Texas Insurance Coverage Litigation: The Litigator's Practice Guide

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Practice guide for Texas litigators handling the occasional insurance coverage lawsuit or confronting insurance questions in the context of a litigation practice.

Texas Insurance Coverage Litigation is a practice guide for Texas litigators who are handling insurance coverage lawsuits or who are confronted with insurance questions in a litigation context. It includes legal analysis, practical tips, forms, and annotations specific to Texas and Fifth Circuit practice.

Part I considers third-party liability insurance and focuses on the coverage and features of these types of policies: commercial general liability, professional liability, directors and officers liability, employment practice, fiduciary liability, cyber and privacy liability, and excess and umbrella.

Part II is an overview of key concepts that apply to insurance coverage lawsuits governed by Texas law, including the rules of construction and the obligations of both the insurer and the insured.

Part III examines all aspects of an insurance coverage lawsuit, including pre-litigation matters, pleadings and discovery, trial considerations, and post-trial proceedings.

Additional Information
SKU TXINS20
Division Name Texas Lawyer
Volumes 0
Product Types Books
Brand Texas Lawyer
Publication Date September 30, 2019
Jurisdiction Texas
ISBN 978-1-62881-667-9
Page Count 630
Edition 2020
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You're reviewing:Texas Insurance Coverage Litigation: The Litigator's Practice Guide
Amy Elizabeth Stewart
 Amy Elizabeth Stewart is the founder and managing principal of Amy Stewart Law, a boutique law firm in Dallas that assists corporate policyholders with strategic advice relating to prelitigation claim negotiations and coverage denials, indemnity and insurance provisions in third-party contracts, insurance rocurement and renewal issues, and complex and high-stakes insurance coverage and bad faith litigation.

   Amy’s enthusiasm for insurance can only be described as infectious. For most people, insurance is a necessary evil—a buffer against a rising tide of risk. For Amy, the insurance disputes that inevitably arise present an opportunity to position clients for success.

   Having spent many years representing insurance companies, Amy has unique insight that makes her an invaluable resource for policyholders facing an insurance dispute or negotiating a new policy. Although insurance policies are filled with complex insurance terminology seemingly designed to confuse and obscure, Amy is fluent in insurance-speak. She provides clients with plain-English translations and ensures they understand their policies. A tenacious advocate, Amy has achieved outstanding results in complicated, high-stakes cases through diligent preparation and a meticulous attention to detail.

   Amy Stewart Law represents a wide range of corporate policyholders in Texas and across the country, from Fortune 100 corporations and large privately-held companies to family-owned businesses, colleges, and professional services firms. A Virginia native and graduate of the University of Virginia School of Law, Amy was named to the Texas Super Lawyers list of the Top 50 Women Lawyers in Texas and holds an AV rating by Martindale-Hubbell. In 2013, she was elected to the American College of Coverage and Extracontractual Counsel.

Amy has also been included on D Magazine’s list of the Best Lawyers in Dallas, the Dallas Business Journal’s 2011 list of the Top 25 Women in Business, and was selected by Dallas Women Lawyers Association as the recipient of the Outstanding Female Lawyer – Small Firm Award in 2017. Amy is actively involved as a sustaining member of Attorneys Serving the Community, a Dallas legal philanthropic
organization. In 2016, she completed Leadership Dallas, the Dallas Regional Chamber’s flagship leadership development program, aimed at providing the city with an ongoing source of diverse leaders who are committed to serving as catalysts for positive change in the Dallas area.

