TDI mulls mandatory mediation-arbitration endorsements

On July 6, the Texas Department of Insurance will consider whether to allow Texas Farm Bureau to offer a mandatory mediation-arbitration endorsement with its homeowner’s policies. The insured would give up their right to sue Farm Bureau in court in exchange for an unknown reduction in premium.

Under the endorsement, the insured and Farm Bureau must attempt mediation first ( I always appreciate the opportunity for more mediation business!) and go to arbitration if they do not settle at mediation.The arbitration clause limits discovery to the sharing of certain documents related to the claim. No depositions unless the arbitrator permits them. Farm Bureau pays the fees for mediators and arbitrators. An arbitrator’s award would be confidential unless both sides agree to disclose. I don’t read the endorsement as limiting the types of damages an arbitrator can award. The endorsement does not provide for an award of attorney’s fees.

I don’t like arbitration for most consumer transactions, particularly those involving adhesion contracts. Experience shows arbitration isn’t an effective or practical mechanism for most consumers to enforce their rights. (I have no qualms about two parties in relatively comparable bargaining positions agreeing to arbitrate their disputes). Heck, I typically work on the defense side of the bar, and I don’t typically prefer arbitration as lawyer. I suppose I prefer the structure provided by court rules and procedures instead of the unpredictable flexible rules of arbitration. At least Farm Bureau offers to mitigate certain barriers associated with arbitration in other fields, such as paying administrative fees.

I think TDI will bless then endorsement. I fear most policyholders won’t understand what rights they will relinquish in exchange for a lower premium. Most insureds will agree to the endorsement because their agent will tell the insured he or she will save some dough in the short-term and it’s rare whenever a dispute arises out of a claim. Notwithstanding my doubts, I don’t think TDI should prohibit Farm Bureau from offering the endorsement. It’s not my place to mandate whether certain people voluntarily give up certain rights in exchange for money, especially when other safeguards exist.

I suspect TDI will allow Farm Bureau to offer the endorsement, as long as the insured receives a tangible break on policy premiums. If the consumer gets no real benefit, forget it. Having to front arbitration and mediation fees can make it difficult for an insured to pursue a remedy against a carrier. It helps that Farm Bureau will bear most of the administrative fees and costs for mediators and arbitrators. Also, for it to work for me, policyholders have to be able to obtain policies from admitted carriers which do not require the endorsement. Otherwise, arbitration will become the norm.

Will we see mandatory mediation-arbitration endorsement as a matter of course?  That’s the big question. I anticipate most other HO carriers will follow suit if TDI allows Farm Bureau to offer this endorsement. I imagine most carriers see this as an opportunity for carriers to lower claim costs and potential exposure. Carriers may have to offer the endorsement to compete with Farm Bureau on premium price. The problem arises if and when each carrier offers the endorsement and policyholders have to pay significantly more to remove it. What if carriers may refuse to write policies without the endorsement. That result would be terrible for Texas consumers.

FTR, I wouldn’t personally agree to the endorsement if I was a Farm Bureau insured.

 

In re Nationwide: Forum-selection clauses, waiver, and actual prejudice

In In re Nationwide Ins. Co. of America, No. 15-0328 (Tex. Jun. 24, 2016), the Supreme Court of Texas held that a party who claims another party waived enforcement of a contractual forum-selection clause must establish actual prejudice resulted from the alleged waiver.

Facts and Procedural History

 

This case involves a dispute between Nationwide and an independent insurance agent. The contract between Nationwide and the agent had a forum-selection clause. The clause provided for venue in Franklin County, Ohio.

The agent filed suit against Nationwide in Travis County, Texas, in December 2012. Nationwide’s lawyer told the agent’s lawyer Nationwide intended to enforce the forum-selection clause; however, Nationwide waited over two years to seek to enforce it, and only after changing lawyers. Nationwide sought to enforce the forum-selection clause by filing a motion to dismiss.

During the two years, the parties conducted written discovery. Nationwide filed special exceptions and two partial motions to dismiss. The trial court sustained the special exceptions. The trial court never heard the motions to dismiss because the agent amended his pleadings. The parties submitted an agreed confidentiality and protective order and the trial court signed it.

The limitations period on the agent’s contract claim expired during the pendency of the Texas lawsuit. Nationwide agreed to waive the limitations argument to move the case to Ohio. The limitations period on the agent’s fraud claim expired months after Nationwide moved to dismiss the Texas lawsuit. The trial court denied Nationwide’s motion to dismiss; consequently, the agent never filed suit in Ohio. The court of appeals denied Nationwide’s mandamus petition.

