The Supreme Court continued its defense oriented rulings in the month of May. The plaintiff attorneys that we have talked to now anticipate rulings from the Supreme Court with as much enthusiasm as a dotcom employee who has been told that his boss wants to talk to him about his future with the company.

In Allstate Insurance Company v. Bonner the Court held that a claimant is not entitled to collect attorneys fees for violations of the Prompt Payment of Claims Act unless the claimant recovers monetary damages less any offsets for payments already made. In the medical malpractice area the Court applied a stringent standard for reviewing expert reports that are required to be filed within 180 days of the suit being filed. American Transitional Care Centers of Texas, Inc. d/b/a American Transitional Hospital v. Palacios.

In Butnaru v. Ford Motor Co. the Court held that the Texas Motor Vehicle Board does not have exclusive jurisdiction over cases involving the sale of an automobile dealership.

I. WHEN IS AN INSURER REQUIRED TO PAY ATTORNEYS FEES AS A PENALTY FOR IMPROPERLY ACKNOWLEDGING A CLAIM UNDER ARTICLE 21.55, SECTION 6 OF THE TEXAS INSURANCE CODE?

In Allstate Insurance Company v. Bonner (decided May 10, 2001), the Supreme Court was asked to decide whether an insurer which did not comply with the claim acknowledgment provisions of Article 21.55, '2 of the Texas Insurance Code is required to pay the attorneys fees of its insured where the insured is not entitled to recover any sums in excess of those previously paid by the insurer.

FACTS OF CASE

Rhonda Bonner had a policy of insurance with Allstate Insurance Company which provided both uninsured motorist coverage and personal injury protection coverage. She was injured in an automobile accident which occurred in October 1997. She made a claim for personal injury protection benefits and forwarded a chiropractic bill in the amount of $1,802.00 to her insurance carrier. Allstate acknowledged receipt of the claim, evaluated the bill, and paid Bonner $1,619.00 in personal injury protection benefits. After Bonner received that check she submitted an uninsured motorist benefits claim under the same policy. She submitted her notice on December 11, 1997. Allstate received her notice of the claim on December 15, 1997, but did not acknowledge receipt of the claim until January 16, 1998.

Allstate subsequently denied Bonners uninsured motorist benefits claim. Bonner then filed suit. In

addition to alleging the right to recover uninsured motorists benefits she also alleged that Allstate failed to comply with Article 21.55. (The Prompt Payment of Claims Act). Allstate did not acknowledge receipt of her claim within fifteen days as required by Article 21.55, '2 of the Texas Insurance Code. Bonner sued for damages, attorneys fees, and costs due to the violation of the Insurance Code. Allstate stipulated that it did not timely acknowledge her claim for uninsured motorists benefits but defended the case on the basis that its payment of $1,619.00 in PIP benefits adequately compensated Bonner for any injuries received in the accident.

THE AWARD OF ATTORNEYS FEES

The jury returned a verdict that the accident was proximately caused by the negligence of the uninsured motorist, that Bonner was entitled to $1,000.00 in compensation for her chiropractic care, and that she was entitled to no recovery for physical pain and mental anguish. The jury did award $7,500.00 to Bonner in attorneys fees for preparation and trial of the case for violation of Article 21.55. Allstate claimed the right to an offset for the $1,619.00 in PIP payments. The trial court then rendered a take nothing judgment. The court did not award Bonner any attorneys fees.

Bonner appealed and the Court of Appeals affirmed the take nothing judgment on the issue of UM benefits. The Court of Appeals reversed the trial courts denial of attorneys fees and assessed attorneys fees and costs against Allstate Insurance Company. The Court of Appeals concluded that Bonner was entitled to attorneys fees because Allstate did not acknowledge Bonners claim within fifteen days of receipt of the claim.

WHY ATTORNEYS FEES ARE NOT RECOVERABLE

Allstate took the position that Bonner was not entitled to attorneys fees since Article 21.55, '6 only penalizes insurers when they fail to acknowledge claims for which they are liable. Allstates position was that since Bonner did not recover anything on her claim for UM benefits, it was not liable for the UM claim and thus should not be penalized pursuant to Article 21.55, '6.

