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Law Update
By Kevin McGillicuddy - Parker & Associates

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SUPREME COURT ADDRESSES ART. 21.55 PENALTY PROVISION AND “LIKE KIND AND QUALITY” REQUIREMENT

REPUBLIC UNDERWRITERS INSURANCE CO. v. MEX-TEX, INC., 48 Tex. Sup. Ct. J. 134 (Tex. 2004)

FACTS – Mex-Tex notified Republic, its property insurer, of hail damage to the roof of a shopping mall it owned in Amarillo following a May 25, 1999 storm that was declared to be a weather related catastrophe for the purposes of claims processing. Mex-Tex claimed that the roof was destroyed and needed to be replaced. Republic investigated the claim and disputed the amount of damage that was caused by hail. The roof had been leaking for a long time, and Mex-Tex had obtained estimates to replace it before the storm. While Republic was still investigating the loss, Mex-Tex retained a contractor to replace the roof at a cost of $179,000 with one of the same kind, but fixed mechanically to the building rather than by ballast (rocks) as the prior roof had been. Republic initially offered $22,000 to repair what it considered to be the minimal hail damage, terming this as a partial payment. When Mex-Tex rejected the partial payment, Republic sent Mex-Tex a check for $145,460, which is the amount Republic’s engineer determined was the cost of replacing the mall’s roof with an identical roof, attached by ballast. Mex-Tex returned the check twice, and Republic finally held the check until Mex-Tex accepted it on October 12, 2000 as partial payment of its claim. In the meantime, Mex-Tex had sued Republic for breach of the policy and for delay penalties under Texas Insurance Code art. 21.55.

CASE HISTORY – At trial, the court found that Republic had breached its obligation to replace the roof with one of “like kind and quality” even though the cost of the roof that Mex-Tex chose exceeded by $33,540 the cost of replacing the original roof with an identical one. The trial court awarded Mex-Tex the $33,540 difference, and in addition the trial court awarded Mex-Tex 18% per annum on the entire $179,000 from November 4, 1999 until the date of judgment. (November 4, 1999 was 75 days after Republic tendered $145,460) The court of appeals affirmed this judgment.

HOLDING – Republic appealed, and the Texas Supreme Court holds that there was evidence to support the trial court’s holding that the old roof and new roof were comparable, differing only in cost and the way they were attached to the building. Therefore, there was evidence to support the trial court’s finding that Republic breached the policy by refusing to pay the cost of the new roof. With regard to the delay penalty, however, the Court agrees with Republic that the penalty should have been calculated only on the $33,540 difference between the amount that Republic tendered and the ultimate cost. This encourages insurers to pay the undisputed portion of a claim promptly. The Court agrees with Mex-Tex that tender of a partial payment must be unconditional, but the Court rejects Mex-Tex’s argument that Republic tendered the partial payment as a final settlement. The Court states that there was no showing of any clear intent by Republic to condition its tender on a full release. The Court remanded the case to the trial court for rendition of a judgment that is to include a penalty only on the $33,540 amount.

SIGNIFICANCE – It is of some concern that Republic could be liable for a penalty even though they tendered the cost of a roof that was identical to the one that was damaged, however the Court wrote that “comparable” does not mean “identical,” and the more expensive roof fell within the meaning of “like kind and quality.” The Court writes that the policy does not require Republic to pay the cost to replace the roof with an identical one, so that Republic was liable to pay for the more expensive roof. Two judges dissented from the majority opinion and would have held Republic liable for a penalty on the entire $179,000, arguing that Republic’s tender of payment was conditional on a full settlement.

