Volume I, No. 12

We also want to announce that Margery Huston will become a partner of our firm, effective January 1, 2001. We are pleased to extend this partnership to Margery ("Pepper" as many of us know her). This issue of our newsletter signifies the end of Volume I of our newsletter and the beginning of Volume II effective January, 2001. Due to the fact that 2001 is a legislative year we plan to provide you with updates on legislative bills of interest to those of us in the insurance industry. If any of you have any questions concerning any pending legislative bills, or the results of bills that you might have some interest in, please feel free to give us a call.

I. SINGLE ACTION RULE AND STATUTE OF LIMITATIONS DID NOT APPLY IN A CASE INVOLVING ASBESTOS RELATED CANCER, PUSTEJOVSKY V. RAPID-AMERICAN CORPORATION, 2000 WL 1753648 (TEX. S. CT., NOVEMBER 30, 2000)

1. FACTS OF CASE

   Henry J. Pustejovsky brought a cause of action against Rapid-American Corporation, Owens Corning Fiber Glass Corporation, Pittsburgh Corning Corporation and other suppliers of asbestos products (hereinafter collectively referred to as "Rapid-American") in 1995 as a result of mesothelioma (cancer of the lungs) due to his asbestos exposure in the late 1970s and early 1980s. Defendants filed motions for summary judgments in 1995 which were subsequently granted by the trial court based upon the issue that Mr. Pustejovsky had discovered in 1982 that he had asbestosis which is a nonmalignant disease caused by inhaling asbestos fibers. In 1982 Mr. Pustejovsky sued Johns-Manville Corporation for the asbestosis and settled out of court for $25,000.

   Rapid-American argued to the trial court that Mr. Pustejovsky's claims were barred due to his 1982 settlement with Johns-Manville for the asbestosis. They also argued that the statute of limitations had run on Mr. Pustejovsky's claims for the mesothelioma because Mr. Pustejovsky knew that he had exposure to asbestos as early as 1982.

   The Texas Supreme Court reversed the trial court's granting of summary judgment in favor of Rapid-American. The court stated that the single action rule, which typically prohibits later filing of cases for injuries that may have resulted from an earlier occurrence under the doctrine of did not apply in this case because the mesothelioma was not a condition that in all reasonable medical probability would have resulted from the initial exposure to asbestos.

2. SINGLE ACTION RULE DOES NOT APPLY TO LATER CASES INVOLVING DISEASE THAT IN REASONABLE MEDICAL PROBABILITY COULD NOT BE DIAGNOSED AFTER INITIAL EXPOSURE TO ASBESTOS

   The court defined the single action rule as a rule "that provides the Plaintiff one indivisible cause of action for all damages arising from a Defendant's single breach of legal duty." The court noted that this rule was designed to prevent more than one suit growing out of the same subject matter litigation. However, the court noted that in cases of toxic exposure, where diseases often have protracted latency periods and exposure can cause more than one disease with different latency periods, the single action rule was a "catch 22" for victims of multiple latent diseases.

   Specifically, the court noted that unless there was a reasonable medical probability that someone was going to develop a particular disease after exposure to toxic chemicals that person could not collect damages for such disease in one suit. Consequently, the application of a single action rule in the realm of toxic exposure cases would be too harsh. More particularly, the Plaintiff must demonstrate a greater than 50% chance of incurring future damages, i.e. greater than 50% chance of developing mesothelioma, in order to recover for such future damages. The court noted that in this case the expert testimony could not meet that 50% standard that would have permitted recovery in the suit filed in 1982 for the possibility that the plaintiff would develop mesothelioma in the future. At the trial court level, expert testimony presented by Plaintiff showed that only about 15% of the time will persons exposed to asbestos later develop mesothelioma. This percentage is not enough to overcome the reasonable medical probability percentage required in order for a Plaintiff to recover damages for future injuries, diseases or fear of cancer.

   The court concluded that a person who sues or settles a claim for nonmalignant asbestos related disease with one defendant is not precluded from a subsequent action against another defendant for distinct malignant asbestos related conditions. The diagnosis of a malignant asbestos related condition creates a new cause of action. The statute of limitations governing the malignant asbestos related condition begins to run when a plaintiff's symptoms manifest themselves to a degree or for a duration that would put a reasonable person on notice that he or she suffers from some injury and he or she knows or with reasonable diligence should know that the malignant asbestos related condition is likely work related. The court did limit their holding to asbestos related diseases resulting from workplace exposure.

In cases involving asbestos related exposure the statute of limitations will essentially be tolled until the disease or condition manifests itself to such a degree that a reasonable person would know that such disease was related to asbestos exposure. Moreover, even if one disease manifested itself several years prior to a second disease, the doctrine of res judicata or the "single action rule" will not apply. This opinion seems to be fairly narrow with respect to non-cancerous diseases and later cancerous diseases arising in the context of asbestos exposure.

