Onebeacon Insurance Co. v. T. Wade Welch & Associates
2016 U.S. App. LEXIS 20440
| 5th Cir. | 2016Background
- The Welch Firm (and attorney T. Wade Welch) defended DISH in RMG litigation; associate Ross Wooten mishandled discovery (failed verifications, Bates numbers) leading to a magistrate judge issuing death-penalty sanctions in July 2007.
- Welch answered “No” to prior-knowledge and disciplinary questions on insurance applications (Westport and then OneBeacon), and OneBeacon issued claims-made policies for 2006–07 and 2007–08 with a prior-knowledge exclusion and a 1995 retroactive date.
- The Sanctions Order was later affirmed; DISH pursued arbitration and obtained an arbitration award (~$12.5M) against the Welch Firm for malpractice.
- OneBeacon rescinded coverage and sued for declaratory relief asserting the prior-knowledge exclusion; the Welch Firm counterclaimed for Stowers, Texas Insurance Code (Chapter 541), and exemplary damages.
- The district court construed the prior-knowledge exclusion to require foreseeability of a malpractice claim and denied summary judgment; a jury found for DISH and Welch on coverage and damages (malpractice award plus lost profits and statutory/exemplary damages).
- The district court required an election between statutory (Chapter 541) additional damages and common-law exemplary damages; OneBeacon appealed and Welch cross-appealed; the Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the prior-knowledge exclusion barred coverage as a matter of law | OneBeacon: exclusion as written applies and precludes coverage regardless of foreseeability | Welch: exclusion must be read to require that the insured could reasonably foresee a malpractice claim from the wrongful act; literal reading would render retroactive coverage illusory | Court: exclusion construed to require reasonable foreseeability; jury question proper; OneBeacon not entitled to JMOL |
| Whether DISH’s June 14, 2011 letter was a valid Stowers demand | OneBeacon: invalid because it did not release co-insured Wooten | Welch/DISH: valid Stowers demand releasing the Welch Firm; insurer may settle with one insured under Stowers principles | Court: letter was a valid Stowers demand; insurer could have settled with Welch Firm alone |
| Whether OneBeacon knowingly violated Tex. Ins. Code § 541.060 (warranting additional damages) | OneBeacon: denial of coverage was a reasonable mistake based on the exclusion; not "knowing" conduct | Welch: OneBeacon engaged in post-claim underwriting and acted with actual awareness of unfair/deceptive conduct | Court: sufficient contradictory evidence for jury; verdict on knowing violation affirmed |
| Whether Welch was entitled to both statutory additional damages and common-law exemplary damages (one-satisfaction rule) | Welch: claims are distinct so both awards may stand | OneBeacon: awards arise from the same acts and injury; one-satisfaction rule limits recovery to one award | Court: the claims overlapped and arose from the same series of acts; Welch must elect between the two awards |
Key Cases Cited
- SMI Owen Steel Co. v. Marsh U.S.A., 520 F.3d 432 (5th Cir.) (standard of appellate review for jury verdicts)
- Flowers v. S. Reg’l Physician Servs., 247 F.3d 229 (5th Cir.) (standard for JMOL and drawing inferences for jury)
- Unitherm Food Sys., Inc. v. Swift–Eckrich, 546 U.S. 394 (U.S.) (Rule 50(a)/(b) preservation requirement)
- G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm’n App.) (foundational Stowers duty)
- Tex. Farmers Ins. Co. v. Soriano, 881 S.W.2d 312 (Tex.) (insurer may reasonably settle with one claimant or as to some claims)
- Rocor Int’l, Inc. v. Nat’l Union Fire Ins. Co., 77 S.W.3d 253 (Tex.) (overlap of Stowers and Chapter 541 claims when failure to settle is the basis)