SUPREME COURT INTERPRETS UM AND PIP POLICIES AND REJECTION OF COVERAGE

OLD AMEERICAN COUNTY MUTUAL v. SANCHEZ, 149 S.W.3d 111 (Tex. 2004)

FACTS – On January 8, 1998, Margarita Sanchez purchased an auto insurance policy from Old American for two vehicles that she and her husband Zeferino Sanchez owned. She rejected UM and PIP coverages. The application affirmed that the rejections of UM and PIP would apply to the 1998 policy and to all future renewals. The policy that was issued listed Mr. Sanchez as a named insured, but not Mrs. Sanchez. The policy did define “you” and “your” to include the “named insured” as well as the spouse if a resident of the same household, which Mr. and Mrs. Sanchez were. The Sanchezes renewed the policy in January 1999 but did not request PIP or UM coverage at that time. Mr. Sanchez was injured in April 1999 when an uninsured motorist struck his pickup as he was lying beneath it on the side of the road repairing a broken fuel line. The impact caused the pickup to collapse on him and to sever his spinal cord. At the time that Mrs. Sanchez had purchased the original policy, Mr. Sanchez owned this pickup truck, but it was not identified on the application and therefore was not a “covered auto” under the policy, which excludes coverage for injuries sustained while “occupying” or when “struck by” any vehicle owned by an insured that is not insured under the policy. Mr. Sanchez filed a claim with Old American for UM and PIP benefits.

CASE HISTORY – Old American filed suit seeking a declaration that it was not obligated to pay PIP or UM benefits. It moved for summary judgment on three grounds: (1) Ms. Sanchez’s rejection of UM and PIP coverages precluded Mr. Sanchez’s recovery; (2) the policy’s owned-vehicle exclusion eliminated UM and PIP coverages because Mr. Sanchez was injured while “upon” and therefore “occupying” the uncovered vehicle; and (3) Mr. Sanchez was “struck by” the uncovered pickup. The trial court granted summary judgment on the second round, denied it on the first, and did not rule on the third. The court of appeals held that Old American was not entitled to summary judgment on any of the three grounds.

HOLDING – The Supreme Court holds that Old American was entitled to summary judgment on the first ground considered by the trial court, so it does not reach the other arguments. We will not repeat all of the discussion of the statutory language mandating UM and PIP coverages, but the Court considered Texas Insurance Code articles 5.06-1(1) and 5.06-3(a) setting out the requirements of offering UM and PIP coverages, respectively. Suffice it to say that that Court holds that even though Mrs. Sanchez was not the “named insured” in the policy, she was an insured under the policy, and any insured named in the policy is entitled to reject those coverages, not just the “named insured.” Mrs. Sanchez, while not named specifically, is named by definition, and was entitled to reject the coverage.

SIGNIFICANCE – The result is probably correct from a common-sense standpoint, as it would make no sense for a husband (or wife) to be entitled to obtain coverage for both, and for both to be entitled to make claim under that coverage, but for them not to be bound by a rejection of a portion of that coverage simply because the coverage was not obtained by the spouse who is eventually listed as the “named insured.”

TWO COURTS OF APPEALS WRESTLE WITH WORKERS’ COMPENSATION SUBROGATION UNDER UNINSURED MOTORIST COVERAGE

CITY OF CORPUS CHRISTI v. GOMEZ, 141 S.W.3d 767 (Tex.App.—Corpus Christi 2002)

FACTS – Norberta Gomez was injured by an underinsured vehicle while working as a school crossing guard for the City of Corpus Christi. The City paid in excess of $78,000 in workers’ compensation benefits as a self-insured employer. Gomez later settled her UIM claim with her personal insurance carrier for $20,000. The City contended that it was subrogated to the proceeds of the UIM coverage in Gomez’ policy.

CASE HISTORY – The City pursued recovery before the TWCC, and the TWCC ruled in the City’s favor. Gomez filed suit and the parties submitted the question of the City’s subrogation rights to the court through an agreed statement of facts and cross-motions for summary judgment. The trial court granted summary judgment to Gomez, ruling that the City was not entitled to recover WC benefits it had paid from Gomez’ UIM policy.

