Interpretation of Insurance Policies -- "Professional Services Exclusion"
Potomac Ins. Co. v. Jayhawk Med. Acceptance Corp., No. 99-10560 (5th Cir. Jan. 4, 2000).
Jayhawk is a company that provides financing for elective surgeries and refers clients to doctors who perform such surgeries. Jayhawk was insured by Potomac under a comprehensive general liability policy that excluded coverage of claims against Jayhawk for bodily injury "due to the rendering or failure to render any professional service." Jayhawk was then sued by three persons who were dissatisfied with breast augmentation surgeries by doctors to whom Jayhawk had referred them. Potomac filed this declaratory judgment action, seeking a declaration that it had no duty to defend Jayhawk. The district court held that the professional services exclusion did not apply, and that Potomac had a duty to defend.
Result: Affirmed.
Analysis: The Court held that "[t]he mere act of referring a person to a doctor does not constitute a .professional service. as that phrase is defined in Texas." The Court followed Texas case authority holding that a "professional service" is one that "arise[s] out of the acts particular to the individual.s specialized vocation. We do not deem an act a professional service merely because it is performed by a professional. Rather, it must be necessary for the professional to use his specialized knowledge or training." The Court stated succinctly, "Jayhawk is not in a profession."
Removal -- Availability of Appellate Review of Remand Order -- FELA
Albarado v. Southern Pac. Transp. Co., No. 98-30951 (5th Cir. Dec. 29, 1999).
Plaintiffs were employees of a number of rail carriers. They sued their employers for personal injuries caused by exposure to toxic chemicals during their employment. They brought suit in state court in Louisiana under the Federal Employers. Liability Act. By federal statute, FELA claims may be brought in either federal or state court, and they are non-removable if brought in state court unless joined with other, removable federal claims. The defendants removed the case anyway, alleging that plaintiffs had improperly crafted their petition so as to conceal other federal claims within their FELA claim. The plaintiffs moved to remand, and the district court remanded. The defendants appealed.
Result: Dismissed for lack of jurisdiction.
Analysis: Under 28 U.S.C. ' 1447(d) and Supreme Court precedent, appellate courts have no jurisdiction to review remand orders that are based on (1) lack of subject-matter jurisdiction or (2) a defect in removal procedure asserted in a timely filed motion under ' 1447(c). The question presented is whether the existence of a federal statute making a certain category of claims non-removable is a "defect in removal procedure" that is non-reviewable under ' 1447(d). The Court concluded that the federal statutory restriction against removal does create a "defect in removal procedure," and therefore that the district court.s remand on that basis was not subject to appellate review.
Insurance Coverage . CGL Policies
Federated Mut. Ins. Co. v. Grapevine Excavation Inc., No. 98-10904 (5th Cir. Dec. 1, 1999).
Subcontractor GEI performed excavation, backfilling, and compacting work in connection with the construction of a parking lot. After completion, the owner of the lot discovered that the fill materials provided and installed by GEI failed to meet specifications and had caused damage to the parking lot. The owner withheld part of the payment due the general contractor, and the general contractor sued GEI in state court for breach of contract and negligence. Federated Mutual, a CGL carrier for GEI, sued GEI in this action for a declaratory judgment to determine its obligations, and GEI filed a third-party claim against its other CGL carrier, Maryland Lloyds, for declaratory judgment on Maryland Lloyds. duty to defend. The insurers prevailed on summary judgment, and GEI appealed as to Maryland Lloyds only.
Result: Reversed and Rendered in part, and Question Certified to the Texas Supreme Court.
Analysis: The first question was whether the general contractor.s petition against GEI alleged an "occurrence" within the meaning of the Maryland Lloyds policy, because only property damage caused by an "occurrence" was covered by the CGL policy. The policy further defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." In negligence cases, Texas courts interpret "occurrence" and "accident" to include damage that is the "unexpected, unforeseen or undesigned happening or consequence" of an insured.s negligent behavior. Courts consistently hold that damage to another.s work product caused by the insured.s defective performance or faulty workmanship is presumed to have been unexpected, and therefore constitutes an accident. Thus, the general contractor did allege an "occurrence" within the meaning of Maryland Lloyds. CGL policy.
Maryland Lloyds asserted two exclusions as defenses to coverage, and the Fifth Circuit rejected them both. The "contractual liability exclusion" did not apply because the general contractor was suing GEI directly, for its own conduct, and not solely pursuant to a contractual assumption of liability by GEI. The "impaired property exclusion" also did not apply. This clause excluded coverage for damage to "impaired property," meaning tangible property that cannot be used or is less useful because it incorporates the insured.s defective work if the property can be restored to use by the repair, replacement, adjustment, or removal of the insured.s work. The parking lot was not alleged by the general contractor to be "impaired property" because the problems with the parking lot cannot be restored to use by rectifying GEI.s work. Indeed, there is no way that GEI.s defective work could be remedied without destroying the parking lot paving entirely. Thus, the exclusions were inapplicable, and Maryland Lloyds owed GEI a duty to defend in the underlying lawsuit by the general contractor.
