detriment is precisely the kind of inherent unfairness that constitutes prejudice under federal and state law.”  The remaining four justices dissented (in two separate opinions) from the court’s judgment and from the majority’s holding that prejudice could be inferred from the Culls’ litigation conduct.  In the dissenters’ view, the trial court did not abuse its discretion by compelling arbitration because Perry Homes had not built a record upon which the trial court could find prejudice necessary to establish waiver of the Culls’ right to arbitrate.

Justice Brister’s opinion for the majority, Justice O’Neill’s concurring opinion, Justice Johnson’s concurring and dissenting opinion, and Justice Willett’s concurring and dissenting opinion are available at the following hyperlinks:

http://www.supreme.courts.state.tx.us/historical/2008/may/050882.htm 

http://www.supreme.courts.state.tx.us/historical/2008/may/050882c.htm 

http://www.supreme.courts.state.tx.us/historical/2008/may/050882cd.htm 

http://www.supreme.courts.state.tx.us/historical/2008/may/050882cd1.htm 

All of the opinions are also available at 2008 Tex. LEXIS 423 and at 2008 WL 1922978

Acquisitive Prescription and Predial Servitudes

less than a minute

In Davis v. Provost, 2007-1519 (La. App. 3 Cir. 4/2/08), — So. 2d –, the Louisiana Court of Appeal for the Third Circuit reinforced an earlier holding that 1977 La. Acts No. 514 § 1, which allowed the acquisition of a predial servitude through acquisitive prescription, was not retroactive. In Davis, the plaintiffs filed a Petition for Declaratory Judgment seeking access to their property by crossing over a bridge that the defendants had allegedly locked. One of the defendants filed a reconventional demand, alleging that he had exercised for over thirty years a right-of-way over the bridge to gain access to his sugarcane field. The trial court agreed and ruled in favor of the defendant.

            The court of appeals vacated and remanded. The court of appeals first noted that the Louisiana Civil Code of 1870 explicitly disallowed the acquisition of a predial servitude through acquisitive prescription. Not until January 1, 1978, when 1977 La. Acts. No. 514 § 1 became effective, could someone obtain a predial servitude through acquisitive prescription. Relying on its earlier holding in Griffith v. Cathey, 99-923 (La. App. 3 Cir. 2/2/00), 762 So. 2d 29, the court held that 1977 La. Acts No. 514 § 1 was not retroactive. Because the defendant filed his reconventional demand on May 17, 2006, the court held that thirty years had not passed, and the trial court had erred in ruling in favor of the defendant. The court remanded for further factual findings.

            The ruling may have a significant impact on pipeline servitudes and their ownership. 

            To read the full opinion, click here.

Acquisitive Prescription and Predial Servitudes

less than a minute

 

In Davis v. Provost, 2007-1519 (La. App. 3 Cir. 4/2/08), — So. 2d –, the Louisiana Court of Appeal for the Third Circuit reinforced an earlier holding that 1977 La. Acts No. 514 § 1, which allowed the acquisition of a predial servitude through acquisitive prescription, was not retroactive. In Davis, the plaintiffs filed a Petition for Declaratory Judgment seeking access to their property by crossing over a bridge that the defendants had allegedly locked. One of the defendants filed a reconventional demand, alleging that he had exercised for over thirty years a right-of-way over the bridge to gain access to his sugarcane field. The trial court agreed and ruled in favor of the defendant.

            The court of appeals vacated and remanded. The court of appeals first noted that the Louisiana Civil Code of 1870 explicitly disallowed the acquisition of a predial servitude through acquisitive prescription. Not until January 1, 1978, when 1977 La. Acts. No. 514 § 1 became effective, could someone obtain a predial servitude through acquisitive prescription. Relying on its earlier holding in Griffith v. Cathey, 99-923 (La. App. 3 Cir. 2/2/00), 762 So. 2d 29, the court held that 1977 La. Acts No. 514 § 1 was not retroactive. Because the defendant filed his reconventional demand on May 17, 2006, the court held that thirty years had not passed, and the trial court had erred in ruling in favor of the defendant. The court remanded for further factual findings.

