The Supreme Court was extremely busy in December. The court rendered twelve decisions. While the court is still considered a conservative court, the opinions this month indicate an acrimonious split from the majority by the two more conservative justices, Owens and Hecht. One of the justices, Gonzalez, will resign from the court as he will become the White House Chief Counsel to George W. Bush. We can assume that a justice with a conservative outlook will be appointed to replace Justice Gonzalez.

The legislature will also meet starting this month. The representatives that we have talked to concerning pending legislation have indicated to us that they do not anticipate much legislation, at least at this time, that will affect the insurance litigation practice. It appears that the legislators will be preoccupied with re-districting, especially considering the fact that Texas will gain two more representatives in the U. S. House of Representatives. We will keep you advised of the status of any legislation that will affect all of us in the future.

I. DETERMINATION OF SETTLEMENT CREDIT PURSUANT TO THE CIVIL PRACTICE AND REMEDIES CODE

Utts v. Short, 44 Supreme Court Jounal 134, was a medical malpractice case in which the issue before the court was the proper allocation of the settlement credit pursuant to Section 33.012 of the Texas Civil Practice and Remedies Code. A sharply divided court upheld a settlement credit of $50 (based on a settlement of $200,000) which the dissenting opinion described as a "....settlement scheme [which] was a transparent sham that should not be sanctioned by the court." 44 Supreme Court Journal at 141.

1. FACTS OF CASE

   This wrongful death case was brought when Clifton Short died as a result of a perforated colon that occurred during surgery performed by the defendant, Dr. Steven Utts. The suit was brought by the wife of Clifton Short as well as the children of Mr. Short against Dr. Utts, HCA South Austin Medical Center, and Dr. Jean-Pierre Forage. All plaintiffs subsequently non-suited Dr. Forage which left only Dr. Utts and HCA as the defendants.

   One of the children, Dorothy Short Walker, then settled with HCA for $200,000. Pursuant to the settlement agreement, Ms. Walker was paid $50,000 by HCA and the balance of $150,000 was paid to a trust account of the law firm representing the plaintiffs. When Ms. Walker signed the settlement agreement she directed the law firm to pay $10,000 to her mother and $10,000 to each of her three brothers and sisters. The remaining plaintiffs then settled with HCA for $10.00 for a total payment of $40.00. Ms. Walker eventually non-suited her claim against Utts. This left Ms. Walker's mother and three brothers and sisters as the only remaining plaintiffs.

   Dr. Utts filed a written election pursuant to Section 33.012 of the Texas Civil Practice and Remedies Code claiming a $200,040.00 dollar for dollar settlement credit. The case was tried wherein the jury found that both Dr. Utts and HCA were negligent. The jury attributed 25% of the negligence to Dr. Utts and 75% to HCA (the suit was filed prior to September 1, 1995; as a result, Dr. Utts was jointly and severally liable for the entire amount of damages.) The jury awarded a total of $436,000.00 in damages.

   The plaintiffs then moved for judgment contending that Dr. Utts was only entitled to a $50.00 credit. Dr. Utts, as can be imagined, claimed that he was entitled to a credit of $200,040.00. The trial court rendered judgment in the amount of the jury verdict less a settlement credit of $50.00.

2. THE BURDEN OF PROOF IS ON THE PARTY CLAIMING A SETTLEMENT CREDIT TO PROVE THAT THE SETTLEMENT IS A SHAM

   A majority of the court agreed that Dr. Utts had not proven that the settlement transaction "...was a sham designed solely to avoid the statutory settlement credit" 44 Supreme Court Journal at 137. As a result, the majority of the court agreed with the result that Dr. Utts could not claim a settlement credit for the Walker settlement. According to the concurring opinion by Justice Gonzalez (who will now be the White House Chief Counsel to George W. Bush), Dr. Utts failed to prove that the settlement in question was a sham transaction.

3. A SETTLEMENT WITH ONE FAMILY MEMBER SHOULD NOT OPERATE AS A CREDIT TO A JURY VERDICT AWARD TO ANOTHER FAMILY MEMBER

   A majority of the justices disagreed on how to reconcile the settlement in this case with the opinion of the court in Drilex Systems, Inc. v. Flores, 1 S.W. 3rd 112 (Tex. 1999). In the Drilex case, the court held that in a wrongful death case the family members of the decedent (the "derivative plaintiffs") should be treated as one "claimant" for purposes of determining the amount of the settlement credit required by the Civil Practice and Remedies Code. As a result, the court in Drilex held that a settlement with a derivative plaintiff resulted in a dollar for dollar credit being given on the total amount awarded by the jury to all derivative plaintiffs. As Justice Gonzalez pointed out, the result of the opinion in Drilex is that:

   We held that the total of all settlements should be credited against the total recovery before allocation based on each individual's percentage of the total recovery. 44 Supreme Court Journal at 137.

