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LEGAL TRENDS Insurance Policies May Provide Coverage for Punitive Damage Awards in Certain Contexts By Ruth E. Piller In a unanimous but narrow decision, the Texas Supreme Court recently held that the Lone Star State’s public policy does not prohibit insurance coverage of punitive damage awards for gross negligence in the workers’ compensation context. In Fairfield Ins. Co. v. Stephens Martin Paving, L.P., 246 S.W.3d 653 (Tex. 2008), the state’s high court addressed a certified question certified from the Fifth Circuit Court of Appeals: “Does Texas public policy prohibit a liability insurance provider from indemnifying an award for punitive damages imposed on its insured because of gross negligence?” The Texas Supreme Court answered in the negative, noting the state’s general policy in favor of freedom of contract, but limiting its opinion to the workers’ compensation context. Fairfield was brought by the family of an employee who was killed on the job. Fairfield carried the employer’s workers’ compensation and employer’s liability policies. Having collected workers compensation benefits, the employee’s widow and children sued the employer for gross negligence, seeking only punitive damages. The insurer sought declaratory relief in federal court, asserting it had no duty to defend or indemnify the employer because Texas’ public policy precludes insurance indemnification of exemplary damage awards. After the district court denied the insurer’s summary judgment motion, the insurer appealed to the Fifth Circuit, which ultimately sent the certified question to the Texas Supreme Court. The Texas Supreme Court unanimously held that the state’s public policy does not preclude insurance coverage of punitive damages in the workers’ compensation context. The Fairfield opinion reviewed other states’ public policies with regard to insurance coverage of punitive damage awards, determining that 45 states’ highest courts or legislatures have addressed the issue, and that most of those states allow insurance coverage of such awards in at least limited circumstances:
Ruth Piller is a shareholder at Hays, McConn, Rice & Pickering, P.C. She is a former editor in chief of The Houston Lawyer.
The Fifth Circuit Makes it Easier for Defendants By Mark Trachtenberg The Fifth Circuit Court of Appeals, in In reVolkswagen of America, Inc., 2007 WL 3088142 (5th Cir. Oct. 25, 2007), determined that a plaintiff’s choice of forum is not entitled to “an elevated status” in considering a motion to transfer venue under 28 U.S.C. § 1404(a). In so holding, the Fifth Circuit made it significantly easier for defendants to transfer cases out of the Eastern District of Texas, a popular venue for product liability actions. In re Volkswagen arose out of a fatal vehicular accident, in which the plaintiffs’ Volkswagen car was struck from behind and propelled into a flat-bed trailer. Id. at *1. Asserting that the car was defectively designed, the plaintiffs sued Volkswagen in the Marshall Division of the Eastern District of Texas, even though the accident occurred in, and all the witnesses resided in, Dallas. Volkswagen moved for a transfer of venue to the Northern District of Texas, but the trial court denied the motion, finding that Volkswagen had not satisfied its burden of showing that the balance of convenience and justice weighs “substantially” in favor of a transfer. Id. Volkswagen sought mandamus relief in the Fifth Circuit. After initially denying mandamus relief in a 2-1 per curiam decision (over the vigorous dissent of Justice Garza), 223 Fed. App’x 305 (5th Cir. Feb. 13, 2007), the Fifth Circuit granted Volkswagen’s motion for rehearing, withdrew its decision, and then granted Volkswagen’s mandamus petition. After reviewing years of jurisprudence that it admitted “ha[d] not been the model of clarity,” the Fifth Circuit held that a moving party under Section 1404(a) need not show that the balance of convenience and justice “substantially weighs in favor of transfer,” a standard that had been imported improperly from the common law forum non conveniens analysis. In re Volkswagen, 2007 WL 3088142, at **4, 7. Instead, a plaintiff’s choice of forum is simply entitled to “deference,” and can be overcome by a showing of “good cause” by a Section 1404(a) movant. Id. at *7. Such a showing requires only that the movant “demonstrate that a transfer is ‘for the convenience of the parties and witnesses, in the interest of justice,’” a far lesser showing than that required by the district court. Id. at *7 (citing 28 U.S.C. § 1404(a)). “When the transferee forum is no more convenient than the chosen forum, the plaintiff’s choice should