Automobile Insurance SubrogationAutomobile Total Loss ThresholdsDeductible ReimbursementDiminution of ValueFuneral Procession Traffic LawsImputing Contributory Negligence of Driver to Vehicle OwnerLaws Regarding Using Cell Phones/Headphones/Texting While DrivingLoss Of UseMed Pay/PIP SubrogationOwner Liability For Stolen VehiclesPayment of Sales Tax After Vehicle Total LossPedestrian and Crosswalk LawsRental Car Company Physical Damage and Loss of Use ClaimsRental Car Company’s Liability Insurance Primary or ExcessSlower Traffic Keep RightSudden Medical Emergencies While DrivingSuspension of Drivers’ LicensesTexas Stock Laws By CountyUse of Non-Original Equipment Manufacturer (OEM) Aftermarket Crash Parts in Repair of Damaged Vehicles
Federal , State, and Local Governmental EntitiesMunicipal/County/Local Governmental Immunity and Tort LiabilityState Sovereign Immunity And Tort Liability
General Tort Laws/StatutesAnti-Indemnity StatutesContribution ActionsContributory Negligence/Comparative FaultDog Bite LawsEconomic Loss DoctrineParental ResponsibilitySpoliationStatute of LimitationsStatute of Limitations Exceptions
Health Insurance SubrogationHealth and Disability Insurance
InvestigationAdmissibility of Expert TestimonyPre-Suit Disclosure of Liability Policy Limits in Third-Party ClaimsRecording Conversations
Product Liability SubrogationProduct Liability Law
Property Subrogation“Matching Regulations” And Laws Affecting Homeowners Property ClaimsCondominium/ Co-Op Waiver of Subrogation LawsDamage to Property Without Market ValueGeneral Contractor Overhead And Profit Payments In First-Party ACV Property Damage ClaimsLandlord/Tenant Subrogation
Subrogation GenerallyAnti-Subrogation RuleCriminal RestitutionMade Whole DoctrineMedical Expenses, Insurance Write-Offs, and The Collateral Source Rule
Workers’ CompensationEmployee Leasing LawsHospital Lien LawsOCIP/CCIP Subrogation In Workers’ Compensation Construction CasesRecovery Of Increased Workers’ Compensation Premiums By EmployerWhich Workers’ Compensation “Benefits” Can Be Subrogated?Workers’ Compensation Subrogation Waiver EndorsementsWorkers’ CompensationWorkers’ Compensation Claims by Undocumented Employees
Automobile Insurance Subrogation
Automobile Total Loss Thresholds
The rule is 100% of adjusted costs of repair. Costs of repair do not include cost of materials and labor for repainting the vehicle and sales tax on the total cost of repairs. Tex. Transp. Code § 501.091(15).
If total cost of repairs exceeds ACV of vehicle, then it is a salvage vehicle. A carrier may decide to total a vehicle when the damages are less than the actual cash value. Section 501.091(15) simply provides a damage threshold in which a vehicle will be considered totaled. Property is a “total loss” if a reasonably prudent uninsured owner, desiring to restore the property to its pre-loss condition, would not utilize that property for such restoration. Canal Ins. Co. v. Hopkins, 238 S.W.3d 549 (Tex. App. Tyler 2007).
When an insured automobile is so damaged that it would cost more to repair than to replace, it is usually deemed a total loss. Singleton v. Elephant Ins. Co., 953 F.3d 334 (5th Cir. 2020).
Automobile: No Reimbursement Requirements. However, it does require “action” to recover deductible to be taken unless it gives insured notice within 90 days before statute of limitations runs that it won’t take action. If no such action is taken, and no proper notice is given, the insurer must pay the insured the amount of the deductible. Tex. Ins. Code § 542.204 provides: “Action to Recover Deductible. (a) Notwithstanding any other provision of this code and except as provided by Subsection (b), if an insurer is liable to an insured for a claim that is subject to a deductible payable by the insured and a third-party may be liable to the insurer or the insured for the amount of the deductible, the insurer shall: (1) take action to recover the deductible against the third-party not later than the first anniversary of the date the insured’s claim is paid; or (2) pay the amount of the deductible to the insured. (b) An insurer is not required to take action or pay the amount of the deductible as required by Subsection (a) if, not later than the earlier of the first anniversary of the date the insured’s claim is paid or the 90th day before the date the statute of limitations for a negligence action expires, the insurer: (1) notifies the insured in writing that the insurer does not intend to take further collection actions against the third-party; and (2) authorizes the insured to take further collection actions. (c) This section applies regardless of whether the third-party who may be liable for the amount of the deductible is insured or uninsured.”
Tex. Ins. Code § 542.202 provides that the word “action” means “taking various actions such as reasonable and diligent collection efforts, mediation, arbitration, and litigation against a responsible third-party or the third-party’s insurer.”
If “third party may be liable”, the subrogation claim must be brought within one year of payment or must pay insured’s deductible, unless notice given to insured that subrogation will not be pursued. Tex. Ins. Code § 542.204 is only a notice provision. It does not require a subrogated carrier to pay the deductible first out of a subrogation recovery. You should first look at the applicable insurance policy to see how it deals with a deductible, if at all.
Diminution of Value
First Party: Texas courts have refused to allow recovery of diminution in value and have stated that “[w]here an insurer has fully, completely, and adequately ‘repaired or replaced the property with other of like kind and quality’ any reduction in market value of the vehicle due to factors that are not subject to repair or replacement cannot be deemed a component part of the cost of repair or replacement.” American Manufacturers Mut. Ins. Co. v. Schaefer, 124 S.W.3d 154 (Tex. 2003). The Texas Department of Insurance Bulletin B-0027-00 (2000) has also held: “The position of the Department is that an insurer is not obligated to pay a first party claimant for diminished value when an automobile is completely repaired to its pre-damage condition. The language of the insurance policy does not require payment for, or refer to, diminished value.”
A vehicle’s diminution in market value due to additional mileage and the marketplace perception that a fully repaired vehicle was inferior was not part of the insurer’s obligation to repair the vehicle after a theft under the policy. Because the vehicle was fully repaired, the insurer was not required to pay its inherent diminished value, i.e., the difference between the value before the loss and after repair. Where an insurer has fully, completely, and adequately repaired or replaced the property with other of like kind and quality, any reduction in market value of the vehicle due to factors that are not subject to “repair or replacement” cannot be deemed a component part of the cost of repair or replacement. Carlton v. Trinity Universal Ins. Co., 32 S.W.3d 454 (Tex. App. 2000).
Third Party: No court decisions specifically allowing for recovery diminution in value of a damaged vehicle in a third-party claim in addition to the cost of repair to the damaged vehicle. In action for damage to a vehicle, the owner or subrogated insurer may sue for either diminution of market value or cost of repair to the damaged vehicle. Jones v. Wallingsford, 921 S.W.2d 463 (Tex. App. 1996) (Note that this case concerns Immediate Diminished Value rather than Inherent Diminished Value.) A plaintiff whose property has not been totally destroyed may recover either (1) the market value measured by the difference in the immediate pre-injury value of the property and immediate post-injury value before repairs, or (2) the cost-of-repair and loss-of-use damages, including lost profits, but the recovery of both remedies constitutes a double recovery. Texas Farm Bureau Mut. Ins. Co. v. Wilde, 385 S.W.3d 733 (Tex. App. 2012) abrogated on other grounds by J & D Towing, LLC v. Am. Alternative Ins. Corp., 478 S.W.3d 649 (Tex. 2016).
However, there are cases allowing for recovery of diminution in value in other settings. Royce Homes, L.P. v. Humphrey, 244 S.W.3d 570 (Tex. App., 2008) (water damage to new home under construction), Ludt v. McCollum, 762 S.W.2d 575 (Tex. 1988); Terminix Int’l, Inc. v. Lucci, 670 S.W.2d 657 (Tex. App. 1984) (case involved permanent reduction to home due to foundation problems. Court held that an award of diminished value is recoverable in addition to the costs of repair, assuming that the permanent reduction in value refers to that reduction occurring even after repairs are made). In Texas, residual damages to market value of real estate are referred to as “stigma damages.” Houston Unlimited, Inc. Metal Processing v. Mel Acres Ranch, 443 S.W.3d 820 (Tex. 2014); see also, Ludt v. McCollum, 762 S.W.2d 575 (Tex. 1988).
Texas law is clear, however, that no double recoveries are allowed. Under certain circumstances, a plaintiff may recover for both diminution in value and cost of repairs, as long as there is no double recovery. Diminution in value does not duplicate the cost of repairs if the diminution is based on a comparison of the original value of the property and the value after repairs are made. Parkway Co. v. Woodruff, 901 S.W.2d 434, 441 (Tex. 1995).
Note: Texas Department of Insurance Bulletin B-0027-00 states—without providing any authority or precedent—that “An insurer also may be obligated to pay a third-party claimant for any loss of market value of the claimant’s automobile, regardless of the completeness of the repair, in a liability claim that the third party claimant may have against a policyholder.” It does not apply to a vehicle which is a total loss.
Funeral Procession Traffic Laws
There are no state law governing funeral processions, however, Texas courts recognize the tradition of vehicles stopping to allow a funeral procession to pass through an intersection. A driver that collides with a vehicle in a funeral possession may be liable if the procession was going through an intersection was noticeable. Southwestern Bell Tel. Co. v. Davis, 528 S.W.2d 191 (Tex. Civ. App. 1979).
Imputing Contributory Negligence of Driver to Vehicle Owner
Imputed Contributory Negligence Law: Contributory negligence of driver will not be imputed to an owner in owner’s action against third party for full value of damaged vehicle operated by permissive user, absent a showing of a an agency or control relationship. Rollins Leasing Corp. v. Barkley, 531 S.W.2d 603 (Tex. 1975).
Vicarious Liability/Family Purpose Doctrine: No Vicarious Liability Statute.
Texas does not recognize the Family Purpose Doctrine. Ener v. Gandy, 158 S.W.2d 989 (Tex. 1942).
Sponsor Liability for Minor’s Driving: No Sponsorship Liability Statue.
Laws Regarding Using Cell Phones/Headphones/Texting While Driving
Cell Phone/Texting: No driver under 18, during the 12-month period following issuance of original license can use a cell phone while operating a vehicle, unless it is an emergency situation. Tex. Trans. Code § 545.424(2).
No texting laws, except for learner’s permits/drivers under the age of 18.
Other Prohibitions: No Applicable Laws.
You can be cited for distracted driving.
Comments: No driver may operate a motor vehicle while in a school zone. Exceptions include if the vehicle is parked/stopped or the device is hands-free or being used to summon emergency officials. Tex. Trans. Code § 545.425.
Forty cities have passed texting and cell phone laws.