HOLDING – The City appealed and the court of appeals writes that the “damages” recoverable under §417.001(a) of the Texas Labor Code (the subrogation provision) do not include UIM benefits payable under the claimant’s personal insurance policy. The court states that the term is limited to damages recovered from a third party that is liable to the injured employee because the third party breached a contract or committed a tortious act against the injured employee. At the same time, the court distinguishes cases where the employee collects under the employer’s UM policy and states that in that instance, the WC carrier would be subrogated to the employee’s right of recovery because the premiums for the UM coverage were paid for by the employer.

SIGNIFICANCE – Compare the recent case of Erivas v. State Farm Mutual Automobile Insurance Company, 141 S.W.3d 671 (Tex.App.--El Paso 2004). In that case, Isabel Erivas was injured in a hit-and-run accident while operating a vehicle owned by her employer. At the time, she was in the course of her employment. She made a workers’ compensation claim and received over $22,000 in benefits from the WC carrier. She also received what the court categorizes as PIP benefits under her employer’s uninsured motorist coverage(?). She then filed suit against the UM carrier claiming that she was entitled to recover damages for her injuries. Essentially, the court of appeals holds that the workers’ compensation carrier does have the right to subrogate against the UM carrier since the UM coverage was provided by the employer and not by the employee. There does seem to be something of a trend allowing subrogation against UM policies purchased by the employer, but not against UM policies purchased by the employee, although that issue has not been finally determined by the Texas Supreme Court.

COURT OF APPEALS APPLIES TWCC SIBS RULES

TEAGUE v INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, 144 S.W.3d 607 (Amarillo 2004)

FACTS – Linda Teague was injured on the job and was eventually qualified to receive supplemental income benefits (SIBs), which the injured worker must qualify and apply for on a quarterly basis. For the quarter in question, Teague did not look for work during two of the 13 weeks of her qualifying period because she was out of state attending to her daughter during illness. The carrier contested her entitlement because of her failure to look for work during that two-week period, and the TWCC hearing officer agreed with the carrier. The TWCC appeals panel affirmed.

CASE HISTORY – Teague filed suit, and the trial court granted the carrier summary judgment.

HOLDING – Teague appealed, and the court of appeals looks to TWCC Rule 130.102, which defines what constitutes a “good faith effort” to find work – one of the requirements of obtaining SIBs benefits. Rule 130.102(e) and includes the requirement that the employee “look for employment commensurate with his or her ability to work every week of the qualifying period and document his or her job search efforts.” Teague argued that §130.102 anticipates that there may be circumstances that prevent an employee from seeking work every week, as subsection (e)(11) allows the TWCC to consider “any other relevant factor.” The court of appeals rejects Teague’s argument and states that Teague’s reading of §130.102(e) would allow “any other relevant factor” to overcome the plain requirement of a continuing weekly search for work. The court also looked to the TWCC’s preamble when it adopted this rule, which recognized that there may be circumstances, such as the death of a family member of the injured employee, which may cause an employee not to look for work for a period of time. The Commission, in adopting the rule, stated that this would not excuse the employee from continuing to look for work each week. Therefore, the court of appeals applied the TWCC’s rule to the facts of this case and affirmed the trial court’s judgment that Teague was not entitled to SIBs.

SIGNIFICANCE – What is interesting in this case is the amount of deference the court of appeals gives to the TWCC’s rule. The statute merely requires the employee to attempt in good faith to obtain employment commensurate with the employee’s ability. The TWCC’s rule fleshes out that requirement in some detail, and the court of appeals states that it construes the TWCC’s rules in the same manner as statutes, having as its primary objective to give effect to the intent of the TWCC. Teague did not argue that the TWCC’s rule was inconsistent with the statute, and the court of appeals gave the rule full effect.


Submitted by:

J.T. Parker & Associates, L.L.C.

1341 W. Mockingbird Ln., Suite 300W

Dallas, TX 75247

214.631.1000

214.631.3700 Fax

www.parkerclaims.com

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