STORMS & BUILDINGS

Michael Sean Quinn, Ph.D, J.D., C.P.C.U., Etc.

2630 Exposition Blvd  #115

Austin, Texas 78703

(o) 512-296-2594

(c) 512-656-9759

mquinn@msqlaw.com

(Resumes found at

www.michaelseanquinn.com)

The following hypo is a variation on a case recently half-way decided.  The facts have been simplified, but the main point is set forth, more or less.  This is about first party insurance--property insurance.

The tale begins with an insured owning two buildings A & B.  In the springtime there were two hail storms about two weeks apart, S1 and S2.  Both buildings were pretty badly damaged. 

The owner of the two buildings was insured.  In this tale, there was no issue about coverage.  In theory, at least, all the damages were covered.  The insuring agreement applied and the exclusions did not.  No conditions were said to have been violated.

It had primary coverage for $5M in property damage per occurrence.  In addition, the insured had excess coverage to cover his losses when the primary was exhausted.  The primary carrier was considered to have been exhausted for a given occurrence, when its policy limits were reached for that occurrence.

The insured also had excess property insurance.  As is customary with property insurance, as well as  liability insurance, i.e., 3rd party insurance, the excess insurer has no significant duties to the insured until the policies issued by the primary carrier have been exhausted.  This tale concerns exhaustion; this is true both for the primary carrier and the excess carrier.

The issues revolved around how the two storms--S1 & S2--damaged the two buildings--A & B.  There are several choices: S1 damaged A, and not B.  S1, and only S1,caused damage to both A & B.  S1 was the only cause  of damage to A and caused only part of it to  B.  There are a lot of combinations.  One would expect that the excess would not owe anything until the primary carrier has exhausted its coverage on at least one building, say A.  It would own nothing on the building where the primary had not exhausted its coverage, say B.  That could happen in two ways.  S1 did all the damage so that the primary owed nothing, or S2 did some damages to B, but enough to exhaust the primaries coverage. 

If there was litigation arising out of these facts, as there almost certainly would be, the insured would almost certainly try to prove that S1 and S2 damaged both A and B or at least one of the two, thereby triggering a right to payment from both coverage parts of the primary policy policy.  (Remember that there are separate limits for different occurrences.)

  The primary carrier would try to attribute all causation  of the property damage to both A and B to one of the storms.  It would not matter which one. If this is true, then only one of the primary policy parts regarding occurrences, and only its limits, would be triggered.  If S1 and S2 were both triggered but only one-occurrence part of one policy was exhausted,  then the primary would  have to pay more than the one-occurrence-limits.  The second-occurrence-limit might be exhausted too.

The excess carrier would try to  favor the S1 and S2  view, since that combination would at least suggest that perhaps only one limit would be reached.  The best result would be that S1 and S2 caused property damage to both buildings, assuming that this combination would bring both sets of damages in under $5M.

Of course, both carriers would have to avoid absurd positions and rather unreasonable positions, partly out of fear of being endangered by a plausible bad faith claim brought by the insured, and probably out of a sense of professional honor.  One should keep in mind that from the point of view of the underwriting department of a large insurer, the amount of damages at stake here does not make this  a really large case, if the insured's estimate of damages is reasonable.

In addition, it is not unlikely that there will be an array of experts: construction, physical injury to tangible property, weather, accountants, and so forth.  Probably each participant will have its own experts, and it is likely they will have different opinions and they may emphasize different facts, or--at least--emphasize the same fact difference.  The kind, the level, and the quality of their educations and expertise will also differ.  All of the opinions may conflict with the views of the insured and other witnesses.

(Notice that I just used the phrase "injury to tangible" property.  This is not the standard usage.  Mostly the term "injury" is restricted to bodily injury, while "damage" is restricted to property damage.  This is the way the two phrases are defined and used in standard policies..  The property side of this distinction is especially confusing since "damage[s]'" is the term usually sought in  civil litigation.)

In any case, this is the kind of case which, in civil ligation, is almost never subject to summary judgment, at least generally speaking.  Of course, this is true even if the views of some witnesses are likely false and that of other witnesses likely true.

If there is a problem of lost profits or lost rents, there will also be what used to be (and still often is) called  "business interruption coverage".  If this happens there will be even more experts.  Of course most civil cases are wisely settled, when there is a genuine dispute of facts and reasonable insureds and insurers.

Now, the tale just laid out above is a variation based on United States Fire Insurance Company v.  The Lind Co. v. RSUI Indemnity Company, ___S.W.3d___ (San Antonio, April 25, 2012).  In the Lynn case there were more details; the facts work a little differently; at least one of the expert witnesses was subjected to severe criticism; and it was two different sets of apartment buildings at issue.

Since the decision of the court of appeals, no further legal events appear to have already happened.   The issues before the district court and the appellate court pertained to summary judgments.    One is surprised that the district court granted them, and one is not surprised at all by what the court of  appeals decided or how it reasoned.  If the tale is really similar to the actual case, one would hope that the appellate dispute is over for now.  It is unlikely the the court of appeals will grant rehearing, and if it does the result will probably not change.  Furthermore, it seems virtually certain that the Supreme Court of Texas will not take this case. 