Loss Of Use
Loss of Use: Yes. Plaintiff must establish the reasonable rental value of a substitute car for the time reasonably required to repair or replace it. Luna v. N. Star Dodge Sales, Inc., 667 S.W.2d 115 (Tex. 1984). The period of compensatory loss of use will be the amount of time plaintiff was deprived of the use of his vehicle. Id. Texas allows loss of use damages in total-destruction cases. J&D Towing, LLC v. Am. Alternative Ins. Corp., 478 S.W.3d 649 (Tex. 2016). The loss of use damages must be “reasonable.” Balderas-Ramirez v. Felder (Tex. App. 2017), rev. denied (Apr. 6, 2018).
Lost Profits: Yes. lost profits are available where “the property cannot be used during the repair or replacement period. J&D Towing, LLC v. Am. Alternative Ins. Corp., supra. Loss profits must be proven with reasonable certainty. Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276 (Tex. 1994). A claim for loss profits must not be hypothetical or hopeful – but substantial in the circumstances. Id.
Comments: Plaintiff need not rent a replacement vehicle to recover loss of use. Luna v. N. Star Dodge Sales, Inc., supra.
Med Pay/PIP Subrogation
Med Pay: Yes. Subrogation right based on contract and governed by equity. State Farm v. Waibel, 2001 WL 252071 (Tex. Civ. App. – Austin, 2001).
The two (2) year personal injury statute of limitations runs from the date of the insured’s accident. Tex. Civ. Prac. & Rem. Code Ann. § 16.003 (2000).
PIP: No subrogation/reimbursement rights. V.T.C.A. § 1952.155(b) (Eff. 4/1/07). However, V.T.C.A. § 1952.155(c) allows a PIP carrier to subrogate against an uninsured motorist. “Add-On” PIP State.
Owner Liability For Stolen Vehicles
Key In The Ignition Statutes: Tex. Transp. Code § 545.404.
Common Law Rule: Owner of motor vehicle is not liable to third party for negligent operation of vehicle by thief, unless theft was foreseeable. McKinney v. Chambers, 347 S.W.2d 30 (Tex. App. 1961); Williamson v. Wayne Strand Pontiac-GMC, Inc., 658 S.W.2d 263 (Tex. App. 1983); Simmons v. Flores, 838 S.W.2d 287 (Tex. App. 1992); Cummings v. Conner Mach., Inc., 2012 WL 1174740 (Tex. App.–Amarillo 2012).
Payment of Sales Tax After Vehicle Total Loss
First-Party Claims: Motor vehicle sale and use tax is not due when insurer takes title to vehicle as a result of a total loss. However, motor vehicle sale and use tax is due when the insurer purchases a replacement vehicle for the insured on a total loss claim. 34 Tex. Admin. Code § 3.62. Where a policy provides that in the event of a total loss, the carrier’s liability would be limited to the “actual cash value of the stolen or damaged property at the time of the loss, reduced by the applicable deductible … and by its salvage value if [the policyholder] or the owner retain[ed] the salvage,” the term “actual cash value” does not include taxes and fees remitted to the state. Taxes and fees paid by the buyer to the state are irrelevant to the question of fair market value because those amounts are not part of the price paid to the seller. Singleton v. Elephant Ins. Co., 953 F.3d 334 (5th Cir. 2020).
Third-Party Claims: No applicable statute, case law, or regulation directly governing recovery of sales tax. However, in Adams v. ABC Ins. Co., 264 S.W.3d 424 (Tex. App.–Dallas 2008), the court held that the total loss settlement (which included tax and fees) was some evidence of the pre-accident fair market value of the car. Thus, a subrogated carrier has essentially two arguments. Either the taxes and fees should be considered actual damages (separate and apart from FMV of the vehicle) or they should be considered some evidence as to what the true fair market value is of the vehicle. There is no law indicating that they cannot be recovered.
Pedestrian and Crosswalk Laws
Tex. Transp. Code § 552.003: When traffic signal is not in place, vehicles must yield to pedestrian in crosswalk on vehicle’s half of road or close to it. Pedestrians must not step off curb and into path of vehicle when vehicle does not have time to stop. If vehicle violates this statute and hits a blind or disabled person, they must pay a $500 fine and perform 30 hours of community service for a charity that serves blind or disabled people.
Tex. Transp. Code § 552.005: Pedestrians must yield to vehicles when crossing outside crosswalk. Pedestrians must use crosswalk at intersections with traffic control devices.
Summary: Crossing of street at other than crosswalk in violation of statute constituted negligence per se. Howard v. Thompson-White Lumber Co., 266 S.W.2d 242 (Tex. 1954).
Rental Car Company Physical Damage and Loss of Use Claims
Recovery From Renter: Recovery of physical damage and loss of use are not prohibited or otherwise regulated. Terms of rental agreement control. Collision Damage Waivers regulated by statute. Tex. Bus. & Com. Code §§ 91.051 to . 91.056.
Recovery From Third-Party: Case law allows for owner of commercial vehicle (airplane and bus). Nothing specifically for rental cars. Recovery for loss of use arising out of damage to truck should have been supported by evidence of period of time plaintiff was deprived of use of vehicle in making repairs and reasonable expense for hire or replacement of truck during period, less cost of maintenance and depreciation that would have occurred during period had vehicle not been damaged, or if recovery was based upon loss of profit from truck’s operation, probable income during time reasonably necessary to repair truck should have been shown less all reasonable costs of operation, maintenance and depreciation. Alexander Schroeder Lumber Co. v. Merritt, 323 S.W.2d 163 (Tex. Civ. App. 1959). Where there is a claim for lost rentals, there is at least an issue whether the lost rentals can be recovered when the rental property was totally destroyed. American Jet, Inc. v. Leyendecker, 683 S.W.2d 121 (Tex. Civ. App. 1984).
Rental Car Company’s Liability Insurance Primary or Excess
Summary: No case or statutory law dealing specifically with car rental companies. Terms of rental agreement and renter’s liability policy should be compared to determine which is primary. However, a self-insured car rental company is not considered to be “other valid and collectible insurance” unless, and then to the extent that, the policy does not provide the minimum liability limits. Hertz Corp. v. Robineau, 6 S.W.3d 332, 333 (Tex. App.–Austin 1999). A car rental company may provide its renters with optional damage waivers, relinquishing liability for all or a part of any damage to a rented vehicle from authorized drivers. Rental agreement must contain a required disclosure notice (language provided in statute) in at least a 10-pt. font regarding mandatory charge notice, prohibitions, and stating that the damage waiver is not insurance.
Slower Traffic Keep Right
Statute: Tex. Transp. Code § 545.051, Tex. Transp. Code § 545.053.
Summary: Drivers must drive in the right lane except when passing another vehicle; when avoiding an obstruction; upon a roadway with three marked traffic lanes; or driving on a one-way road. Slower traffic must keep right. Drivers proceeding slower than the normal speed of traffic must drive in the right. The driver of an overtaken vehicle shall give way to the right in favor of the overtaking vehicle on audible signal.
Sudden Medical Emergencies While Driving
Unavoidable Accident Defense or Act of God Defense. The operator of a motor vehicle who becomes suddenly stricken by a fainting spell or otherwise loses consciousness while driving, and for this reason is unable to control the vehicle, is not chargeable with negligence or gross negligence if his loss of consciousness is due to an unforeseen cause. First City Nat. Bank of Houston v. Japhet, 390 S.W.2d 70 (Tex. App. 1965); Durham v. Wardlow, 401 S.W.2d 372 (Tex. App. 1966).
Defendant’s hypoglycemic episode was determined to be foreseeable since defendant was feeling ill prior to operating the vehicle. Harvey v. Culpepper, 801 S.W.2d 596 (Tex. App. 1990).
Suspension of Drivers’ Licenses
Administrative Suspension: If evidence of financial responsibility filed is not sufficient or appropriate, the Department can suspend a driver’s license. Tex. Transp. Code § 601.057. Suspension will continue until sufficient evidence of financial responsibility has been filed. Tex. Transp. Code § 601.057.
Judgment: The Department will immediately suspend the driver’s license of the judgment debtor. Tex. Transp. Code § 601.332. Suspension will remain until the judgment is stayed or satisfied, and the debtor produces evidence of financial responsibility. Tex. Transp. Code § 601.332.
Contact Information: State of Texas, Department of Public Safety, Driver Improvement & Compliance Bureau, P.O. Box 4087, 5805 North Lamar Blvd., Austin, TX 78773, (512) 424-2600, http://www.dps.texas.gov/DriverLicense/index.htm.
Texas Stock Laws By County
County: Anderson. Summary: Research Pending.
Use of Non-Original Equipment Manufacturer (OEM) Aftermarket Crash Parts in Repair of Damaged Vehicles
Authority: V.T.C.A., Insurance Code § 1952.301; Texas Dept. Insurance Commissioner’s Bulletins # B-0031-10 (Aug. 2010) and #B-0026-11 (June 2011).
Summary: First-Party and Third-Party Insurers may not limit the parts that can be used in a repair in any way within the policy. Bulletin B-0026-11 reads as follows:
[First-party and third-party] insurers have a responsibility to claimants regarding payment for damage to a motor vehicle and must comply with these provisions. Furthermore, insurers must not directly or indirectly require a claimant to use a specific repair person/facility or require the claimant to select a specific repair person/facility from a list provided by the insurer.
Section 1952.301 of the Texas Insurance Code specifies that an insurer may not directly or indirectly limit the insurer’s coverage under a policy covering damage to a motor vehicle by:
(1) specifying the brand, type, kind, age, vendor, supplier, or condition of parts or products that may be used to repair the vehicle; or
(2) limiting the claimant of the policy from selecting a repair person or facility to repair damage to the vehicle.
The Department continues to have concerns that setting reimbursement rates artificially low for specific motor vehicle repairs and parts that are used to make the repairs may lead to substandard repairs, which may also impact vehicle warranties. The majority of personal automobile insurance policies require insurers to pay the amount necessary to repair or replace the property with other(s) of like kind and quality. It is an unfair claim settlement practice for an insurer to pay a claimant an amount for the repair of the vehicle, including parts, that is not a reasonable amount for repairing or replacing the property with other of like kind and quality, or is not sufficient to make the repairs necessary for the manufacturer to honor the vehicle warranty.
Federal , State, and Local Governmental Entities
Municipal/County/Local Governmental Immunity and Tort Liability
Texas Tort Claims Act (TTCA): Tex. Civ. Prac. & Rem. Code §§ 101.001–.109 (1969). TTCA is a limited waiver of sovereign immunity (qualified immunity) for certain torts. “Governmental unit” includes a political subdivision (city, county, school district, etc.). Tex. Civ. Prac. & Rem. Code §§ 101.001(3).
Notice Deadlines: Formal, written notice no later than six (6) months after day the incident occurs, reasonably describing: (1) the damage or injury claimed; (2) the time and place of the incident; and (3) the incident. Tex. Civ. Prac. & Rem. Code Ann. § 101.101(a). “Actual notice” can substitute. Tex. Civ. Prac. & Rem. Code Ann. § 101.101(c).