Table of Contents

Part I   Liability Insurance Policies....................... 1

Chapter 1:  Navigating the Insurance Policy.................................................................. 3

1-1       INTRODUCTION...................................................................................................... 3

1-2       POLICY DECLARATIONS..................................................................................... 4

1-3       PACKAGE POLICIES.............................................................................................. 6

1-4       THE POLICY FORM................................................................................................ 7

1-4:1       Insuring Agreements................................................................................ 8

1-4:2       Exclusions.................................................................................................. 9

1-4:3       Definitions............................................................................................... 10

1-4:4       Conditions............................................................................................... 11

1-5       ENDORSEMENTS.................................................................................................. 12

1-6       SCHEDULES........................................................................................................... 13

Chapter 2: Commercial General Liability................................................................... 15

2-1       INTRODUCTION................................................................................................... 15

2-2       RISKS INSURED.................................................................................................... 16

2-3       INSURING AGREEMENTS................................................................................. 19

2-3:1       Coverage A—Bodily Injury and Property Damage........................ 19

2-3:1.1       Bodily Injury...................................................................... 20

2-3:1.2       Property Damage............................................................... 20

2-3:1.3       “Accident” Requirement ................................................. 22

2-3:1.4       Fortuity................................................................................ 24

2-3:1.5       “Legally Obligated to Pay”.............................................. 25

2-3:2       Coverage B—Personal Injury and Advertising Injury.................... 25

2-3:3       Coverage C—Medical Payments........................................................ 26

2-4       INSUREDS............................................................................................................... 27

2-4:1       Named Insured....................................................................................... 27

2-4:2       Other Insureds......................................................................................... 28

2-4:2.1       Additional Insureds........................................................... 28

2-4:2.2       Statutory Limitations on Additional
Insured Coverage................................................................................... 31

2-4:2.3       Contractual Limitations on Additional
Insured Coverage................................................................................... 32

2-4:2.4       Newly Acquired Corporations......................................... 36

2-5       OCCURRENCE V. CLAIMS-MADE POLICIES.............................................. 36

2-5:1       Occurrence-Based Coverage................................................................ 36

2-5:2       Claims-Made Coverage........................................................................ 37

2-6       COVERAGE TRIGGERS AND LONG-TAIL CLAIMS................................... 39

2-7       common EXCLUSIONS.................................................................................... 43

2-7:1       Coverage A—Bodily Injury and Property Damage........................ 43

2-7:1.1       Intentional-Injury Exclusion........................................... 43

2-7:1.2       Contractual-Liability Exclusion...................................... 43

2-7:1.3       Business-Risk Exclusions................................................. 45

2-7:2       Coverage B—Personal and Advertising Injury................................ 47

2-7:2.1       Knowing-Violation-of-Rights-of-Another Exclusion....... ........ 47

2-7:2.2       Knowledge-of-Falsity Exclusion..................................... 48

2-7:2.3       Prior-Publication Exclusion.............................................. 48

2-7:3       Coverage C—Medical Payments........................................................ 49

2-8       OTHER INSURANCE............................................................................................ 49

2-9       DAMAGE DURING MULTIPLE POLICY PERIODS..................................... 52

2-10     LIMITS..................................................................................................................... 55

2-11     SEVERABILITY CLAUSE................................................................................... 56

2-12     ALLOCATION........................................................................................................ 57

Chapter 3 : Professional Liability: Errors and Omissions....................................... 61

3-1       INTRODUCTION................................................................................................... 61

3-2       RISKS INSURED.................................................................................................... 62

3-3       INSURING AGREEMENT.................................................................................... 63

3-4       INSUREDS .............................................................................................................. 66

3-5       CLAIMS-MADE COVERAGE............................................................................. 66

3-5:1       Retroactive Date.................................................................................... 68

3-5:2       Extended Reporting Period and Tail Coverage ............................... 68

3-6       COMMON EXCLUSIONS.................................................................................... 69

3-6:1       Crime/Fraud Exclusion ........................................................................ 69

3-6:2       Known Claims or Circumstances ....................................................... 70

3-6:3       Personal-Profit Exclusion...................................................................... 71

3-7       INSURABILITY OF PUNITIVE OR EXEMPLARY DAMAGES.................. 72

3-8       INSURED’S CONSENT TO SETTLE.................................................................. 75

Chapter 4: Directors and Officers Liability................................................................ 77

4-1       INTRODUCTION................................................................................................... 77

4-2       RISKS INSURED.................................................................................................... 77

