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Recent Case Development

Duty to indemnity is separate from duty to defend

D.R. Horton-Tex. LTD v Markel Int’l Ins. Co. Ltd., No. 06-1018 (Texas. Dec. 11, 2009)
The Texas Supreme Court rule that an insurer may have a duty to indemnify a general contractor for whom the insurer’s named insured performed work even though the insurer had no duty to defend the general contractor.

James and Cicely Holmes purchased a house built by D.R. Horton-Texas LTD. The Holmeses claimed that, soon after moving in, they discovered mold had infested their home. The Holmeses sued D.R. Horton for remedial costs alleging latent defects on the chimney, roof, vent pipes, windows, window frames, and flashing around the roof and chimney allowed water to enter the house, eventually causing mold damage.
D.R. Horton tendered its defense and indemnity Markel International Insurance Co. LTD., the insurer of Rosendo Ramirez, a subcontractor who performed work on the house. Even though D.R. Horton was an additional insured, Markel denied coverage on the grounds that the complaint did not allege that D.R. Horton’s liability arose from the subcontractor’s work. D.R. Horton retained counsel, settled the underlying action and sued Markel to recoup its defense and indemnity costs.

Markel moved for summary judgment arguing that it had no duty to defend or indemnity D.R. Horton in the underlying litigation because the Holmeses’ petition did not contain allegations triggering coverage. D.R. Horton responded to the motion by arguing that, although the eight-corners doctrine may limit Markel’s duty to defend and indemnify D.R. Horton, the Holmeses’ pleading should be liberally construed in a favor of a defense and coverage

The trial court granted summary judgment in Markel’s favor. The appeals court affirmed the trial court’s ruling that Markel did not owe D.R. Horton a duty to defend or indemnify it against the claims brought by the Holmeses. It further explained that eight-corners doctrine precluded D.R. Horton’s claim that Markel owed it a duty to defend because there were no allegations on the face of the Holmeses’ petition that implicated Ramirez’s work. The court of appeal reasoned that, because Markel had no duty to defend, it also had no duty to indemnify D.R. Horton. D.R. Horton appealed.
INSURER not obligated to defend additional insured.

The supreme court affirmed the appeals court’s judgment that Markel was not to obligated to defend D.R. Horton in the underlying action. D.R. Horton failed to preserve its argument that an exception to the eight-corners doctrine permitted the parties to introduce extrinsic evidence relating to the duty to defend analysis.

However the supreme court reversed the appeals court’s judgment on the duty to indemnify issue and remanded the case. It explained that the duty to indemnify is not dependent on the duty and that an insurer may have a duty to indemnify its insured even if the duty to defend never arises. In determining coverage, a matter dependent on the facts and circumstances of the alleged injury-causing event, parties may introduce evidence during coverage litigation to establish or refute the duty to indemnify.

Potentiality of Coverage

Policy does not cover a company that is not a subsidiary of the insured.
Mary Kay Holding Corp. V. Fed. Ins. Co., No. 07-10951 (5th Cir. Feb. 6, 2009) unpublished
The Firth U.S. Circuit Court of Appeals affirmed a district court’s judgment in favor of an insurer, holding that because the company in question was not a subsidiary of the insured, the policy at issue did not provide coverage.

Mary Kay Holding Corp., a domestic cosmetic company, purchased its insurance policies from Federal Insurance Co. (FIC). On May 15, 2003, a group led by then-bankrupt Marketing Specialist Corp. (MSC) sued Mark Kay for breach of ERISA fiduciary duties requirements prohibited transactions and failure to comply COBRA.

The MSC suit alleged that Mary Kay was a member of a controlled group, which included MSC, and that relationship exposed Mary Kay to liability for failing to abide by COBRA for MSC employees. Nevertheless, the complaint did not allege that MSC was a subsidiary of Mary Kay during the policy terms since any subsidiary of Mary Kay during the policy terms since any subsidiary state that Mary Kay may have had in MSC was gone by virtue of a federal bankruptcy order regarding MSC’s reorganization.

Despite the MSC reorganization, Mark Kay sought coverage for the MSC suit and notified FIC of the claims. FIC denied coverage, stating because MSC was not a subsidiary of Mary Kay, the policy did not provide coverage. Mary Kay sued FIC seeking to recover the defense and settlement costs that it incurred as result of the MSC suit. The parties filed cross motions for summary judgment, and the district court granted FIC’s motion.