Claims/Actions Allowed: Governmental unit liable for proprietary acts, including:
- operation and maintenance of a public utility;
- amusements owned and operated by the municipality; and
- any activity that is abnormally dangerous or ultra-hazardous. Municipal liability exists only to extent immunity waived. Municipality liable for motor vehicle and condition or use of person/real property.
See Tex. Civ. Prac. & Rem. Code Ann. § 101.021 (non-exclusive list).
Comments/Exceptions: Immunity for governmental functions (police, fire, health and sanitation). Three activities listed that are considered governmental functions:
- police and fire;
- health and sanitation; and
- bridge/road maintenance and construction.
This section doesn’t waive immunity. Must look to § 101.021 to determine if act is proprietary. Tex. Civ. Prac. & Rem. Code § 101.0215(b). Proprietary acts include construction and maintenance of streets, sanitary or storm sewers. There is NO waiver of immunity for junior college or school districts, except as to motor vehicles. Tex. Civ. Prac. & Rem. Code §§ 101.023 and 100.051.
There is a constitutional “taking” when a governmental entity physically damages private property in order to confer a public benefit, under Article I, Section 17 of the Texas Constitution, if it (1) knows that a specific act is causing identifiable harm; or (2) knows that the specific property damage is substantially certain to result from an authorized government action. Webb v. City of Forth Worth, 2022 WL 123219 (Tex. App. 2022).
Bodily Injury/Death: $250,000 Per Person. $500,000 Occurrence.
Damage to Property: $100,000 Occurrence.
Tex. Civ. Prac. Rem. Code § 101.023.
Can recover property damage and personal injury for motor vehicle exception; but only personal injury for death for condition or use of real/personal property.
State Sovereign Immunity And Tort Liability
Tort Claims Act: Texas Tort Claims Act (TTCA). Tex. Civ. Prac. & Rem. Code Ann. §§ 101.001–.109 (1985).
Absent a waiver of immunity, all governmental entities are generally immune from liability. University of Tex. Sw. Med. Ctr. v. Estate of Arancibia, 324 S.W.3d 544 (Tex. 2010). TTCA is a limited waiver of sovereign immunity (qualified immunity) for certain torts. Unless there is a waiver of immunity in the TTCA, there is sovereign immunity. City of Denton v. Van Page, 701 S.W.2d 831 (Tex. 1986).
Notice Deadlines: The TTCA’s notice provisions are found in Tex. Civ. Prac. & Rem. Code Ann. § 101.101. Formal, written notice no later than six months after day the incident occurs, reasonably describing:
(1) the damage or injury claimed;
(2) the time and place of the incident; and
(3) the incident.
Tex. Civ. Prac. & Rem. Code Ann. § 101.101(a).
“Actual notice” can substitute. Tex. Civ. Prac. & Rem. Code Ann. § 101.101(c).
Claims/Actions Allowed: State’s immunity is waived for:
(1) injury caused by an employee’s use of motor-driven vehicle;* Tex. Civ. Prac. & Rem. Code Ann. § 101.021(1).
(2) injury caused by condition or use of tangible personal or real property;** Tex. Civ. Prac. & Rem. Code Ann. § 101.021(2); and
(3) claims arising from premises defects. Tex. Civ. Prac. & Rem. Code Ann. § 101.021(2).***
*State only liable if employee operating vehicle would have been liable.
**State only liable if private person would have been liable. This precludes suit against State predicated solely on respondeat superior. Involves activities conducted on real property, not defects in the real property.
***Claims involving premises liability (defect in real property) brought under this section.
Comments/Exceptions: TTCA applies to “governmental units” (State, cities, counties, school districts, water districts, emergency service organizations, and any other entity which derives Constitution or Texas statute). State employees enjoy either absolute immunity (e.g., judges) or qualified immunity (e.g., jailers, sheriffs, and other public officers or employees). State employees’ qualified immunity applies only to discretionary actions taken in good faith within the scope of the employee’s authority.
No qualified immunity for ministerial (mandatory) actions. State involved in joint enterprise is liable for the torts of other members of the joint enterprise. Texas Dep’t of Transp. v. Able, 35 S.W.3d 608 (Tex. 2000). TTCA (Tex. Civ. Prac. & Rem. Code Ann. § 101.022) has two special of premises liability cases to which two additional liability limitations apply:
(1) special defects (e.g., unusual danger); and
(2) Absence, condition or malfunction of traffic signs.
Tex. Civ. Prac. & Rem. Code Ann. § 101.060.
Damage Caps: Liability of a State government under the Act is limited to money damages in a maximum amount of $250,000 for each person and $500,000 for each single occurrence for bodily injury or death and $100,000 for each single occurrence for injury to or destruction of property.
General Tort Laws/Statutes
Only applicable to registered architects or licensed engineers. Section 151.102, hidden in the Texas Insurance Code, invalidates indemnity in construction contracts. This has small effect in personal injury cases because the statute allows indemnity against the employer of injured employee. Most construction contracts are written such that the employer provides indemnification for injuries to its employees. Tex. Ins. Code §§ 151.102, 151.103.
Modified Joint and Several Liability. Joint and several liability for defendants more than 50% at fault, or defendants who act intentionally. Tex. Civ. Prac. § 33.013.
Each joint and several tortfeasor paying more than its proportion of damages has a right to contribution from other jointly and severally liable defendants up to the other defendants’ unpaid share of damages. No defendant has a right of contribution against any settling person and a settling defendant has no contribution rights against non-settling defendants. Contribution claims between named defendants must be determined in the primary suit or they are waived unless right of contribution exists because a third-party was not party of the primary suit and has made no settlement with plaintiff. Tex. Civ. Prac. § 33.015; C & H Nationwide v. Thompson, 903 S.W.2d 315 (Tex. 1994). Two years statute of limitations from date judgment or settlement imposes liability on contribution plaintiff. Beaumont Coca Cola Bottling Co. v. Cain, 628 S.W.2d 99 (Tex. App. 1981).
Contributory Negligence/Comparative Fault
Modified Comparative Fault: 51% Bar. Damaged party cannot recover if it is 51% or more at fault. If 50% or less at fault, it can recover, although its recovery is reduced by its degree of fault. Plaintiff may find his damages reduced by his portion of fault. Tex. Civ. Prac. & Rem. Code Ann. §§ 33.001-33.017.
Dog Bite Laws
Dog owner will be liable if the victim can prove that the owner had knowledge of the dog’s dangerous propensities, was negligent, a leash law was violated, or the owner caused the injury intentionally. V.T.C.A., Health & Safety Code § 822.005.
Economic Loss Doctrine
Majority Rule. The ELD prohibits a plaintiff in a non-product liability case from recovering in negligence or strict liability for purely economic losses. Nobility Homes of Texas, Inc. v. Shivers, 557 S.W.2d 77 (Tex. 1977); Purina Mills, Inc. v. Odell, 948 S.W.2d 927 (Tex. App. 1997); Equistar Chems. L.P. v. Dresser-Rand Co., 240 S.W.3d 864 (Tex. 2007); Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617 (Tex. 1986).
In Texas, the ELD has historically only been applied in cases involving strict product liability or failure to perform a contract. The ELD has never been a general rule of tort law; it is a rule sounding in negligence and strict product liability. Pure economic loss is still commonly recoverable in certain torts, including: (1) negligent misrepresentation, Grant Thornton L.L.P. v. Prospect High Income Fund, 314 S.W.3d 913, 920 (Tex. 2010); (2) legal malpractice, Akin, Gump, Strauss, Hauer & Feld, L.L.P. v. Nat’l Dev. & Research Corp., 299 S.W.3d 106, 122 (Tex. 2009); (3) accounting malpractice, Atkins v. Crosland, 417 S.W.2d 150, 152–53 (Tex. 1967); (4) breach of fiduciary duty, ERI Consulting Eng’rs, Inc. v. Swinnea, 318 S.W.3d 867, 873–74 (Tex. 2010); (5) fraud, Trenholm v. Ratcliff, 646 S.W.2d 927, 933 (Tex. 1983); (6) nuisance, Comminge v. Stevenson, 76 Tex. 642, 13 S.W. 556, 558 (Tex. 1890); (7) fraudulent inducement, Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41, 47 (Tex. 1998); and (8) fraudulent interference with contract, Am. Nat’l Petroleum Co. v. Transcon. Gas Pipe Line Corp., 798 S.W.2d 274, 278 (Tex. 1990).
Product Failure. The ELD applies when losses from an occurrence arise from failure of a product and the damage or loss is limited to the product itself. The ELD in Texas was originally established to set perimeters only in such product liability cases. Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407 (Tex. 2011). In such cases, recovery is generally limited to remedies grounded in contract (such as warranty claims or contract-based statutory remedies), rather than tort. Signal Oil & Gas Co. v. Universal Oil Prods., 572 S.W.2d 320 (Tex. 1978) (Where only the product itself is damaged, such damage constitutes economic loss recoverable only as damages for breach of an implied warranty under the Business and Commerce Code). Usually, written or implied warranty claims are the only recourse in such situations, although an implied warranty claim could sound in either contract or tort depending on the damages alleged. JCW Elecs., Inc. v. Garza, 257 S.W.3d 701 (Tex. 2008). Injury to the defective product itself is an “economic loss” governed by the Uniform Commercial Code. Mid Continent Aircraft Corp. v. Curry Cnty. Spraying Serv. Inc., 572 S.W.2d 308 (Tex. 1978) (distinguished cases involving personal injury or damage to property other than the product itself, noting that those damages could be recovered under strict liability theories). Where a defective product causes damages to the product itself and to surrounding property, the damages to the product itself can be recovered in tort along with the damage to the surrounding property. Signal Oil and Gas Co. v. Universal Oil Products, 572 S.W.2d 320 (Tex. 1978). The ELD bars recovery for economic loss alone in cases involving defective product claims. In re Smith, 524 B.R. 125 (Bankr. S.D. Tex. 2015). Furthermore, Texas applies the “benefit of the bargin” test, which means that a commercial buyer cannot recover economic losses from a component-part manufacturer for damage caused to a product by the integrated component part. Golden Spread Coop., Inc. v. Emerson Process Mgmt. Power & Water Sols., Inc., 2019 WL 403577 (N.D. Tex. 2019).