   The source of the division of the court in Utts was the acknowledgment by a majority of the justices that the plaintiffs were attempting to circumvent the ruling of the court in Drilex to make sure that some family members received more money in settlement than the amount of money that a jury would have awarded to the family. Three of the justices attempted to distinguish the Drilex opinion and therefore uphold the result reached by the trial court by finding that Walker, the settlement plaintiff, was not a claimant at the time the case was submitted to the jury and as a result was not "a complainant for the purposes of crediting settlement under Section 33.012." 44 Supreme Court Journal at 136. Four justices, on the other hand, wanted to simply overrule Drilex. These justices felt that it was inequitable to allow the settlement of one derivative plaintiff to be used to reduce the amount of money awarded to the other derivative plaintiffs. As a result, these justices felt that the court should "....overrule that part of Drilex treating the family members as all one claimant for purposes of the settlement credit." 44 Supreme Court Journal at 139.

   The remaining two justices dissented, stating that the settlement in this case was a sham. The dissent claimed that the plaintiffs should not be allowed to use such a sham to deprive defendants of receiving credit for settlements.

There will be uncertainty in the future concerning how to deal with claiming settlement credits and proving that a settlement is a sham transaction to deprive a defendant of claiming settlement credits. We can also expect to see more plaintiffs attempting to engage in settlements similar to the settlement in this case as a subterfuge to prevent defendants from claiming a settlement credit.

Defendants will now need to be able to prove at trial that the settlement reached between any co-defendants and the plaintiff is meant to deprive a defendant of claiming an appropriate settlement credit.

II. AN INSURANCE CARRIER CANNOT BE REIMBURSED BY ITS INSURED WHEN THE INSURANCE CARRIER SETTLES A NON-COVERED CLAIM

The court in Texas Association of Counties County Government Risk Management Pool (TAC) v. Matagorda County, 44 Supreme Court Journal 215, dealt with the issue of whether an insurance carrier "....may seek reimbursement from its insured for settlement funds paid under a reservation of rights upon an adjudication of non-coverage." 44 Supreme Court Journal at 216. The court held that an insurance carrier can only seek reimbursement of settlement funds if the insurance contract provides for such reimbursement or the insured agrees, at the time the insurance carrier funds the settlement, that the carrier can seek reimbursement from it. The Supreme Court refused to recognize an equitable right of subrogation by an insurance carrier against its own insured for funds used to settle a case that is the subject of a coverage dispute.

1. FACTS OF CASE

   TAC provided law enforcement liability insurance to Matagorda County. Beginning in 1991 TAC included an endorsement to its policy excluding coverage for claims "arising out of jail". In 1993 three inmates (referred to the "Coseboon plaintiffs") sued Matagorda County and the sheriff as a result of physical and sexual assaults that occurred in the Matagorda County Jail. Both the County and the sheriff demanded that TAC defend and indemnify them. TAC originally denied coverage due to the jail exclusion. However, after negotiating with attorneys for Matagorda County, TAC agreed to pay the defense costs of Matagorda County subject to TAC's reservation of rights to deny coverage. TAC also filed a declaratory judgment action claiming that there was no coverage as a result of the claim made by the Coseboon plaintiffs.

   In 1995, the attorney for the Coseboon plaintiffs offered to settle for $300,000. The attorney for Matagorda County recommended acceptance of this settlement offer. TAC requested that the county fund the settlement offer. The county judge for Matagorda County was advised of the settlement offer as well as the request that the county fund the settlement. The county refused to do so and continued to take the position that the claim was covered.

   At this point TAC then issued a second reservation of rights letter to Matagorda County and to the Matagorda County Sheriff. TAC reserved its right to seek reimbursement of the settlement funds from the county if the declaratory judgment action established that the Coseboon suit was not a covered claim. The second reservation of rights letter also stated that the payment of the money to settle the Coseboon case should not be construed as a voluntary payment. Furthermore, the reservation of rights letter stated that the payment was made "....without prejudice to the rights of [TAC] to recover up to the entire amount as determined in [the declaratory judgment action]." 44 Supreme Court Journal at 216.

   Pursuant to the policy between TAC and Matagorda County, TAC was authorized to settle without the county's consent. Nevertheless, the county never objected to the settlement to the Coseboon plaintiffs. In fact, Matagorda County agreed that the TAC settlement.

