In this week’s orders list, the Texas Supreme Court issued three opinions and set one new case for argument in February.
Today’s opinions involved:
- whether the same “eight corners” rule that governs an insurer’s duty to provide a legal defense might also get the insurer off the hook for its coverage obligation [it doesn’t];
- the “producing cause” standard of proof under the Texas DTPA [it’s higher than you may think]; and
the reliability of expert testimony in a design-defect case [not good enough].
The “eight corners” rule is just about the duty to defend: It does not get an insurer off the hook for ultimately paying a claim
D.R. Horton was sued by one of its homebuyers for mold damage. D.R. Horton demanded that the insurance carrier for one of its masonry subcontractors cover its legal defense and pay for the settlement. The insurance carrier (Markel) refused, and this lawsuit followed.
On summary judgment, the trial court ruled in favor of Markel on both the duty to defend and the duty to pay the settlement. Markel argued that the lawsuit between D.R. Horton and the homebuyers had not named this subcontractor as a part, so the claim did not fit within the “eight corners” rule to trigger the duty to defend. The court of appeals affirmed, reasoning that because Markel had no duty to defend, it also had no duty to indemnify D.R. Horton by paying for the settlement costs.
The Texas Supreme Court affirmed in part and reversed in part.
First, the Court affirmed on the duty to defend issue — but on waiver grounds. In defending against the summary judgment motion, D.R. Horton had not argued for any exception to the “eight corners” rule. Indeed, it did not ask for such an exception until its second motion for rehearing in the court of appeals, after the Texas Supreme Court had hinted at the possibility in Guideone Elite Insurance Co. v. Fielder Road Baptist Church, 197 S.W.3d 305 (Tex. 2006).
The Court held that was too late. The Court pointed to the summary-judgment answer as when this argument should have been made, concluding that D.R. Horton’s argument at that stage “for a liberal construction of the plaintiff’s pleadings is not equivalent to challenging the eight-corners doctrine or to requesting an exception to it. See TEX. R. CIV. P. 166a(c).”
Second, the Court reversed the summary judgment on the duty to indemnify.
The court of appeals read the Texas Supreme Court’s earlier opinion in Farmers Texas County Mutual Insurance Co. v. Griffin as establishing a logical link between the duty to defend and the duty to indemnify.
Griffin involved an insurance claim made for a drive-by shooting. The Court concluded both that there was no duty to defend and no duty to indemnify, and it upheld a summary judgment against the “duty to indemnify” without the need to develop more evidence.
Today, the Court explained that Griffin was the unusual case and did not create a logical connection between these two duties:
We explained in [Griffin] that no “facts can be developed in the underlying tort suit that can transform a drive-by shooting into an ‘auto accident.'” . . . In that scenario, “the duty to indemnify is justiciable before the insured’s liability is determined in the liability lawsuit when the insurer has no duty to defend and the same reasons that negate the duty to defend will likewise negate any possibility the insurer will ever have a duty to indemnify.” . . . This conclusion was grounded on the impossibility that the drive-by shooting in that case could be transformed by proof of any conceivable set of facts into an auto accident covered by the insurance policy. It was not based on a rationale that if a duty to defend does not arise from the pleadings, no duty to indemnify could arise from proof of the allegations in the petition. These duties are independent, and the existence of one does not necessarily depend on the existence or proof of the other.
In today’s case, the Court found that D.R. Horton had introduced at least some evidence that its claim might be covered under the policy. Accordingly, the Court reversed the summary judgment and sent the case back to the trial court.
Justice Wainwright delivered today’s opinion for the Court. (Justice Guzman did not sit on this case.)
Causation under the DTPA: “Producing cause” is a higher standard of proof
It is surprising to learn that it took 30 years for the Texas Supreme Court to be called upon to clarify the causation standard in a statute as commonly invoked as the Texas DTPA. But that’s what happened.
In this case . . . we clarify the proof required under the amendment to the DTPA’s 1979 causation standard. The material change in the statutory language indicates a legislative intent to create a different standard. . . . The Legislature’s amendment of the causation standard in the DTPA to “producing cause” establishes a higher standard for proof of causation in cases brought under the DTPA, including failure to procure insurance cases. See TEX. BUS. & COM. CODE § 17.50.
This case involved a misrepresentation by an insurance agency (Metro) of whether one of its clients (Lin) had insurance coverage. The client sought CGL coverage to protect her against claims arising from some work to be done under contract on a hydroelectric plant.
Later, the government terminated her and called on the surety to finish the project — setting off a chain of lawsuits. The surety then sued the client for indemnity, who in turn demanded that a lawyer from her insurer appear to defend her. But, it turns out, there was no insurer because no insurance policy had been procured by the agency. The client then sued the insurance agency for negligence and a violation of the DTPA.
Metro admits it was negligent but denied causation:
Metro petitioned this Court for review, arguing that both the negligence and DTPA theories require proof of some CGL policy that would have covered the damages, as necessary causation evidence, and that Lin provided no such evidence. Lin agrees that his negligence theory requires such proof, but argues that the DTPA theory does not. He further argues that, even if both theories require this proof of causation, he provided legally sufficient evidence to uphold the jury’s verdict.
Ultimately, the insurance agency’s defense is that there actually was no insurance policy it could have obtained that would have protected Lin against this indemnity claim by a surety.
The Court agreed, concluding that the misrepresentation was not the “producing cause” of Lin’s harm if, in fact, no insurance policy would have provided this coverage:
In this context, the harm would have occurred only if the CGL insurance that Metro agreed to procure would have actually covered the injury suffered by Lin. Otherwise, Lin would have obtained an insurance policy that did not provide coverage for his surety’s claims against him, and the injury would have been the same regardless of whether Metro procured the insurance or not. Therefore, the more stringent causation standard of the current DTPA statute requires proof that the coverage sought was actually available in a CGL policy, as sought by Lin.
The Texas Supreme Court held that Lin did not present legally sufficient evidence that there was some insurance policy that would have covered him. For that reason, the Court held that the DTPA causation standard had not been met and remanded to the trial court to reinstate a verdict in favor of the insurance agency.
Expert’s testimony about a design defect in a clothes dryer was unreliable
The Texas Supreme Court reversed a judgment that a defective clothes dryer made by Whirlpool had caused a house fire that destroyed the plaintiff’s home and killed her son.
At trial, the plaintiff’s expert witness testified that the design of the dryer made it too easy for pieces of lint to come in contact with heated surfaces and then to ignite larger items, such as clothes that might be in the dryer. The expert testified that he relied on reports by the federal Consumer Product Safety Commission and some analysis of the debris.
On appeal, Whirlpool challenged whether the testimony about the design defect given by the plaintiff’s expert witness had been scientifically reliable.
The Texas Supreme Court reversed, holding that that the expert witness’s testimony was not reliable. The Court noted that the expert did not find test results that supported his theory, nor did he conduct his own testing. The Court also criticized the expert’s reliance on the CPSC report because he did not explain how the conclusions of that report were applicable to this dryer, given some divergences in the testimony. (( In particular, the report dealt with dryers that let fairly large pieces of lint come in contact with heating elements, but other evidence here suggested that the possible pieces of lint here would have been smaller and thus would have flamed out much more quickly. ))
The Court’s opinion was written by Justice Johnson. Justice Guzman did not sit on this case.