Wednesday, June 28, 2017

Can an Agent Under a Power of Attorney Revoke a Transfer on Death Deed?

Originally published by Rania Combs.

The Texas Transfer on Death Deed allows homeowners to name a beneficiary who will inherit their property after they die.

It works like a beneficiary designation on a bank account or an insurance policy. If a beneficiary is named, the property will pass to the beneficiary outside the probate process.

To be valid, the transfer on death deed must be signed by the homeowner and recorded in the County property records before the homeowner’s death. The transfer on death deed statute specifically prohibits an agent acting under a power of attorney from creating a transfer on death deed.

Recently, someone asked whether it was possible for an agent acting under a power of attorney to revoke a transfer on death deed.

Based on my reading of the statute the answer is: no.

The statute provides that a revocation or subsequent transfer on death deed that revokes the preceding transfer on death deed must be acknowledged by the transferor.

A transferor is defined as an individual who makes a transfer on death deed, which specifically excludes an agent acting under a power of attorney.

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“No, But” and “Yes, But” Tort Duties—Pagayon, et al. v. Exxon Mobile Corporation (and the importance of footnote 33)

Originally published by Daniel Correa.

When it comes to tort duties in Texas, the Supreme Court cautions attorneys to watch their buts. In Pagayon, et al. v. Exxon Mobile Corporation, No. 15-0642 (Tex. 2017), the Court addressed the issue whether an employer owed a duty to control its employee under the particular circumstances in the case, but declined to circumscribe a general duty, one way or another, to control others. Justice Boyd, in an impassioned and concise concurrence, charged the majority with substituting “Moses-like methods” for “Solomon-like” solutions and for succumbing to Potter Stewart-esque approaches to tort duties, a charge address by the majority in footnote 33.

Underlying both the majority and concurrence is an age-old problem with tort law, specifically negligence: how to create fact-insensitive principles of law that articulate general duties so as to narrow judicial discretion on what is generally a question of law—does the defendant owe a legal duty?  This blog provides (1) an overview of the facts and holding in Pagayon, and (2) an analysis of footnote 33, hopefully to help the reader understand what Moses, Solomon, and Pornography have in common here.

*One more thing to note, the Court, again, made clear that certain tried-and-true torts—specifically negligent supervision, hiring, retention, and training—may not exist under Texas law, notwithstanding the fact that lower courts generally recognize these torts or take these torts for granted.*

1.     Pagayon, et al. v. Exxon Mobile Corporation in a (medium sized) nutshell.

Pagayon involved the tragic and wholly unnecessary death of Alfredo Pagayon, Sr. Alfredo Sr. secured a job for his son, Alfredo, Jr., at a convenience store owned by Exxon Mobil Corporation and managed by Alfredo Sr.’s friend, Roce Asfaw. A fellow convenience store employee, Carlos Cabulang, at some point offended Jr. when Carlos asked if Jr. was having an affair with a co-employee, Vong Vu. Jr. complained to Roce, but was told to ignore Carlos. On a sequent evening, two customers complained to Jr. that the men’s restroom had an “out of order” sign on it. Jr. discovered that the restroom was not out of order and felt that Carlos had placed the sign on the door to harass him, as Carlos had worked the prior shift. Jr., again, informed Roce, who, again, told Jr. to ignore him.

Alfredo Sr. knew Carlos and called him after Jr. complained about the apparent harassment at work. Alfredo Sr. told Carlos to stop harassing Jr. The two got into an argument. On Jr.’s next shift, Carlos confronted Jr., cursing and threatening him and his father. Jr. became afraid and told another employee, Jovita Leslie, who, in turn, told Carlos to stop. When Carlos refused to stop, Jovita called Roce at Jr.’s request. Roce told Jovita to instruct Jr. to stay away from Carlos. Roce did not speak with either Carlos or Jr. The situation deescalated and Jr. and Carlos worked side by side until Jr.’s shift ended.

This was the first time that Roce had any indication of Carlos’ hostility toward Jr. or anyone else. Jr. had never informed Roce that he was afraid of physical violence. And, nobody had informed Roce about the heated conversation between Alfredo Sr. and Carlos.

