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  The Tort Times
February 2016
Volume 212

CONSTRUCTION OF POLICY EXCLUDING CLAIMS FROM COVERAGE IS HELD TO BE OF NO EFFECT
 Gastar Exploration Ltd. v. U.S. Specialty Ins. Co., et al., 412 SW.3d 577 (Tex.App.–Houston 14th Dist. 2013). U.S. Specialty issued a primary directors’ and officers’ liability insurance policy to Gastar. AXIS issued an excess directors’ and officers’ policy to Gastar for the same period. The AXIS excess policy follows the form of the primary policy and, as a result, there were no relevant differences between the two.

  The two policies were claims-made insurance policies. As such, the policies only applied to claims made first during the policy period which was November 1, 2008 to November 1, 2009.

  Gastar was named as a defendant in one of a number of lawsuits arising out of a fraudulent investment scheme that eventually became known as the “mare lease program.” The plaintiffs in these cases alleged that they were defrauded in a scheme involving investment in thorough-bred breeding mare leases. Ultimately, Gastar was named as a defendant in ten of these cases. Three of the ten lawsuits were filed against Gastar prior to the policy period, the first of those being filed in 2006. It was undisputed that the remaining seven were filed during the policy period.

  Gastar submitted the claims to its insurers. They denied coverage pursuant to Condition C, the interrelationship-of-claims provision found in the two policies. According to the insurers, this provision deems the seven suits filed during the policy period to have been filed before the policy period because they relate back to the pre-policy suits.

  Gastar then sued the insurers, alleging causes of action for breach of contract and violations of the Texas Insurance Code. After limited discovery, the insurers filed traditional motions for summary judgment, asserting that they were entitled to judgment as a matter of law because the seven suits filed during the policy period were not actually within the relevant policy period by virtue of Condition C, the interrelation-ship-of-claims provision. The insurers argued that Condition C deems all claims that arise from the same facts, or from a series of related facts, to be a single claim made at the time of the earliest claim.

  In response, Gastar filed a traditional motion for partial summary judgment, asserting two points: (1) the seven suits filed during the policy period state securities claims as defined by the insurance policies; and (2) the claims raised by the plaintiffs in the suits filed during the policy period were first made during the policy period and Condition C does not preclude coverage.


  The trial court granted the insurers’ motions for summary judgment and denied Gastar’s motion. This appeal followed.

  The Court of Appeals reversed the decision of the trial court. It said that Condition C is effectively an exclusion because it narrows the coverage originally created. In other words, but for the operation of Condition C deeming the claims actually made during the policy period to have been made prior to the policy period, the insurers would be liable for covering the later claims.

  The Court pointed out that Endorsement 10 to the policy has a narrower effect. It only excludes from coverage claims made during the policy period that “arising out of, based upon or attributable to any pending or prior litigation as of 5/31/2000, or alleging or derived from the same or essentially the same facts or circumstances as alleged in such pending prior litigation.”

  The Court said that Condition C effectively renders Endorsement 10 meaningless because any claims that would be excluded from coverage by Endorsement 10 would already be excluded by Condition C. The law in Texas is well-established that an interpretation rendering part of a contract meaningless is not reasonable.

 The Court held that Endorsement 10 restores coverage originally created that would have been excluded by Condition C.

In this issue. . .

CONSTRUCTION OF POLICY EXCLUDING CLAIMS FROM COVERAGE IS HELD TO BE OF NO EFFECT

ARBITRATOR’S FAILURE TO DISCLOSE INFORMATION RESULTS IN VACATING AWARD

IMMATERIAL COMMUNICATION BETWEEN A JUROR AND A PARTY DOES NOT RESULT IN MISTRIAL

TERMINATED, CAUCASIAN, PREGNANT SCHOOL EMPLOYEE ALLOWED TO PURSUE DISCRIMINATION SUIT

SUPREME COURT SEES THROUGH PLAINTIFF’S CLAIMS OF JUROR MISCONDUCT

DRUGS SOLD IN BULK TO DOCTOR DO NOT CREATE TMLA LIABILITY FOR PHARMACY



ARBITRATOR’S FAILURE TO DISCLOSE INFORMATION RESULTS IN VACATING AWARD

 Energy, Inc. v. Ponderosa Pine Energy, LLC, 57 Tex.Sup.Ct.J. 617. Tenaska Energy sold a power generating plant to Ponderosa Pine Energy. The purchase agreement contained an arbitration clause.