            The ruling may have a significant impact on pipeline servitudes and their ownership. 

            To read the full opinion, click here.

Taxation of Fuel Provided to Compression Service Operators at No Cost

2 minute read

In Bridges v. Production Operators, Inc., 2007-0648 (La. App. 4th Cir. 12/12/07),974 So.2d 54, at issue was whether the provision of fuel by customers to a compression services operator at no cost for use in powering the operator’s compressors was subject to Louisiana sales or use tax. 

 Production Operators, Inc. (“POI”) operated a gas compression company and used customer-supplied fuel to power its compressors. For its services, POI received a flat monthly fee, regardless of whether its compressors were used, and customers were required to provide compressor fuel at no cost to POI. The Louisiana Department of Revenue contended that the provision of compressor fuel to POI by its customers was a taxable sale in the form of a barter. POI defended against the collection of tax by arguing that there was no transfer of title to the fuel, and to the extent there was a transfer of title, POI did not owe tax because the “sales price” and “cost” of the fuel was zero. The Fourth Circuit agreed with the Department on the first issue, concluding that the transfer of compressor fuel from the customers to the operator constituted a taxable sale in the form of a barter for consideration, but the court did not agree that Henry Hub spot price was the appropriate value of the consideration and instead remanded the matter to the trial court to determine the amount of the consideration for tax purposes.

            The Fourth Circuit’s decision in Production Operators, Inc. creates a split among Louisiana courts, for in 2003, the Third Circuit, considering similar facts, held that, though the provision of compressor fuel constituted a taxable transaction, because there was neither a sales price nor value for the compressor fuel, the Department could not recover any tax. Hanover Compressor Company v. Department of Revenue, 02-0925 (La. App. 3d Cir. 2/5/03), 838 So.2d 876. Production Operators, Inc. also leaves open the question of how consideration is to be determined when fuel is supplied to power gas compression operations at no cost tothe operator.

Taxation of Fuel Provided to Compression Service Operators at No Cost

2 minute read

 

In Bridges v. Production Operators, Inc., 2007-0648 (La. App. 4th Cir. 12/12/07),974 So.2d 54, at issue was whether the provision of fuel by customers to a compression services operator at no cost for use in powering the operator’s compressors was subject to Louisiana sales or use tax. 

 Production Operators, Inc. (“POI”) operated a gas compression company and used customer-supplied fuel to power its compressors. For its services, POI received a flat monthly fee, regardless of whether its compressors were used, and customers were required to provide compressor fuel at no cost to POI. The Louisiana Department of Revenue contended that the provision of compressor fuel to POI by its customers was a taxable sale in the form of a barter. POI defended against the collection of tax by arguing that there was no transfer of title to the fuel, and to the extent there was a transfer of title, POI did not owe tax because the “sales price” and “cost” of the fuel was zero. The Fourth Circuit agreed with the Department on the first issue, concluding that the transfer of compressor fuel from the customers to the operator constituted a taxable sale in the form of a barter for consideration, but the court did not agree that Henry Hub spot price was the appropriate value of the consideration and instead remanded the matter to the trial court to determine the amount of the consideration for tax purposes.

            The Fourth Circuit’s decision in Production Operators, Inc. creates a split among Louisiana courts, for in 2003, the Third Circuit, considering similar facts, held that, though the provision of compressor fuel constituted a taxable transaction, because there was neither a sales price nor value for the compressor fuel, the Department could not recover any tax. Hanover Compressor Company v. Department of Revenue, 02-0925 (La. App. 3d Cir. 2/5/03), 838 So.2d 876. Production Operators, Inc. also leaves open the question of how consideration is to be determined when fuel is supplied to power gas compression operations at no cost tothe operator.

