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Insurance Considerations in Tort Cases: Common Pitfalls

Mon, 04/24/2017 - 09:25 -- admin25

by Michelle Hartmann, David Sillers, and Tiffanie N. Limbrick

In tort suits, especially those involving multiple parties with indemnity and cross-indemnity obligations, it is important for counsel to understand—at the outset of the matter—the coverage that a client may have.  Choices made at the beginning of a case can be critical to the eventual outcome—and who pays for it. To avoid some common pitfalls when handling your next tort suit, bear the following in mind:

Know Your Client’s Insurance Tower. Although not a pitfall per se, it is important to have an understanding of your client’s insurance tower—including the levels of liability insurance and what each level covers. Knowing these facts at the beginning of a case can guide case strategy and how to approach both offers of settlement and settlement. For example, your client may be motivated to settle below a particular dollar amount so that it stays within a particular level in its insurance tower. And, particularly when the case involves a Stowers demand from the opposing side, it is important to keep insurers from all relevant tower levels involved in early offers of settlement.

Multi-Defendant Suits: Right to Indemnification vs. the Duty to Defend. In the typical multi-defendant tort suit, your client may find itself with a duty to indemnify other parties involved, as well as a duty to defend those parties. Those duties are separate under Texas law.

  • The duty to defend is a contractual right that often includes the authority to select the attorney who will defend the claim and to make other decisions that would normally be vested in the insured as the named party in the case.
  • The duty to indemnify arises at the end of the suit after liability is actually established. The courts have held there is no justiciable controversy regarding the insurer’s duty to indemnify before a judgment has been rendered against an insured.
  • One pitfall to keep in mind is the potential for a conflict of interest between the insurer and insured if the insurer reserves the right to deny the indemnity claim. If the facts used to potentially dispute coverage are the same as in the underlying lawsuit, a conflict may exist and the insurer may have more limited rights in terms of guiding the defense or selecting counsel.

Anti-Indemnity Statutes. Whether in the role of indemnitor or indemnitee, it is important to know whether an anti-indemnity statute applies that may limit whether there is a duty to indemnify. For example, the Texas Oilfield Anti-Indemnity Act prohibits indemnification of a negligent indemnitee, with only very specific exceptions. When analyzing indemnification obligations in any field of the law, it is sensible to check for requirements to enforce indemnification agreements under applicable anti-indemnity laws. Also be mindful of complex conflicts of laws issues that may arise if different states’ laws are implicated.

Workers’ Compensation Insurance. If there is a physical injury involved, you may have to consider multiple sources of insurance, including workers’ compensation insurance and liability insurance. Consider whether value can be created for your client by understanding that, in some situations, a workers’ compensation claimant may be willing to adjust his or her demands based on whether the settlement will also affect current or future credit for workers’ compensation benefits. Depending on who funds and/or insures the policies (particularly in the instance of an entity which is self-insured), additional coverage and/or leverage may be discovered.

Settlement: Understanding the Stowers Duty. In G.A. Stowers Furniture Co. v. American Indemnity Co., when faced with a set of particularly egregious facts, the Texas Supreme held that insurers are subject to a duty to accept reasonable offers within policy limits. If an insurer violates the duty, you may be able to seek damages for the judgment separate from the contract and in excess of the insurance coverage. A settlement offer typically triggers this duty when (1) the claims are within the scope of coverage, (2) the demand is within policy limits, and (3) the terms of the demand are such that an ordinarily prudent insurer would accept it, considering the likelihood and degree of the insured's potential exposure to an excess judgment. When presented with such a settlement offer, make sure it fully and completely releases the insured and any indemnitees, including the satisfaction of any outstanding liens or obligations.

Michelle Hartmann is a Partner at Sidley Austin LLP and can be reached at David Sillers and Tiffanie N. Limbrick are Associates at Sidley Austin LLP and can be reached at and, respectively. 

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