II. AN UNINSURED MOTORIST CARRIER PROPERLY SETTLED COMPETING CLAIMS WHICH EXHAUSTED THE INSURANCE LIMITS OF THE UNINSURED MOTORIST COVERAGE

The Texas Supreme Court in Texas Farmers Insurance Company v. Soriano 881 S. W. 2d. 312(Texas 1994) held that a liability insurance carrier does not violate its duty of good faith and fair dealing by settling with some, but not all, claimants even though the settlement might exhaust the available insurance limits. The Ft. Worth Court of Appeals in Carter v. State Farm Mutual Automobile Insurance Company (November 2, 2000) extended this principle to uninsured/underinsured motorist coverage.

1. FACTS OF CASE

   Carter v. State Farm Mutual Automobile Insurance Company involved an uninsured/underinsured motorist claim (the Court of Appeals was not clear whether the claim was an uninsured motorist claim or an underinsured motorist claim but simply designated the claim as an "UM/UIM" claim.) Thomas Carter was one of five occupants of a vehicle insured by State Farm. Another occupant in the vehicle, Michelle Keeffe, was the owner of the vehicle. On April 25, 1997, Jennifer Puterbaugh struck the Keeffe vehicle from behind while traveling at a high rate of speed on I-30. As a result of this collision one of the occupants of the Keeffe vehicle, Kari Brunson, was killed. The other four occupants of the Keeffe vehicle, Thomas Carter, Jeff Goodman, Michelle Keeffe, and Craig Derek were all injured. State Farm provided insurance coverage of $50,000 per person up to $100,000 per accident.

   Approximately 3 weeks after the accident State Farm requested that the attorney for Thomas Carter meet with all potential claimants at a settlement conference. Mr. Carter's attorney stated that due to the fact that his client and Jeff Goodman were still receiving medical treatment that it was premature to settle their claims. State Farm nevertheless proceeded to settle the death claim and advised Carter's attorney on June 9, 1997, that State Farm was going to pay $50,000 to settle the claim brought by Kari Brunson's estate. State Farm also notified all potential claimants of this settlement.

   Thereafter, Carter and Goodman each demanded $50,000 to settle their claims. At this point, there was only $50,000 in insurance left to settle the remaining claims. A settlement conference was held on August 29, 1997. The attorney representing Carter refused to settle Carter's claim for anything less than the remaining limits of $50,000. State Farm proceeded to settle Keeffe's claim for $35,000 and Derek's claim for $10,000. State Farm then tendered a check for $4,000 to Carter and a check for $1,000 to Goodman.

   Carter filed suit on May 1, 1999, in which his parents joined on a claim for loss of consortium. Carter filed suit against State Farm alleging that State Farm had violated its duty of good faith and fair dealing as well as the provisions of Article 21.21 of the Insurance Code and the Deceptive Trade Practices Act. Finally, Carter contended that State Farm had breached its contract of insurance since Carter was a third-party beneficiary of such contract.

   The trial court granted a motion for summary judgment filed by State Farm and held that as a matter of law State Farm had not violated any contractual, statutory, or common law duties toward Carter.

2. SETTLEMENT OF CONFLICTING CLAIMS WHICH EXHAUST THE INSURANCE COVERAGE IS PROPER IF THE SETTLEMENT IS REASONABLE

   The Ft. Worth Court of Appeals held that State Farm did not breach any duties to the plaintiffs by settling the conflicting claims of the claimants, thereby leaving only $5,000 to settle Carter's claim. Carter contended that State Farm's actions in settling the conflicting claims should be viewed from the stand point of whether State Farm's actions were reasonable as to the claims made by Carter. The Ft. Worth Court of Appeals held that State Farm's actions are to be viewed instead on whether State Farm reasonably settled the other claims:

   An insurance company does not breach its contract by settling with covered persons, even when the settlement depletes or exhausts the policy proceeds. Lane v. State Farm Mutual Auto Insurance Company, 992 S. W. 2d 545, 552 (Tex. App. - Texarkana 1999 Petition denied).

   The Court of Appeals also found that State Farm did not deny or delay payment of a claim to Carter. The court noted that despite State Farm's request to Carter's attorney that he attend a settlement conference, the attorney refused to do so. The Court of Appeals pointed out that Carter's attorney acknowledged in oral argument that the State Farm settlement on the death claim was reasonable. Nevertheless, the attorney for Carter took the position that Carter should receive the remaining insurance limits. The court concluded that State Farm did not act unreasonably in settling with the two remaining claimants who were willing to negotiate on their claims:

   An insurer will not be liable in bad faith claims for settling reasonable claims with one of several claimants even if such settlement exhausts or diminishes the proceeds, when faced with settlement demands arising out of multiple claims and inadequate proceeds.

   The court therefore concluded that because State Farm did not violate any common law principles of bad faith that all of the statutory claims made by Carter's attorney (under the DTPA and §Article 21.21) also failed as a matter of law.

ANALYSIS OF OPINION

The court in Carter v. State Farm Mutual Automobile Insurance Company held that the principle of Texas Farmers Insurance Company v. Soriano concerning the obligation of an insurance company to settle conflicting claims even though such settlements exhaust or diminish liability limits also applies to an UM/UIM carrier.