U.S. Supreme Court Declines to Enforce Arbitration Provision Setting Forth Grounds for Judicial Review of Arbitration Award

3 minute read

In Hall Street Associates, LLC v. Mattel, Inc., 2008 WL 762537 (U.S. 2008), the Supreme Court held that the grounds for vacatur and modification of arbitration awards provided by §§ 10 and 11 of the Federal Arbitration Act (“FAA”) are exclusive. 

     The case began as a lease dispute between a landlord, Hall Street Associates, LLC, and tenant, Mattel, Inc., involving a piece of property long used as a manufacturing site. The lease required Mattel to indemnify Hall Street for costs related to the tenant’s failure to follow environmental laws. After pollutants were discovered on the property and Mattel gave notice of intent to terminate the lease, Hall Street filed suit, claiming a right to indemnification under the lease. The parties reached an arbitration agreement providing that the district court “shall” vacate, modify or correct any award where the arbitrator’s factual findings were not adequately supported or were legally erroneous. 

     The arbitrator found in Mattel’s favor, but the district court vacated the arbitration award, citing the agreement’s provision regarding review for legal error and a 9th Circuit case interpreting the FAA as leaving the parties “free to draft a contract that sets rules for arbitration and dictates an alternative standard of review.” On remand, the arbitrator found for Hall Street. The district court upheld but slightly modified the award, each party appealed to the Ninth Circuit, and the Ninth Circuit reversed in favor of Mattel. Finally, the Supreme Court granted certiorari to decide whether the grounds for vacatur and modification of arbitration awards provided by §§ 10 and 11 of the Federal Arbitration Act are exclusive, and held that they are.

     The Supreme Court noted that the FAA was enacted to create a “national policy favoring arbitration” and to “plac[e] arbitration agreements on equal footing with other contracts,” and that the statute supplies mechanisms for enforcing arbitration awards.  Under Section 9, a court “must” confirm an arbitration award “unless” it is vacated, modified, or corrected as prescribed in Sections 10 and 11. Section 10 lists grounds for vacating an award, including where the award was procured by corruption or fraud, and where the arbitrators were guilty of misconduct, evident impartiality, or exceeded their powers.  Section 11 provides grounds for modification of an award, including “evident material miscalculation,” “evident material mistake,” and “imperfect[ions] in matter of form not affecting the merits.”

     In its opinion, the Court rejected an argument that the district court could vacate an award for “manifest disregard of the law” under Wilko v. Swan, 346 U.S. 427 (1953), finding that Wilko had actually rejected the idea of general review of an arbitrator’s legal errors. The Court also rejected an argument to uphold the agreement because the FAA was designed to enforce parties’ contractual agreements. The Court held that while the FAA does allow parties to tailor some features of arbitration, the text of the FAA compels a reading of §§ 10 and 11 as exclusive. Further, the Court cited the statutory interpretation rule of esjudem generis: when a statute includes a list of specific terms followed by a general term, the general term only covers subjects comparable to the specific terms. Here, the Court found that §§ 10 and 11 addressed “egregious departures from the parties’ agreed-upon arbitration” – corruption, fraud, evident partiality, etc. – and “fraud and a mistake of law are not cut from the same cloth.”  In addition, Section 9 of the FAA contained no indication of flexibility, providing that the court “must grant” the arbitration award order “unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11.” The Court also briefly examined the FAA’s legislative history, finding this history to support its holding. Finally, the Court noted that these provisions of the FAA do not necessarily exclude “more searching review” of arbitration awards based on authority outside the FAA, such as a state statute or common law. Thus, after Hall Street, parties seeking review of arbitration awards still may seek such review under authorities other than the FAA.

     For the Supreme Court opinion, see http://www.supremecourtus.gov/opinions/07pdf/06-989.pdf.