Alfredo Sr. arrived at the convenience store to pick Jr. up and Carlos immediately confronted him. A fight between Alfredo Sr. and Carlos ensued. Carlos knocked Alfredo Sr. to the ground.  Jr. intervened, placing Carlos in a headlock. The fight then ended. Alfredo Sr. complained that he could not breathe, so Jr. called 9-1-1. Twenty-three days later, Alfredo Sr. died from cardiac arrhythmia, respiratory failure, and renal failure. The Pagayon family subsequently filed a wrongful death suit against Exxon.

At the trial proceeding, the jury found Exxon negligent in its supervision of employees and also apportioned fault to Alfredo Sr. and Jr. The jury attributed 75% liability to Exxon and awarded the Pagayon family damages near $2 million. The Houston Fourteenth District Court of Appeals remanded the case for a new trial on the ground that the trial court erred in not allowing Exxon to designate as a responsible third-party the emergency room physician, Dr. Hung Hoang Dang, who treated Alfredo Sr., and who allegedly made several failed attempts to drain a lung that did not exist—Dr. Dang read a dark space on Alfredo Sr.’s chest x-ray as a fluid filled left lung; Alfredo, Sr. was born without a left lung. The court of appeals, rejected, however, Exxon’s argument that it owed no duty to control Carlos.

The Texas Supreme Court granted the parties’ respective petitions for review and took up the single issue whether Exxon owed a duty to control Carlos under the circumstances. Even though lower Texas courts have held employers to general duties with respect to negligent hiring, negligent, or negligent supervision, the majority opinion made clear that the Texas Supreme Court has never ruled on the existence, scope or contours of such torts and the lower courts have never engaged in the requisite duty analysis to determine the existence of these torts either. See *13-14.

The rule in Texas is that no general duty exists to control others, unless a special relationship gives rise to a duty to aid or protect others. This is a “no, but” approach. Employment is one such special relationship, but the question is whether there is a general duty for persons in a special relationship with another to control the other. The Court looked to the Restatements Second and Third to aid its analysis of this issue.  The Restatement Second rule is “no, but”—no general duty to control others when a special relationship exists, but there are exceptions. The Restatement Third rule is “yes, but”—yes persons in a special relationship with another owe a duty to reduce or prevent risks to third parties, but there are exceptions. One such exception to the Restatement Third rule is that “a court may decide, based on special problems of principle or policy, that no duty or a duty other than reasonable care exists.” See *17-18.

The Court adopted the “yes, but” rule respecting special relationships. The court rejected the Restatement Second “no, but” approach, primarily due to a broad exception to the rule in Section 317, which states:

A master is under a duty to exercise reasonable care so to control his servant while acting outside the scope of his employment as to prevent him from intentionally harming others or from so conducting himself as to create an unreasonable risk of bodily harm to them, if
(a)                  the servant . . .  is upon the premises in possession of the master or upon which the servant is privileged to enter only as his servant, . . . and
(b)                  the master . . .  knows or has reason to know that he has the ability to control his servant, and . . . knows or should know of the necessity and opportunity for exercising such control.

The Court rejected Section 317, as it stated a broad rule without regard to policy considerations and other factors that Texas courts are charged to weigh when determining whether a duty exists.  

Whether a duty exists is a question of law for the court and is determined by weighing various factors:

The considerations include social, economic, and political questions and their application to facts at hand. We have weighed the risk, foreseeability, and likelihood of injury against the social utility of the actor’s conduct, the magnitude of the burden of guarding against the injury, and the consequences of placing the burden on the defendant. Also among the considerations are whether one party would generally have superior knowledge of the risk or a right to control the actor who caused the harm.

*9-10 (quoting Humble Sand & Gravel, Inc. v. Gomez, 146 S.W.3d 170, 182 (Tex. 2004). The Court judged Section 317 according to this Humble Sandbaseline and explained that Section 317 falls woefully short. See *14-17. Section 317 states a general rule without regard to policy considerations, such as “the burden on the employer, the consequences of liability, and the social utility of shifting responsibility to employers.” See Pagayon, at *15.

Texas, then, is a “no, but” and “yes, but” state: There is no general duty to control others, unless a special relationship exists; There is a general duty for a person in a special relationship with another to control the other with regard to risks that arise within the scope of the relationship, unless a court determines, based on problems of principle or policy, that no duty exists. See *17-18.

