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For the past decade, business interests and tort reform advocates have been satisfied with their fate at the conservative, all-Republican Texas Supreme Court, where corporate defendants often prevail. But that was before the court decided Frank’s Casing. Now, as the court weighs whether to rehear the case, a flurry of amicus briefs have been filed, pleading with the court to change its mind. The most recent — filed on Oct. 6 by a tort reform group — accuses the court of abandoning the doctrine of stare decisis. The battle over the 7-0 decision in Excess Underwriters at Lloyd’s, London, et al. v. Frank’s Casing Crew & Rental Tools Inc., handed down on May 27, pits two groups normally on the same side of civil litigation — business interests and insurance companies — against each other. Forced to choose between business interests and the insurance industry, the court sided with the insurance industry, holding that, in certain circumstances, excess insurance carriers that dispute coverage but that settled third-party claims against their insured can recoup the settlement payments from their insured. In other words, a settling insurance company can go after the policyholder for part of the settlement. The decision is an about face from a ruling the court made five years earlier in Texas Association of Counties County Government Risk Management Pool v. Matagorda County, et al. In 2000, the Matagorda County court ruled 7-2 that, when an insurer disputes coverage, the insurer cannot seek reimbursement from its insured for paying a settlement, unless the insured expressly agreed to the settlement and to the insurer’s right to seek reimbursement. But in Frank’s Casing, the court held that Matagorda County does not foreclose reimbursement to the excess insurance carriers that disputed coverage for third-party claims against Frank’s Casing over a collapsed drilling platform. Business-side defense lawyers think the high court threw the insurance industry a big bone with Frank’s Casing. But insurance industry lawyers say the decision just makes sense — policyholders shouldn’t be able to take advantage of coverage for which they didn’t pay. Ultimately, Frank’s Casing could put business policyholders on the hook for billions of dollars in uncovered settlement costs. “It’s just a fact of life from day one in a big commercial case, the insurance company is going to be looking to its insured and say, ‘Well, what are you going to put in [to the settlement]?’” says Patrick Wielinski, a partner in the Arlington, Texas, office of Cokinos, Bosien & Young who filed an amicus brief on behalf of Houston-based Shell Oil Co. “That’s the real world under Frank’s Casing.” HIGH STAKES With so much money at stake, the decision has created a furor in the business world. Lawyers representing Frank’s Casing filed a motion for rehearing on June 30, arguing that the decision injects unpredictability into insurance laws. Then, heavy-hitter business and advocacy groups also started filing amicus briefs asking the court to reconsider its ruling. Several insurance lawyers watching the case believe the high court will seriously consider the amicus briefs, which may point out problems with the decision that the court had not previously considered. The most basic argument comes in the United Policyholders’ amicus brief. United Policyholders, a California-based nonprofit association of insurance consumers, filed an amicus brief on July 8 arguing that an insurance policy by definition transfers financial risk from one party to another. It believes, in Frank’s Casing, the insurance company — Excess Underwriters — created a reimbursement right that was not contained in the insurance policy, a claimed “right” against which the policyholder — Frank’s Casing — had no ability to protect itself. In its Sept. 19 amicus brief, Shell argues that Frank’s Casing will make settlement negotiations a nightmare for policyholders, because insurance companies will be tempted to pay large settlements to plaintiffs with the intent of recouping losses later from policyholders. But the most stinging amicus brief was written by the Austin-based Texas Civil Justice League. TCJL is a business-backed, tort reform group formed in 1986 to fight laws passed by the Texas Legislature and decisions by Texas courts that it believed created an unbalanced, unfair and unpredictable dispute resolution system. TCJL claims the Frank’s Casing court ignored the tenet of stare decisis for no good reason. “The court’s decision in [ Frank's Casing] strays from faithfulness to precedent and, in so doing, strays from one of the cornerstones of a fair and efficient civil justice system, to the detriment of all Texans,” the TCJL writes in its Oct. 6 amicus brief. “We have the greatest respect for the Texas Supreme Court,” says Jay Stewart, managing partner of the Austin office of Hance Scarborough Wright Woodward & Weisbart, who represents TCJL. “I just think that this case slipped through, somehow, the normal analysis.” Although the court has not ruled on whether to rehear Frank’s Casing, the amici believe their briefs have attracted the court’s attention. “We hope that it conveys to the court the level of concern in the business and consumer community that this decision has caused,” says John N. Ellison, a partner in the Philadelphia office of Anderson Kill & Olick who