In analyzing the Insurance Code the Supreme Court noted that the Code defines a claim as a first party claim made by an insured under an insurance policy that must be paid by the insurer directly to the insured. Texas Insurance Code Article 21.55, '1(3) (Supp.2000). Section 2 of Article 21.55 provides that an insurer shall acknowledge notice of a claim not later than fifteen days after receipt of the notice of a claim. Section 6 provides a penalty of 18 % per annum of the amount of the claim along with reasonable attorneys fees if the plaintiff proves the following elements:

1. A claim under an insurance policy;

2. That the insurer is liable for the claim; and

3. The insurer failed to follow one or more sections of Article 21.55.

The nonduplication-of-benefits provision in the standard Texas Automobile Insurance Policy precluded Bonners recovery under the UM benefits portion of the policy since she had been paid more than $1,000.00 under the PIP benefits portion of the policy. As a result, Bonner failed to establish a claim under the terms of her policy. Since Allstate was not liable for Bonners UM claim it was also not liable for attorneys fees and other penalties under Article 21.55, '6 of the Texas Insurance Code for its failure to timely acknowledge the receipt of the claim.

As a result of its ruling the Supreme Court rendered a take nothing judgment against Bonner.

ANALYSIS OF DECISION

This case is an important case for the insurance industry since it establishes when insurers are liable for penalties and attorneys fees under Article 21.55, '6 of the Texas Insurance Code. An insurer will not be liable for penalties and attorneys fees on every case in which it fails to timely acknowledge receipt of a claim. If the insurer is not liable under the policy in question, then its failure to timely acknowledge receipt of the claim will not subject the insurer to penalties. However, should the insurer be found to be liable to the insured under the policy in question it will be liable for attorneys fees and the 18 % penalty.

II. DISMISSAL BY A TRIAL COURT FOR FAILURE TO FILE A SUFFICIENT EXPERT REPORT IN A MEDICAL MALPRACTICE CASE WILL BE REVIEWED UNDER AN ABUSE-OF-DISCRETION STANDARD

The Supreme Court in American Transitional Care Centers of Texas, Inc. d/b/a American Transitional Hospital vs. Palacios (decided May 10, 2001), clarified the appellate standard for review for the dismissal of a medical malpractice case due to the failure of the plaintiff to provide an adequate expert report. The court held that:

A trial courts decision to dismiss a case under section 13.01(e) [art. 4590i ] is reviewed for abuse of discretion. We further hold that to constitute a good faith effort to provide a fair summary of an experts opinions under section 13.01(l), an expert report must discuss the standard of care, breach, and causation with sufficient specificity to inform the defendant of the conduct the plaintiff has called into question and to provide a basis for the trial court to conclude that the claims have merit.

FACTS OF CASE

This claim was brought as a result of a fall that Teofilo Palacios suffered while a patient at American Transitional Hospital. Mr. Palacios had suffered a brain injury as well as other injuries as a result of an on-the-job injury he sustained when he fell from a two story building. The physicians for Mr. Palacios had prescribed bed restraints for him due to the severity of his brain injury. He nevertheless fell from his bed while a patient at American Transitional Hospital. The suit was brought claiming that the fall from his bed caused him to sustain further brain damage.

The plaintiffs failed to file an expert report within ninety days of filing suit. As a result, the trial court granted a motion filed by the defendants requiring that the plaintiffs file a cost bond for each defendant. When an expert report was not filed within 180 days after suit was filed, American Transitional moved to dismiss the case pursuant to the provisions of Section 13.0(d) of the Medical Liability and Insurance Improvement Act, Art. 4590i. The plaintiffs moved for an extension of time to file a report, which extension was granted. The Palacios family then filed a report by Dr. Catherine F. Bontke.

American Transitional moved to dismiss the case, contending that the report did not meet the requirements of section 13.01(l) in that the report did not represent a good faith effort to comply with the definition of an expert report in '(r)(6). According to section 13.01(r)(6), an expert report is defined as:

A written report that provides a fair summary of the experts opinions as of the date of the report regarding applicable standards of care, the manner in which the care rendered by the physician or health care provider failed to meet the standards, and the cause or relationship between the failure and the injury, harm, or damages claimed.