   After TAC settled with the Coseboon plaintiffs it amended its declaratory judgment action to seek reimbursement of the settlement funds. The declaratory judgment action was then tried. The judgement was rendered for TAC awarding reimbursement for $300,000.00 together with interest, attorney's fees and costs. The Court of Appeals concluded that TAC was not entitled to recover the settlement funds as there was no equitable remedy which allowed such recovery.

2. NO RIGHT OF REIMBURSEMENT UNDER THE INSURANCE POLICY

   The court first pointed out that the insurance policy between TAC and Matagorda County did not provide for a right of reimbursement. Furthermore, TAC did not assert a right of reimbursement until it sent its second reservation of rights letter. The court noted that Matagorda County never expressly agreed to reimburse TAC for the Coseboon settlement. As a result, a right of reimbursement did not exist under either the insurance contract or under an agreement entered between TAC and Matagorda County.

3. NO IMPLIED CONSENT BY MATAGORDA COUNTY TO REIMBURSE TAC

   TAC contended that Matagorda County had consented to the reimbursement by its failure to respond to the second reservation of rights letter. TAC furthermore contended that the county's concession that the settlement with the Coseboon plaintiffs was reasonable constituted an implied consent to reimburse TAC.

   The Supreme Court disagreed with these positions. The court again pointed out that there were no policy provisions allowing for reimbursement. As such, the court stated that the:

   TAC "reservation" letter was simply a unilateral offer to append a reimbursement provision to the insurance contract. That provision is binding only if the county accepted it. 44 Supreme Court Journal at 217.

   The court held that while an insurance carrier can reserve its right to disclaim coverage that it cannot seek reimbursement of money paid to settle a claim unless the insurance contract provides for a right of reimbursement or the insured agrees to allow the carrier to seek reimbursement. However, a unilateral offer, as existed in the reservation of rights letter in this case, does not constitute acceptance as there is no "meeting of the minds" to show contractual intent.
4. EQUITABLE RIGHT TO REIMBURSEMENT

   TAC also claimed that the doctrine of equitable subrogation should apply to allow it to seek reimbursement of funds paid in settlement of a claim that was later determined was not a covered claim. The court acknowledged that usually an insurance carrier that pays a claim under its policy has a right of subrogation against a third-party for the insured's injuries. However, in this case, TAC was claiming a right of subrogation against its own insured. Therefore, "...allowing an insured to unilaterally settle claims and then step into the shoes of the claimant will potentially foster conflict and distrust in the relationship between an insured and insurer. Allowing subrogation of an insurer against its insured has been widely rejected in this context." 44 Supreme Court Journal at 219.

ANALYSIS OF OPINION

The court held that when there is a dispute concerning coverage that the insurance carrier has two options in connection with the settlement of a claim:

1. Settle the claim and seek reimbursement only if the insured consents to the settlement and consents to the right of reimbursement; or
2. Seek resolution of the coverage dispute through a declaratory judgement action.

The court held that the carrier, not the insured, was obligated to choose whether to settle the claim or seek a determination of coverage through a declaratory judgment action:

Requiring the insurer, rather than the insured, to choose a course of action is appropriate because the insurer is in the business of analyzing the allocating risk and is in the best position to assess the viability of its coverage dispute. 44 Supreme Court Journal at 220.

III. SCHOOL BOARD CANNOT MAKE ADDITIONAL FINDINGS OF FACTS AS IT RELATES TO THE REASONS FOR NONRENEWAL OF A TEACHER'S CONTRACT IN CONTRAVENTION OF A HEARING EXAMINER'S RECOMMENDATION UNDER EDUCATION CODE SECTION 21.259, EXCEPT UNDER CERTAIN OTHER STATUTORY RESTRICTIONS.

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

   Montgomery ISD v. Davis, 44 Supreme Court Journal 143, is a case of first impression for the Texas Supreme Court. Specifically, the Supreme Court was called upon to interpret Section 21.259 of the Education Code, which deals with teacher term-contract nonrenewal. Joanne Davis was a Science teacher at Montgomery Jr. High School and had been a teacher for four one year term contracts. Towards the end of her last year's contract, Montgomery ISD's Board of Trustees accepted the Superintendent's recommendation not to renew Ms. Davis' contract. There were several grounds for deciding not to renew the contract which included "failure to maintain an effective working relationship or maintain good rapport with parents, the community or colleagues".

2. CHAPTER 21 OF EDUCATION CODE DOES NOT ALLOW SCHOOL BOARD TO MAKE ADDITIONAL FINDINGS OF FACT TO UPHOLD DECISION NOT TO RENEW CONTRACT OF TEACHER.