Other Property Exception. The ELD prevents recovery in tort for purely economic damage unaccompanied by injury to persons or property. There are two principal rationales for the rule: (1) Purely economic harms proliferate widely and are not self-limiting in the way that physical damage is, possibly leading to indeterminate liability and pressure to avoid economic activity altogether; and (2) the risks of economic harms are better suited to allocation by contract because (a) the parties usually have a full opportunity to consider their positions and manage risks ahead of time, and (b) pecuniary remedies are fungible. The rule is based on the proposition that commercial parties may negotiate for whatever warranty or liability limits they choose and adjust their price accordingly. LAN/STV v. Martin K. Eby Constr. Co., 435 S.W.3d 234 (Tex. 2014); Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407 (Tex. 2011); Am. Eagle Ins. Co. v. United Techs. Corp., 48 F.3d 142, 144 (5th Cir.), on reh’g, 51 F.3d 468 (5th Cir. 1995); Golden Spread Electric Cooperative, Inc. v. Emerson Process Management Power & Water Solutions, Inc., 2020 WL 1696128 (5th Cir. 2020). When a defect in a product deprives a buyer of profits, those are purely economic damages recoverable only in contract. Hininger v. Case Corp., 23 F.3d 124 (5th Cir. 1994)(denying recovery in tort of profits lost when tractor wheels broke). Physical damage is generally recoverable in tort, but a defective product causing damage to itself is not enough—the ELD still limits recovery for such damage to contract. LAN/STV, supra. This is because “damage to the product itself is essentially a loss to the purchaser of the benefit of the bargain with the seller,” recoverable in contract rather than tort. Mid Continent Aircraft Corp. v. Curry Cty. Spraying Serv., Inc., 572 S.W.2d 308 (Tex. 1978). If, however, the defective product damages other property, the ELD does not bar recovery in tort for those damages. Signal Oil & Gas Co. v. Universal Oil Prod., 572 S.W.2d 320 (Tex. 1978) (allowing recovery in tort when a reactor heater exploded and damaged “other property in the area”).
If a product was purchased as a complete whole, damage to that product caused by one of its component parts is considered damage to the product itself—rather than damage to other property—and limited to recovery in contract by the ELD. See Mid Continent Aircraft Corp., 572 S.W.2d at 310, 313 (holding that damage to an aircraft’s wings and fuselage on emergency landing forced by a defective engine was limited by the ELD); Arkwright-Bos. Mfrs. Mut. Ins. Co. v. Westinghouse Elec. Corp., 844 F.2d 1174, 1175–76, 1177–78 (5th Cir. 1988) (holding that ELD barred recovery in tort for damage to a turbine caused by a defective blade that suddenly broke). The self-damage rule applies both when a component part breaks and prevents the product from functioning properly, see, e.g., Hininger, 23 F.3d at 125, 127 (tractor wheels leaked air and cracked, causing down-time), and when the component part’s failure causes physical damage to a different component part, see, e.g., Mid Continent Aircraft Corp., 572 S.W.2d at 310–11, 313. And, it applies even when the defective component part was manufactured by an entity other than the entity that assembled the final product. Hininger, 23 F.3d at 126–27 (holding that purchaser of tractor could not recover in tort from company that supplied defective tires to the entity that incorporated them into the finished tractor and sold it to purchaser). One recent case went a step further, applying the ELD when, in the hands of a commercial firm assembling its own finished product, the failure of a component part purchased from one supplier physically damages another component part not purchased from that supplier. Lopez v. Huron, 490 S.W.3d 517 (Tex. App.—San Antonio 2016, no pet.).
Failure to Perform Contract. Recently, Texas has expanded the ELD to prohibit tort claims when economic damages result from the failure to perform a contract properly, even where there is no contractual privity between the parties. Schambacher v. R.E.I. Elec., Inc., 2010 WL 3075703 (Tex. App. 2010). Unfortunately, this can leave some plaintiffs without a remedy when a subcontractor’s negligence causes economic damages. Where there is a negligent failure to perform a contract and the plaintiff seeks damages for breach of a duty created under contract, as opposed to a duty imposed by law, tort damages are unavailable as a result of the ELD. Southwestern Bell Telephone Co. v. DeLanney, 809 S.W.2d 493 (Tex. 1991). The ELD does not prohibit recovery for damage to property falling outside the scope of a subcontract, but within the scope of the overall contract. Munters Euroform GMBH v. American Nat’l Power, Inc., 2009 WL 2837643 (Tex. Civ. App. – Austin, 2009). It does not limit recovery from a subcontractor to the subject of a subcontract when the subcontractor’s actions or product damages property beyond the scope of the subcontract. Id. The ELD bars recovery for economic loss alone only in claims that arise from party’s failure to perform contractual duty. In re Smith, 524 B.R. 125 (Bankr. S.D. Tex. 2015).
The ELD also applies when losses from an occurrence arise from failure of a product and the damage or loss is limited to the product itself. Equistar Chemicals, L.P. v. Dresser–Rand Co., 240 S.W.3d 864 (Tex. 2007). Texas has clarified that although many courts have stated in overly broad terms that the ELD means that “purely economic losses cannot be recovered in tort”, such broad statements are not accurate. Sharyland Water, supra. It even applies when replacement parts are purchased. Sanitarios Lamosa, S.A. de C.V. v. DBHL, Inc., No. CIV.A. H-04-2973, 2005 WL 2405923 (S.D. Tex. 2005) (applying ELD to damage suffered by toilet tanks in which plaintiff had installed defective ballcocks purchased from a supplier, because the toilet was the “completed product”).
In Golden Spread Electric Cooperative, Inc. v. Emerson Process Management Power & Water Solutions, Incorporated, 2020 WL 1696128 (5th Cir. 2020), a commercial firm purchased a new customized computer software system to run a generator, and the generator was damaged due to incorrect programming. the faulty component part to integrate it with other components with the intent to use, not to resell, the finished unit. In considering whether to apply the ELD, the 5th Circuit refused to apply a strict separately-bargained-for test, but rather analyzed the ELD’s “rationales in [the] particular situation” to determine whether the risk suffered is better addressed in tort or in contract. They applied the ELD and dismissed the case.
Exceptions: An exception to the ELD exists when there is a fraudulent inducement, even if the plaintiff suffers only economic damages to the subject of the contract. Formosa Plastics Corp. USA v. Presidio Eng’rs & Contractors, Inc., 960 S.W.2d 41 (Tex. 1998).
While the ELD generally precludes recovery in tort for economic losses resulting from a party’s failure to perform under a contract when the harm consists only of the economic loss of a contractual expectancy, it does not bar all tort claims arising out of a contractual setting. In Chapman Custom Homes, Inc. v. Dallas Plumbing Co., 445 S.W.3d 716 (Tex. 2014), a builder contracted with a plumber to install the plumbing system in a house during original construction. The homeowner and builder later sued the plumber and asserted breach of contract claims arising from extensive damages caused by plumbing leaks. The trial court granted summary judgment (1) in favor of the plumber on the builder’s breach of contract claims because the builder was not the owner of the property and did not suffer compensable damages, and (2) in favor of plumber on the homeowner’s breach of contract claim because the homeowner was not a party to the plumbing subcontract, and (3) in favor of the plumber on the homeowner’s negligence claim because the homeowner’s pleadings alleged only breach of contract. The Court of Appeals affirmed, stating that the homeowner’s tort claims were barred by the ELD because the homeowner’s property damage was “a mere economic loss arising from the subject matter of the plumbing subcontract.” In reversing the Court of Appeals, the Supreme Court held that the ELD does not bar a homeowner’s negligence claims against a subcontractor because the subcontractor owes an independent duty to the homeowner. Damages caused by the subcontractor’s breach of that independent duty “extend beyond the economic loss of any anticipated benefit under the subcontract.” Id. The Court based it’s opinion on a long-standing common law duty to perform a contract with due care. Montgomery Ward & Co. v. Scharrenbock, 204 S.W.2d 508 (Tex. 1947). This duty supports a claim in tort, in contract, or both. Therefore, a defendant cannot avoid tort liability to the world simply by entering into a contract with one party. If it could, the ELD consumes all claims between contractual and commercial strangers. Sharyland Water Supply Corp. v. City of Alton, 354 S.W.3d 407 (Tex. 2011). After Chapman, a plaintiff can recover in tort where the defendant breaches a duty which is independent of the contractual undertaking and the harm suffered is not merely the economic loss of a contractual benefit. The Supreme Court held that the plumber’s duty not to flood or otherwise damage the house is independent of any obligation undertaken in its plumbing contract with the builder, and the damages flowing from a breach of that duty extend beyond the economic loss of any anticipated benefit under the contract itself. After Chapman, the ELD precludes recovery in tort for economic losses resulting from a party’s failure to perform under a contract when the harm consists only of the economic loss of a contractual expectancy. It no longer bars all tort claims arising out of the performance of a contract.
The ELD will not apply when the plaintiff seeks damages to property other than the construction work itself. If a subcontractor’s work causes a fire, the building owner may pursue a tort claim against the subcontractor because, when undertaking the plumbing work, the plumber assumed a duty not to start a fire or otherwise damage the building. Chapman, supra. The ELD will apply, however, to bar a tort claim by the homeowner if the damages sustained as a result of the plumber’s work were only to the plumber’s work or were other purely economic losses.
Willful Misconduct. Liability imposed on parents for a child’s negligent, willful, or malicious acts that cause property damage. However, child’s acts must be reasonably attributable to parent’s negligence in exercising parental duties. V.T.C.A. Family Code §§ 41.001 and 41.002.
The limit of liability is $25,000.00. Child must be between 10 and 18.
Tort of Spoliation: Texas does not recognize an independent cause of action for intentional or negligent spoliation of evidence by parties to litigation. Trevino v. Ortega, 969 S.W.2d 950, 951 (Tex. 1998).
Adverse Inference Instruction: A spoliation instruction is an instruction given to the jury outlining permissible inferences they may make against a party who has lost, altered, or destroyed evidence. Brewer v. Dowling, 862 S.W.2d 156, 159 (Tex. App. – Fort Worth 1993), writ denied. A party who has deliberately destroyed evidence is presumed to have done so because the evidence was unfavorable to its case.
The Trevino Test. A trial judge has broad discretion in determining whether to provide a jury with a spoliation presumption instruction. Trevino v. Ortega, 969 S.W.2d 950, 953 (Tex. 1998); Texas Elec. Co-op. v. Dillard, 171 S.W.3d 201, 208-209 (Tex. App. – Tyler 2005). A party need not take extraordinary measures to preserve evidence, but must exercise reasonable care in preserving evidence. Trevino, 969 S.W.2d at 951. A court may determine there is no breach of the duty to preserve evidence if the alleged spoliator offers an “innocent explanation” such as the evidence was destroyed in an ordinary course of business. Id. Finally, the party alleging spoliation is not entitled to remedy unless it establishes prejudice. Id. Before a spoliation instruction can be submitted to a jury, the court must determine (1) whether there was a duty to preserve evidence, (2) whether the alleged spoliator breached that duty, either negligently or intentionally, and (3) whether spoliation prejudiced the non-spoliator’s ability to present its case or defense. In evaluating prejudice, the court should take into consideration the relevance of the evidence, whether other evidence is available, and whether the evidence supported the key issues in the case.
The intentional spoliation of evidence relevant to a cause raises a presumption the evidence would have been unfavorable to the spoliators. Id. This presumption can be rebutted by evidence that the spoliation was not a result of fraudulent intent and does not apply when documents are merely lost. Cresthaven Nursing Residence v. Freeman, 2003 WL 253283, 8, 10 (Tex. Ct. App., Feb. 5, 2003).