III. FATAL CONFLICT IN JURY'S ANSWERS TO QUESTIONS CAUSES REVERSAL

In Otis Spunkmeyer, Inc. v. Blakely (November 1, 2000), The Court of Appeals in Dallas held that a fatal conflict between the answers by the jury to two questions required that the case be reversed and remanded.

1. FACTS OF CASE

   The case arises from an incident which occurred on November 21, 1991. On that date Nancy Blakely bit into an oatmeal raisin cookie manufactured by Otis Spunkmeyer, Inc. The cookie contained a hard object, which a witness for Otis Spunkmeyer admitted should not have been in the cookie. As a result the plaintiff sustained injuries to her temporomandibular joints. What made this case more dangerous than a typical "bitting into a cookie" case is that the plaintiff had an extensive history of temporomandibular joint problems and had undergone three prior surgeries to her temporomandibular joints. She underwent a fourth operation to her temporomandibular joints on January 22, 1992. On September 14, 1994 she had total joint replacement surgery.

   The case was tried to a jury once, which resulted in a finding in favor of Otis Spunkmeyer, Inc. A motion for new trial was granted. This appeal resulted from the second trial. During the second trial the case was tried on causes of action for negligence, strict liability for a manufacturing defect, and breach of an implied warranty of merchantability.

2. THE GRANTING OF A MOTION FOR NEW TRIAL IS NOT AN APPEALABLE ORDER

   As part of its appeal Otis Spunkmeyer appealed the trial court's decision to grant a new trial after the first trial on the merits. As the Court of Appeals noted, an order granting a new trial is not subject to review either by direct appeal from that order or from a final judgment rendered after further proceedings in the trial court. Cummins v. Paisan Constr. Co., 682 S. W. 2d 235, 235 (Tex. 1984). The Court of Appeals was therefore powerless to rule on the order granting the plaintiff a new trial.

3. CONFLICTING ANSWERS TO JURY QUESTIONS RESULT IN REVERSAL

   The court next addressed the Defendant's ground of appeal based upon an irreconcilable conflict in the jury answers. The first jury question asked whether or not there "was a manufacturing defect in the cookie at the time it left the possession of Otis Spunkmeyer, Inc. that was a producing cause of the occurrence in question?". The question also included definitions of defect and producing cause. The jury answered that question "no". The jury was asked in question no. 3 "Was the cookie dough supplied by Otis Spunkmeyer, Inc. unfit for the ordinary purpose for which such cookie dough is used because of a defect, and, if so, was such unfit condition a proximate cause of the injury or occurrence?". That question also contained a definition of defect, which was different from the definition of defect on question no. 1. It also included a definition of proximate cause. The jury answered "Yes" to question 3.

   In reviewing whether a fatal conflict exists in the answers by the jury to the questions submitted to them, the court must determine if the answers to one set of questions would result in a judgment for the defendant while the answers to another set of questions would result in a judgment for the plaintiff. A fatal conflict exists in the jury's answers to questions if the answers would require conflicting judgments to be entered. The court noted that Texas law recognizes that strict liability for manufacturing defects and breach of an implied warranty of merchantability are two separate causes of action. Nonetheless, in many cases a manufacturing defect will also be the condition which creates the breach of an implied warranty of merchantability. As a result, in reviewing the claim of Ms. Blakely, it was necessary to determine whether the manufacturing defect claim was the same as the breach of implied warranty of merchantability claim.

   The Court of Appeals noted that there was only one defect issue, the existence of a hard object within the cookie. The defect was alleged as the basis for both the strict liability claim and the breach of warranty claim. In addition, the same evidence was offered to prove both the breach of warranty claim and the strict liability claim. The court noted that the jury questions regarding the existence of a defect for purposes of the strict liability claim and the breach of an implied warranty of merchantability claim involved the identical factual determinations. As such, the defect issue in both claims were functionally identical.

   The Plaintiff apparently attempted to argue that there were no fatal conflicts since question no. 1 inquired into whether or not a defect was a producing cause of the occurrence, whereas question no. 3 asked whether or not the defect was a proximate cause of the occurrence. The Court of Appeals pointed out that proximate causation subsumes within it the concept of producing cause. As a result, a defect that is not a producing cause cannot, as a matter of law, constitute a proximate cause. Hyundai Motor Company v. Rodriguez 995 S. W. 2d 661, 667 (Tex. 1999).

   The Court concluded that if it disregarded the answer to question no. 1, the jury's verdict would require a judgment in favor of the plaintiff. If the court disregarded the answer to question no. 3, the jury's verdict would require judgment in favor of the defendant. Thus, there was a fatal conflict, which required the case be reversed and remanded.

This case points out the potential dangers in submitting different theories of recovery. The danger is that a jury may like one theory and not another. This could result in a fatal conflict which would require that the cause be reversed and remanded for a new trial.

Please feel free to call any of our partners or associates with any questions that you may have at 361-881-9217 or fax us at 361-882-9437.