By Brett Goodman The Court of Appeals of Texas in Dallas has affirmed the decision of a trial court that confirmed an arbitration award ordering appellants take nothing from appellees. In Skidmore Energy, Inc. v. Maxus (U.S.) Exploration Co., (Tex. App. — Dallas July 12, 2011, no. pet. ) Skidmore Energy Inc. contended that the trial court erred confirming the arbitration award that they take nothing from Maxus (U.S.) Exploration Company. The two oil and gas exploration companies in 1998 agreed to assign different property leases to the other, but Maxus abandoned five of the leases, eventually leading to arbitration. A majority of the three arbitrators awarded Maxus victory, but Skidmore appealed because it felt that two of the arbitrators failed to make certain pre-arbitration disclosures that led to partiality and that the arbitrators exceeded their authority. Skidmore claimed arbitrator McNamara to not be impartial because of certain financial and business ties to Maxus. The court explained, “A neutral arbitrator selected by the parties or their representatives exhibits evident partiality if he does not disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” Citing to the arbitration agreement, however, the court noted how it read, “there shall be no ex parte communications at any time by any party or its representative with any of the arbitrators, except that each party may confer with its own party-appointed arbitrator with respect to selection of the third arbitrator.” Thus, there was no mention of intent to have a neutral arbitrator beyond what is written. The court determined that a party waives the right to raise an objection to the partiality of an arbitrator if the party knows of a bias but does not express it until after the arbitration award, and these were the exact circumstances of the case. Even if Skidmore had acted within a more proper time frame, the court still saw “based upon the entirety of this record that McNamara did not fail to disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality.” On the point of the arbitrators exceeding their authority, the court likewise ruled in favor of Maxus. The arbitrators determined that Skidmore had breached the 1998 agreement, something not advanced by Maxus at the arbitration’s initial stages. As a rule, “an arbitrator’s authority is limited to disposition of matters expressly covered by an arbitration agreement or implied by necessity.” When in doubt about the authority of the arbitrators, the court made clear that the tendency in Texas should be to err on the side of allowing arbitration. Succinctly describing the resolution of the issue, the court asserted, “The affirmative defenses asserted by Maxus—waiver, estoppel, and limitations—were before the arbitration panel. The questions of whether and when there was a breach of the 1998 Agreement were before the arbitration panel.” Thus, the arbitrators were deciding matters properly allowed to be decided by them and were not exceeding their powers. Because the court struck down both of Skidmore’s contentions, it affirmed the trial court’s decision to allow the arbitration award in favor of Maxus. Once again, through the issue of the power of arbitrators, a Texas court has made a ruling showing deference in Texas to the work of arbitrators. Technorati Tags: law, ADR, arbitration Brett Goodman is a summer intern at Karl Bayer, Dispute Resolution Expert. Brett is a J.D. candidate at The University of Texas School of Law. He holds degrees in Finance, Mathematics, and Spanish from Southern Methodist University.
Continue reading...Liability insurance policies often contain alternative dispute resolution clauses, including: (1) Binding arbitration only; (2) Mediation and, if mediation is unsuccessful, then binding arbitration; (3) Election between mediation and arbitration, with insured having veto power over the insurer’s selection; and (4) Mediation or binding arbitration with a waiting period before suit is filed if mediation is selected. See Ernest Martin, Jr, Hot Tips on Managing the Liability Crisis Through Insurance, Haynes and Boone, LLP (June 24, 2004). The Stowers Doctrine In Texas, the landmark decision recognizing an insurer’s duty to settle a third-party liability claim is G.A. Stowers Furniture Co. v. American Indemnity Co. See 15 S.W.2d 544, 544-46 (Comm’n App. 1929, holding approved). In Stowers, the court held that when a primary liability insurance carrier defends an insured person against a covered claim made by a third party, the primary insurer has a common law duty to exercise reasonable care in responding to a settlement demand that is within the policy’s limits. Thus, if an insurance company that is given the opportunity to settle within its policy limits fails to do so, it could potentially become responsible not only for any excess judgment, but also liable to their own insured for breach of the duty of good faith and fair dealing, D.T.P.A., claims under the Texas Insurance Code another claims. This duty of reasonable care is known as the Stowers Doctrine. The Elements of Stowers The Texas Supreme Court further clarified the Stowers duty in American Physicians Insurance Exchange v. Garcia. See American Physicians Ins. Exchange v. Garcia, 876 S.W.2d 842 (Tex. 1994). In Garcia, the court went on to explained that the Stowers doctrine is activated when a third party seeking to impose liability on an insured makes a demand to settle the claims and the following circumstances exists: The claim against the insured is within the scope of the policy’s coverage; The settlement demand is within policy limits or a stated sum of money within the policy’s limits; The proposed settlement is one that will result in a full release of the insured; and The terms of the settlement demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured’s potential exposure to an excess