The Johnson Test. The presumption does not arise unless the party responsible for destruction of evidence had a duty to preserve it. Wal-Mart Stores, Inc. v. Johnson, 106 S.W.3d 718, 722 (Tex. 2003). In Johnson, the court noted that spoliation instructions have been given either for (1) a party’s deliberate destruction of relevant evidence; or (2) a party’s failure to produce relevant evidence or explain its nonproduction. However, the court noted that such a duty to preserve evidence arises “only when a party knows or reasonably should know that there is a substantial chance that a claim will be filed and that evidence in its possession or control will be material and relevant to that claim.” Id.
In Brookshire Brothers v. Aldridge, 438 S.W.3d 9 (Tex. 2014), the Supreme Court further clarified spoliation law in Texas. It is the responsibility of the trial court (not the jury) to decide whether there was spoliation. In order to support spoliation, (1) the party alleging same must show that the non-producing party has a duty to preserve evidence under the Johnson test, (2) the party alleging same must show that the non-producing party breached its duty to preserve material and relevant evidence, which occurs when it fails to exercise reasonable care to preserve that evidence, (3) the breach of duty may be either intentional or unintentional, and (4) there must be a direct relationship between the remedy and the act of spoliation. It cannot be excessive and must be “proportionate when weighing the culpability of the spoliating party and the prejudice to the non-spoliating party.” To determine prejudice, the Supreme Court confirmed that the following factors must be considered: (1) the relevance of the spoliated evidence to the main issues in the case, (2) the harmful or helpful effect of the evidence on the underlying case of either party, and (3) whether the spoliated evidence was cumulative of other evidence. If the spoliation is intentional, that might be enough to support a finding that the evidence is both relevant and harmful to the spoliating party. Negligent spoliation would not be sufficient to determine this. Finally, a party may present indirect evidence to try to establish what the missing evidence would have shown, but the jury may not hear evidence unrelated to the merits of the case that tends to simply highlight the spoliating party’s breach and culpability.
Statute of Limitations
Personal Property2 YearsTex. Civ. Rem. Code Ann. § 16.003
Personal Injury/Death2 YearsTex. Civ. Rem. Code Ann. § 16.003
Breach of Contract/Written4 YearsTex. Civ. Rem. Code Ann. § 16.051
Breach of Contract/Oral4 YearsTex. Civ. Rem. Code Ann. § 16.051
Breach of Contract/Sale of Goods4 YearsTex. Bus. & C. Code § 2.725
Statute of Repose/Products15 YearsTex. Civ. Rem. Code Ann. § 16.012(b)(c)*
Statute of Repose/Real Property10 YearsTex. Civ. Rem. Code Ann. § 16.008, 16.009**
Breach of Warranty/U.C.C.4 YearsTex. Bus. & Com. Code Ann. § 2.725
Workers’ Comp Third Party Case2 YearsTex. La. Code Ann. §§ 417.001 and 417.004
Strict Product Liability2 YearsTex. Civ. Prac. & Rem. Code Ann. § 16.003
Statute of Limitations Exceptions
*15 years from sale unless manufacturer says useful life is longer. Tex. Civ. Prac. & Rem. Code Ann. § 16.012.
**10 years from substantial completion of improvement to real property. Tex. Civ. Prac. & Rem. Code § 16.008. If claim during 10-year period, extended for two (2) years from date of claim. If injury occurs during 10th year, may sue up to two (2) years after accrual. Tex. Civ. Prac. & Rem. Code § 16.009.
Health Insurance Subrogation
Health and Disability Insurance
Statute of Limitations: 2 Years. Tex. Civ. Prac. & Rem. Code Ann. § 16.003.
Subrogation of Medical and Disability Benefits are allowed. Grp. Hosp. Serv. Inc. v. State Farm Ins. Co., 517 S.W.2d 897 (Tex. Civ. App. 1974). Made Whole does not apply. Fortis Benefits v. Cantu, 234 S.W.3d 642, 644 (Tex. 2007). Tex. Civ. Prac. & Rem. Code Ann. § 140.005 reduces a payor’s lien to an amount that is equal or lessor of (1) one-half of the gross recovery or (2) the total cost of the benefit paid. Common Fund Doctrine applies. Tex. Civ. Prac. & Rem. Code Ann. §§ 140.005, 140.007.
Admissibility of Expert Testimony
Admissibility Standards: Daubert
Case/Statutory Law: E.I. du Pont de Nemours & Co. V. Robinson, 923 S.W.2d 549 (Tex 1995).
Pre-Suit Disclosure of Liability Policy Limits in Third-Party Claims
Duty To Disclose: No.
Comments: A Stowers Demand can be sent to a third-party insurer that offers an unconditional settlement of a claim for an amount within the insured’s policy limits. If rejected, and a court enters verdict in excess of limits – the claimant can enforce the entire judgment against the insurer. The claim needs to be “reasonably clear” and offer a full and final release. G.A. Stowers Furniture Co. v. American Indemnity, Co., 15 S.W.2d 544 (Tex. 1929); Trinity Universal Ins. Co. v. Bleeker, 966 S.W.2d 489 (Tex. 1998).
One-Party Consent: It is not unlawful for an individual who is a party to or has consent from a party of an in-person or electronic communication to record and or disclose the content of said communication unless the person is doing so for the purpose of committing a tortious or criminal act. An individual may also disclose the content of any electronic communication that is readily accessible to the general public. Tex. Penal Code Ann. § 16.02; Tex. Code Crim. Proc. Ann. art. 18.20.
Product Liability Subrogation
Product Liability Law
Statute of Limitations/Repose: 2 years for personal injury and wrongful death. Tex. Civ. Prac. & Rem. Code Ann. § 16.003(a) (Vernon 2006). Discovery Rule Applies. Statute of Repose is 15 Years. Tex. Civ. Prac. & Rem. Code Ann. § 16.012.
Liability Standards: Negligence, Strict Liability, Warranty.
Fault Allocations: Modified Comparative. Tex. Civ. Prac. & Rem. Code Ann. §§ 33.001-33.017.
Non-Economic Caps/Limits On Actual Damages: Yes.
Punitive Y/N and Limits: Yes (Limits).
Heeding Presumption?: Limited.
Innocent Seller Statute: Yes. Tex. Civ. Prac. & Rem. Code Ann. §82.002(a).
Joint and Several Liability: Yes, if > 50%. Tex. Civ. Prac. § 33.013.
Available Defenses: Assumption of Risk; Misuse; Alteration; Learned Intermediary; Inherently Unsafe Products; State of the Art; Government Contractor Defense; Presumption; Compliance With Government Standards; Seatbelts; Alcohol/Drugs; Sophisticated User.
Restatement 2nd or 3rd?: Restatement 3rd
“Matching Regulations” And Laws Affecting Homeowners Property Claims
Caselaw: Where a hail storm damaged a roof, the damaged tiles could not be “spot” repaired without breaking other undamaged tiles. The insured wanted the insurance company to replace the entire roof, but the court declined to treat the roof as a single, integrated unit and said the church was not entitled to recover the cost of replacement of the non-hail damaged tiles. All Saints Catholic Church v. United Nat. Ins. Co., 257 S.W.3d 800 (Tex. App. 2008) (commercial insurance).
In residential loss, court held that “Physical loss” cannot be fairly construed to mean physical loss in the absence of physical damage. Under ordinary definitions of the terms, physical loss requires a distinct, demonstrable, physical alteration of the property. The insurer was only obligated to pay for the cost of repairing the damaged roof tiles and not the remaining undamaged portion of the roof. The court suggested that it might have considered whether matching was required to make the policyholder whole if the policyholder had been claiming replacement costs and had undertaken repairs. Ross v. Hartford Lloyd Ins. Co., 2019 WL 2929761 (N.D. Tex. 2019).
Condominium/ Co-Op Waiver of Subrogation Laws
Associations shall maintain property insurance and general liability insurance on the common elements. The insurance policy must waive its right to subrogation against the unit owner. Tex. Prop. Code Ann. § 82.111.
Damage to Property Without Market Value
Service Value: “In the very nature of things personal effects composing the furnishings of a family and household do not, for the most part, have an ascertainable market value; and their value must of necessity be fixed by replacement cost, with due allowance for depreciation, or by their intrinsic value.” Niagara Falls Ins. Co. v. Pool, 31 S.W.2d 850 (Tex. Civ. App. 1930).
Intrinsic Value: “…the measure of damages … in the absence of a market value, is the actual value…actual value … is not a price suggested by the owner’s partiality for them, nor yet what he could sell them for, neither would it be a fanciful or sentimental value, but the actual loss in money he would sustain by being deprived of such articles of domestic use.” American Ry. Express Co. v. Thompson, 2 S.W.2d 493 (Tex. Civ. App. 1927).
Sentimental Value: “As a general rule recovery for sentimental value for personal property cannot be had in a suit for the loss of property for personal use such as wearing apparel and household goods. However…in a suit to recover for the loss or destruction of items which have their primary value in sentiment.” Brown v. Frontier Theaters, Inc., 369 S.W.2d 299 (Tex. 1963).
General Contractor Overhead And Profit Payments In First-Party ACV Property Damage Claims
Payment And Depreciation Of GCOP/Sales Tax: Follows “replacement cost less depreciation” rule. Insurers may not deduct, or withhold, GCOP from an ACV payment. Tolar v. Allstate Texas Lloyd’s Co., 772 F. Supp.2d 825 (N.D. Tex. 2011); Ghoman v. New Hampshire Ins. Co., 159 F.Supp.2d 928 (N.D. Tex. 2001). The Texas Commissioner of Insurance has made clear that the Department’s position is to include GCOP when defining ACV.
In Bulletin # B-0045-98, dated June 12, 2008, the Commissioner notes: “… the Department´s position that ACV of a structure under a replacement cost policy, when the insurer does not repair or replace the structure, is the replacement cost with proper deduction for depreciation. The deduction of prospective GCOP and sales tax in determining the actual cash value under a replacement cost policy is improper, is not a reasonable interpretation of the policy language, and is unfair to insureds.”
Bulletin # B-0068-08, dated September 29, 2008, noted the position regarding calculation of ACV had “not changed”, noting “the insured continues to be entitled to reasonable and necessary expenses to repair or replace the damaged property, less proper deduction for depreciation. These expenses would include the services of a contractor.”
The Department expects all property and casualty insurance companies to act in good faith and use fair claim settlement practices to effectuate “fair and equitable” settlements of claims and not engage in unfair settlement practices in determining the damages for a covered loss as required under the Insurance Code § 541.060 and §542.003 and Texas Administrative Code Title 28, § 21.203. However, the Department will not support attempts by contractors to charge for services that were not rendered nor attempts to charge twice for the payment of overhead and profit. Bulletin # B-0068-08, dated September 29, 2008.