Having articulated the standard, the Court easily determined that Exxon owed no duty to control its employee under the circumstances of this case. First, the risk of this occurrence was minor as the situation was not one in which ‘repeated, serious, threats or action” posed a threat to patrons. Second, the risk at issue was not foreseeable, as the disagreements between the parties were “matters of words until the fistfight suddenly broke out.” Third, placing a duty on the employer here would impose a significant burden, as employers would be required to investigate and monitor every situation, no matter how trivial or small. Fourth, “the result was bizarre, given the brevity of the altercation, the absence of any weapons, and the slightness of the provocation,” and extending liability to the employer here would effectively “render the employer liable for the most extreme consequences of simple employee friction.” Fifth, the public was never in danger, so there would be very little social utility to imposing a duty on the employer here. See *18-20.

2.Footnote 33—Moses, Solomon, and Pornography

Justice Boyd criticized the majority opinion on three separate, but related grounds, though he lists them as “two interrelated reasons.” See *20 (Boyd, J. concurring). First, the majority opinion did not need to reject Section 317 outright. Justice Boyd agreed that Exxon owed no duty under the circumstances here, whether solely applying the duty balancing test or Section 317. Section 317 imposes liability on an employer when “the employer knows or should know that a ‘necessity and opportunity for exercising such control’ exists.” *21. The facts here clearly showed that Roce, and thereby Exxon, had no reason to think that its employees posed a risk to any patrons, or any risk of physical harm to any third-party or fellow employee. It was not necessary to decide one way or another whether Section 317 correctly stated an employer’s duties.

The second criticism relates to the first. Section 317 provides something like a bright-line rule. It objectively defines a duty and, as a result, can provide authoritative guidance to others. Justice Boyd posited that the judicial system should provide “Moses-like methods,” by which the law provides such authoritative guidance so that people can govern their conduct accordingly. He charged that the majority, instead, provides a Solomon-like solution[].” See *24. That is, the judicial system disserves the public when, rather than providing authoritative dictates that facility predictability and prospectivity, it attempts to do equity only under the specific facts of the case. Courts, in other words, should not be viewed as the place to go to find out what your legal duties are. If you are to be held accountable for your actions, the law should, ex ante, already inform you or provide specific guidance for you to determine the duties to which the law will hold you accountable; otherwise, how can law be expected to govern anyone?

Third, and related to the first two, Justice Boyd bemoans unfettered judicial discretion. Though the majority cautions against overly broad rules, it ignores the danger of overly narrow rules. See *24-25. Both overly broad and overly narrow rules work the same evil—unfettered judicial discretion. With an overly broad rule, like the duty analysis, which requires weighing various factors, a judge can repair to his or her own personal intuitions about what the law should require under the circumstances, which “erodes objectivity.” See *24. With an overly narrow rule, even if the court employed an objective method to arrive at the narrow rule, if the facts to which the narrow rule apply are irreplicable,” the rule proves useless to lower courts and future litigants, which effectively leaves the judiciary with the same unfettered discretion. So, Justice Boyd accuseed the majority of providing “little more than a Potter Stewart-esque we-know-duty-when-we-see-it approach” to tort duties in the employer-employee relationship context. See *23 (citing Jacobellis v. State of Ohio, 378 U.S. 184, 197 (1964) (Stewart, J., concurring) (declining to attempt to define pornography, but stating that he “know[s] it” when he “see[s] it”).

The majority retorts in footnote 33. In footnote 33, the Court conceded to Justice Boyd’s charge that the majority provides only a Solomon-like solution, as opposed to a Moses-like method. This confession is significant when considering Justice Boyd’s overall point is that the judicial system disserves itself and the public when its rules do not, ex ante, provide clear authoritative guidance. The majority rejected, however, Justice Boyd’s “Potter Stewart-esque” charge.