4-3       INSURING AGREEMENTS................................................................................. 78

4-3:1       Individual D&O Coverage—Coverage A.......................................... 79

4-3:2       Corporate Reimbursement Coverage—Coverage B....................... 81

4-3:3       Entity Coverage—Coverage C............................................................ 82

4-3:4       Outside-Director Liability Coverage................................................... 83

4-4       CLAIMS-MADE COVERAGE............................................................................. 84

4-4:1       Notice of Potential Claims.................................................................... 84

4-4:2       Retroactive Date—Prior Acts Coverage............................................ 85

4-4:3       Pending or Prior Litigation—Prior Notice........................................... 86

4-5       DEFINITION OF “CLAIM”.................................................................................. 88

4-6       INSURED CAPACITY........................................................................................... 93

4-7       COVERED LOSS.................................................................................................... 94

4-8       COMMON EXCLUSIONS.................................................................................... 96

4-8:1       Intentional Fraud and Dishonesty...................................................... 96

4-8:2       Personal Profit......................................................................................... 97

4-8:3       Claims Brought by Insureds................................................................. 98

4-8:4       Breach of Contract................................................................................ 99

4-9       OTHER KEY POLICY PROVISIONS.............................................................. 100

4-9:1       Severability .......................................................................................... 100

4-9:2       Presumptive Indemnification............................................................ 104

4-9:3       Apportionment or Allocation............................................................. 105

4-9:4       Recoupment of Defense Costs.......................................................... 108

Chapter 5: Employment Practices Liability.............................................................. 109

5-1       INTRODUCTION................................................................................................. 109

5-2       RISKS INSURED.................................................................................................. 109

5-3       INSURING AGREEMENT................................................................................. 110

5-4       WRONGFUL ACTS.............................................................................................. 111

5-5       COVERED “LOSS”.............................................................................................. 113

5-6       COMMON EXCLUSIONS.................................................................................. 114

Chapter 6: Fiduciary Liability...................................................................................... 115

6-1       INTRODUCTION................................................................................................. 115

6-2       RISKS INSURED.................................................................................................. 115

6-3       INSURING AGREEMENT................................................................................. 116

6-3:1       Definition of Wrongful Act................................................................ 116

6-3:2       ERISA Roles and Responsibilities.................................................... 117

6-3:2.1       Plan Fiduciaries................................................................ 117

6-3:2.2       Plan Sponsors................................................................... 118

6-3:2.3       Plan Administrators......................................................... 118

6-3:3       Not Wrongful Acts............................................................................... 119

6-4       WHO IS INSURED............................................................................................... 122

6-5       COVERED LOSS.................................................................................................. 122

6-6       COMMON EXCLUSIONS.................................................................................. 123

Chapter 7: Cyber and Privacy Liability..................................................................... 125

7-1       INTRODUCTION................................................................................................. 125

7-2       THE RISKS............................................................................................................ 125

7-3       LIMITATIONS OF CONVENTIONAL COVERAGE.................................... 127

7-3:1       CGL Coverage...................................................................................... 128

7-3:2       Other Conventional Policies............................................................... 130

7-4       BASIC CONCEPTS.............................................................................................. 132

7-5       INSURING AGREEMENTS............................................................................... 133

7-5:1       Cyber Liability...................................................................................... 133

7-5:2       Media Content Liability..................................................................... 136

7-5:3       Event Management............................................................................. 138

7-5:4       E-Crime.................................................................................................. 140

7-5:5       Network Interruption........................................................................... 143

7-5:6       E-Vandalism......................................................................................... 145

7-5:7       Cyber Extortion.................................................................................... 145

7-6       COMMON EXCLUSIONS.................................................................................. 146

7-7       CYBER POLICY INTERPRETATION............................................................ 148

Chapter 8: Excess and Umbrella Policies................................................................... 151

8-1       INTRODUCTION................................................................................................. 151

8-2       EXCESS LIABILITY COVERAGE.................................................................. 151

8-2:1       True Excess Policies............................................................................. 151