U.S. Supreme Court Declines to Enforce Arbitration Provision Setting Forth Grounds for Judicial Review of Arbitration Award

3 minute read

 

In Hall Street Associates, LLC v. Mattel, Inc., 2008 WL 762537 (U.S. 2008), the Supreme Court held that the grounds for vacatur and modification of arbitration awards provided by §§ 10 and 11 of the Federal Arbitration Act (“FAA”) are exclusive. 

     The case began as a lease dispute between a landlord, Hall Street Associates, LLC, and tenant, Mattel, Inc., involving a piece of property long used as a manufacturing site. The lease required Mattel to indemnify Hall Street for costs related to the tenant’s failure to follow environmental laws. After pollutants were discovered on the property and Mattel gave notice of intent to terminate the lease, Hall Street filed suit, claiming a right to indemnification under the lease. The parties reached an arbitration agreement providing that the district court “shall” vacate, modify or correct any award where the arbitrator’s factual findings were not adequately supported or were legally erroneous. 

     The arbitrator found in Mattel’s favor, but the district court vacated the arbitration award, citing the agreement’s provision regarding review for legal error and a 9th Circuit case interpreting the FAA as leaving the parties “free to draft a contract that sets rules for arbitration and dictates an alternative standard of review.” On remand, the arbitrator found for Hall Street. The district court upheld but slightly modified the award, each party appealed to the Ninth Circuit, and the Ninth Circuit reversed in favor of Mattel. Finally, the Supreme Court granted certiorari to decide whether the grounds for vacatur and modification of arbitration awards provided by §§ 10 and 11 of the Federal Arbitration Act are exclusive, and held that they are.

     The Supreme Court noted that the FAA was enacted to create a “national policy favoring arbitration” and to “plac[e] arbitration agreements on equal footing with other contracts,” and that the statute supplies mechanisms for enforcing arbitration awards.  Under Section 9, a court “must” confirm an arbitration award “unless” it is vacated, modified, or corrected as prescribed in Sections 10 and 11. Section 10 lists grounds for vacating an award, including where the award was procured by corruption or fraud, and where the arbitrators were guilty of misconduct, evident impartiality, or exceeded their powers.  Section 11 provides grounds for modification of an award, including “evident material miscalculation,” “evident material mistake,” and “imperfect[ions] in matter of form not affecting the merits.”

     In its opinion, the Court rejected an argument that the district court could vacate an award for “manifest disregard of the law” under Wilko v. Swan, 346 U.S. 427 (1953), finding that Wilko had actually rejected the idea of general review of an arbitrator’s legal errors. The Court also rejected an argument to uphold the agreement because the FAA was designed to enforce parties’ contractual agreements. The Court held that while the FAA does allow parties to tailor some features of arbitration, the text of the FAA compels a reading of §§ 10 and 11 as exclusive. Further, the Court cited the statutory interpretation rule of esjudem generis: when a statute includes a list of specific terms followed by a general term, the general term only covers subjects comparable to the specific terms. Here, the Court found that §§ 10 and 11 addressed “egregious departures from the parties’ agreed-upon arbitration” – corruption, fraud, evident partiality, etc. – and “fraud and a mistake of law are not cut from the same cloth.”  In addition, Section 9 of the FAA contained no indication of flexibility, providing that the court “must grant” the arbitration award order “unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11.” The Court also briefly examined the FAA’s legislative history, finding this history to support its holding. Finally, the Court noted that these provisions of the FAA do not necessarily exclude “more searching review” of arbitration awards based on authority outside the FAA, such as a state statute or common law. Thus, after Hall Street, parties seeking review of arbitration awards still may seek such review under authorities other than the FAA.

     For the Supreme Court opinion, see http://www.supremecourtus.gov/opinions/07pdf/06-989.pdf.