Chief Justice Hecht, in footnote 33, provides a justification for narrow duty rules that he considers to serve the overall goal of a attaining an appropriate and  general rule. This is the common law vision: “The recognition of an appropriate rule must await ‘the incremental and reasoned development of precedent that is the foundation of the common law system.’” See footnote 33 (quoting Rogers v. Tennessee, 532 U.S. 451, 461 (2001). Justice Hecht’s retort in footnote 33, while conceding to Solomon-like solutions here, focuses on the proper role of the judiciary when developing the common law. “[T]he concurring opinion prefers a prescriptive approach in recognizing legal duties to that of the common law.” See footnote 33. State another way, the concurring opinion would have the Court usurp the function of the Legislative Branch.


Pagayon v. Exxon Mobil Corp. provides a roadmap for practitioners when preparing their next direct negligence claim against an employer as well as those practitioners defending against these claims. Remember to watch your buts. In the employer/employee tort context, Texas is a “No, But” and “Yes, But” state. Create, at minimum, three sets of generalized statements of the duty owed—a broad, medium, and narrow statement. And, polish up on public policy arguments.             

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Section 232 and Oil Country Tubular Goods

Originally published by Charles Sartain.

By now, you’ve heard the Trump Administration is conducting a “Section 232 Investigation” into the effect of imported steel and aluminum products on national security. Here’s a primer on the topic.

What is this Section 232 thing anyway?

  • Section 232 of the Trade Expansion Act of 1962 authorizes the Secretary of Commerce to conduct investigations to determine the effect on national security of imports of any product.
  • On April 19 the Department of Commerce announced it was initiating a Section 232 investigation into foreign steel and aluminum imports. President Trump then called upon the Secretary of Commerce to “prioritize” that investigation.
  • Section 232 requires the Secretary of Commerce (Wilbur Ross) notify the Secretary of Defense (James Mattis) that an investigation has been initiated. The Secretary of Commerce then consults with the Secretary of Defense and other agencies to determine whether any “corrective measures” are necessary to protect U.S. national security from excessive foreign imports.
  • Though not required, the Department of Commerce typically holds public hearings in connection with a Section 232 Investigation. In this case, public hearings have been held and the comment period is over. Many top officials from foreign and domestic steel producers, importers, and consumers have weighed in with testimony.
  • Within 270 days of initiating an investigation, the Secretary must issue a report to the President on whether importation of the product in question is in such quantities or under such circumstances as to “threaten to impair” U.S. national security. In this case, Secretary Ross has indicated the report will be issued sooner, likely by the end of June.
  • Based on the Commerce Department report, the President may take action to “adjust the imports” of the goods in question. The primary means of “adjusting imports” is through tariffs, quotas, or hybrid “tariff-quotas” on the imported goods (i.e., tariffs after certain import threshholds are met).

“National Security” – Broader than you think

  • U. S. steel producers easily produce enough steel to meet the Department of Defense’s traditional needs (think trucks, tanks, battleships). However, Section 232 Investigations are not limited to these traditional national security concerns.  They also consider “the close relation of national economic welfare to U.S. national security” and the effect of a “loss of skills or investment, substantial unemployment and decrease in government revenue” on national security.  With these broad parameters, it is no surprise President Trump has utilized Section 232 to effectuate his “America First” message.

What does this mean for America’s energy business?

  • To the surprise of many, U.S. energy producers import most of their casing, tubing, and line pipe from overseas. The vast majority of these imports are from Korea, Mexico, and Turkey. While these countries are our allies (Turkey, are you listening?) the Secretary of Commerce has given no indication they will be exempted from any corrective measures implemented as a result of the investigation.
  • If significant tariffs are imposed on foreign tubulars, there can be little doubt it will drive the costs of that pipe higher (that’s generally the point). And, when you consider that casing accounts for approximately 8 to 10 percent of the costs of drilling a horizontal well in most American shale plays, it is easy to see how increased casing costs would cause problems for American producers.  With oil currently below $45 per barrel, there is little room for increased costs.

Answers any time soon?

  • Steel industry players and downstream users have pleaded for more time and a more thorough investigation. Thus, the report may not be issued until as late as January 2018.
  • Once the report is issued, the President must then issue corrective measures, which are subject to court challenge. A legal challenge to whatever corrective measures are issued seems a near certainty.  It could then take years for challenges to work their way through the courts.  And, until it is resolved, forecasting the cost of casing, tubing, and line pipe, will be a guessing game.

Let’s pay a visit to the importers.

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Client Development: Where are you focusing your time?

Originally published by Cordell Parvin.