The court held that MSC was not a subsidiary of Mary Kay as defined in the policy and the MSC employee benefit plans were not sponsored plans. Therefore, the court held that MSC plan-based claims did not allege wrongful acts within the scope of the policy. Mary Kay appealed and the Fifth Circuit affirmed the district court’s decision.

Construction Defects

Policy exclusions do not preclude coverage for construction defects
Mid-Continent Cas. Co. V JHP Dev. Inc., No. 05-5796(5th Cir. Jan. 28, 2009)

The Fifth U.S Circuit court of appeals held that two policy exclusions did not preclude coverage for construction defects cause by an insured. The court concluded that the insurer owed indemnity in the amount of $468,466.77 as a result of the defective work performed by the insured.

TRC Condominiums Ltd. And JHP Development Inc. entered into an agreement for the construction of a condominium project. Due to JHP’s failure to properly water-seal the exterior walls, large quantities of water penetrated the interior of the structure. As a result of the damage and JHP’s refusal to repair the damage and compete the work, TRC terminated its construction agreement with JHP.

TRC retained a contractor to repair the damage and complete the project at a cost o f$2,255,578.53. JHP notified its insurer, Mid-Continent Casualty Co., of the problems with the TRC project and sought coverage under a commercial general liability policy. Mid-Continent denied coverage claims that there was no “occurrence” or “property damage” as defined under the policy, and that various exclusions were applicable.
Mid-Continent filed a declaratory judgment action, and both parties moved for a summary judgment.

The district court granted TRC’s motion for summary judgment, holding that none of the policy exclusions applied to the damages sought by TRC and that Mid-Continent owed indemnity to TRC in the amount of $ 438,466.77. Mid-Continent appealed arguing that two policy exclusions were applicable.

The Fifth Circuit held that exclusion j(5) applied only to property damage caused during active physical construction activities , and did not apply to property damage occurring during a prolonged , open-ended and complete suspension of
construction activities.

The court further held that exclusions j(6) barred coverage only for property damage to parts of a property that were themselves the subjects of defective work, not for damage to parts of a property that were damaged as a result of defective work on other parts of the property.

Accordingly, the Fifth Circuit held that Mid-Continent had a duty to defend and indemnity JHP with respect to that damage. The Fifth circuit affirmed the judgment of the district court.

OTHER
Tolling statute providing that absence from Texas of claimee suspends running of statute of limitation does not apply to the extent that, during the absence, claimee is subject to jurisdiction under the Texas long arm statute, holds Texas Supreme Court
Kerlin v. Sauceda, --- S.W.3d ----, 2008 WL 3991036, 51 Tex. Sup. Ct. J. 1294 (Tex. Aug 29, 2008)
Even though absent, if subject to Texas personal jurisdiction, one is “constructively present” such that the statute of limitations keeps on tickin.

The opportunity, provided by employer to employee, to become a “rocket pack pilot” (wahew!) was not adequate consideration to support non-compete and confidentiality agreement, because employee was already a rocket pack pilot upon signing the agreement. Nor was consideration provided in the form of “continued opportunities to pilot the rocket pack.”
Powerhouse Productions, Inc. v. Scott, 260 S.W.3d 693, 28 IER Cases 44 (Tex.App.-Dallas Aug 08, 2008)
“If the mere opportunity to continue performing one's job could be consideration, then an employer could ‘spring a non-compete covenant on an existing employee and enforce such a covenant absent new consideration,’ something the supreme court stated is prohibited.” And, as for any confidential information or training that the employee may have received, it was received before the date of the agreement, and thus did not constitute consideration.

Commission agreement that did not satisfy the statute of frauds (for want of a sufficient property description) was not “saved” by the partial-performance doctrine, despite evidence that the proponent of the agreement received several checks that it characterized as partial payments
Duncan v. F-Star Management, L.L.C., 2008 WL 3872869 (Tex.App.-El Paso Aug 21, 2008)
The memo section of the checks did not indicate that the checks were commission payments and the stated payee was not the company that entered the commission agreement but rather the individual who owns said company.