Punitive damages for gross negligence are insurable under Texas Law

3 minute read

By Kevin Connolly

On certified question from the Fifth Circuit Court of Appeals, the Texas Supreme Court, in Fairfield Insurance Company v. Stephens Martin Paving, LP, 2008 WL 400397, *1 (Tex. 2008), addressed the issue of whether Texas public policy prohibits a “liability insurance provider from indemnifying an award for punitive damages imposed on its insured because of gross negligence.” The Court answered this question in the negative and held that Texas public policy does not prohibit coverage under an employer’s liability policy for exemplary damages for an employer’s gross negligence that causes an employee’s death. However, without a clear legislative intent to generally prohibit or allow the insurance of exemplary damages arising from gross negligence, the court declined to make a broad proclamation of public policy but instead offered considerations applicable to the analysis.

The Plaintiff, Roy Bennett, died as a result of injuries sustained when the brooming machine he was operating rolled over. His employer, Stephens Martin Paving, LP, carried a workers’ compensation and employer’s liability insurance policy issued by the Fairfield Insurance Company. After Mr. Bennett’s death, his survivors sued Stephens Martin Paving for gross negligence claiming that the employer failed to provide a safe place to work, failed to follow and enforce OSHA safety rules and regulations, and failed to properly train and supervise its employees. Because Bennett’s survivors were barred by the Workers’ Compensation Act from recovering actual damages, they sought exemplary damages only.

Meanwhile, Fairfield sued Stephens Martin Paving and Bennett’s survivors in federal district court seeking a declaratory judgment that Fairfield owed no duty to defend or indemnify the employer in the underlying suit for exemplary damages. The federal district court concluded that the language in Fairfield’s policy covered exemplary damages and that Texas public policy did not prohibit insurance coverage for those damages. The court entered a judgment declaring that Fairfield had the duty to defend Stephens Martin Paving, as well as indemnify it as provided by the policy if it was adjudicated responsible for the damages sought in the underlying suit brought by Bennett’s survivors. Fairfield appealed, and the Fifth Circuit certified the question of the insurability of exemplary damages for gross negligence to the Texas Supreme Court.

The Texas Supreme Court noted that the determination of whether exemplary damages for gross negligence are insurable requires a two-step analysis. First, the Court had to decide whether the plain language of the policy provided coverage for the exemplary damages sought in the suit against the insured. Second, if the Court concluded that the policy provided coverage, the Court had to determine whether the public policy of Texas allowed for or prohibited coverage in the circumstances presented in the underlying suit. However, because the Fifth Circuit’s question was directed only at the public policy of Texas, the Court limited its discussion to the second prong of the analysis and presumed that the policy language covered the exemplary damages sought.

While considering whether Texas’ public policy should prohibit coverage for exemplary damages, the Texas Supreme Court noted that the deciding court should study the context in which the Legislature has spoken on the issue. Looking to the workers’ compensation statutory scheme and the Texas Department of Insurance’s execution of the same, the Court determined that the Legislature had evidenced an intent to provide additional insurance coverage for an employer’s gross negligence. Therefore, the Legislature’s expressed intent was that Texas public policy does not prohibit insurance coverage for claims of gross negligence.

Although the Legislature’s expressed direction ended the inquiry regarding the case at issue, the Texas Supreme Court recognized that the Fifth Circuit framed its certified question as a broad inquiry into Texas public policy and the coverage of exemplary damages. Although hesitant to opine on policy language and fact situations not before the Court, the Court went on to discuss some of the considerations relevant to determining whether Texas public policy prohibits insurance coverage for exemplary damages in other contexts in the absence of a clear legislative policy decision.

Punitive damages for gross negligence are insurable under Texas Law

3 minute read

 

By Kevin Connolly

On certified question from the Fifth Circuit Court of Appeals, the Texas Supreme Court, in Fairfield Insurance Company v. Stephens Martin Paving, LP, 2008 WL 400397, *1 (Tex. 2008), addressed the issue of whether Texas public policy prohibits a “liability insurance provider from indemnifying an award for punitive damages imposed on its insured because of gross negligence.” The Court answered this question in the negative and held that Texas public policy does not prohibit coverage under an employer’s liability policy for exemplary damages for an employer’s gross negligence that causes an employee’s death. However, without a clear legislative intent to generally prohibit or allow the insurance of exemplary damages arising from gross negligence, the court declined to make a broad proclamation of public policy but instead offered considerations applicable to the analysis.