8-2:2       Umbrella Policies.................................................................................. 152

8-3       SCHEDULE OF UNDERLYING INSURANCE.............................................. 153

8-4       PRIORITY OF INSURANCE............................................................................. 153

8-5       EXCESS CARRIER’S DUTY TO DEFEND..................................................... 156

8-6       EXCESS CARRIER’S DUTY TO SETTLE...................................................... 157

8-7       PRIMARY INSURER INSOLVENCY.............................................................. 159

8-8       NOTICE.................................................................................................................. 160

Part II Texas Insurance Law—Key Concepts. 161

Chapter 9: The Ground Rules—Construction of Insurance Contracts............... 163

9-1       RULES OF CONTRACT CONSTRUCTION................................................... 163

9-2       AMBIGUITY......................................................................................................... 165

Chapter 10 : The Insured’s Obligations in Event of a Claim................................. 169

10-1     NOTICE TO INSURER—REPORTING........................................................... 169

10-2     NOTICE OF POTENTIAL CLAIMS................................................................. 172

10-3     LATE NOTICE AND PREJUDICE REQUIREMENT................................... 174

10-3:1     Occurrence-Based Policies................................................................. 174

10-3:2     Claims-Made Policies.......................................................................... 175

10-4     TENDER OF THE DEFENSE............................................................................. 177

10-5     COOPERATION................................................................................................... 178

10-5:1     The Cooperation Clause..................................................................... 178

10-5:2     Prejudice................................................................................................ 180

Chapter 11: The Insurer’s Obligations in Event of a Claim.................................. 185

11-1     INTRODUCTION................................................................................................. 185

11-2     THE DUTY TO DEFEND.................................................................................... 186

11-2:1     Eight-Corners Rule............................................................................... 187

11-2:1.1     No Extrinsic Evidence..................................................... 188

11-2:1.2     Doubts Resolved in Favor of Duty............................... 188

11-2:1.3     Focus Is on Facts Alleged............................................... 190

11-2:2     Possible Exception to Eight-Corners Rule?..................................... 192

11-2:2.1     GuideOne.......................................................................... 193

11-2:2.2     Graham.............................................................................. 196

11-2:2.3     More Relevant Cases...................................................... 197

11-2:3     Duty to Defend Entire Case............................................................... 199

11-2:4     Reservation of Rights.......................................................................... 202

11-2:5     Conflicts of Interest and Control of the Defense........................... 203

11-2:6     Duty to Defend vs. Duty to Pay........................................................ 206

11-3     DUTY TO INDEMNIFY...................................................................................... 206

11-4     TEXAS INSURANCE CODE.............................................................................. 208

11-4:1     Unfair and Deceptive Acts or Practices........................................... 208

11-4:1.1     Section 541.051............................................................... 208

11-4:1.2     Section 541.060............................................................... 210

11-4:1.3     Section 541.061............................................................... 212

11-4:2     Prompt Payment of Claims Act........................................................ 213

11-5     THE STOWERS DUTY........................................................................................ 216

Part III The Insurance Coverage Lawsuit....... 219

Chapter 12: Pre-Litigation Considerations............................................................... 221

12-1     INTRODUCTION................................................................................................. 221

12-2     THE INITIAL ASSESSMENT........................................................................... 221

12-3     EARLY RESOLUTION STRATEGIES............................................................ 224

12-3:1     Confer With Opposing Counsel......................................................... 224

12-3:2     Settlement Conference or Mediation............................................... 225

12-3:3     Demand Letter..................................................................................... 226

12-4     PRESENTMENT REQUIREMENTS AND DEMAND LETTERS............... 226

12-4:1     Presentment of Contract Claim........................................................ 227

12-4:2     Statutory Pre-Suit Notice—DTPA..................................................... 229

12-4:3     Statutory Pre-Suit Notice—Insurance Code................................... 230

12-4:4     Strategic Considerations..................................................................... 233