The Fifth Circuit certified a question to the Texas Supreme Court relating to the interpretation of Chapter 38 of the Texas Civil Practice and Remedies Code, which generally permits a prevailing party in a breach-of-contract case to recover its attorneys. fees. Chapter 38 excepts from the general rule, however, cases on contracts issued by insurers subject to certain provisions of the Insurance Code. The Fifth Circuit has held that no attorneys. fees are recoverable in these excepted cases, but intermediate courts of appeals in Texas have held that the Chapter 38 exceptions apply only if attorneys. fees are available by virtue of some other statute. The Fifth Circuit asks the Texas Supreme Court to resolve the question.
Insurance Coverage . E & O Policy
Jarvis Christian College v. National Union Fire Ins. Co., No. 98-40965 (5th Cir. Dec. 3, 1999).
On the recommendation of one of its trustees, Jerrell Cosby, Jarvis invested $2 million of its endowment in a factoring company called Action Funding, Inc. Cosby did not disclose that he owned a 49% interest in Action Funding and was a director and salaried employee of the company as well. The investment went sour, and Jarvis sued Cosby and Action Funding, alleging that Cosby had made false statements to the board of trustees in connection with the $2 million investment. Jarvis won a jury trial, and the judgment awarded Jarvis $1,815,000 against Cosby and $2,015,000 against Action Funding. Jarvis never collected on the judgment, and it presented a claim to National Union under its School Leaders Errors and Omissions policy. National Union denied the claim, Jarvis sued National Union in this action, and National Union won a bench trial.
Result: Affirmed.
Analysis: The E&O policy excluded coverage for "any claim arising out of the gaining in fact of any personal profit or advantage to which the Insured is not legally entitled." The district court found that the $2 million infusion of cash into Action Funding was an advantage to Cosby, and the Fifth Circuit held that the finding was not clearly erroneous. The district court also found that Cosby was not legally entitled to the personal profit or advantage he derived because the $2 million investment resulted from Cosby.s breach of his duty of loyalty to Jarvis, in violation of Texas law applicable to corporate fiduciaries.
Diversity Jurisdiction . Removal . Amount in Controversy
Simon v. Wal-Mart Stores, Inc., No. 98-31188 (5th Cir. Oct. 20, 1999).
Ms. Simon sued Wal-Mart in Louisiana state court for personal injuries she received during a purse-snatching incident in a Wal-Mart parking lot. In accordance with Louisiana procedure, she did not plead an amount in controversy. Her husband also asserted a claim against Wal-Mart for loss of consortium. Wal-Mart removed the case to federal court based on diversity of citizenship, stating in its notice of removal that the amount in controversy exceeded $75,000. The case went to trial, and the jury awarded Ms. Simon $30,000. The jury awarded her husband nothing on his loss of consortium claim. Wal-Mart appealed.
Result: Vacated and Remanded with instructions to remand to state court.
Analysis: The Fifth Circuit raised the issue of subject-matter jurisdiction sua sponte, and held that the amount-in-controversy requirement for diversity jurisdiction was not satisfied. When a state-court pleading does not state an amount in controversy, a defendant removing on the basis of diversity must prove by a preponderance of the evidence that the amount in controversy exceeds $75,000. It may do so either by demonstrating that it is "facially apparent" that the amount in controversy exceeds $75,000, or by setting forth facts in controversy (either in the notice of removal or by affidavit) that support a finding of the requisite amount. Wal-Mart.s conclusory statement in its notice of removal that the amount in controversy exceeded $75,000 was insufficient. The inquiry is limited to the papers on file at the time of removal; the evidence at trial cannot be relied upon to support jurisdiction retroactively. Because Wal-Mart did not satisfy its burden of demonstrating the existence of federal jurisdiction, the case had to be remanded to state court.
Removal . Joinder of Non-Diverse Defendants After Removal
Cobb v. Delta Exports, Inc., No. 98-30539 (5th Cir. Sept. 7, 1999).
Cobb was injured when his car was hit by a piece of heavy equipment operated by an employee of J&P Logging, Inc. At the time, the employee was performing tree limb removal pursuant to a contract between J&P and Delta Exports. Delta Exports had been hired by Waste Management, which in turn had been hired by the City of Lake Charles. Cobb sued Delta Exports and its insurer in Louisiana state court, and the defendants removed based on diversity of citizenship. After removal, Cobb sought and obtained leave to add claims against four other defendants, including two Louisiana domiciliaries. Then Cobb moved to remand on the ground that the joinder had destroyed complete diversity. The district court denied remand, holding that the Louisiana defendants had been fraudulently joined, and proceeded to grant summary judgment in favor of all defendants. Cobb appealed.
Result: Reversed and Remanded with instructions to remand to state court.
Analysis: The Court rejected the defendants. argument that the existence of diversity in a removed case is determined solely at the time of removal in this context. 28 U.S.C. ' 1447(e) plainly states that remand is required if the district court grants the plaintiff leave to join additional defendants whose joinder destroys diversity jurisdiction. Further, the Court held that the "fraudulent joinder" doctrine simply does not apply to defendants who are joined after removal; it applies only to defendants who have been joined in the state court at the time of removal. The Court expressly declined to reach the question of whether the district court could have exercised its inherent power to recall its judgment and withdraw its order permitting joinder.