The trial court dismissed the claim with prejudice. The plaintiffs then appealed and the Court of Appeals reversed and remanded, holding that the Palacioses made a good faith effort to provide an expert report.

The Supreme Court concluded that the actions of the trial court in dismissing a claim under section 13.01 for the failure to provide an expert report in good faith should be reviewed under an abuse of discretion standard rather than under a summary judgment standard. Under an abuse-of-discretion standard a ruling by a trial court may not be overturned unless there is no factual basis or no legal basis for the trial courts ruling. A trial courts decision that is reviewed under an abuse-of-discretion standard is difficult to overturn.

THE ACTIONS OF A TRIAL COURT IN DISMISSING A CASE FOR FAILURE TO PROVIDE A SUFFICIENT REPORT ARE REVIEWED UNDER AN ABUSE-OF- DISCRETION STANDARD

The Supreme Court initially decided that the decision of a trial court to dismiss a case for failure to provide an adequate expert should be reviewed under an abuse-of -discretion standard. The Supreme Court first noted that the statute requires a trial judge to dismiss a case if the adequacy of a report is challenged and it appears to the court that a good faith effort was not made by the plaintiffs to have a report which meets the requirements of section 13.01(r)(6). The Court next concluded that dismissal under section 13.01(e) is a sanction and that sanctions are generally reviewed under an abuse-of-discretion standard.

WHAT CONSTITUTES AN ADEQUATE REPORT UNDER SECTION 13.01(r)(6)

The Court concluded that the adequacy of a report is determined by reviewing whether the report evidences a good faith effort to provide a fair summary of the experts opinions.

The Court stated that a report, to be adequate, does not have to meet the same requirements as the evidence offered in a summary-judgement proceeding or trial. The report must advise each defendant of the specific conduct that the plaintiff is complaining about. The report must also provide a trial court with a basis to determine if a case is meritorious.

The report must therefore:

1. Provide the facts upon which the liability claim is based; and

2. Provide a statement of the standard of care that is breached according to the facts of the case.

The report must be factual, not conclusory. A report that merely states the experts conclusions about the standard of care, breach, and causation does not fulfill these two purposes. A report required by section 13.01(e) must provide the factual basis for complying with Section 13.01(r)(6) by providing:

.A fair summary of the experts opinion about the applicable standard of care, the manner in which the care failed to meet the standards, and the causal relationship between the failure and the claimed injury. Section 13.01(r)(6)

The Court concluded that the report at issue was deficient because it did not provide a factual statement of the applicable standard of care. The report filed by the attorney for the Palacios family only provided a conclusory statement that the standard of care was breached. The report did not identify the particular standard of care that was allegedly violated. As a result, the report did not identify A... what the defendant should have done differently.

ANALYSIS OF OPINION

A report must put each defendant on notice of the conduct complained of as well as how the conduct violated an identifiable standard of care. If the report does not meet these requirements then the report is insufficient as a matter of law.

TEXAS MOTOR VEHICLE BOARD DOES NOT HAVE EXCLUSIVE JURISDICTION OVER CASE INVOLVING COMMON LAW CLAIMS OF TORTIOUS INTERFERENCE WITH CONTRACT

In Butnaru vs. Ford Motor Co., 2001 WL 618149 (decided June 7, 2001), the Texas Supreme Court found that the Texas Motor Vehicle Board (board) did not have exclusive jurisdiction over a claim of tortious interference with a contract arising out of the failed sale of a Ford dealership. The Court concluded that the Board did have primary jurisdiction over an issue related to this claim and therefore the trial court should abate its proceedings until the Board had the opportunity to decide that issue.