The Supreme Court of Texas held the agent did not establish any prejudice resulted from the delay. Consequently, the Court granted mandamus relief.

Analysis

 

As a general rule, Texas enforces contractual forum-selection clauses. A party waives enforcement “by substantially invoking the judicial process to the other party’s detriment or prejudice.” In determining whether a party waived enforcement, a court looks at the totality of the circumstances on a case-by-case basis.

The Court punted somewhat on the substantial invocation question. The Court noted Nationwide was active in the Texas lawsuit but the parties’ interaction with the trial was “minimal.” While the trial court sustained special exceptions and entered an agreed order, the Court did not make any dispositive rulings. Ultimately, the Court deferred to the trial court’s ruling that Nationwide had substantially invoked the judicial process.

The Court concluded the agent had suffered no prejudice as a result of Nationwide’s substantial invocation of the judicial process . The mere fact that the agent had already spent time and money in working up the Texas lawsuit did not help the agent. The agent could have avoided that by filing in the correct forum in the first place. The Court held no actual prejudice resulted from the delay. The agent’s prejudice was theoretical because Nationwide agreed to waive its limitations argument on the contract claim. Meanwhile, Nationwide did not prejudice the agent’s fraud claim. The agent could have dismissed and refiled after Nationwide filed the motion to dismiss based on the forum-selection clause. (Why the agent would have done so after winning at the trial court level beats me). Nationwide maintained it had informed the agent’s lawyer regarding the Ohio statute of limitations for fraud claims months before the limitations period expired, so it wasn’t “laying behind the log.” Because the agent did not suffer any actual prejudice, Nation

My Two Cents

 

This case and result strikes me as an odd one. Generally, I have no problem with enforcing forum-selection clauses. I don’t have a ton of sympathy for a party who tries to avoid forum selection clauses by filing suit in the “wrong” forum. The agent’s lawyer could have prevented this mess by filing in Ohio.

I can’t see why a party who waited two years to enforce a forum-selection clause deserves any relief. If you have the forum-selection clause in the contract, move to enforce it early. Instead, as a result of the delay, the parties likely spent a good chunk of change in the discovery process during the two years.

Now the parties are a lot closer to the beginning of the lawsuit than the end. The parties probably should have resolved this case within two years, but that’s a different issue.

Some unanswered questions re: strategy: why was Nationwide so adamant about moving the case to Ohio after so much time passed? Why didn’t Nationwide’s first lawyer pull the trigger early on in the case? Did Nationwide think the agent would fold as soon as the case moved there? Have Ohio courts construed similar agency agreements such that Nationwide had a sure win? Texas courts can apply Ohio contract law, too.

I think the dissent gets it right.

Seger v. Yorkshire Ins. Co., Ltd.: Stowers requires coverage

Some observations on the Supreme Court of Texas’ recent decision in Seger v. Yorkshire Ins. Co., Ltd., No. 13-0673 (Tex. Jun. 17, 2016):

  1. The plaintiff/insured must establish coverage as an essential element of its Stowers claim. The plaintiff/insured bears the initial burden of establishing coverage. If the plaintiff/insured proves coverage, the burden shifts to the insurer to establish the policy excludes coverage.
  2. Under certain circumstances, an insured may reject or void, at its option, a policy issued by an unauthorized insurer. If the insured elects to enforce a policy subject to avoidance, it must enforce the entire contract, including any policy exclusions. An insured cannot select provisions which favor coverage and reject exclusions. In other words, the plaintiff/insured must accept all of the policy terms or none.
  3. As an aside to #2 above, I wonder whether a plaintiff/insured must accept provisions in a voidable policy that are otherwise unenforceable on public policy grounds. I don’t think the “all or nothing” logic mandates such a result. The Seger Court didn’t discuss that issue.
  4. This case gives Jarndyce vs. Jarndyce a run for its money. The underlying accident and death occurred in 1992. That’s unacceptable.

The bottom line: No coverage? No Stowers claim.

Crosstex North Texas Pipeline, L.P. v. Gardiner: SCOTEX tackles nuisance

The Supreme Court of Texas attempted to clarify private nuisance law in Crosstex North Texas Pipeline, L.P. v. Gardiner, No. 15-0049 (Tex. Jun. 24, 2016). The Court  apparently believed this area of law to be an imprecise mess. Justice Boyd wrote a fifty-four page opinion trying to clean up the mess. 