12-5     MANDATORY ALTERNATIVE DISPUTE RESOLUTION........................ 233

12-5:1     ADR Provisions.................................................................................... 233

12-5:2     Mediation Under the DTPA............................................................... 236

12-5:3     Mediation Under the Texas Insurance Code.................................. 236

12-6     STATUTES OF LIMITATIONS......................................................................... 237

Chapter 13: The Lawsuit—Procedural Considerations......................................... 239

13-1     INTRODUCTION................................................................................................. 239

13-2     JURISDICTION AND FORUM SELECTION................................................. 239

13-2:1     Forum-Selection Clauses.................................................................... 240

13-2:2     State Court Jurisdiction....................................................................... 241

13-2:3     Federal Court Jurisdiction—Diversity of Citizenship.................... 242

13-2:4     Removal................................................................................................ 243

13-2:5     Joinder.................................................................................................... 244

13-3     CHOICE OF LAW................................................................................................ 247

13-4     VENUE................................................................................................................... 250

13-4:1     Venue-Selection Clauses.................................................................... 250

13-4:2     Statutory Venue—Texas State Court.............................................. 251

13-4:3     Federal Court Venue........................................................................... 253

Chapter 14: The Pleadings—Petition and Answer................................................... 257

14-1     DECLARATORY JUDGMENT ACTIONS...................................................... 257

14-1:1     Statutory Authority............................................................................. 259

14-1:2     Federal Court Abstention................................................................... 260

14-1:3     Case or Controversy Requirement................................................... 261

14-1:4     Common Issues................................................................................... 262

14-1:5     Available Relief.................................................................................... 264

14-1:6     Advantages and Disadvantages....................................................... 264

14-2     BREACH OF CONTRACT................................................................................. 265

14-2:1     Elements................................................................................................ 265

14-2:1.1     Duty to Defend................................................................ 265

14-2:1.2     Duty to Indemnify.......................................................... 269

14-2:2     Remedies............................................................................................... 270

14-2:2.1     Duty to Defend................................................................ 270

14-2:2.2     Duty to Indemnify.......................................................... 274

14-3     INSURANCE CODE VIOLATIONS................................................................. 275

14-3:1     Menchaca’s Rules for Extra-Contractual Claims.......................... 276

14-4     DECEPTIVE TRADE PRACTICES.................................................................. 281

14-5     FAILURE TO SETTLE—STOWERS................................................................. 284

14-6     PROMPT PAYMENT OF CLAIMS................................................................... 285

14-7     OTHER PLEADING CONSIDERATIONS...................................................... 286

14-7:1     Notice..................................................................................................... 286

14-7:2     Conditions Precedent.......................................................................... 287

14-8     DEFENSES............................................................................................................. 287

14-8:1     Lack of Notice...................................................................................... 287

14-8:2     Failure to Perform Conditions Precedent......................................... 288

14-8:3     Waiver and Estoppel........................................................................... 288

14-8:4     Exceptions to General Liability Coverage....................................... 290

14-8:5     Ambiguity.............................................................................................. 291

14-8:6     Fraud as a Defense.............................................................................. 291

14-8:7     Mistake and Reformation.................................................................. 291

14-8:8     Policy Procurement Defenses and Rescission................................. 292

14-8:9     Fortuity.................................................................................................. 295

Chapter 15 : Litigation Planning................................................................................... 297

15-1     TAKING INVENTORY....................................................................................... 297

15-2     SCHEDULING ORDERS.................................................................................... 298

15-3     BIFURCATION AND SEVERANCE................................................................ 299

Chapter 16 : Fact Discovery........................................................................................... 303

16-1     DISCOVERY PLANNING.................................................................................. 303

16-1:1     Initial Investigation............................................................................. 303

16-1:2     Outline of Claim Elements................................................................. 304

16-1:3     Phased Discovery and Strategic Considerations ........................... 304

16-2     SCOPE OF DISCOVERY.................................................................................... 308

16-3     Formal Written Discovery................................................................................... 310

16-3:1     Written Disclosures.............................................................................. 310

