Battle of Experts Cannot Be Decided on Summary Judgment

Tred R. Eyerly | Insurance Law Hawaii | June 6, 2018

When two competing experts disagreed on the cause of the loss, the trial court erred in granting summary judgment to the insurer. Garcia v. Firs Community Ins. Co., Fla. App. LEXIS 4237 (Fla. Ct. App. March 28, 2018).

Garcia, the homeowner, discovered water damage in his home, allegedly due to a roof leak. Garcia notified his insurer, First Community Insurance Company. A forensic engineer, Ivette Acosta, was retained by First Community to inspect the property. After the inspection, coverage was denied.

The homeowner’s policy covered direct loss to property only if the loss was a physical loss. Loss caused by “”rain snow, sleet, sand or dust to the interior of a building was excluded unless a covered peril first damaged the building causing an opening in a roof or wall and the rain, snow, sleet, sand or dust enters through this opening.” Loss caused by wear and tear, marring, or deterioration was also excluded.

Garcia filed a complaint against First Community. The insurer moved for summary judgment arguing that the cause of the water intrusion through the roof was a combination of deterioration, tree branch abrasions, and construction defects. Acosta also found that the nails observed in the roof’s shingles created a direct path for water to penetrate the shingles, which was considered a construction defect.

Garcia opposed the motion for summary judgment and submitted a report by a professional engineer, Alfredo Brizuela, who also inspected the property. Brizuela found there was insufficient evidence to rule out that the damages were caused by hail impact or wind uplift damage caused by a one-time occurrence. He also opined the damage was not age-related or long term in nature. Instead, there was evidence that the damage was caused by high rain and/or wind. The trial court granted First Community’s motion and entered final judgment.

On appeal, it was noted that in ruling on summary judgment, the trial court may neither adjudge the credibility of the witnesses nor weigh the evidence. The court agreed with Garcia that the trial court erred in granting summary judgment in favor of First Community where the conflicting reports of the parties’ experts established that there was a genuine issue of material fact as to the cause of the loss. Given the conflict in the material evidence as to the cause of the loss, the trial erred in entering final judgment in favor of First Community.

Post-Menchaca: Is the Independent Injury Rule Dead or Alive?

Kay Morgan | Property Insurance Coverage Law Blog | June 17, 2018

Having undertaken to write about “all things Menchaca,” this month is a review of five cases post-Menchaca which contradict one another in deciding whether the independent injury rule is dead or alive. Looking at the first set of cases post-Menchaca, it appears that the answer to that question is a long way off.

In my last blog post, The Independent Injury Rule is Dead, the Fifth Circuit Court of Appeals in Aldous v. Darwin National Assurance Company, cited the April 13, 2018, USAA Tex. Lloyds Company v. Menchaca opinion and declared,

Menchaca repudiated the independent injury rule, clarifying instead that “‘an insured who establishes a right to receive benefits under an insurance policy can recover those benefits as ‘actual damages’ under the statute if the insurer’s statutory violations causes the loss of benefits.’”1

Aldous involved a legal malpractice suit with a multitude of issues, counterclaims and cross-appeals.2 The underlying suit concerned litigation over two trusts and following the finality of that litigation, Aldous’ client brought a malpractice suit against Aldous which triggered her professional liability insurer, Darwin’s involvement. Aldous was successful in the malpractice suit but then sued Darwin alleging that Darwin did not pay enough to fully cover the costs of her malpractice defense. Aldous alleged against Darwin breach of contract, breach of the duty of good faith and fair dealing and violations of the Texas Insurance Code, among others. The court found that Aldous’ Chapter 541 Texas Insurance Code claims were barred as a matter of law under Parkans International LLC v. Zurich Insurance Company3 because Aldous had not established an injury independent of the injury that would have resulted from a wrongful denial of policy benefits. Aldous appealed the results of her suit against Darwin and in particular, asked the Fifth Circuit to reverse Parkans. After finding that “Menchaca repudiated the independent injury rule” as quoted above, the Fifth Circuit wrote: “[p]ut simply, Parkans’s categorical bar does not hold up in the face of Menchaca.4

Subsequent to Aldous, the Amarillo Court of Appeals in Turner v. Peerless Indemnity Insurance Company,5 declared the opposite of the holding in Aldous by the Fifth Circuit. The Turner court held: “[t]he independent injury rule is alive and well, as reiterated by the Texas Supreme Court in its recent Menchaca opinion and recognized by us in Abdalla, 2018 Tex. App. LEXIS 3358, at *9-10.” Turner is the first appraisal case that has applied the April 13, 2018, Menchaca opinion. Following appraisal, as is the routine with all insurance companies, Peerless moved for summary judgment on all of Turner’s claims and the court granted it. The Amarillo Court of Appeals affirmed the trial court’s dismissal by summary judgment of Turner’s breach of contract and extra-contractual claims. In affirming the dismissal of the extra-contractual claims, the court determined that Turner had failed to provide any evidence of an independent injury upon which to base his extra-contractual claims aside from the damages represented by supposedly lost policy benefits. In affirming the trial court’s granting of summary judgment on Turner’s extra-contractual claims, the Turner court made an extensive review of Menchaca’s discussion of the independent injury rule.6 The court rejected Turner’s contention that the damages in the policy benefits he lost due to Peerless’ statutory violations can be recovered under the bad faith statute, and instead found:

As can be seen, his [Turner’s] argument remains focused on the benefits recoverable under the policy, which benefits have already been paid. But, under what we perceived to be Menchaca’s explanation of the independent injury rule, his injury cannot be so predicated. It must be independent of what he claims he lost ‘out on’ under the policy. Thus, the decision to grant summary judgment upon the extra-contractual claims urged by [Peerless] has the support of at least one ground, and we overrule the second issue.7

Thus, the Amarillo Court of Appeals in Turner finds that the independent injury rule is alive and well. The same panel of Amarillo judges in Turner wrote the opinion in Abdalla, another appraisal case, and in relevant part, stated:

The need of an independent injury to support extra-contractual causes of action was reaffirmed in Menchaca. After discussing its own precedent, the Supreme Court first reiterated that ‘an insured can recover actual damages caused by the insurer’s bad faith conduct if the damages are separate from and…differ from benefits under the contract.’” [Cites omitted.] Then, it observed that damages were recoverable ‘only if [they] are truly independent of the insured’s right to receive policy benefits.’8

Two more opinions citing Menchaca were handed down on June 6, 2018: another Fifth Circuit opinion, Certain Underwriters at Lloyd’s of London v. Lowen Valley View,9 and another Texas Supreme Court case, State Farm Lloyds v. Fuentes.10

In Lowen Valley, the insurer brought a declaratory judgment action that it owed no benefits under a commercial property insurance policy and the insured, Lowen Valley, counterclaimed for declaratory judgment, breach of the insurance contract, and violations of the Texas Insurance Code. The district court granted summary judgment in favor of the insurer on all claims and the Fifth Circuit affirmed. In reaching that decision, the Fifth Circuit found that Lowen Valley’s Texas Insurance Code claims were based on unpaid coverage benefits rather than some independent injury and when Lowen Valley’s breach of contract claim fell, so did its extra-contractual claims. The appellate court wrote:

See USAA Tex. Lloyds Co. v. Menchaca, 14-0721, 2018 WOL 1866041, at *5 (Tex. 13, 2018) (“[A]n insured cannot recover any damages based on an insurer’s statutory violation if the insured had no right to receive benefits under the policy and sustained no injury independent of a right to benefits.”).11

The final case this blog, State Farm Lloyds v. Fuentes, was a Hurricane Ike suit and following a trial, the trial court disregarded two jury’s findings that the Fuenteses had breached the insurance contract as well as State Farm and that the Fuenteses had breached it first. The trial court rendered judgment for the Fuenteses, awarding them $18,818.39 for amounts owed under the policy, $27,000 for mental-anguish damages, $7,527 in statutory penalties, and more than $300,000 in attorney’s fees. State Farm appealed. Houston’s Fourteenth Court of Appeals affirmed the trial court judgment. State Farm appealed again. The Texas Supreme Court held:

[We] conclude simply that the considerations that led us to remand for a new trial in Menchaca similarly dictate that State Farm’s first issue—whether the trial court properly disregarded some of the jury’s findings—should be remanded to the court of appeals for reconsideration in light of MenchacaSee TEX. R. APP. R. 60.2(f).12

Interestingly, both Fuentes and Menchaca involved a trial court’s disregarding specific jury findings in reaching their judgments and both have been remanded for new trial. In Fuentes, the trial court disregarded two jury findings that Fuentes breached the contract and breached it first before State Farm, who was also found to have breached the contract. The Fuentes court remanded the suit to the court of appeals in light of Menchaca. In Menchaca, the trial court disregarded jury question No. 1 in which the jury found that USAA had not failed to comply with its obligations under the policy. The supreme court found that that the trial court erred in disregarding the jury’s answer to question No. 1. The court also held that a plaintiff does not have to prevail on a separate breach of contract claim to recover policy benefits for a statutory violation. Menchaca was remanded to the trial court for a new trial.