I recently read a Seth Godin post: Who are we seeking to become?

I particularly like this quote:

The difference between who you are now and who you were five years ago is largely due to how you’ve spent your time along the way.

I coached a successful lawyer who decided to focus her time on her family, church, health and law practice/clients. As you might imagine she accomplished a great deal in each of those categories.

With coaching and law firm consulting work at almost a standstill, I’m focusing my time on becoming fluent in Spanish, becoming a better novelist and becoming a better golfer.

I’m actually in San Miguel de Allende in a Habla Hispana Spanish Immersion class.

Habla Hispana

Yesterday, I went to class with five other beginners from 8:30 to 1:00. Three teachers worked with us and it was intense learning for an old guy like me. I had to listen very carefully.

I arrived on Saturday and moved into my room on the second floor at the school. My room is really large. So far there have been only three slight problems.

  1. The mattress on my bed is like a rock,
  2. I haven’t had any hot water for my showers. This morning I took my third ice cold shower. It was a bit of a challenge to put my head under the shower.
  3. During Saturday night fireworks and rockets were shot off throughout the night. I understand those are either to celebrate a religious festival or recognize someone has died. At about 4:30 I wake up from hearing the roosters crowing

On Sunday morning, I was awake at 6:00. I tried to go back to sleep, but…Around 6:45 Needing coffee, I searched to see if any coffee shops were open and discovered one near the El Jardín plaza opened at 7:30. (Starbucks opens at 8:00 AM on los domingos.)

When I arrived at 7:30, I I took this photo of El Jardín and the Parrish Church of San Miguel. The coffee shop was open,  but they hadn’t started making coffee. I sat waiting for 15 minutes and finally gave up and walked back to Via Organic  near Habla Hispana. Francisco fixed me a latte and I learned he had moved back to San Miguel from Los Angeles to help his aunt run the business.

La Jardin


To get a full appreciation of how beautiful the Parrish Church is, here is better photo.

Screen Shot 2017-05-13 at 1.17.06 PM

Believe it or not, I’m nervous about this experience. I’ve taken a Spanish class here in Dallas and I have a tutor. The first thing I realized is I probably have not focused on memorizing things since I took the Bar Exam in 1971. That’s a lot of years between memorizing things.

I’ve been asked why I want to learn Spanish. My father spoke fluent Spanish. He loved Mexico, and when I was 12, we traveled by car all the way from Chicago to Acapulco. If you think about Chevy Chase and the Vacation movies, we would have a good one on that trip.

My son-in-law’s first language is Spanish and Nancy and I travel to Mexico regularly. All of our friends who live there speak English. We love them and I want to speak to them in their language. Will I be able…? I’ll try my best and let you know.

If you’ve never been to San Miguel de Allende, I recommend it. The weather is never too cold or too warm. Many Americans and Canadians live there.  Check out Living, Working, Retiring in San Miguel de Allende. There are two golf courses, so I  have my golf clubs with me. But, having sat through class one day, I can picture the golf clubs remaining in my travel bag,

I’m determined to learn Spanish. I know it will take more than my four weeks of intensive learning, but I wonder if I’ll be able to write a blog in Spanish when I return.

P.S. If I never have hot water, my next post may be from Oaxaca at their Spanish Immersion School. Stay tuned.

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New Texas law bans child marriages (yes, you read that right!)

Originally published by Michelle O'Neil.

Texas Governor Greg Abbott signed into law a bill eliminating a loophole allowing child marriage. The new law prohibits people under the age of18 years from getting married unless they are emancipated minors. Minors are allowed to emancipate from their parents at the age of 16, so the youngest age a person may marry in Texas under any circumstance is now 16. The prior law permitted one parent to overrule another parent to allow a 16 year old to marry, and a parent could consent to the marriage of a child of any age with the approval of a judge without regard to wehther the child was being subject of abuse or coercion.

According to a Pew Research Center report, Texas has the second-highest rate of child marriage, with 7 out of every 1000 minors aged 15-17 were married in 2014. The national average is 5/1000. Between 2000 and 2014 almost 40,000 minors got married in Texas.

Here’s an article about this new law:


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Great American Ins. Co. v. Hamel: The “Fully Adversarial Trial” On Trial

Originally published by Jeffrey C. Glass.