The Plaintiff, Roy Bennett, died as a result of injuries sustained when the brooming machine he was operating rolled over. His employer, Stephens Martin Paving, LP, carried a workers’ compensation and employer’s liability insurance policy issued by the Fairfield Insurance Company. After Mr. Bennett’s death, his survivors sued Stephens Martin Paving for gross negligence claiming that the employer failed to provide a safe place to work, failed to follow and enforce OSHA safety rules and regulations, and failed to properly train and supervise its employees. Because Bennett’s survivors were barred by the Workers’ Compensation Act from recovering actual damages, they sought exemplary damages only.

Meanwhile, Fairfield sued Stephens Martin Paving and Bennett’s survivors in federal district court seeking a declaratory judgment that Fairfield owed no duty to defend or indemnify the employer in the underlying suit for exemplary damages. The federal district court concluded that the language in Fairfield’s policy covered exemplary damages and that Texas public policy did not prohibit insurance coverage for those damages. The court entered a judgment declaring that Fairfield had the duty to defend Stephens Martin Paving, as well as indemnify it as provided by the policy if it was adjudicated responsible for the damages sought in the underlying suit brought by Bennett’s survivors. Fairfield appealed, and the Fifth Circuit certified the question of the insurability of exemplary damages for gross negligence to the Texas Supreme Court.

The Texas Supreme Court noted that the determination of whether exemplary damages for gross negligence are insurable requires a two-step analysis. First, the Court had to decide whether the plain language of the policy provided coverage for the exemplary damages sought in the suit against the insured. Second, if the Court concluded that the policy provided coverage, the Court had to determine whether the public policy of Texas allowed for or prohibited coverage in the circumstances presented in the underlying suit. However, because the Fifth Circuit’s question was directed only at the public policy of Texas, the Court limited its discussion to the second prong of the analysis and presumed that the policy language covered the exemplary damages sought.

While considering whether Texas’ public policy should prohibit coverage for exemplary damages, the Texas Supreme Court noted that the deciding court should study the context in which the Legislature has spoken on the issue. Looking to the workers’ compensation statutory scheme and the Texas Department of Insurance’s execution of the same, the Court determined that the Legislature had evidenced an intent to provide additional insurance coverage for an employer’s gross negligence. Therefore, the Legislature’s expressed intent was that Texas public policy does not prohibit insurance coverage for claims of gross negligence.

Although the Legislature’s expressed direction ended the inquiry regarding the case at issue, the Texas Supreme Court recognized that the Fifth Circuit framed its certified question as a broad inquiry into Texas public policy and the coverage of exemplary damages. Although hesitant to opine on policy language and fact situations not before the Court, the Court went on to discuss some of the considerations relevant to determining whether Texas public policy prohibits insurance coverage for exemplary damages in other contexts in the absence of a clear legislative policy decision.

Insurance Company House Counsel May Defend Insureds

less than a minute

By Andrew Wooley

In an opinion filed today in the matter of Unauthorized Practice of Law Committee vs. American Home Assurance Co., the Supreme Court of Texas has authorized liability insurers to use in-house staff attorneys to defend their Texas insureds, so long as there is no conflict of interest between the insurer’s and the insured’s interests: “We hold that an insurer may use staff attorneys to defend a claim against an insured if the insurer’s interest and the insured’s interest are congruent, but not otherwise. Their interests are congruent when they are aligned in defeating the claim and there is no conflict of interest between the insurer and the insured. We also hold that a staff attorney must fully disclose to an insured his or her affiliation with the insurer.”

The majority opinion may be viewed at http://www.supreme.courts.state.tx.us/historical/2008/mar/040138.htm

The dissenting opinion may be viewed at http://www.supreme.courts.state.tx.us/historical/2008/mar/040138d.htm