In addition to these two appeals, more new cases relying on Menchaca will continue to trickle down and, no doubt, that trickle will bring more new interpretations. It is still too early to definitively declare whether the independent injury rule is dead or alive.
1 Aldous v. Darwin National Assurance Co., No. 16-10537 (5th Cir. May 11, 2018)(emphasis added).
2 See Aldous v. Darwin National Assurance Co., 851 F.3d 473 (5th Cir. 2017).
3 Parkans International LLC v. Zurich Ins. Co., 299 F.3d 514 (5th Cir. 2002).
4 Id. (emphasis added).
5 Turner v. Peerless Indemnity Ins. Co., 2018 WL 2709489 (Tex. App.—Amarillo June 5, 2018).
6 Id. at 2018 WL 2709489, at ** 3-5.
7 Id. at 2018 WL 2709489, at *5.
8 Abdalla v. Farmers Ins. Exch., 2018 WL 2220269, at * 5 (Tex. Civ.—Amarillo, May 14, 2018).
9 Certain Underwriters at Lloyd’s of London v. Lowen Valley View, LLC, No. 17-10914 (5th Cir. June 6, 2018).
10 State Farm Lloyds v. Fuentes, No. 16-369, 2018 WL 274919 (Tex. June 6, 2018).
11 Lowen Valley at 8. (emphasis in the original).
12 Fuentes, 2018 WL 2749719, at *2.

Part I: Key Provisions of School Facility Construction & Design Contracts

David R. Cook | School Construction News | April 25, 2018

We all expect our school construction projects will go smoothly, on time and under budget. But despite our best efforts, some projects will encounter speed bumps, detours or outright roadblocks. While there are many precautions a school facility manager may take, one of the best precautions is to have solid construction and design contracts.

A good contract will account for the known risks and specify an outcome in favor of the school authority. School construction risks can be categorized into a few categories: performance risk, time risk, cost risk and political risk. Some risks are typical to all construction projects, while others are peculiar to the unique needs of school authorities.

At the outset, it should be noted that contracts provide protection only when they are enforceable. As a result, school facility managers must ensure proper formalities are followed for bidding, procurement and contracting. Failure to follow these requirements could render the contract unenforceable, and the school authority may be unable to recover from the other party or its surety.

In Part I of this article, we will discuss the performance risk and time risk categories, and in Part II, we will cover cost risk and political risk.

Performance Risks

Performance risk arises from a contractor or designer’s failure to properly perform their obligations. These risks can include:

  • The designer’s failure to create plans and specifications that incorporate the facility manager’s project concept
  • Faulty, incomplete, uncoordinated or inadequate plans and specifications
  • The designer’s failure to incorporate mandatory requirements of laws, regulations and building codes, including particularly any state or federal administrative requirements for funding and disability laws
  • The designer’s failure to inspect the work for defects
  • The contractor’s failure to follow plans and specifications
  • The contractor’s faulty or negligent work

Certain provisions of construction and design contracts can minimize performance risks. For example, the design contract should clearly express the school authority’s wishes for conceptual design, offer the facility manager multiple opportunities for reviewing the design, expressly require the designer to incorporate all legal requirements and clearly designate the designer’s responsibility for inspecting the work. Due to the importance of these obligations for project success, the design contract should not unduly limit the designer’s liability.

The construction contract should require strict compliance with the plans and specifications and should grant the facility manager and others the right to observe the work at any time. The contract should include a warranty that the work will be performed with good workmanship and compliant materials. (However, this warranty should expressly not be the school authority’s sole remedy for defective or non-compliant work.) If defects are suspected, the facility manager should have the authority to suspend the work for further observation. If defects are discovered, the contractor should be required to remedy them without additional compensation. If it fails to do so, the contract should permit the school authority to terminate the contract for cause, direct the performance bond surety to perform and remedy all defaults, and enforce other remedies.

In the event of a faulty design, the contractor may seek additional compensation based on a theory that the school authority implicitly warranted that the design was adequate (known as the Spearin Doctrine). To counteract such a claim, the construction contract should expressly disclaim any warranty concerning the design. Though, it should be noted that some states are reluctant to enforce such clauses, so the design contract should require the designer to indemnify the authority for Spearin claims.

Time Risk

Another important risk is delay in project completion. Because schools must adhere to a pre-set school calendar and they typically have limited alternate space, delays are particularly disruptive. As a result, contracts should expressly set the time for completion and could establish interim milestone deadlines. They should require the contractor to provide an initial schedule with periodic updates, both of which should be based on sound scheduling logic. These updates, if accurate, will alert the school authority of delayed completion and the need to secure alternative facilities.

To encourage timely completion, contracts could impose liquidated damages for delays and provide an incentive payment for early completion. They should address time extensions, but ultimately give the school authority the right to accelerate the work to ensure timely completion before summer ends. Lastly, if the contractor believes it has encountered a delay for any reason, the contract should require timely notice to the school authority so it can address the underlying problem and limit delays.