16-3:2     Interrogatories...................................................................................... 311

16-3:3     Requests for Admission...................................................................... 313

16-3:4     Requests for Production..................................................................... 314

16-4     E-DISCOVERY..................................................................................................... 315

16-4:1     The E-Discovery Rules........................................................................ 315

16-4:2     The E-Discovery Process.................................................................... 319

16-4:3     Litigation Support Vendors................................................................ 322

16-4:4     Predictive Coding................................................................................. 322

16-5     PRIVILEGE ISSUES............................................................................................ 322

16-5:1     Disclosure to the Insurer..................................................................... 323

16-5:1.1     Conflicting Interests........................................................ 323

16-5:1.2     Waiver and the “Advice-of-Counsel” Defense.......... 325

16-6     CONFIDENTIALITY AGREEMENTS AND PROTECTIVE ORDERS..... 328

16-7     EXPERT WITNESSES......................................................................................... 328

16-8     DEPOSITIONS...................................................................................................... 329

16-8:1     Taking Depositions.............................................................................. 329

16-8:1.1     Preparation Is Key........................................................... 329

16-8:1.2     To Video or Not to Video?............................................. 331

16-8:2     Defending Depositions........................................................................ 331

16-8:2.1     Avoid “Insurance-ese”................................................... 332

16-8:2.2     Clarify Confusing Questions......................................... 332

16-8:2.3     Review Exhibits............................................................... 332

16-8:2.4     Avoid Waiving Privilege Issues..................................... 332

16-8:2.5     Avoid Negative Visual Cues.......................................... 333

16-8:2.6     Stay Focused.................................................................... 333

Chapter 17: Alternative Dispute Resolution.............................................................. 335

17-1     INTRODUCTION................................................................................................. 335

17-2     ARBITRATION.................................................................................................... 335

17-3     JURY WAIVERS.................................................................................................. 339

17-4     SUMMARY JURY TRIAL.................................................................................. 340

Chapter 18: Pretrial Considerations........................................................................... 343

18-1     INTRODUCTION................................................................................................. 343

18-2     PRETRIAL JURY RESEARCH ........................................................................ 343

18-2:1     Jury Research Tools............................................................................ 344

18-2:2     Timing ................................................................................................... 344

18-2:3     Preparation............................................................................................ 345

18-2:4     Jury Consultants.................................................................................. 346

18-3     DEMONSTRATIVE AIDS.................................................................................. 347

18-4     MOTION IN LIMINE............................................................................................ 348

18-5     DESIGNATION OF EXHIBITS......................................................................... 350

18-6     USE OF TRIAL BRIEFS..................................................................................... 350

Chapter 19: Jury Selection and Trial.......................................................................... 351

19-1     JURY SELECTION.............................................................................................. 351

19-1:1     Considerations for Voir Dire............................................................. 351

19-1:2     Jury Questionnaire............................................................................... 353

19-2     EVIDENCE—STRATEGIC CONSIDERATIONS ........................................ 355

19-3     WITNESS PREPARATION................................................................................ 356

19-4     BURDENS OF PROOF......................................................................................... 357

Chapter 20: Appellate Issues.......................................................................................... 361

20-1     INTRODUCTION................................................................................................. 361

20-2     DEADLINES.......................................................................................................... 361

20-2:1     Texas Procedure................................................................................... 361

20-2:2     Federal Procedure................................................................................ 364

20-3     PERMISSIVE INTERLOCUTORY APPEALS............................................... 366

20-4     CERTIFIED QUESTIONS.................................................................................. 369

20-5     BRIEFS OF AMICUS CURIAE......................................................................... 374

20-5:1     Texas Procedure .................................................................................. 374

20-5:2     Federal Procedure................................................................................ 375

Appendix A: Glossary...................................................................................................... 377

Appendix B: Texas Insurance Code, Chapters 541 and 542.................................. 391

Appendix C: Forms.......................................................................................................... 473

Table of Cases................................................................................................................... 575

Index.................................................................................................................................... 595

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