Texas courts and the TDI clearly include GCOP as a cost that an insured is reasonably likely to incur when repairing or replacing a loss. While an argument might be made with conflicting policy language, GCOP should be included in payments for covered losses and especially when ACV is paid.
An insurer of leased premises has no subrogation claim against the tenant for losses paid to the landlord when the leased premises are destroyed by a fire and the lease agreement, signed by the landlord and tenant, contains a limitation of liability clause which provided that neither party is liable for the insurable casualty damage to the leased premises, even when the tenant assigns its lease to the third party prior to fire. Interstate Fire Ins. Co. v. First Tape, Inc., 817 S.W.2d 142 (Tex. App. – Houston [1st Dist.] 1991). However, the application of the “Sutton Rule” has never been addressed in Texas. Landlords and tenants are free to contract between themselves that the tenant will pay for specific kinds of repair without a showing that the tenant caused the damage. Where a lease states that the tenant “must promptly pay or reimburse [landlord] for loss, damage, consequential damages, government fines or charges, or cost of repairs or service in the apartment community due to: a violation of the Lease Contract or rules; improper use; negligence; other conduct by you or your invitees, guests or occupants; or any other cause not due to [landlord’s] negligence or fault”, it is subject to only one interpretation: that the tenant is required to pay the landlord for any damages to the apartment complex as long as the apartment complex was not at fault. The provision in the lease agreement obligating the tenant to reimburse the landlord for all damage “not due to the landlord’s negligence or fault” was not unenforceable per se, even though the provision was overly broad and could have encompassed scenarios in which the landlord would have had a non-waivable duty to repair under the Property Code. A jury’s finding that the tenant’s negligence did not proximately cause damage from the fire did not support the finding that the tenant was not at fault or didn’t cause the damage, as required for the tenant to establish that the landlord had a non-waivable duty to repair a condition that was not “caused by” the tenant. If there is sufficient evidence that the tenant’s actions, even if not negligent, caused the fire, the lease provision is not unenforceable under the Code as applied. Philadelphia Indem. Ins. Co. v. White, 490 S.W.3d 468 (Tex. 2016).
Absent a contractual or statutory right, an insurer cannot subrogate against its own insured for a claim arising from the very same risk for which the insured is covered. Matagorda County v. Texas Ass’n of Counties, 975 S.W.2d 782 (Tex. App. 1998), aff’d, 52 S.W.3d 128 (Tex. 1996); AGIP Petroleum Co. v. Gulf Island Fabrication, Inc., 920 F.Supp. 1318 (S.D. Tex. 1996); Stafford Metal Works, Inc. v. Cook Paint & Varnish Co., 418 F.Supp. 56 (N.D. Tex. 1976); McBroome-Bennet Plumbing v. Villa France, 515 S.W.2d 32 (Tex. App. 1974). There is a “special relationship” between an insurance company and its insured, giving rise to duties of good faith and fair dealing. Crim Truck & Tractor Co. v. Navistar Intern. Transp. Corp., 823 S.W.2d 591 (Tex.1992); Aranda v. Insurance Co. of N. Am., 748 S.W.2d 210 (Tex.1988); Arnold v. National County Mut. Fire Ins. Co., 725 S.W.2d 165 (Tex.1987). In State Farm Mut. Auto. Ins. Co. v. Perkins, 216 S.W.3d 396 (Tex. App. 2006), State Farm paid Perkins UM benefits because the defendant was uninsured. Perkins recovered from the owner of the defendant vehicle who was insured by State Farm under a separate policy. The ASR did not prohibit reimbursement of UM benefits to State Farm because it involved different insureds and separate and distinct policies. The policy concerns of the ASR were not present in Perkins. Exceptions to the ASR include:
- Contractual and statutory subrogation;
- Subrogation against insured under a separate and distinct insurance policy; and
- Equitable concerns (case-by-case fact analysis);
In Stafford Metal Works, Inc., Continental (fire insurer for Stafford and liability insurer for tortfeasor Cook) settled with Stafford for more than the limits and withdrew instead of defending the subrogation action remaining against Cook. There was no contractual subrogation language in the policy, so the court held that subrogation was equitable and the ASR prohibited subrogation. The federal district court gave five basic reasons for the ASR, noting there was not contractual subrogation language in the policy and, focusing on the equities, stated that Continental had a “profound opportunity for mischief.” In McBroome-Bennet Plumbing, Westchester Fire Insurance Company (“Westchester”) issued a builder’s risk insurance policy to Villa France, Inc., the owner-general contractor of an apartment house under construction. McBroome-Bennett Plumbing, Inc. (“McBroome”) was a subcontractor whose employees caused a fire resulting in $15,719.37 in damage, which Westchester paid to Villa France. Westchester, as subrogee of Villa France, sued McBroome to recover the amount paid. McBroome argued that it was not liable to Westchester on the subrogation claim because it was an unnamed co-insured party under the insurance contract because some of its property was destroyed and arguably insured under the Westchester policy. The Court of Appeals held that McBroome was not an insured under the insurance policy issued to Villa France. To deny the insurer its right of subrogation here and under the circumstances presented would be contrary to basic principles of equity and justice.
Texas statute gives a court the authority to order that a criminal defendant pay restitution to a “victim” of their offense. When the “victim” has been compensated from a source other than the criminal defendant, they will not be entitled to restitution; rather, the court can award restitution to the party who compensated the “victim.” Tex. Civ. Prac. & Rem. Code Ann. § 42.037(f)(1). Texas case law has affirmed that an insurer may be such a party after compensating their insured—the “victim.” Cox v. State, 1998 Tex. App. LEXIS 62, * 3 (Tex. Ct. App. 1998).
Made Whole Doctrine
In Ortiz v. Great Southern Fire & Cas. Ins. Co., 597 S.W.2d 342 (Tex.1980), the Texas Supreme Court ingrained in Texas jurisprudence the Made Whole Doctrine. However, the extent and breadth of that case has been grossly misunderstood, and in 2007, the Texas Supreme Court clarified that the terms of a Plan or policy can negate the application of the Doctrine. Fortis Benefits v. Vanessa Cantu and Ford Motor Co., 234 S.W.3d 642 (Tex. 2007) (Successful Amicus Curiae Brief on behalf of National Association of Subrogation Professionals (NASP) filed by Gary L. Wickert); Osborne v. Jauregui, Inc., 2008 WL 1753553 (Tex. Civ. App. – Austin, 2008). If a contract provides for subrogation regardless of whether the insured is first made whole, the contract’s specific language controls and the equitable defense of the Made Whole Doctrine must give way. Osborne, supra. The Ortiz case is one of the most misconstrued cases in Texas jurisprudence. Ortiz has never stood for the blanket proposition that an insurance company’s right of subrogation may not be exercised unless and until the insured is made whole. Veazey v. Allstate Texas Lloyds, 2007 WL 29239 (N.D. Tex. 2007). In fact, it points out that if any part of a third-party settlement is intended as compensation for damages which represent the insurance payment made by a subrogating insurer, the insurer is entitled to subrogation.
In Ortiz, a homeowner suffered $15,000 in damage after a negligent carpet installation started a fire. This damage included $4,000 in damage to real property which was covered under a Great Southern policy, and $11,000 in damage to personal property, which was not insured at all. The insured settled with the third party for $10,000, and Great Southern asserted a $4,000 equitable subrogation interest in the $10,000 settlement. Neither the settlement agreement nor any proof submitted to the court indicated which portion of the damages paid by the third-party tortfeasor related to or represented the benefits paid by Great Southern. The trial court and appellate court held that Great Southern was entitled to subrogation, notwithstanding the Ortiz’ claim that they weren’t made whole. The Supreme Court reversed, but did not affirmatively find that the amount recovered by an insured from his insurer and a third-party tortfeasor combined must exceed the damages for the insured and uninsured property before the insurer is entitled to subrogation. Ortiz, supra. To the contrary, the Texas Supreme Court held that if any portion of a settlement is intended as compensation for damages paid by the insurer, the insurer is entitled to subrogate after paying a pro rata share of the costs of collection. Id. Because the record in Ortiz did not reflect how much of a $10,000 settlement, if any, was intended for damages to the insured’s real property, equitable subrogation was not allowed based on the Made Whole Doctrine.
Texas has specifically rejected adopting the Wisconsin holding in Garrity v. Rural Mut. Ins. Co., 253 N.W.2d at 514 (Wis. 1977), which says that an insurer may not subrogate at all if the insured is not made whole for all of its losses. Veazey, supra. In Texas, the burden of proving that the insured has been made whole, or exactly what portion of a third-party settlement satisfies covered as opposed to non-covered losses, is on the party filing suit. Id. In other words, if a subrogated carrier settles directly with a third party and the insured must file suit to seek reimbursement from the carrier, the burden is on the insured. On the other hand, if the insured settles and the carrier must file suit to seek reimbursement from the insured, the burden will be on the insurance company. Id. One Texas Court of Appeals decided one unreported case in which it determined that the burden of proof was on the insurer to show what amount, if any, of any third-party settlement agreement is allocated to the insured’s loss, in order to avoid the Made Whole Doctrine. Phillips Petroleum Co. v. Brantley, 2003 WL 22923413 (Tex. App. – El Paso 2003) (unreported decision). On the other hand, in Veazey, a federal district court declared that there are some situations in which an insurance company can subrogate even if the insured is not made whole, and, in that case, the burden was on the insured to prove what amount, if any, of Allstate’s recovery from the third party was to be allocated to the uninsured losses. Veazey, supra. The Court held that Veazey had no right to any payments made by the third party to Allstate for insured damages already covered by Allstate – only to payments for uninsured damages.
In Fortis Benefits, the Texas Supreme Court specifically and forcefully acknowledged that the Made Whole Doctrine does not apply to contractual subrogation claims. Fortis Benefits, supra. Effectively overruling Esparza, the Supreme Court confirmed that the application of the Made Whole Doctrine can be summarily overcome by a boiler-plate provision in an insurance contract that purports to entitle the insurer to subrogation out of the first monies received by the insured. Esparza, supra. The Court stated: “We do not disagree that equitable and contractual subrogation rest upon common principles, but contract rights generally arise from contract language; they do not derive their validity from principles of equity but directly from the parties’ agreement. The policy declares the parties’ rights and obligations, which are not generally supplanted by court-fashioned equitable rules that might apply, as a default gap-filler, in the absence of a valid contract. If subrogation arises independent of any contract, then an express subrogation agreement would be superfluous and serve only to acknowledge this preexisting right, a position we reject…Contractual subrogation clauses express the parties’ intent that reimbursement should be controlled by agreed contract terms rather than external rules imposed by the courts.” Fortis Benefits, supra.