  When a dispute arose later, Ponderosa initiated arbitration proceedings. Pursuant to the terms of the arbitration clause, Ponderosa designated Mr. Stern as arbitrator.

  Mr. Stern submitted his curriculum vitae and later a supplemental letter which listed several prior contacts with legal counsel for Ponderosa and with other businesses involved in the sale. It also listed his connections as a shareholder and member of the advisory board of LexSite, a litigation services company. Tenaska did not object to his appointment.

  After extensive hearings, the arbitration panel issued a 23-page opinion and award in Ponderosa’s favor. On the day the opinion issued, Ponderosa filed a petition to confirm the award in state district court. After the judgment and award issued from the district court, Tenaska hired an international private investigation firm to investigate Mr. Stern.

  When Tenaska received the investigator’s report, it filed motions to vacate the award alleging, among other things, that Mr. Stern was neither “impartial in every respect” nor “free from bias,” as required by the arbitration agreement. Tenaska alleged that Stern’s disclosure statement was edited by legal counsel for Ponderosa and that it omitted material facts with regard to LexSite’s contacts with legal counsel for Ponderosa.

  A hearing was held and the evidence showed that Mr. Stern owned shares of LexSite, was being paid for office space and services given to LexSite, marketed LexSite in the United States, was actively soliciting business for LexSite from legal counsel for Ponderosa, and discussed the possibility of LexSite and counsel for Ponderosa doing business.

  The trial court vacated the arbitration award, denied the motion to confirm, and ordered the parties to submit their dispute to a new arbitration panel.
The Court of Appeals said that Mr. Stern’s disclosure was sufficient to place Tenaska on notice of the facts giving rise to what they complained created a reasonable possibility of partiality respecting Mr. Stern’s relationship with counsel for Ponderosa. The Court of Appeals held that the trial court erred by vacating the arbitration award on the basis that Mr. Stern had failed to fully disclose his relationships with LexSite, counsel for Ponderosa, and other matters, rendering him evidently partial. The Court of Appeals reversed the trial court’s order and rendered judgment confirming the arbitration award.
The Texas Supreme Court said that the standard for evident partiality requires vacating an award if an arbitrator fails to disclose facts which might, to an objective observer, create a reasonable impression of the arbitrator’s partiality, but information that is trivial will not rise to this level and need not be disclosed.

  The Supreme Court concluded that the information not disclosed was not trivial and might have conveyed an impression of Mr. Stern’s partiality toward counsel for Ponderosa to a reasonable person. The Court said that Mr. Stern had a duty to disclose the additional information and his failure to do so constitutes “evident partiality.” The Supreme Court reversed the decision of the Court of Appeals and reinstated the trial court’s order vacating the award and requiring new arbitration.

 

IMMATERIAL COMMUNICATION BETWEEN A JUROR AND A PARTY DOES NOT RESULT IN MISTRIAL

 In re Health Care Unlimited, Inc., 57 Tex.Sup.Ct.J. 473. Ms. Valdemar was killed in a car wreck. Her surviving family members brought this action against the driver of the car that Ms. Valdemar had been riding in. They also sued Health Care Unlimited claiming that it was vicariously liable because the driver of Ms. Valdemar’s vehicle was acting in the course and scope of her employment at the time of the accident.
Based on favorable jury findings, the trial court rendered judgment in favor of Health Care Unlimited.

  Thereafter, evidence was produced showing that a juror communicated with a Health Care Unlimited employee during the trial. Therefore, the plaintiffs moved for a mistrial.

  The trial court initially granted the motion for mistrial without conducting an evidentiary hearing. Health Care Unlimited filed a motion for reconsideration and the trial court did conduct an evidentiary hearing at which it was shown that a juror had, indeed, spoken with a Health Care Unlimited employee during trial. However, that juror testified that she did not know the person with whom she was speaking was employed by Health Care Unlimited. She also denied that she ever saw or noticed that employee at the trial.