In the much-anticipated Hamel decision, the Texas Supreme Court finally addressed the definition of a “fully adversarial trial” under the Gandy rule, holding that a reviewing court must focus on the insured’s incentives to contest liability, rather than on retroactive evaluation of tactical trial details.   Great American Ins. Co., et al v. Hamel, — S.W.3d –, No. 14-1007, 2017 WL 2623067  (Tex. June 16, 2017) (citing State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696, 714 (Tex. 1996)). The decision settles some controversies over Gandy, but raises several important questions insurers should be aware of.


The Hamels sued their builder, TMB, for defective construction of their home. Great American, TMB’s liability insurer, denied defense for reasons it later conceded were inadequate.  Before trial, Hamel essentially agreed not to execute any judgment against TMB’s assets. Before the bench trial, TMB provided factual stipulations supporting duty, breach and damages, and testified consistent with them at trial.  The Hamels offered supporting evidence, but TMB called no witnesses, made no objections to the Hamels’ evidence, and did not submit proposed findings.  Based on the Hamels’ uncontested findings, which largely tracked the builder’s pre-trial stipulations, the trial court awarded the Hamels damages for repair costs, loss of market value, and mental anguish.

The Hamels then sued Great American to recover the underlying damages. The Hamels abandoned extra-contractual claims and went to a bench trial on breach of contract. The underlying record and the stipulations, among other evidence, were admitted at trial and the court entered judgment for the Hamels finding TMB’s negligence caused the damage and, on the primary issue presented, that the rule of Gandy did not preclude enforcement of the underlying judgment against TMB.  See 2017 WL 2623067, at *4 (citing Gandy, 925 S.W.2d at 714).  That rule prohibits an insured’s judgment creditor from enforcing a judgment against the insurer if rendered without a “fully adversarial trial.” Id. The trial court found the Hamels’ trial strategies and actions were reasonable and were not collusive or fraudulent and that the underlying trial “was . . . an adversarial proceeding.” Id.  The El Paso Court of Appeals affirmed, holding the underlying judgment was the result of a fully adversarial trial, and TMB’s assignment of its claims against Great American to the Hamels was valid. Id. (citing Great Am. Ins. Co. v. Hamel, 444 S.W.3d 780 (Tex. App.—El Paso 2014)).


On appeal the Supreme Court explored Gandy’s two-pronged conclusion. Gandy first held an insured’s assignment of its rights under a liability policy to an injured party is void if:

(1) it is made prior to an adjudication of plaintiff’s claim against defendant in a fully adversarial trial, (2) defendant’s insurer has tendered a defense, and (3) either (a) defendant’s insurer has accepted coverage, or (b) defendant’s insurer has made a good faith effort to adjudicate coverage issues prior to the adjudication of plaintiff’s claim.

Gandy, 925 S.W.2d at 714. The Gandy Court independently concluded: “In no event . . . is a judgment for plaintiff against defendant, rendered without a fully adversarial trial, binding on defendant’s insurer or admissible as evidence of damages in an action against defendant’s insurer by plaintiff as defendant’s assignee.” Id.

Hamel explored in detail only the second prong because Great American had conceded the validity of TMB’s assignment to the Hamels.  To “provide further clarity on this issue”, the Court nevertheless held the assignment was valid because: a) TMB assigned its claims following, not preceding, a trial and judgment; b) unlike the insurer in Gandy, Great American breached its duty to defend; and c) Great American neither accepted coverage nor made a good-faith effort to adjudicate coverage before the Hamels’ claims against TMB were resolved.  2017 WL 2623067, at *6.

That holding did not settle the case, however, because Great American argued, independent of the assignment’s validity and despite its failure to defend, that Gandy precluded enforcement of the judgment against Great American solely because it was “rendered without a fully adversarial trial.” Id.  In the older Block decision, the Supreme Court had indicated an “insurer’s breach of its duty to defend necessarily renders any covered judgment binding on the breaching insurer.”  2017 WL 2623067, at *6 (citing Employers Cas. Co. v. Block, 744 S.W.2d 940, 942-43 (Tex. 1988)).  In the Atofina decision, subsequent to Gandy, the court applied Block where an insurer breached its duty to defend avoiding Gandy’s “fully adversarial trial” rule because “Gandy’s key factual predicate [was] missing” in that the insured had not assigned its claims but had sued the insurer directly.  Id. (citing Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660, 673 (Tex. 2008)).  The Hamel Court noted that Gandy’s “fully adversarial trial” rule had shifted focus away from failure to defend and “toward whether the underlying judgment accurately reflects the plaintiff’s damages and thus the insured’s covered loss.”  Id.