Crosstex involved a compressor station as part of a natural gas pipeline. The compressors were apparently loud enough to interfere with an adjacent ranch. The pipeline owner attempted to solve the noise problem but did not, according to the ranch owner. 

First, the Court stressed that nuisance refers to the type legal injury involving interference with the use and enjoyment of real property and not to a defendant’s conduct or a legal cause of action. Specifically, a ‘nuisance’ is a condition that substantially interferes with the use and enjoyment of land by causing unreasonable discomfort or annoyance to persons of ordinary sensibilities attempting to use and enjoy it. Notably, a party does not need to establish that the defendant’s conduct or land use was somehow unreasonable. The Court listed a litany of non-exclusive factors used to determine “substantial”and “unreasonable” under the circumstances. 

If nuisance is the legal injury, how does a party establish liability for a nuisance? The Court discussed three categories: (1) intentional, (2) negligent, and (3) strict-liability for abnormal and out of place conduct.  

A person intentionally causes a nuisance if the defendant acts for the purpose of causing the interference or knows the interference is resulting or is substantially certain to result from the defendant’s conduct. The key is showing that the defendant intentionally caused the interference, not engaged in the conduct that caused the interference. Under this standard, a defendant is liable even if the defendant disagrees that the interference is substantial or that the effects are unreasonable. 

A negligent nuisance theory is straightforward enough–prove duty, breach, and damages caused by the breach. Generally, a petty doesn’t need to develop expert testimony to help the jury understand the duty issue. 

The court confined strict liability for nuisances arising out of abnormal and out of place conduct to situations involving an abnormally dangerous activity or an abnormally dangerous substance that creates a high degree of risk of serious injury. The fact that an activity is abnormal and out of place does not create a remedy for nuisance. 
The Court also noted these issues–both respect to whether a nuisance exists and the conduct creating the alleged nuisance–are generally fact issues for the jury. This issue is a big one because it likely precludes summary judgment on claims involving nuisances. 

The Court touched on damages. For temporary nuisances, a claimant can recover loss of rental value, loss of use value, or possibly the cost of restoring the land. A plaintiff can recover lost market value for permanent nuisances. 

Time will tell whether this decision will result in the clarity desired by the Supreme Court of Texas. One thing is clear: Crosstex is now the leading nuisance case in Texas. 

Stanfield v. Neubaum: A trial court’s error as a new and independent cause

The Supreme Court of Texas cleared its term docket on Friday, June 24. I’ve written some notes on recent cases which caught my eye.

In Stanfield v. Neubaum, No. 15-0387, the Court held judicial error can be a new and independent cause that may preclude a subsequent legal malpractice action. Stanfield involved a usury suit. The trial court erred in permitting an agency instruction in the jury charge. After losing at trial on the agency instruction, the Neubaums appealed the erroneous agency instruction. The appellate court reversed the judgment in favor of the Neubaums based on the erroneous instruction. The Neubaums incurred an additional $140,000 in appellate attorney’s fees. The Neubaums then sued their trial attorneys, claiming the error would have been immaterial if their attorneys would not have been negligent in other ways.

The Supreme Court held judicial error which intervenes between an attorney’s negligence and the plaintiff’s injury can constitute a new and independent cause. The new and independent cause lets the attorney off the hook. The judicial error must not be reasonably foreseeable. The key question is whether the trial court’s error is a reasonably foreseeable result of the attorney’s negligence in light of all existing circumstances. In other words, did the attorney’s negligence directly contribute to and cooperate with the judicial error? If it did not, then the judicial error is a new an intervening cause.

This ruling strikes me as a common sense one. The Stanfield Court agreed with the Utah Supreme Court in noting that, “if clients could subject attorneys to malpractice liability based on judicial error and clients’ beliefs that the attorneys could have litigated the case more effectively, ‘an attorney would be subject to liability every time a judge erroneously ruled against the attorney’s client.'” To hold otherwise would potentially subject the attorney to liability for a court’s failure to follow and apply the law. That would be an absurd result.

 

 

 

Friday Song to Start the Weekend: Clutch, “X-Ray Vision”

The song absolutely rocks. The song, the X-Files inspired lyrics, the astrological roll call of the band members…all wonderful.

Have a great weekend!