judgment. Stowers: Recent Cases Two recent Texas cases reinforce the use of the Stowers doctrine as a prevalent practice. After a 2001 automobile accident with Francisco Rangel, Edward McDonald was admitted to Memorial Hermann Hospital, and the hospital filed a “Notice of Hospital Lien” saying, “The name of the person alleged to be liable for damages arising from the injury is any and all responsible parties. The lien is for the amount of the hospital charges for services provided to the injured individual during the first 100 days of the injured individual’s hospitalization.” McDonald v. Home State County Mut. Ins. Co., 01-09-00838-CV, 2011 WL 1103116 (Tex. App. — Hous. [1st Dist.] Mar. 24, 2011, no pet.). McDonald’s lawyer sent Rangel’s insurance company a notice wherein it was explicitly stated that this was to be a Stowers offer. As the deadline in the notice passed, McDonald’s lawyer let Rangel’s insurance company know that he felt the Stowers duty had thereby been breached and settlement efforts had terminated. The case went to trial, where both parties filed motions for summary judgment. The court of appeals found the “settlement demand insufficient to trigger a Stowers duty because it did not include a release of the lien, and, therefore, an ordinarily prudent insurer would not accept the settlement demand. Specifically, the court found that the demand did not explicitly offer any release of potential claims against Rangel.” See Lee H. Shidlofsky, Insurance Law Newsletter. Vol. 5 Issue 1. May 27, 2011, at 2 “[T]he court rejected McDonald’s contention that the Insurer impliedly accepted a Stowers duty here by not discussing the lien’s release with McDonald in its settlement discussions. Instead, the court reasoned that the Insurer still could have required the release as part of any later formal settlement.” A different court recently answered “the question as to how to Stowerize an excess carrier—although doing so requires the assistance of the primary carrier in the first instance.” After a truck collision on Highway 287, defendants filed suit against the other driver as well as the truck company of the other driver, alleging vicarious liability. See Pride Transp. v. Cont’l Cas. Co., 2011 WL 1197306 (N.D. Tex. Mar. 31, 2011). The defendants made a settlement offer to the other driver with no mention of releasing claims against the company, and later, the insurance companies involved moved for summary judgment arguing a Stowers duty to accept the settlement that had not been accepted. After outlining the Stowers doctrine, the court “found that an insurer may enter into a reasonable settlement with one of several claimants even though it would exhaust or diminish the money available to satisfy the other claims.” Also, “a valid Stowers demand mandates that an insurer settle on behalf of a single insured even if it exhausts the policy limits and thereby exposing the remaining insureds, so this result prevents an insurer from settling on behalf of one insured and having to choose between continuing to defend a non-settling insured beyond policy limits or facing liability for treating the nonsettling insureds unequally.” Implications of Stowers on Mediation The Stowers doctrine intersects with mediation law in several issues. First, if there is not a judgment, there cannot be a Stowers cause of action. Because a “Stowers cause of action does not accrue until the judgment in the underlying case becomes final.” Therefore, there cannot be a Stowers cause of action if the case is settled in mediation before a Stowers demand is made. Another issue is the effect of a Stowers demand at the time of the mediation. Since any settlement which does not exceed the policy limits would automatically bar any future contractual claim, as a prerequisite is a judgment in excess of the policy limits, settlement […]
Continue reading...In addition to the bills discussed in our last post, the 82nd Texas legislature also passed H.B. No. 1951, relating to the continuation and operation of the Texas Department of Insurance; Bill Status; Analysis. Part of the bill is provided below. SECTION 1.003. Subchapter B, Chapter 36, Insurance Code, is amended by adding Section 36.110 to read as follows: Sec. 36.110. NEGOTIATED RULEMAKING AND ALTERNATIVE DISPUTE RESOLUTION POLICY. (a) The commissioner shall develop and implement a policy to encourage the use of: (1) negotiated rulemaking procedures under Chapter 2008, Government Code, for the adoption of department rules; and (2) appropriate alternative dispute resolution procedures under Chapter 2009, Government Code, to assist in the resolution of internal and external disputes under the department’s jurisdiction. (b) The department’s procedures relating to alternative dispute resolution must conform, to the extent possible, to any model guidelines issued by the State Office of Administrative Hearings for the use of alternative dispute resolution by state agencies. (c) The commissioner shall: (1) coordinate the implementation of the policy adopted under Subsection (a); (2) provide training as needed to implement the procedures for negotiated rulemaking or alternative dispute resolution; and (3) collect data concerning the effectiveness of those procedures. Hat tip to our friend Amy Herzog from Vinson and Elkins, LLP. Technorati Tags: arbitration, ADR, law
