Insurer's Right to Contractual Subrogation Trumps Equitable Made-Whole Doctrine Yet Again in Texas
In Fortis Benefits v. Cantu, 234 S.W.3d 642 (Tex.2007), the Texas Supreme Court held that the “made whole” doctrine does not apply where the parties’ agreed contract provides a clear and specific right of subrogation. Despite this ruling, the Austin Court of Appeals was recently confronted with a situation where a trial court attempted to allocate the entirety of an $800,000.00 settlement in a negligence suit to the family of an individual who was injured in an oilfield explosion and spent 52 days in the hospital before eventually succumbing to his extensive injuries. Although the insurer had intervened in the underlying lawsuit and asserted a contract-based lien of over $330,000.00 on any recovery obtained by the family, the Austin Court of Appeals ultimately agreed with the trial court that equitable principles applied to the subrogation claim, and that where “a subrogation claim works an injustice, it shall not be allowed.” Citing the insurer’s solid financial position and the financial hardship that the family would suffer should the insurer’s subrogation rights be enforced, the entire settlement was ultimately allocated to the family under the “made whole” doctrine.
In reversing the Austin Court of Appeals, the Texas Supreme Court held in Texas Health Ins. Risk Pool v. Sigmundik, 315 S.W.3d 12, 14 (Tex.2010) that the “made whole” doctrine was inapplicable, and that it was improper to cut the insurer out of a settlement to which it had a valid claim. Moreover, the Court noted that the trial court could not cut the insurer out of the settlement simply because it was an insurance company, or because the trial court believed the surviving family needed the money more than the insurer.
The Court further addressed arguments by the family that the insurer failed to carry its burden of establishing that settlement funds should be allocated to its lien. In rejecting this argument, the Court held that such evidence was in fact provided. Specifically, the insurer requested the full amount of the total medical expenses incurred beginning with its first petition in intervention, and also provided extensive medical records and testimony to support both the expenses it requested and the damages suffered by the deceased. The Court ultimately remanded the case to the trial court to determine what portion of the settlement funds should be allocated to the insurer.
The Sigmundik case provides even more persuasive authority for insurers to rely on when asserting contractual based rights of subrogation. Based on Fortis Benefits and Sigmundik, it is clear that the Texas Supreme Court will defer to clear policy language when addressing allocation issues between an insured and its insurer. Accordingly, it is imperative that these provisions be reviewed and analyzed at the outset of a claim so that the insurer is not forced to unfairly compromise its rights of subrogation. In addition, Sigmundik also provides a framework for what an insurer needs to do to adequately protect its contractual subrogation interest (namely, intervene and ensure that its damages are properly pled and supported). Adherence to these suggestions will allow an insurer to negotiate from a position of strength should recovery allocation issues arise.
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The sooner evidence can be evaluated and preserved, the better the prospects for a successful outcome. The Federal Rules of Civil Procedure afford to potential plaintiffs and defendants a uniform standard when pre‐action “discovery” can be obtained. Strictly speaking, the relief sought is not discovery, as the rule is utilized to preserve evidence. Federal Rule 27, titled “Depositions to Perpetuate Testimony” permits the preservation of testimony, physical evidence, and documents that are not likely to be available at a later time.
The Wisconsin legislature enacted a comprehensive tort reform package in early 2011. Part of the legislation changed Wisconsin’s evidence rules governing the admissibility of witness testimony on scientific, technical or specialized subjects. Wisconsin law now aligns with federal standards, which means that Wisconsin practitioners will have to identify any expert opinions they may need in a particular case and ensure that a suitable witness has been selected to render that opinion.
Recovery professionals handling claims in Arbitration Forums, Inc.’s Property Arbitration Forum should be aware that, as of March 1, 2012, Arbitration Forums will be implementing new rules for hearings. Rule 3-7 now states that the written Contentions and supporting evidence submitted are all that is to be considered by an arbitrator, and that a party attending the hearing is not allowed to verbally present its case or offer any argument that is not included within the written Contentions. Rule 3-7(a) also provides that a representative who attends a hearing may only clarify, at the arbitrator’s request, his or her party’s Contentions and/or submitted evidence. Consequently, under the new rules, a recovery professional presenting a claim can only answer the questions of the arbitrators and can no longer present arguments.