  The trial court found that the Health Care Unlimited employee was a “local manager,” that he sat behind and conferred with Health Care Unlimited’s attorneys during the evidentiary part of the trial in full view of the jury, that during jury deliberations the juror had at least two cell phone conversations with the Health Care Unlimited employee concerning preparations for an upcoming church retreat, that the Health Care Unlimited employee was a board member of the school district at which the juror’s husband was employed, and that the juror had violated the court’s instructions about communicating with a Health Care Unlimited representative during the trial of the case.

  The trial court concluded that a new trial should be granted. The trial court did not find or conclude, however, that the juror’s communications with the Health Care Unlimited employee were material or probably resulted in injury. The Court of Appeals denied Health Care Unlimited’s petition for writ of mandamus.

The Supreme Court pointed out that for a party to obtain a new trial based on jury misconduct, the party must establish that: (1) the misconduct occurred, (2) it was material, and (3) it probably caused injury.

  The Supreme Court said that it was undisputed that the juror communicated with the Health Care Unlimited employee during deliberations while the jury was on a break. However, the Court found that there was no evidence to show that the misconduct caused probable injury.

  The Supreme Court ruled that the trial court had abused its discretion and ordered the trial court to withdraw its order for a new trial and to render judgment on the verdict.


TERMINATED, CAUCASIAN, PREGNANT SCHOOL EMPLOYEE ALLOWED TO PURSUE DISCRIMINATION SUIT

  KIPP, Inc. v. Whitehead, 446 S.W.3d 99 (Tex.App–Houston 1st Dist. 2014). Ms. Whitehead is Caucasian. She was employed as an administrative learning specialist by KIPP, Inc., an open enrollment charter school.

  After Ms. Whitehead began working at KIPP, KIPP hired Ms. Carter, an African-American, as the new “school leader” or principal. Later, Ms. Whitehead, while pregnant, suffered a serious illness requiring her hospitalization and absence from work under the Family Medical Leave Act. Ms. Carter assigned Ms. Whitehead’s duties to Ms. Dozier, who is also African-American, while Ms. Whitehead was out on FMLA leave.

  Ms. Whitehead claimed that when she returned to work she was assigned job duties that were different from the duties she had previously performed. When she asked for her old job duties back, she was told that it wouldn’t happen because she was about to go on maternity leave, but that upon returning from pregnancy leave, her old job duties would be given back to her.

  Ms. Whitehead went on maternity leave and delivered her child. When she returned to work she asked for her old job duties back, but was told that it wouldn’t happen for some weeks. After the passage of some weeks, Ms. Carter met with Ms. Whitehead and told Ms. Whitehead, “You don’t fit in. You just had a baby. You are an overpaid teacher. I can’t afford your salary. I gave your job away. You cannot do this job having children. Things have changed around here. If you don’t like it, you need to apply at Nordstrom.”

  Ms. Whitehead refused to resign. Subsequently, she claims that Ms. Carter became very hostile toward her and gave her bad job evaluations. Ms. Whitehead filed a complaint with KIPP’s human resources director asserting FMLA discrimination, a hostile work environment, and race discrimination. Ms. Carter called Ms. Whitehead in to a meeting with the human resources director and handed her a letter terminating her employment.

  Ms. Whitehead then filed a discrimina-tion claim against KIPP with the Equal Employment Opportunity Commission and the Texas Commission on Human Rights, alleging retaliation and discrimination based on race and sex.

  Ms. Whitehead was given a “right to sue letter” by the EEOC. She then filed suit. KIPP moved for summary judgment and made a plea to the jurisdiction asserting sovereign immunity. The trial court denied KIPP’s plea to the jurisdiction and motion for summary judgment.

  The Court of Appeals affirmed saying that Ms. Whitehead was in a protected class even if she was not pregnant at the time she was terminated; that she did not have to prove that she was pregnant at the time of the termination to show that she was replaced by someone outside her protected class; that she had made a prima facie case of sex discrimination; and that there were fact issues as to whether she was replaced by persons outside her race.


SUPREME COURT SEES THROUGH PLAINTIFF’S CLAIMS OF JUROR MISCONDUCT


  In re Whataburger Restaurants, L.P., 57 Tex.Sup.Ct.J. 468. Mr. Acuna brought a premises liability suit against Whataburger based on injuries sustained in a fight outside a Whataburger restaurant. The jury rendered judgment in favor of Whataburger.

