Glen Wilkerson Commentary: May 2, 2006

[ed. note: please welcome Glen Wilkerson’s first commentary on our blog]

It is difficult to recall a time where there is so much transition in Texas law with respect to “insurance matters”.

The reason is that the Texas Supreme Court has now pending (awaiting rulings in the next 2 to 3 months) at least four cases which could dramatically change the landscape of Texas law and our practice.

The purpose of this email is to provide an alert to “watch” and be aware of these “issues” which are “out there”.

1. Insurability of Punitive Damages. Fairfield Insurance Co. v. Stephens Martin Paving, L.P. (Cause No. 04-0728, Argued November 9, 2004) The issue here is whether Texas public policy prohibits insuring punitive damages. If the Court says that punitives can not be insured, then this will significantly change how clients would be insured, how cases would be prosecuted and defended.

2. Under certain circumstances, Insurance Company Can Sue the Insured and Get Settlement Monies Back Which are Not Covered. Frank’s Casing. The Court has ruled on this case in a 5/05 group of opinion. There has been turnover on the Court. Rehearing was granted. The case was reargued on 2/16/06. The holding was a direct repudiation of Matagorda County which was a 7/2 decision the other way in 12/00. The majority held on original submission that where a settlement demand was made which was reasonable and where a demand by the insured was made to settle the case, then the carrier could pay and then have a right of reimbursement to turn and sue the insured for any non-covered items paid in the settlement provided that an reservation of rights letter had been sent out and the insured put on notice of possible reimbursement. What exactly and minimally triggers the “right of reimbursement” is unclear. This case has major implications for any client in which Davis & Wilkerson is either defense counsel or personal counsel. Therefore, on any case in which we are acting as counsel for the insured and NOT defense counsel – – Frank’s Casing is so important. There are significant pitfalls for malpractice for personal counsel unless the “Frank’s Casing” issues are understood. NOTE: prior to May of 2005 – – this “right of reimbursement” had never been the law in Texas. So this is completely new since May of 2005.

3. Coverage in Construction Defect Cases. Lamar Homes v. Mid-Continent (Cause No. 05-0832, Argued February 14, 2006) This is a landmark case involving coverage issues in the construction defect area. The Fifth Circuit Court certified three questions to the Texas Supreme Court, which the Supreme Court accepted. How the Court rules could change all coverage issue in CD cases. This could impact our practice in several ways and create new opportunities at the same time.

4. Possible Changes in Determination of the Insurance Company’s Duty to Defend. GuideOne Elite Insurance Co. f/k/a Preferred Abstainers Insurance Co. v. Fielder Road Baptist Church (Cause No. 04-0692, Argued October 20, 2005) The issue in this case is whether the Supreme Court will expand the use of “extrinsic evidence” in dealing with the duty to defend. There is an effort to enlarge the “eight corners” rule in determining whether the insurer had a duty to defend. The Supreme Court will have an opportunity to decide what evidence is now permissible in evaluating the duty to defend. Will it be limited to the pleadings alone? The Court could significantly change historic Texas procedures and practices in this area.

Glen W.

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