Then again, I'm committed to the philosophies that: (1) One wins some, and loses the rest.  (The only interesting question being:  How large is the "some." )  and (2) Some mistakes are invaluable.  (The only questions  being:  "How many is too many". And, "How does one rate valuable down to--and then stop at--permissible mistakes."

THE "ONE CLIENT VIEW" v. THE "TWO CLIENT VIEW"

Michael Sean Quinn, Ph.D, J.D., C.P.C.U., Etc.

2630 Exposition Blvd  #115

Austin, Texas 78703

(o) 512-296-2594

(c) 512-656-9759

mquinn@msqlaw.com

(Resumes found at

www.michaelseanquinn.com)

THE "ONE CLIENT VIEW" v. THE "TWO CLIENT VIEW"

In the area of liability insurance and the defense lawyer selected by the insurer, there has been a controversy for many years about who all the defense lawyer represents.  Obviously, s/he represents at lease one of the defendants who is insured, or not an insured but who needs to be defended any way,  e.g., because it is in the interest of the insured, not to mention also the insurer, and the insured has consented.  For simplicity, consider the one defendant, who is an insured, template.  (Even if it's not in the interest of the insurer, perhaps it should be done anyway, for a variety reasons, all having to do with the interests of the insured.)

The issue under discussion here is whether a defense counsel represents, as a lawyer, only the insured, or represents both the insured and the insurer  The first of these categories doesn't really have an established name; the second is named the "tripartite relationship," meaning that the lawyer has two clients, the insured and the insurer.  (It it is common in all lawyer and judicial writing to abbreviate all phrases which are used more than once or twice, I shall follow this tradition.  Of course, using that form of abbreviation does not require that only the abbreviation be used after it is introduced.)
 

The literal meaning of "tripartite relationship" is that the lawyer represent at least two parties in the defense of the insured, where the third party is the insurer.  This is a misleading phrase.  There are always at least three parties in any such relationship, and there are more.  This could be called the "At Least Two Client View.  I shall ignore the complications here, and simply talk about the Two Client View" (or TCV).  Similarly, the "One Client View will be abbreviated the "OCV."

As I watch the practice go by, most insurance defense lawyers say that OCV is the correct view.  With a  couple of rare  exceptions, this view is not--and probably cannot--be true.  If there is an attorney-client relationship between any lawyer and any person to whom the lawyer has provided legal advice, then there is an attorney-client relationship between the lawyer (L) and the person receiving the advice, i.e., the client (C). (And it may not be just advice.  Under some circumstances, it may be information about the law, e.g., controversial legal matters, obscure legal matters, etc.-- even legal history under some circumstances. Spelling does not count.)

The point here is that insurance defense provides legal advice to defending liability insurers "all the time."  Often the advice comes in the answers to questions asked by the insurer.

Here are a few examples:

• What are the chances (the probability) that this case can be won?
• Is it advisable to sue for legal fees, given that your C has (and our insured) been sued for       malpractice.
• Is an action for breach of contract and negligence winnable under both causes of action, or only one.
• Is the plaintiff's demand that we settle within policy limits in the interest of the defendant, our insured? 
• Should you resist producing a copy of the policy, and--if so why?  Should you even have it, since your client has lost his own?
• Have we got enough of the whole picture to make a reasonable decision as to settlement, this settlement, making a counter offer, wait for settling until we reach "the court house steps", or just go to trial, and take our chances?
• Have you explained to the insured that if we actually go to trial, and the verdict+judgment comes in over policy limits, it will be responsible for the "overage"?

 As one might expect, this list goes on and on and on and. . . .

How can this not be an attorney-client relationship?  This may happen even if the lawyer representing the insured but not hired by the insur supplies such advice, information, and so forth, to the insurer.  And in what situations is the lawyer obligated to provide the insurer with relevant information or advice? 

Many lawyers hate this situation since they think it creates awkward situations which trigger problems of legal ethics, and--above all--breaches of fiduciary duties owed the the insured, who is L's C's.

Here is the answer.  L should antecedently inform both the insurer and the insured that there will be some joint representations in restricted areas.  L should indicate and explain that the areas of representation--the scope of each representation--is different and for the most part do not overlap.  The defendant C should be explicitly assured that if there is an overlap neither s/he nor the insurer--the other C--will take advantage of that learned from the overlap .  As to the insurer C, it need not be informed repeatedly that the foregoing are the "rules of engagement."

I said there were rare exceptions.  Here is one of them.  The insurer directs defense counsel not to send any reports, not to speak to it again about this case, and include no information about his/her activities about the case.  A rarity indeed.  Here is the second one.  The insured ,who L represents, has forbidden L to make any disclosures to the insurer under any circumstances. S/He has said "I don't give a dog's defication--or a snake defication-- about my duty to cooperate.  It doesn't apply to conflicts of interest, and there is one always in really meaningful cases."

Now, here is the only problem about TCV.  Upon it, L would owe the insured, a C,  fiduciary duties. 
And, of course, it might anyway.