  After investigating jurors, Mr. Acuna filed a motion for new trial claiming that one of the ten jurors who had voted in favor of Whataburger, Ms. Chavez, had committed misconduct by failing to disclose that she had been a defendant in two prior credit card collection cases and a bankruptcy action. During the hearing on the motion for new trial, Ms. Chavez testified that she mistakenly failed to disclose the suits because she had never gone before a judge in those cases, it was an honest mistake, and that they had simply slipped her mind.

  The trial court found that Ms. Chavez did not complete her juror questionnaire correctly, that the mistake was material, and that it resulted in probable injury. The court granted Mr. Acuna’s motion for new trial on the ground that he was denied the opportunity to question or strike Ms. Chavez in light of the missing information.

  The Court of Appeals denied Whata-burger’s petition for writ of mandamus.

  The Supreme Court observed that for a party to get a new trial based on jury misconduct, the party must establish (1) that the misconduct occurred, (2) it was material, and (3) it probably caused injury. The complaining party has the burden to show all three elements before a new trial can be granted.

  The Supreme Court said that there was no evidence that Ms. Chavez’s failure to disclose her previous lawsuits resulted in probable injury. The Court said that a trial court may grant a new trial based on juror misconduct if it reasonably appears from the evidence both on the hearing of the motion and the trial of the case and from the record as a whole that an injury probably resulted to the complaining party.

  The Supreme Court went on to say that although four jurors had disclosed that they had each been a defendant in a prior lawsuit, Mr. Acuna’s attorney did not question, challenge, or strike any of them, and one of them was seated on the jury and joined in the majority verdict. The Court said that Mr. Acuna provided no evidence to suggest that Ms. Chavez or her prior experience as a defendant in a lawsuit was in some way meaningfully different than the other prospective jurors’ experiences. The Court felt that Mr. Acuna’s attorney’s failure to question or strike those jurors contradicts his conclusory claim that he “would have” questioned or struck Ms. Chavez.

  The Supreme Court said that the trial court had abused its discretion in granting a new trial. It therefore ordered the trial court to withdraw its order and render judgment on the verdict.


DRUGS SOLD IN BULK TO DOCTOR DO NOT CREATE TMLA LIABILITY FOR PHARMACY


  Randol Mill Pharmacy, et al. v. Miller, 413 S.W.3d 844 (Tex.App.–Fort Worth 2013). Ms. Miller was diagnosed with hepatitis C. Dr. Tan began administering weekly injections of the antioxidant supplement lipoic acid.

  After nine weeks of these injections, Ms. Miller began an episode of violent nausea and vomiting. She was transported to the hospital where she was treated as an in-patient for several weeks and underwent multiple blood transfusions. As a result of this episode, she was rendered completely blind.

  Ms. Miller and her husband sued Randol Mill Pharmacy and its individual employees claiming that they had manufactured, distributed and sold a defective product – injectable lipoic acid; that they had failed to give Dr. Tan, as a learned intermediary, adequate and proper warning with respect to the risks associated with the use of the lipoic acid; and breached implied warranties in the design, manufacture, inspection, marketing and distribution of lipoic acid because it was not reasonably suited for the purposes and use for which it was intended and was not of merchantable quality.

  The Texas Medical Liability Act requires the plaintiff to file an expert report in a case brought against health care providers. When the Millers did not do this, the pharmacy filed a motion to dismiss, arguing that the case against it was a health care liability claim governed by the Texas Medical Liability Act. The Millers responded that the Texas Medical Liability Act did not govern these facts. The trial court denied the pharmacy’s motion to dismiss.

  The Fort Worth Court of Appeals noted that this was not a case of a pharmacy dispensing or selling a medication directly to an end user or consumer. Rather, under these facts, the pharmacy had sold a bulk volume of lipoic acid to Dr. Tan and he had then dispensed it as he thought appropriate.
The Fort Worth Court decided to affirm the decision of the trial court and ruled that the pharmacy and its employees were not dispensing the drug as contemplated for liability under the Texas Medical Liability Act.

 
 
 

  

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