Continue reading...The American Review of International Arbitration, a law review by the Parker School of Foreign and Comparative Law at Columbia University published recently a hardback issue with papers presented at the University of Texas symposium back in May of 2010, on the theme, “Arbitration and National Courts: Conflict and Cooperation.” (previews of the conference papers are here). The issue includes papers by luminaries such has Michael Reisman of Yale, Pierre Mayer of the University of Paris, Dominique Hascher, Andrea Bjorklund, Laurie Craig, Lord Leonard H. Hoffmann of Chadwick, Retired Law Lord, Brick Court Chambers, U.K, and Mariano Gomezperalta Casali, General Counsel for Trade Negotiations, Ministry of the Economy, Mexico. You may find the articles at Symposium: Arbitration and National Courts: Conflict and Cooperation, 21 The American Review of International Arbitration 47 (2010); ISSN 1050-4109 in Westlaw, Lexis Nexus, or you may order the issue here. Included in the compilation is Professor Alan Scott Rau’s latest article, Understanding (and Misunderstanding) Primary Jurisdiction. Here is the abstract: In our “Westphalian” regime of international arbitration, conflict and competition between national jurisdictions, with overlapping and yet plausible claims to supervise the process, become inevitable. The conventional starting point for any discussion – the fulcrum around which the entire arbitral enterprise pivots – has been the supposed dichotomy between the state of the “seat” – where the arbitration finds its juridical “home,” and whose jurisdiction over the process is therefore “primary” – and all other states whose jurisdiction must therefore be deemed only “secondary.” Both legislation and Convention envisage an exclusive role for the former in setting the process in motion – for example, by appointing the arbitrators – and above all in monitoring compliance with the agreement – for example, by annulling or vacating the resulting award. That the “seat” is the privileged starting point with respect to any allocation of judicial authority has traditionally been a simple reflection of the power of any sovereign over acts taking place within its “territory”; an alternative and perhaps more robust explanation would be somewhat more “contractualist,” giving priority to the parties’ exercise of autonomy in the very act of selecting the place of arbitration – and to the intuition that, by extension, they have presumptively chosen to subject themselves both to a certain body of “arbitration law,” and to the supervisory jurisdiction of the courts charged with applying that law. I begin by canvassing the various fact patterns in which the traditional allocation of international competence on the basis of “primary” and “secondary” jurisdiction might possibly be thought useful: It has become, for example, the heuristic of choice to test the extraterritorial effect of an award, in circumstances where the agreement of the parties has subjected the arbitral process to a particular legal system whose own courts have found it lacking in legitimacy. All this is much controverted, but generally well understood. The inevitable problem, though, is that none of this is a universal solvent – the world can after all be understood and patterned and divided up in all sorts of ways. What may have begun as a rough attempt to allocate responsibility over the unfolding of the process, has often been unthinkingly applied to all sorts of new and unexpected and inappropriate contexts. Where, for example, a party has asked a court to enjoin an arbitration against him that has been threatened or initiated – perhaps on the fundamental ground that he has never even given his assent – American courts will increasingly hold that, whatever power they might have to enjoin a “local” arbitration, it would be “inconsistent with the purpose of the New York Convention” to enjoin arbitral proceedings in a state of “secondary jurisdiction” – and thus they “lack jurisdiction” to do so. Where a party has claimed that a foreign award has been obtained by bribery and corruption, and wishes to institute a “collateral attack” in this country through a RICO action, it may equally be held that the court lacks “subject matter jurisdiction” to reassess an award rendered in a state of “primary jurisdiction”; “under the framework of the New York Convention, the proper method of obtaining this relief is by moving to set aside or modify the award in a court of primary jurisdiction.” American courts thus seem curiously mesmerized, when asked to deploy familiar procedural devices in aid of their nationals, by a rhetoric invented for quite different purposes. What purports in cases like these to be a commendable solicitude for the needs of international arbitration, takes the form of an abdication of any decision making power whatever, in favor of the courts of the seat. To invoke a putative lack of “power” based upon absolute prohibitions that supposedly emanate from the Convention seems a crude and clumsy and overbroad and irresponsible way of responding; even a legal system quite committed, for example, to the proposition that attempts to evade the arbitral process are likely to be quite without merit – or for that matter to the proposition that international neutrals cannot possibly be corrupt – need not shrink, on the prophylactic grounds of lack of jurisdiction, from testing any challenges. You may download the full article (for free) here. Links to other scholarly papers by Professor Rau are here. Technorati Tags: ADR, law, arbitration
Continue reading...Disputing is published by Karl Bayer, a dispute resolution expert based in Austin, Texas. Articles published on Disputing aim to provide original insight and commentary around issues related to arbitration, mediation and the alternative dispute resolution industry.
To learn more about Karl and his team, or to schedule a mediation or arbitration with Karl’s live scheduling calendar, visit www.karlbayer.com.
Disputing is published by Karl Bayer, a dispute resolution expert based in Austin, Texas. Articles published on Disputing aim to provide original insight and commentary around issues related to arbitration, mediation and the alternative dispute resolution industry.
To learn more about Karl and his team, or to schedule a mediation or arbitration with Karl’s live scheduling calendar, visit www.karlbayer.com.