It is not uncommon for subrogation counsel to file suit in the name of the insured for a variety of reasons. The most obvious is when counsel represents the insured for their uninsured losses or their deductible. However, there are times that for tactical reasons, counsel files suit in the name of the insured to try and avoid the bias that often accompanies an action filed in the name of the carrier. Although the deductible may be accounted for in a suit filed in the name of the insured, if the insured suffered any uninsured losses, they may not be included unless counsel has entered into a retention agreement with the insured. Unless a proper agreement is in place, the carrier and subrogation counsel run the risk of being sued by a disgruntled insured whose uninsured losses were not included in the carrier’s suit. There is a simple solution to avoid such a problem – make it clear to the insured whether or not their claims are included in the lawsuit, especially when suit is filed in the name of the insured. .jpg)
Defendants often claim that the negligent work they are being sued for was done by “an independent contractor”—thus attempting to alleviate their responsibility. This defense is often raised in cases where construction is being performed. However, it can also be raised when one party contracts with another for a specific type of installation or delivery work. In these cases, the independent contractor defense may not be applicable if you can establish that there was no prior disclosure to the owner that independent contractors would be used.
The Pennsylvania Supreme Court recently joined “the overwhelming majority” of states that have declined to recognize a separate cause of action in tort for negligent spoliation of evidence. In Pyeritz v. Commonwealth of Pennsylvania, __ Pa. __, 32 A.2d 687 (2011), the Court held that “Pennsylvania law does not recognize a cause of action for negligent spoliation of evidence.” The case involved a suit against the Commonwealth for the actions of the Pennsylvania State police. Daniel Pyeritz was found dead at the base of a tree while hunting. He was alone and there were no witnesses. The remains of a black nylon belt were found 15 feet up in a tree stand. The Trooper in charge of the investigation into the death took the two pieces of belt as evidence and logged them into evidence.
The estate filed and then settled for $200,000 an action against the two tree stand belt manufacturers. The estate also filed an action against the Commonwealth in negligence for failure to preserve the evidence. The trial court granted summary judgment for the Commonwealth and the intermediate appellate court affirmed. The Pennsylvania Supreme Court recognized that the duty element in negligence required the Court to make a policy judgment whether it is in the public interest to impose damages for failure to conform conduct to a particular standard. The Court held “that as a matter of public policy, this is not a harm against which [a party] should be responsible to protect.” The primary reason relied upon by the Court was that such a cause of action would potentially allow liability where, due to the absence of evidence, it is impossible to determine whether the underlying litigation would have been successful. The Court noted that there were protections already in place to encourage the preservation of evidence and imposing tort liability would involve financial burdens that outweighed the benefit to encourage preservation. The overall public interest favored rejection of a tort based on speculation, the possibility of litigation proliferation, and one whose benefit was already sufficiently protected under existing law.
The Utah Supreme Court recently approved a number of amendments to the Utah Rules of Civil Procedure which limit discovery in civil actions. The amendments became effective for all cases filed after November 1, 2011.
Imagine Mr. and Mrs. Johnson are recent first-time homeowners in California. Last year, they purchased a new home built by Lemon Construction. Shortly after moving into the home, the Johnsons went on a short vacation. To their dismay, they returned the following week to find the entire upstairs of their new house completely flooded.
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On January 10, 2012, BMW of North America, LLC, announced a .jpg)
Practitioners and judges frequently use the terms subrogation and contribution interchangeably. This is legally incorrect and, as one insurance company recently learned, the distinction between the two concepts can be fatal.
EDRs or "black boxes" now are contained in a wide range of consumer products including copiers, household appliances, alarm systems and cars. "EDRs" can provide a final data picture of how a product was last operating before a failure happened. Technological advances include building EDRs with a read write tamper proof cabability. For example, an unexpected rise in temperature or surge in power can trigger an EDR that may support an eye witness observation that a product was on fire, smoking or operating erratically. Critics condemn EDRs suggesting they are surveillance monitors akin to those used by "Big Brother" in George Orwell's novel "1984." The reality is far different. EDRs objectively record data within state prescribed privacy legislative requirements.
