OF POLICY EXCLUDING CLAIMS FROM COVERAGE IS HELD TO BE OF NO
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 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.
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
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
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
CLAIMS OF JUROR MISCONDUCT
DRUGS SOLD IN BULK TO DOCTOR DO NOT CREATE TMLA
LIABILITY FOR PHARMACY
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
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.
COMMUNICATION BETWEEN A JUROR AND A PARTY DOES NOT RESULT IN
In re Health Care Unlimited,
Inc., 57 Tex.Sup.Ct.J. 473. Ms. Valdemar was killed in a car
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 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
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
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.”
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
COURT SEES THROUGH PLAINTIFF’S CLAIMS OF JUROR MISCONDUCT
re Whataburger Restaurants, L.P., 57 Tex.Sup.Ct.J. 468. Mr. Acuna
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
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
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.
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
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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for legal counsel and does not presume to constitute legal opinion.
We urge you to consult legal counsel on specific matters.