The Texas Supreme Court cited the U.S. Supreme Court decision in Sereboff as standing for the proposition that the equitable Made Whole Doctrine should not apply when the Plan specifies to the contrary. Sereboff, supra. The Fortis Benefits decision correctly points out the clear distinction between equitable subrogation and contractual subrogation, and allows plan and/or policy language to negate its anti-subrogation effect: “The three varieties of subrogation-equitable, contractual, and statutory-represent three separate and distinct rights that, while related, are independent of each other. Independent, however, does not mean co-equal. We generally adhere to the maxim that ‘equity follows the law,’ which requires equitable doctrines to conform to contractual and statutory mandates, not the other way around. Where a valid contract prescribes particular remedies or imposes particular obligations, equity generally must yield unless the contract violates positive law or offends public policy. This Court has ‘long recognized a strong public policy in favor of preserving the freedom of contract.’” Fortis Benefits, supra.
Nonetheless, there are some instances where an insured is precluded from arguing that he had not been made whole. For example, when the subrogation provision relied upon by the insurer is found in a contract executed after the payment of benefits giving rise to the subrogation claim, i.e., a settlement agreement, the parties waive the Made Whole Doctrine. Rosa’s Café, Inc., v. Wilkerson, 183 S.W.3d 483, 488 (Tex. App. – Eastland 2005, no pet.). Also, a jury verdict on the issue of damages conclusively establishes the amount necessary to make the insured whole. As a result, an insured is collaterally estopped from arguing otherwise. State Farm Mut. Auto Ins. Co. v. Perkins, 2006 Tex. App. Lexis 6030 (Tex. App. – Eastland, 2006).
Not long after Fortis Benefits, the Texas Legislature passed a law which made several changes to health insurance subrogation and which was touted as a “legislative compromise” between the Fortis Benefits case and the Made Whole Doctrine. 2013 Texas Senate Bill No. 1339, Texas Eighty-Third Legislature, 2013 Texas Senate Bill No. 1339, Texas Eighty-Third Legislature. This bill created a new Chapter 140 in the Texas Civil Practice and Remedies Code. Section 140.004 changes the effect of Fortis Benefits by confirming that a policy or plan may still contractually provide for rights of subrogation and reimbursement. However, new § 140.005 creates a formula for calculating health subrogation recoveries:
140.005. PAYORS’ RECOVERY LIMITED.
(a) If an injured covered individual is entitled by law to seek a recovery from the third-party tortfeasor for benefits paid or provided by a subrogee as described by Section 140.004, then all payors are entitled to recover as provided by Subsection (b) or (c).
(b) This subsection applies when a covered individual is not represented by an attorney in obtaining a recovery. All payors’ share under Subsection (a) of a covered individual’s recovery is an amount that is equal to the lesser of:
(1) One-half (1/2) of the covered individual’s gross recovery; or
(2) The total cost of benefits paid, provided, or assumed by the payor as a direct result of the tortious conduct of the third party.
(c) This subsection applies when a covered individual is represented by an attorney in obtaining a recovery. All payors’ share under Subsection (a) of a covered individual’s recovery is an amount that is equal to the lesser of:
(1) One-half (1/2) of the covered individual’s gross recovery less attorney’s fees and procurement costs as provided by Section 140.007; or
(2) The total cost of benefits paid, provided, or assumed by the payor as a direct result of the tortious conduct of the third party less attorney’s fees and procurement costs as provided by Section 140.007.
(d) A common law doctrine that requires an injured party to be made whole before a subrogee makes a recovery does not apply to the recovery of a payor under this section.
The key to effective and complete subrogation under this new statute is now whether or not the subrogated carrier/plan engages subrogation counsel to enforce its subrogation rights or merely relies on the plaintiff’s attorney to do the heavy lifting. The carrier/plan is now limited to the lesser of half of the gross third-party recovery or the amount of its subrogation interest, whichever is less.
It is important to note that the new Chapter 140 does not destroy the holding in Fortis Benefits. The statute was definitely enacted in response to the Supreme Court’s decision in that case, but it states that the carrier can still contract for a better subrogation right that existed under the Made Whole Doctrine prior to Fortis Benefits. Even after the enactment of the new statute, the carrier needs a good subrogation clause in its policy/plan in order to avoid the harsh effects of the common law Made Whole Doctrine. Fortis Benefits still provides guidance on that issue. Also, the new statute applies only to policies/plans providing health benefits, so the Fortis Benefits opinion is untouched as to other types of subrogation, most notably property damage claims.
Applicability of New Statute to Med Pay Subrogation. It is likely that the new statute applies to other policies, such as automobile insurance policies which provide Med Pay benefits. This is not clear from the statute but you can bet your first-born child that it will be argued by trial lawyers to be applied as broadly as possible.
Medical Expenses, Insurance Write-Offs, and The Collateral Source Rule
Collateral Source Rule: Common law CSR is both a rule of evidence and a rule of damages. Lee v. Lee, 47 S.W.3d 767 (Tex. App. – Houston [14th Dist.] 2001); Exxon Corp. v. Shuttlesworth, 800 S.W.2d 902 (Tex. App. – Houston [14th Dist.] 1990). Evidence of collateral source not allowed and no reduction in damages awarded due to collateral sources. Mid–Century Ins. Co. of Tex. v. Kidd, 997 S.W.2d 265 (Tex. 1999). A benefit that is directed to plaintiff should not become a windfall for tortfeasor.
Recovery Of Medical Expenses Rule:
Private Insurance: Effective 9/1/03, Texas Civil Practice and Remedies Code § 41.0105 provided, albeit somewhat ambiguously, that the recovery of medical expenses is limited to those “actually paid or incurred.” Plaintiffs argued this meant any amount billed by a provider, while defendants argued this meant only the amount actually due a provider. Plaintiff can’t recover those medical expenses that have been “written off” by medical providers pursuant to agreement with health insurers. Mills v. Fletcher, 229 S.W.3d 765, 769 (Tex. App.—San Antonio 2007). In Haygood, the Supreme Court said that plaintiff is limited in recovering medical expenses that “have been or must be paid by or for the claimant.” The submission of any evidence of what the “full” charges might be can introduce a potentially fatal error into a plaintiff’s case. Section 41.0105 was intended to only apply to medical malpractice cases. However, because of sloppy drafting, the language used did not limit its application to such cases. In Big Bird Tree Serv. v. Gallegos, 365 S.W.3d 173 (Tex. App.–Dallas 2012, no pet.), the court held that a plaintiff could recover the amounts “incurred” by a charitable organization which rendered treatment to an injured person free of charge.
Medicare/Medicaid: There is no distinction between recovering medical expenses written off by private insurance and written off by Medicare/Medicaid. Matabon v Gries, 288 S.W.3d 471 (Tex. App.—Eastland 2009); Garza v. Haygood, 283 S.W.3d 3 (Tex. App.—Tyler 2009). If there is no contract or statute that prevents providers from charging plaintiff full cost of medical expenses (e.g., “free” charitable medical care), then plaintiff can recover billed amount. Big Bird Tree Servs. v. Gallegos, 365 S.W.3d 173 (Tex. App. 2012).
Related Law/Comments: After passage of § 41.0105, there was still some question over how § 41.0105 was implemented. Did it control evidence at trial? Or, was it handled post-verdict? What evidence is allowed? Plaintiff can only submit evidence of what was “paid” by the insurance company. Plaintiff can only recover up to the amount paid. Plaintiff gets no off-set for premiums paid. Haygood v. De Escobedo, 356 S.W.3d 390 (Tex. 2011). It is still considered error for either party to mention insurance (liability insurance or health insurance, etc.) during trial. Tex. R. Evid. 411; Tex. R. Civ. P. 226a(II)(9). The CSR is often referred to as the “balance in trial evidence.” Before Haygood, plaintiff wanted CSR enforced and defendant didn’t. After Haygood, it’s the other way around. Other questions raised by § 41.0105, however, remain unanswered. For example, neither Haygood nor the statute addresses the issue of reductions on proof of future medical expenses. In cases where the plaintiff is insured, a plaintiff may rely on past medical expenses to show the reasonable cost of future medical expenses. On the other hand, in cases where the plaintiff is uninsured, the court may permit the submission of unadjusted past medical bills as evidence of the reasonable costs for future medical expenses. Henderson v. Spann, 367 S.W.3d 301 (Tex. App.–Amarillo 2012, pet. denied). Future medical expenses that do not reflect write-offs might not reflect the “reasonable cost of that care.” In using medical expense affidavits under § 18.001, the amount listed in the affidavit is limited to the amount actually paid or incurred, not the amount billed. Haygood, supra. Therefore, affidavits of subrogation agents showing amounts billed are proper. Gunn v. McCoy, 2018 WL 3014984 (Tex. 2018).
Employee Leasing Laws
Texas enacted the Texas Staff Leasing Services Act, which addressed the use of leased employees and their employers in Texas. Tex. Lab. Code § 91.001, et seq. In particular, § 91.042 reads as follows:
(a) A license holder (person licensed to provide staff leasing services) may elect to obtain workers’ compensation insurance coverage for the license holder’s assigned employees through an insurance company as defined under § 401.011(28) or through self insurance as provided under Chapter 407.
(b) If a license holder maintains workers’ compensation insurance, the license holder shall pay workers’ compensation insurance premiums based on the experience rating of the client company for the first two years the client company has a contract with the license holder and as further provided by the Texas Department of Insurance.
(c) For workers’ compensation insurance purposes, a license holder and the license holder’s client company shall be co-employers. If a license holder elects to obtain workers’ compensation insurance, the client company and the license holder are subject to § 406.034 and § 408.001 (the workers’ compensation statute provisions protecting employers from liability for tortuous acts).
(d) If a license holder does not elect to obtain workers’ compensation insurance, both the license holder and the client company are subject to §§ 406.004 and 406.033.
(e) After the expiration of the two-year period under Subsection (b), if the client company obtains a new workers’ compensation insurance policy in the company’s own name or adds the company’s former assigned workers to an existing policy, the premium for the workers’ compensation insurance policy of the company shall be based on the lower of:
(1) the experience modifier of the company before entering into the staff leasing arrangement; or
(2) the experience modifier of the license holder at the time the staff leasing arrangement terminated.
(f) On request, the Texas Department of Insurance shall provide the necessary computations to the prospective workers’ compensation insurer of the client company to comply with Subsection (e). Texas Labor Code § 91.042 (1995).
Therefore, the Texas Staff Leasing Services Act codified the dual employment theory in Texas and held that in staff leasing situations, both the leasing company and customer are considered employers. Most, if not all, efforts by the general employee’s workers’ compensation carrier to equitably subrogate or seek equitable contribution against the workers’ compensation carrier for the special employer ceased with this statute. Due to the theory of contribution being equitable in nature, the court considered the fact that it was contemplated by the parties that the leased staff would have their workers’ compensation premiums paid for by the general employer (the staff leasing company). The Staff Leasing Services Act, however, does not cover providers of temporary workers. The term “staff leasing services” within the Act does not include temporary help or a temporary common worker employer. The Staff Leasing Services Act applies to arrangements in which the employee’s assignment is intended to be long-term or continuing in nature, rather than temporary or seasonal in nature, and where a majority of the workforce at a client company work site is a specialized group within that workforce consisting of assigned employees of the license holder. Wingfoot Enter. v. Alvarado, 111 S.W.3d 134 (Tex. 2003).