represents United Policyholders. “If that’s sufficient, perhaps the court will think it wise to take a second look at this.” Because the court is full of new justices who were not on the court when it decided Matagorda County, and the author of Frank’s Casing is no longer on the court, it’s anybody’s guess as to whether the court will reconsider the case. Only one new justice has joined the court since the original decision in Frank’s Casing, but six of the court’s current nine justices were not on the court when it decided Matagorda County. On May 25, Texas Supreme Court Justice Priscilla Owen, the author of Frank’s Casing, left the high court for the 5th U.S. Circuit Court of Appeals, to which President George W. Bush had nominated her nearly four years ago. During the past few years, the Supreme Court has become more unpredictable on issues such as insurance coverage, several lawyers say. “For people who specialize in insurance, it is a very interesting time, because there are so many new justices on the court,” says Bob Allen a partner in the Dallas office of Baker & McKenzie who practices insurance law. “There are cases out there that five years ago, we would have known for sure that the Supreme Court would grant and take care of, and now we’re not so sure.” Brian Martin, an insurance defense attorney and partner in the Houston office of Thompson, Coe, Cousins & Irons, won’t bet on the high court taking another crack at Frank’s Casing. “I just don’t see them taking it,” Martin says. “Put it this way: The justices each seemed somewhat strong in their positions.” HOT CLE TOPIC While the court is considering whether to rehear the case, lawyers are still deciding how exactly to deal with Frank’s Casing. Because many attorneys believe the ruling will have a significant impact on settlement negotiations, Frank’s Casing has become a popular subject for CLE courses and seminars. “I think lawyers and the insurance bar and those that are in tune with current changes in the law are changing their practices based on this,” says Warren Harris, a partner in Houston’s Bracewell & Giuliani who represents Frank’s Casing. “There’s no doubt that it’s changed the settlement dynamics and it’s affecting the way the defense counsel handles cases.” The decision makes policyholders more cautious before asking their insurers to settle, says Martin. “The risk the policyholder runs is that the insurance company will pay it and then later say, “It’s not covered, pay me back,’” Martin says. “The policyholder has to make sure that it really is a good deal and make sure it’s covered.” Several insurance lawyers believe that coverage dispute litigation will increase in the wake of Frank’s Casing, as insurance companies can cut their losses significantly, if they prevail in a coverage challenge. “I think the breadth of the opinion as it’s currently written will encourage many more [insurance coverage] declaratory judgments to be filed, to take advantage of the possibility of settling and reobtaining settlement dollars,” says Robert M. “Randy” Roach, a insurance and appellate partner in Houston’s Cook & Roach. “Insurance companies stand to save billions of dollars because of this.” Ernest Martin, a partner in Dallas’ Haynes and Boone who practices insurance law, also believes that coverage disputes will increase, but not before settlement agreements are reached between parties during the course of litigation. Previously, insurance companies would file declaratory judgment actions as soon as settlement offers came in because they wanted to make sure the claim was covered, Martin says. “And now in Frank’s Casing, there is no incentive to get a ruling on coverage. They can wait until the case is settled,” Martin says, and possibly pass the settlement costs on to the insured. But J. Clifton “Clif” Hall, a partner in Houston’s Westmoreland Hall who represents Excess Underwriters, hasn’t noticed a jump in coverage disputes. “I have seen no fallout from this in the sense that more lawsuits are being filed,” Hall says. In fact, Hall believes insurance lawyers are overreacting to Frank’s Casing. He says the ruling is too fact-specific for insurance company attorneys to apply it generally and that it isn’t as broad as many lawyers believe. “The lawyers who represented the insureds, I’ve told them to their face that it’s like they’re like Chicken Little, the sky is falling, and I just don’t see it that way,” Hall says. “The fundamental core of this case is that Frank’s Casing tried to get the benefit of $7.5 million worth of coverage that it didn’t pay for,” Hall says. “And the Texas Supreme Court was loath to give $7.5 million to Franks’ Casing, because it’s just not right.” However, one lawyer who represents insurance companies and, like Hall, believes the decision is correct, still thinks it might be wise for the high court to rehear the matter and clarify its opinion. David Pruessner, an insurance lawyer and principal in Dallas’ Law Office of David Pruessner, says he’s having trouble advising his insurance company clients about the full impact of Frank’s Casing. Notes Pruessner, “I would like to see the opinion clarified, because when you read it you largely come to the conclusion that Matagorda County is overruled, but it’s hard to tell your clients that when it doesn’t expressly say that Matagorda County is overruled.”

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