   Pursuant to Chapter 21 of the Texas Education Code, Ms. Davis requested a hearing on the nonrenewal. Further, pursuant to Chapter 21 of the Texas Education Code, the District decided to request that an independent hearings examiner be appointed to decide Ms. Davis' grievance regarding the nonrenewal. The Supreme Court noted that the Independent School District had a choice of two procedures in deciding the nonrenewal issue. First, the Board could have conducted its own hearing which would have been reviewable by the Commissioner of Education and the decision would have only been set aside if the Board's decision was arbitrary, capricious, unlawful or not supported by substantial evidence. Second, the School District could decide to allow a hearings examiner decide the issue. The Board then essentially acts as a reviewing tribunal and can only set aside the decision by the hearings examiner if the findings of fact were not supported by substantial evidence. Should either party not agree with the outcome of the hearing and the review by the School Board, either party can appeal to the Commissioner of Education and then ultimately appeal to a District Court.

   In this case, the hearings officer issued findings of fact which recommended that Ms. Davis's contract be renewed. The School Board then issued its own findings of facts and conclusions of law upholding its decision not to renew Ms. Davis' contract. Ms. Davis appealed to the Commissioner of Education. However, the Commissioner of Education failed to issue a written opinion thereby affirming the Board's decision not to renew Ms. Davis' contract. The Supreme Court indicated that it would have to review the Commissioner's affirmation of the Board's decision not to renew the contract by determining whether or not the decision not to renew the contract was supported by substantial evidence, and that is was not arbitrary, capricious or unlawful. The court further noted that in the Board reviewing the hearing examiner's findings of facts and conclusions of law, the Board is not allowed to make additional findings of fact in order to support its decision for nonrenewal. The court found that when substantial evidence supports the findings of fact of the hearing examiner the Board is not free to reject or change those findings to reach a different result.

   In conclusion, the Supreme Court noted that the School Board did not have authority within the statutory scheme of subchapter F of Chapter 21 of the Texas Education Code to make additional findings of fact in order to support its reasons for the nonrenewal of Ms. Davis' contract. Consequently, the Supreme Court found that the School Board's decision not to renew the contract could not withstand review and therefore Ms. Davis' contract should be renewed.

When a School Board chooses to go before a hearing examiner in order to review a decision not to renew a teacher's contract, it cannot make additional findings of fact and conclusions of law to support a decision not to renew in contravention of the hearing examiner's findings

IV. IN LIBEL CASE INVOLVING PUBLIC OFFICIAL, THE PUBLIC OFFICIAL CAN SUE FOR DEFAMATION BASED UPON A PUBLICATION AS A WHOLE RATHER THAN SPECIFIC FALSE STATEMENTS; HOWEVER THE PUBLIC OFFICIAL MUST SHOW WITH CLEAR AND CONVINCING EVIDENCE THAT THE LIBELOUS STATEMENTS WERE MADE WITH ACTUAL MALICE.

1. FACTS OF CASE

   In Turner v. KTRK, 44 Supreme Court Journal 244, Plaintiff Turner sued a television station and reporter for making false statements about him. This case involved a rather unusual set of facts. Generally, Turner had been accused of conspiring with a friend of his, Sylvester Foster, in helping Foster fake his own death in order to elude criminal prosecution and collect several million dollars in life insurance. Foster's insurance company contested that he actually died and pursued an investigation of his death. Subsequently, it was determined that Foster was alive and well in a Spanish prison on drug charges. During this time, Turner pursued a political career and was in the Texas House of Representative from 1988 to 1990.

   In 1991 Turner became a candidate for Mayor of Houston. Before the Mayoral run-off with Bob Lanier, reporter Dolcefino was given some information regarding Turner's possible involvement in Foster's insurance scam. Dolcefino conducted some investigation but never really received any concrete information that Turner was involved in the insurance scam. Nonetheless, Dolcefino ran a story questioning Turner's role in the insurance scam. Turner denied being involved in the scam. After the story ran, Turner lost the run-off election to Lanier. Turner then sued Dolcefino for libel and at trial a jury awarded over $5.5 Million in favor of Turner.

2. IN AN ACTION FOR LIBEL, THE COURT MAY CONSIDER WHETHER ENTIRE SUBSTANCE OF PUBLICATION IS DEFAMATORY EVEN THOUGH PARTS OF PUBLICATION ARE TRUE AND NON/DEFAMATORY

   On appeal the Defendants asserted that there was no evidence that the publication was made with actual malice. The Defendants further argued that parts of the publication were true and therefore non-defamatory. The appellate court reversed the trial court's entry of judgment on the actual malice issue. The Supreme Court addressed the issue of whether or not a case of libel can be made when the entire substance of the publication is false or defamatory even though isolated statements were literally true or nondefamatory.