This raised the question of what a “fully adversarial trial” must entail.  The Court rejected the Court of Appeals’ approach – retroactively evaluating and second-guessing trial tactics – and concluded “determining whether and when [judgment] calls [made by trial lawyers] destroy the ‘adversarial’ nature of the proceeding is simply not possible”. 2017 WL 2623067, at *7.  The Court announced its new rule:

Today we clarify that the controlling factor is whether, at the time of the underlying trial or settlement, the insured bore an actual risk of liability for the damages awarded or agreed upon, or had some other meaningful incentive to ensure that the judgment or settlement accurately reflects the plaintiff’s damages and thus the defendant–insured’s covered liability loss.

Id. Applying that standard, the Court held the underlying trial in that case was not fully adversarial because “the parties’ pretrial agreement [not to levy any judgment against TMB’s assets] eliminated any meaningful incentive [TMB] had to contest the judgment” by “remov[ing] any financial stake [TMB] had in the outcome,” leaving liability insurance as the only potential source of satisfying any judgment.  Id. at *8. That absence of incentive to defend rendered the underlying suit “a mere formality.” Id. 

  Questions Raised

This question of incentives to win raises interesting issues that may be litigated as insureds and tortfeasors scramble in the wake of Hamel to find ways to cooperate in insurer set-ups.  For example, Hamel cited, as evidence of a lack of incentive, the builder’s testimony that he did not care about certain credit issues after the pretrial agreement was executed because his assets were not at risk.  Id. at *8-9.  Is “incentive” thus an objective question of the actual risks to the insured’s assets or can it be proven by subjective notions the insured has about his risks? Hamel does not say, but, as if to emphasize the quandary, the Court noted a formal, written pretrial agreement is neither necessary nor sufficient to disprove adversarial trial, but that the presence of such an agreement set up a presumption of lack of adverseness, and vice versa.  Id. at *9. The court left open the quantum and nature of proof necessary to overcome whatever presumption is present. Id. at *9, n. 9.

Hamel is an insurer-friendly decision because it gives insurers who decline to defend a means of avoiding liability, even as it requires the policyholder who is deprived of a defense to prove its assets are actually at risk in the liability phase, even if no collusion with the tortfeasor can be shown.  This fact is mitigated by the secondary holding in Hamel that the coverage case can cure defects in adverseness.  Id. at *10-11.  Noting “relitigation” of liability and damages, while not a “perfect solution” is “necessitated by the circumstances”, the Court concluded that under its approach “the insurer will have the opportunity to challenge its insured’s underlying liability and the resulting damages, the abandoned insured is protected, and the burden on the plaintiff is fair. And of course, the insurer has every incentive to assert a strong defense during the Insurance Trial.”  Id. at *10.  Applying this standard to the facts of the case before it, the Court held the parties did not effectively retry the underlying damages case and did not “cure” the problems raised.  It remanded for a new trial.  Keep an eye on this space for further developments!

The post Great American Ins. Co. v. Hamel: The “Fully Adversarial Trial” On Trial appeared first on Hanna Plaut.

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I’ve got a KPitch where it’s hard to scratch –

Originally published by David Coale.

which-pitch-2KPitch intervened in a lawsuit and obtained a temporary injunction against FSD. FSD appealed the injunction and sought mandamus relief against the intervention. KPitch then nonsuited the claims that were the basis for the injunction, and the Fifth Court agreed with KPitch that this action made the appellate proceedings moot. FSD argued that the appeal should proceed because KPitch had refiled the claims in an improper effort to obtain a severance, but the Court did not see this argument as creating an exception to the general rule about the effect of a nonsuit. Frisco Square Developers LLC v. KPitch Enterprises, LLC, No. 05-16-00992-CV (June 22, 2017) (mem. op.)

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