Justices of the Texas Supreme Court
AUSTIN – Texas Supreme Court Justices unanimously agree that Liberty Mutual Insurance can't force Mid-Continent Insurance to pay half of a car crash settlement that Liberty Mutual accepted but Mid-Continent resisted.
Mid-Continent paid $150,000, but Liberty Mutual demanded $750,000.
The Supreme Court settled the dispute at the request of the U. S. Fifth Circuit Court of Appeals, which can now dispose of the case.
Justice Dale Wainwright delivered the opinion, which will shape future arguments in tricky cases where insurers sue each other.
Wainwright found no contract between the insurers for sharing costs and wrote, "…we are not persuaded to create such an obligation under the common law."
Justice Don Willett wrote in a concurring opinion that he saw no reason for courts to prohibit insurers from engaging in sharp negotiations with each other.
Willett wrote, "…insurers are entitled to exercise their business judgment in deciding whether to settle a claim and for how much."
The case started in 1996, with a crash in a construction zone in Liberty County.
Westbound driver Tony Cooper crossed into oncoming traffic and struck the auto of eastbound driver James Boutin.
All members of Boutin's family suffered injuries.
The Boutins sued Cooper, general highway contractor Kinsel Industries, the state of Texas and Crabtree Barricades in Liberty County district court.
Liberty Mutual insured Kinsel under a $1 million comprehensive general liability policy and a $10 million excess liability policy.
Mid-Continent insured Crabtree Barricades under a $1 million comprehensive general liability policy.
Crabtree's policy covered Kinsel for claims arising from Crabtree's work.
Liberty Mutual and Mid-Continent both valued the Boutin claim at $2 to $3 million. They never disputed that each of them owed some portion of the claim against Kinsel.
At first they agreed that Kinsel bore 10 to 15 percent of the liability, for a total around $300,000. They agreed that each would pay the Boutins $150,000.
As the suit advanced, however, Liberty Mutual multiplied Kinsel's share of blame to 60 percent. Liberty Mutual demanded that Mid-Continent increase its contribution.
Mid-Continent would not budge.
In mediation with the Boutins, Liberty Mutual valued their claim at $2.5 million and agreed that Kinsel owed 60 percent of it, or $1.5 million.
Mid-Continent contributed the $150,000 that it had agreed to contribute.
Liberty Mutual paid the balance, $1,350,000. Then it sued Mid-Continent in Dallas County, seeking a greater contribution from Liberty Mutual.
Mid-Continent removed the suit to U. S. District Court in Dallas.
By that time, Mid-Continent had paid the Boutins $300,000 to settle their claim against Crabtree Barricades.
Mid-Continent's $150,000 payment for Kinsel and its $300,000 payment for Crabtree sliced Crabtree's $1 million policy to $550,000.
At a bench trial U. S. District Judge Ed Kinkeade found that Mid-Continent acted unreasonably in resisting the settlement.
Kinkeade held Mid-Continent liable for half the settlement, or $750,000.
Although Mid-Continent needed $600,000 to close the gap, Kinkeade held that the insurer should not pay more than the policy limit. He ordered a $550,000 payment.
Mid-Continent appealed, and the Fifth Circuit asked the Texas Supreme Court for guidance.
The insurers submitted their arguments in October 2005. It took the Justices two years to decide the case.
The Justices found no direct duty of reimbursement between the insurers. They rejected an argument that Kinsel possessed a right to recovery.
Wainwright wrote, "Kinsel has no right, after being fully indemnified, to enforce Mid-Continent's duty to pay its pro rata share of a loss."
Willett wrote, "Mid-Continent did not deny coverage or sit idly on the sidelines; it participated in the defense but disputed Liberty Mutual's subjective assessment of what the case was worth."
He wrote, "I see no basis for concluding that Mid-Continent, by taking a hard line in negotiations, breached a duty to Kinsel."
He wrote, "Kinsel purchased insurance and got what it paid for, a legal defense of the claim against it and a settlement within policy limits."
He wrote that Liberty Mutual's suit would have required a jury to decide what the reluctant insurer should have paid.
He called that "an almost impossibly complex challenge."