   The Supreme Court concluded in this case that the entire substance and gist of the publication was false and defamatory. However, the court concluded that even though the entire statement or publication may be defamatory, Turner's status as a public figure required that Turner present clear and convincing evidence the publication was made with actual malice.

   The court stated that in order to prove actual malice the public figure must prove that a defendant made a statement with knowledge that it was false or with reckless disregard of whether it was false or not. In this context "reckless disregard" means that the defendant entertained serious doubts as to the truth of the publication. Further, although actual malice focuses on the defendant's state of mind a Plaintiff can prove state of mind through objective evidence about the publication's circumstances. The court did a thorough review of the facts in the case and concluded that the reporter did not act with actual malice in publishing the statements.

ANALYSIS OF OPINION

In a defamation case involving a public figure even though the entire substance of a publication may be defamatory, the Plaintiff still has to show that the defamatory statements were made with actual malice.

V. NO RIGHT TO AN INTERLOCUTORY APPEAL EXISTS FROM A DETERMINATION OF VENUE IN A MULTIPLE PLAINTIFF CASE

The court in American Home Products Co., et al v. Clark, et al, 44 Supreme Court Journal 284, held that a venue decision by a trial court, even if erroneous, cannot be the subject of an interlocutory appeal.

1. FACTS OF CASE

   This case involves an interlocutory appeal from a venue determination in a Fen/Phen case. Eleven plaintiffs sued ten defendants in Johnson County, Texas. Only one of the eleven plaintiffs lived in Johnson County. American Home Products filed a Motion to Transfer Venue, Objection to Attempted Joinder, and a Motion to Strike or Server the plaintiffs. American Home Products claimed that venue was not proper in Johnson County as to the ten plaintiffs who did not reside in Johnson County.

   The trial court first denied the motions filed by American Home Products without specifying the reasons for its decision. American Home Products then filed an interlocutory appeal contesting the venue decision by the trial court. American Home Products contended that joinder of the ten non-resident plaintiffs was not proper as such plaintiffs could not establish venue in Johnson County.

   The court of appeals first abated the appeal in order for the trial court to specify the basis of its order. The trial court then entered a revised order which held that the ten non-resident plaintiffs had each sued a Johnson County physician who had treated the Johnson County plaintiff (the opinion was not clear whether the ten non-resident plaintiffs were treated by the Johnson County physician although it appears that the non-resident plaintiffs were not treated by the Johnson County physician). As a result, the trial court held that because each plaintiff had sued a Johnson County defendant that venue was proper in Johnson County against all defendants pursuant to Section 15.005 of the Civil Practice and Remedies Code which holds that when venue is proper as to one defendant it is proper as to all defendants.

   The Court of Appeals then ruled that it did not have jurisdiction to rule on a venue determination by the trial court by interlocutory appeal.

2. A RULING ON VENUE FORECLOSES AN INTERLOCUTORY APPEAL

   American Home Products contended that joinder of the ten non-resident plaintiffs was not proper in that the non-resident plaintiffs could not establish venue in Johnson County. As a result American Home Products argued that the ten non-resident plaintiffs were not properly joined with the Johnson County resident plaintiff. Because Section 15.003 of the Civil Practice and Remedies Code provides for the right of an interlocutory appeal in cases involving multiple plaintiffs or intervenors, American Home Products argued that the appellate court did have jurisdiction to determine, by interlocutory appeal, the venue determination of the trial court.

   The Supreme Court agreed that in limited situations Section 15.003 of the Civil Practice and Remedies Code does provide for an interlocutory appeal. However, the court noted that an appellate court cannot review the propriety of a venue determination of a trial court under any circumstances by virtue of an interlocutory appeal:

   Thus, if the trial court even erroneously decides that venue is proper under Section 15.002, an interlocutory appeal under Section 15.003(c) is unavailable. Neither the court of appeals nor this Court can review the propriety of the trial court's venue decision. 44 Supreme Court Journal at 286.

ANALYSIS OF OPINION

This opinion forecloses the limited right of interlocutory appeal from venue determinations involving multiple plaintiffs and intervening plaintiffs. Based upon this decision, it appears that the appropriate method to seek interlocutory review is to file a Motion to Transfer Venue and a Motion to Strike the non-resident plaintiffs. The defendant should then obtain a ruling only on the Motion to Strike. An interlocutory appeal cannot be taken if a ruling is obtained on the Motion to Transfer Venue.

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