not be disturbed. When the transferee forum is clearly more convenient, a transfer should be ordered.” Id. The Fifth Circuit did not give the district court an opportunity to reconsider its order under the proper legal standard because it concluded that the district court also had “abused its discretion by failing meaningfully to analyze and weigh” the public and private interest factors governing Section 1404(a) transfer motions. Id. The district court had reasoned that “advances in copying technology and information storage” minimized any inconvenience arising from the fact that all of the documents and physical evidence relating to the accident was located in Dallas, but the Fifth Circuit explained that while “access to some sources of proof presents a lesser inconvenience now that it might have [before] does not render this factor superfluous.” Id. Likewise, the district court sought to minimize the fact that all non-party witnesses resided outside its automatic subpoena power (within 100 miles of the Marshall Division) based on its ability to deny a motion to quash and compel the witnesses’ attendance, but the Fifth Circuit observed that this rationale did not address concerns regarding the convenience of the parties and witnesses, who would be subject to additional travel time and expense. Id. at **7-8. Finally, the Fifth Circuit rejected the district court’s assertion that the citizens of Marshall had an interest in the case because Volkswagen cars are available in Marshall, because this rationale “could apply to virtually any judicial district and division in the United States.” Id. at *9. Because no relevant factor favored the plaintiffs’ choice of forum, the Fifth Circuit granted Volkswagen’s petition for mandamus and ordered that the case be transferred to the Northern District of Texas, Dallas Division. Id. at *10. Mark Trachtenberg is a partner in the appellate section of Haynes and Boone, LLP in Houston. He serves on the editorial board of The Houston Lawyer.
‘Judicial Petulance’—Abuse of Discretion By Linhuyen Pham Things you wouldn’t know if you didn’t browse around in the back of the Fifth Circuit advance sheet: the form of your signature as an attorney counts. It may count critically. In Culwell v. City of Fort Worth, 468 F.3d 868 (5th Cir. 2006), the Fifth Circuit held that the district court abused its discretion by “unfiling” a party’s motion due to the structure of the signature block. The district court in the Northern District of Texas ordered the “unfiling” as a sanction for violation of the court’s pretrial order, which prohibited pleadings “signed by a law firm.” The plaintiffs had filed a suit against the City of Fort Worth, raising racial discrimination and retaliation claims. The City filed a motion for summary judgment. On the last day of the response period on the summary judgment motion, plaintiffs’ counsel filed a motion for leave to extend time to file his response. Although plaintiffs’ counsel signed the motion, listed his state bar number, and indicated that he was attorney for the plaintiffs, he stated his law firm’s name and address above his signature line. U.S. District Court Judge John H. McBryde later that day “unfiled” plaintiffs’ motion for failure to comply with provision of his scheduling order prohibiting pleadings signed by a law firm. The judge subsequently denied plaintiffs’ second motion to extend time as untimely, and granted summary judgment to the City. The Fifth Circuit held that the district court abused its discretion by unfiling plaintiffs’ first motion to extend time “on the basis of what must appear to the casual observer to be judicial petulance.” The Fifth Circuit stated that “its seems a basic principal of fairness and good judgment that no party should lose a case solely because his lawyer listed the name and address of a law firm above, rather than below, the lawyer’s signature.” The court explained that under Federal Rule of Civil Procedure 16(f), a court may not use dismissal with prejudice as a sanction unless it finds that a lesser sanction would not serve the interests of justice, and there is a clear record of delay or contumacious conduct by a party. The court found that plaintiffs’ counsel’s conduct did not even approach that necessary to warrant such a sanction, and that “the interest of justice would have been better served by accepting the motion and, if necessary, issuing another order clarifying the rule, perhaps directing the plaintiffs to substitute a motion whose form comported with the district judge’s interpretation of his rule.” Linhuyen Pham practices with the Houston firm of Heard & Medack, P.C. She is a member of The Houston Lawyer editorial board. |