FACTS OF CASE

Plaintiffs Hanan Butnaru and Gil Butnaru entered into a contract to purchase from Martin Graf certain property located in Del Rio, Texas, along with the Ford dealership situated on that property. The contract for sale was conditioned upon the right of Ford Motor Company to approve the Butnarus as authorized Ford dealers and Fords right of first refusal to purchase the dealership. In September 1999, Graf told Ford that he intended to sell the dealership to the Butnarus. The Butnarus then filed a Prospective Dealer Application with Ford, seeking approval as an authorized dealer. A month later, Ford informed Graf that it intended to exercise its right of first refusal and offered to pay the Butnarus' reasonable expenses incurred in negotiating the purchase and sale agreements.
On the same day, Ford assigned its right of first refusal to an existing Ford dealer.
The Butnarus sued Graf (who was then indemnified by Ford under a pre-existing agreement), in state district court anticipating the breach of the purchase and sale agreements, and sued Ford for tortiously interfering with the agreements. The Butnarus claimed Ford tortiously interfered because Ford's right of first refusal violated the Texas Motor Vehicle Commission Code, which prohibits a manufacturer from denying or preventing a dealership transfer to a qualified applicant. Thus, the Butnarus sought a declaration that Ford's right of first refusal was unenforceable and a declaration of the parties' rights and obligations under the agreements. They also requested a temporary injunction to prevent Ford or its assignees from exercising its right of first refusal during the suit. Ford opposed this request and filed a plea to the jurisdiction. Ford argued that the Board has exclusive jurisdiction to determine whether a manufacturer has violated the Code's provisions. The trial court denied Ford's plea and granted the injunction.

TEXAS MOTOR VEHICLE BOARD HAS PRIMARY (NOT EXCLUSIVE) JURISDICTION OVER THE ISSUE OF WHETHER THE CONTRACTUAL RIGHT OF FIRST REFUSAL VIOLATED THE TEXAS MOTOR VEHICLE CODE

The Court had to decide whether the Board had exclusive or primary jurisdiction over the claims made in the Butnarus lawsuit. If the Board had exclusive jurisdiction over all the claims then the lawsuit should be dismissed, because the Board was the only entity that could hear any claims related to the matters of the lawsuit. However, if the Court found the Board had primary jurisdiction then the claims pending in state district court would not be dismissed, but may be abated. The Court followed its previous rulings in two other cases, that

Unless the [Texas Motor Vehicle Code] expressly requires the Board to decide a particular issue, the Board does not have exclusive jurisdiction. The Board may, however, have primary jurisdiction over certain issues within the Code's subject matter.

Consequently, the Court found that the Board had primary jurisdiction over the issue of whether the right of first refusal violated the Texas Motor Vehicle Code. This was the fundamental issue underlying the Butnarus claim of tortious interference. Therefore the tortious interference claim should be abated until the Board decided this issue.

DEFENSE TO CLAIM FOR TORTIOUS INTERFERENCE MAY NOT RELY UPON VIOLATIONS OF A STATUTE

The Court also addressed whether the Butnarus could base their claim of tortious interference of a contract upon Code violations. The Court noted that to succeed on their tortious-interference claim, the Butnarus must show: (1) a contract existed between Graf Ford and the Butnarus and between Barton and the Butnarus; (2) Ford willfully and intentionally interfered with those contracts; (3) the interference proximately caused the Butnarus damage; and (4) the Butnarus suffered actual damage or loss. The Court further noted that Ford may defeat liability by showing, as an affirmative defense that its conduct was privileged or justified. The privilege or justification defense is based on either the interferer's exercising (1) its own legal rights, or (2) a good-faith claim to a colorable legal right, even though that claim ultimately proves to be mistaken. Privilege or justification can be proved by showing that the interference was done "in a bona fide exercise of [the interferer's] own rights" or that the interferer "has an equal or superior right in the subject matter to that of the other party. Generally, justification is established as a matter of law when the acts the plaintiff complains of as tortious are merely the defendant's exercise of its own contractual rights.

However, the Court pointed out that a party may not exercise an otherwise legitimate right by resort to illegal or tortious means. Therefore, the Court concluded that the state district court was the proper forum to bring the common-law, tortious-interference claim and the Butnarus may base their claim on Ford's conduct for allegedly violating the Code.

ANALYSIS OF OPINION

The Court has continued to find that state boards do not have exclusive jurisdiction over common law claims and therefore give plaintiffs greater rights in pursuing claims in state courts.

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