Part II: Key Provisions of School Facility Construction & Design Contracts

David R. Cook | School Construction News | June 13, 2018

In Part I of this article, published in late April, we discussed the performance risk and time risk involved with construction and design contracts, and in Part II, we will cover cost risk and political risk.

Cost Risk

School budgets are limited for many reasons, and the construction budget is no exception. As a result, contracts should guard against unwarranted cost increases and claims. In the absence of a written change order signed by the appropriate officer, the contract should absolutely prohibit additional compensation for changes in the work. It should forbid claims for all events except those within the school authority’s sole control. Even for permitted claims, the contractor must provide written notice so that the authority might alleviate the problem and control its costs. To encourage the contractor to limit costs and claims, the contract could include a shared-savings clause, which grants an incentive payment for completion within the budget.

Political Risks

School authorities generally are political bodies that must respond to the wishes of voters and taxpayers. So they ignore political risks at their peril. While in all cases, the authority must follow any competitive-solicitation requirements, there are some instances in which they can or must give preference to local bidders. To the extent local bidders are awarded a contract, the bid or proposal and final contract should require affirmative representation that the contractor or designer qualifies for any such preference and will, to the extent permitted or required, use local goods and services.

Constituents also prefer designers and contractors that are good corporate citizens. As such, solicitation documents and contracts could include affirmative representations that they will pay all taxes, comply with all laws, and satisfy all applicable DBE requirements. In some parts of the county, political risk includes the use of undocumented workers on the project. Some public works projects have been doomed by bad press when undocumented workers are discovered working on the site. When applicable, the contract could include provisions regarding undocumented workers, including E-Verify requirements.

Many authorities are able to generate goodwill with their constituents by engaging in energy savings performance contracting (EPSC), which is a method of procurement that is paid for by energy savings or revenue enhancements resulting from the project. These savings and enhancements are guaranteed by the contractor. Constituents appreciate the budget-neutral and environmentally friendly aspect of ESPCs.

Lastly, since there is no way to predict when politics will negatively impact a project, the school authority should have an off ramp — a termination-for-convenience clause. When permitted by law, this clause allows the authority to terminate a contract for any reason or no reason.

Experienced facilities managers know that problems will arise on a construction project. They also know that one of the best defenses is a good contract. But a good contract is not one pulled off the shelf; it is crafted and fine-tuned by experience and a deep understanding of the authority’s goals and its constituents’ wishes. It incorporates all constitutional, statutory, and regulatory mandates applicable to school authorities. It balances the one-sided provisions of many industry form contracts and those proffered by designers and contractors. Finally, it provides just the right amount of incentives and deterrents to promote a timely, cost-efficient and high-quality project.

California Supreme Court Rights the “Occurrence” Ship: Unintended Harm Resulting from Intentional Conduct Triggers Coverage Under Liability Insurance Policy

Scott S. Thomas | Payne & Fears | June 6, 2018


In a ruling that bodes well for policyholders, the California Supreme Court provides much-needed clarity on the question of when a so-called “intentional act” may give rise to insurance coverage under a liability insurance policy. In Liberty Surplus Insurance Corp. v. Ledesma & Meyer Construction Co., Case No. S23765 (Cal. June 4, 2018), the Court holds that an employer’s potential liability for negligent hiring, after its employee allegedly abused a 13-year old student, is the result of an “occurrence” and is thus covered under the employer’s liability insurance policy.


The court’s opinion dispels the misguided notion that an intentional act resulting in unintended harm is never an “occurrence” and can never trigger coverage. What matters, according to the Court, is that, from the insured’s point of view, the consequences of its conduct are “unexpected, unforeseen, or undesigned” – even if the conduct is intentional. And in a concurring opinion, Justice Liu rightfully questions the legitimacy of the notion that intentional conduct cannot trigger coverage, even when it produces an unintended result, unless, in the words of a 1989 appellate court decision, some “additional, unexpected, independent, and unforeseen happening occurs that produces the damage.” As Justice Liu explains, this intervening “happening” may be something as simple as the insured’s mistaken belief that he was acting in self-defense, or that the victim had consented to the insured’s conduct. This much-needed clarification restores vitality to the fundamental principle that injuries are “accidental” when they are “unexpected, unforeseen, or undesigned,” regardless of their cause.


This ruling will apply in many contexts: For example, contractors who “intentionally” build things; competitors who “intentionally” disparage another’s product; employers who “intentionally” hire employees who do bad things. The Court’s decision restores the law’s fidelity to fundamental principles enunciated in the seminal California “occurrence” case: Gray v. Zurich, 65 Cal. 2d 263 (1966). And it ought to dampen insurers’ enthusiasm for denying claims on the spurious ground that the insured’s conduct – even though it resulted in bodily injury or property damage that the insured did not expect or intend to cause – was “intentional.”