Hospital Lien Laws
Statute: V.T.C.A., Property Code §§ 55.001 to 55.008. Hospital and Emergency Medical Services Liens.
Perfecting Lien: Hospital or Emergency Medical Services Provider (EMSP) must do the following:
(1) File written notice of lien with county in which services were provided before third-party settlement or recovery. It must contain (a) patient’s name and address, date of accident, name and location of hospital or EMSP, and the name of the third-party tortfeasor responsible for the damages, if known.
(2) Provide notice to injured patient/attorney by regular mail within five (5) business days after the County Clerk notifies it that Notice of Lien has been “recorded”, informing him that (a) lien attaches to any cause of action or claim against a third party; and (b) the lien does not attach to real property. (NOTE: An EMSP does not have to do this if it provided such notice to patient at time services provided via its authorization form and in bolded, 14-pt. font, and it is signed by the patient-unless consent for emergency medical care is not required.)
(3) The failure of a person to receive a notice mailed in accordance with this statute does not affect the validity of the lien. § 55.005.
Comments: Lien on cause of action of anyone “who receives hospital services for injuries caused by an accident that is attributed to the negligence of another person.” Lien attaches to patient, attorney, and liability carrier. Emergency medical services provider does not need to provide notice if notice given to patient at time services provided as set forth in § 55.005(e). Lien applies only when patient is admitted to hospital within 72 hours of accident and extends to both admitting hospital and hospital to whom patient transferred. § 55.002. Lien does not attach to UM/UIM, PIP, Med Pay, or Workers’ Compensation benefits. It attaches to Occupational Accident policy. Hospital must make records concerning the services provided available to the patient or his attorney as promptly as possible. § 55.008(a). “Emergency medical services provider” also has lien if services within 72 hours of accident and in county with population of 800,000 or less. § 55.008(2)(c). Common Fund Doctrine does not apply to hospital liens. Bashara v. Baptist Memorial Hosp. System, 685 S.W.2d 307 (Tex. 1985).
OCIP/CCIP Subrogation In Workers’ Compensation Construction Cases
OCIP Law: Section 406.123 of the Texas Workers Compensation Act extends exclusive remedy protection to all participating tiers of contractors and their employees when the general contractor “provides” workers compensation insurance through a project-specific “wrap”—either in the form of an OCIP or CCIP. Austin Bridge & Road, LP v. Suarez, 556 S.W.3d 363 (Tex. App. 2018).
Statutory Employer Law: When the general contractor provides workers’ compensation coverage for subcontractors and their employees, the general contractor becomes immune from a third-party suit brought by an injured employee of a subcontractor. Etie v. Walsh & Albert Co., Ltd., 135 S.W.3d 764 (Tex. App. – Houston [1st Dist.] 2004). This is true even where the contract specifies that the subcontractor’s employees were not employees of the general contractor/owner and where they were also covered under different workers’ compensation policies by both. Garza v. Zachry Constr. Corp., 2012 WL 1864350 (Tex. App. 2012); Austin Bridge & Road, LP v. Suarez, 556 S.W.3d 363 (Tex. App. 2018).
Comments: A general contractor on a project with an OCIP (negotiated and purchased by the owner) nonetheless “provides” workers compensation insurance as required by § 406.123 when its downstream contracts require all subcontractors on site to enroll in the OCIP, and coverage is in fact in place. HCBeck, Ltd. v. Rice, 284 S.W.3d 349, 350 (Tex. 2009). Exclusive remedy protection is granted to a property owner who provided workers’ compensation for an on-site independent contractor through an OCIP. Entergy Gulf States v. Summers, 282 S.W.3d 433 (Tex. 2009) (OCIP); Becon Const. Co., Inc. v. Alonso, 444 S.W.3d 824 (Tex. App. – Beaumont, 2014) (CCIP).
Recovery Of Increased Workers’ Compensation Premiums By Employer
Recovery For Increased Premiums? No.
Statute/Case Law: Higbie Roth Constr. Co. v. Houston Shell & Concrete, 1 S.W.3d 808, 812–13 (Tex. App. 1999).
Rule Summary: Increased workers’ compensation premiums resulting from a third-party tortfeasor’s injuries to employees are harms that are not reasonably foreseeable or are otherwise too remote to be subject to liability.
Which Workers’ Compensation “Benefits” Can Be Subrogated?
Section 417.002(a) requires that a carrier be reimbursed out of any third-party recovery for all benefits paid for an injury.
“….the net amount recovered by a claimant in a third‑party action shall be used to reimburse the carrier for benefits, including medical benefits that have been paid for the compensable injury.” V.T.C.A. Labor Code § 417.002.
The Texas Department of Insurance – Workers’ Compensation Division actually requires these services and expenses. Therefore, the carrier should be able to recover them. The Texas Administrative Code provides as follows:
(f) Fair and reasonable reimbursement shall:
(1) be consistent with the criteria of Labor Code § 413.011;
(2) ensure that similar procedures provided in similar circumstances receive similar reimbursement; and
(3) be based on nationally recognized published studies, published Division medical dispute decisions, and/or values assigned for services involving similar work and resource commitments, if available. Tex. Admin. Code Tit. 28, § §(f).
In addition, the Labor Code provides in part as follows:
(b) In determining the appropriate fees, the commissioner shall also develop one or more conversion factors or other payment adjustment factors taking into account economic indicators in health care and the requirements of Subsection (d). The commissioner shall also provide for reasonable fees for the evaluation and management of care as required by Section 408.025(c)and commissioner rules. V.T.C.A. Labor Code § 413.011(b).
While this statute doesn’t specifically require case management fees be recoverable by the carrier, it does show that the Commission sets the fees for case management.
“Case management” is a collaborative process of a medical assessment, planning, facilitation and advocacy for options and services to meet an injured worker’s health needs through communication and available resources in order to promote quality and cost-effective recoveries and outcomes. It is an essential element of efforts to improve the quality of care delivered to people with complex health needs.
Fee audits ensure compliance with state fee guidelines, prevent fraud, and keep liens to an absolute minimum. These efforts hold down costs of workers’ compensation for employers and ensure that the smallest lien possible is taken from an injured worker’s third-party recovery.
The Texas Supreme Court said that subrogation is not limited only to those benefits that are reasonable and necessary. Because the injured worker receives the benefit of all amounts paid, the carrier is entitled to reimbursement without proving that the amounts paid to or for the worker were reasonable and necessary medical expenses. The assumption is that if it was paid, it should be reimbursed. The Court essentially gave broad definitions to the terms “medical benefit” and “healthcare”. The court allowed recover if they were paid in accordance with Commission guidelines. Texas Workers’ Comp. Ins. Fund v. Serrano, 962 S.W.2d 536 (Tex. 1998).
In Texas, an employee’s attorney is paid fees by the carrier out of the income benefits received by the employee. This means out of the benefits the employee received in a settlement or an award after a contested case hearing, not including the value of medical benefits or any undisputed benefits paid without the lawyer’s help. The amount of attorney fees must be approved by the Division of Workers’ Compensation and are determined by the attorney’s time and expenses. Once the Division approves the attorney’s fees, the insurance carrier is ordered by the Division to deduct the fee amount from the employee’s benefits, up to 25% of the recovery amount. Tex. Labor Code § 408.221(b), 28 Tex. Admin. Code § 152.5 (2019).
As of May 1, 2007, Texas requires compliance with ODG Guidelines. See the state of Kentucky and the Preamble above for an argument that the subrogated carrier can recover the “case manager’s” fee for development of a “treatment plan,” utilizing the ODG guidelines.
Workers’ Compensation Subrogation Waiver Endorsements
Subrogation Statute: V.T.C.A. Labor Code § 417.001, et seq.
Waiver Allowed? Yes. Otis Elevator Co. v. Allen, 185 S.W.2d 117 (Tex. Civ. App. – Fort Worth, 1944), aff’d in part, rev’d in part, 187 S.W.2d 657 (Tex. 1945); Hartford Acc. & Indem. Co. v. Buckland, 882 S.W.2d 440 (Tex. Civ. App. – Dallas, 1944) (case argued by Gary L. Wickert).
Effect Of Waiver Endorsement on Carrier’s Right To Assert A Lien On Claimant’s Recovery: Carrier waives its right to reimbursement, subrogation, and future credit. Wausau Underwriters Ins. Co. v. Wedel, 2018 WL 2750567 (Tex. 2018)*; Hartford Accident & Indem. Co. v. Buckland, 882 S.W.2d 440 (Tex. App. 1994). *Good dissent arguing that waiver is waiver of right to subrogation, not reimbursement.
Other Applicable Law: A waiver of subrogation means that the carrier cannot recover indirectly from any settlement the third party pays to the employee. Wausau Underwriters Ins. Co. v. Wedel, 61 Tex. Sup. Ct. J. 1381 (Tex. 2018). In order to have a valid waiver of subrogation, two conditions must be met: (1) employer must obligate itself to a waiver in an underlying contract, and (2) employer must obtain a separate endorsement from its workers’ compensation carrier waiving those rights. Approach Operating, LLC v. Resolution Oversight Corp., 2012 WL 2742304 (Tex. App. 2012); Chevron U.S.A. v. Cigna, No., supra (not designated for publication) (enforcing waiver of subrogation clause); Ken Petroleum Corp. v. Questor Drilling Corp., 24 S.W.3d 344 (Tex. 2000) (noting subrogation waiver in underlying contract and separate endorsement but holding insurer’s claims were outside scope of waiver).
Statute of Limitations: 2 Years. Tex. La. Code Ann. §§ 417.001 and 417.004.
Can Carrier Sue Third Party Directly: Yes.
Right to Intervene: Yes.
Recovery from UM/UIM Benefits: Employer’s Policy Only.
Subrogation Against Medical Malpractice: Yes.
Subrogation Against Legal Malpractice: Yes.
Recovery Allocation/Equitable Limitations: A carrier has first money right of recovery.
Employer Contribution/Negligence: After 1/1/03 proportional reduction.
Attorney’s Fees/Costs: Apportionment.
Future Credit: Yes, may recover in third-party suit if carrier sues alone.
Auto No-Fault: No
Workers’ Compensation Claims by Undocumented Employees
Statute: The statute expressly includes illegal aliens. Tex. Lab. Code Ann. § 401.011 and §406.092.
Case Law: Commercial Standard Fire and Marine Co. v. Galindo, 484 S.W.2d 635 (Tex. App. 1972).
Comments/Explanation/Other: Galindo held that an illegal alien was entitled to benefits under the workmen’s compensation statute, and his illegal status did not bar a collection of benefits.