Texas high court tackles question of seller indemnity

Steve Korris Sep. 2, 2010, 4:21am


AUSTIN – Former Montgomery County District Judge Suzanne Stovall can enjoy retirement more fully now that the Supreme Court of Texas has ruled she ran a flawless trial in a weird case with four defendants and no plaintiff.

The justices rendered judgment of $2,967,323.96 to wall installation contractor Fresh Coat Inc. on Aug. 20, restoring a jury verdict Stovall entered in 2006.

Ninth District appeals judges in Beaumont had trimmed it to $1,763,328.46.

Supreme Court justices didn't just vindicate Stovall, they nailed down definitions of two vital words of commerce: product and seller.

Justice Don Willett wrote that "a person who contracts to both provide and install a single product may be considered a seller of that product."

In Texas, manufacturers must indemnify sellers against product liability claims.

Stovall's jury decided synthetic stucco maker Finestone must insure Fresh Coat because Fresh Coat sold a Finestone product.

Fresh Coat purchased from Finestone components of an "exterior insulation and finishing system," and installed it on homes.

About 100 homeowners sued Finestone, Fresh Coat, home builder Life Forms and Griesenbeck Architectural Services over leaking walls.

The plaintiffs claimed property damage from rot, mold and termites, and some claimed personal injuries.

Fresh Coat, Life Forms and Griesenbeck sought indemnity against Finestone. Life Forms also sought indemnity against Fresh Coat.

All four defendants settled with the homeowners.

Fresh Coat paid homeowners about $1 million, and about $1.2 million in a settlement with Life Forms.

Having spent about $2.2 million on settlements and about $800,000 on legal fees, Fresh Coat aimed to recover every penny from Finestone at trial.

Judge Stovall classified Fresh Coat as a seller for Finestone.

Her jury instruction quoted the only possible exception to Finestone's automatic indemnification. She told jurors to exclude from their calculations any loss Fresh Coat caused through its own negligence or misconduct.

Jurors found no fault with Fresh Coat.

They awarded damages to Fresh Coat, Life Forms and Griesenbeck, and Stovall entered judgment on the verdict.

Finestone appealed to the Ninth District and settled with Life Forms and Griesenbeck, leaving Fresh Coat as its last adversary.

Ninth District judges decided Fresh Coat could recover payments to homeowners and legal fees from Finestone but could not recover its payment to Life Forms.

Justice David Gaultney wrote that Stovall stretched the limits of law to include agreements to which a manufacturer is not a party.

"Finestone did not contractually agree, for example, to indemnify Life Forms for Life Forms's own negligence; that is an obligation Fresh Coat assumed by contract," he wrote.

Neither side got the result it wanted, so both appealed to the Texas Supreme Court.

Finestone argued that a finished wall was a product but synthetic stucco wasn't.

It defined Fresh Coat as a service provider, not a product seller because it bought Finestone products as components and didn't resell them.

Fresh Coat argued it was both, and the justices agreed that installation services did not preclude it from also being a seller.

Willett wrote that Fresh Coat installed synthetic stucco according to Finestone instructions, and Finestone trained and certified Fresh Coat personnel.

"The court of appeals focused solely on Fresh Coat's independent liability, and did not find the reason for that liability relevant," he wrote.

Finestone didn't prove Fresh Coat caused a loss by act or omission, Willett wrote.

Stovall instructed jurors properly, he wrote, and jurors didn't apply the exception she quoted.

Robert Bateman and Kevin Jewell represented Fresh Coat.

Lucy Forbes and Thomas Wright represented Finestone.

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