The equitable constructive trust. In Texas, a court acting in equity may impose a constructive trust upon property held by a party to a transaction that belongs to another. The Austin Court of Appeals recently used this remedy to impose a constructive trust upon life insurance proceeds that, under a divorce decree, should have passed to the decedent’s minor children.

Factual background. “Kristi and Hugh divorced in February of 2013. The agreed final decree of divorce required them to each purchase $250,000 in life insurance, designate the other “as beneficiary in trust for the benefit of the children,” and maintain the coverage until both of their children had turned 18.”  Etcheverry v. Lankford, 03-17-00797-CV, 2018 WL 6615624, at *1 (Tex. App.—Austin Dec. 18, 2018, no pet. h.).  Kristi purchased the life insurance as required by the decree.  However, three days before her death she changed the life insurance beneficiaries to Thomas and Etcheverry. Kristi committed suicide in December 2016.

Two months later, Hugh filed suit against Thomas, Etcheverry, and the life insurance company and requested that the trial court impose a constructive trust upon the proceeds for Hugh to hold in trust for the minor children. Thomas agreed to assign his share to Hugh and Etcheverry contested the proceedings.

Court’s holding. The court stated, “Even though “breach of a special trust or fiduciary relationship or actual or constructive fraud is ‘generally’ necessary to support a constructive trust,” the remedy can be imposed in other circumstances where property is “obtained through bad faith or unconscionable acts.”” The Court held that even though Etcheverry had done nothing wrong, the policy against unjust enrichment supported the imposition of a constructive trust upon the life insurance proceeds in favor of the children.  Kristi (the decedent) violated the divorce decree by changing the beneficiaries and Etcheverry would not have received anything but for that violation. Etcheverry v. Lankford, 03-17-00797-CV, 2018 WL 6615624, at *2 (Tex. App.—Austin Dec. 18, 2018, no pet. h.).

Conclusion. The court acting in equity imposed a constructive trust upon the life insurance proceeds in favor of the minor children.

 

 

 

 

 

 

 

 

If the Texas recreational-use statute applies, then a landowner’s liability is limited when a guest is injured on the owner’s property while engaged in recreation. (See Chapter 75 of the Texas Civil Practice & Remedies Code).

In the recent case of Meredith  v. Chezem , 03-18-00256-CV, 2018 WL 6425017 (Tex. App.—Austin Dec. 7, 2018, no pet. h.), the Austin Court of Appeals overturned a judgment based upon a jury verdict finding that a landowner’s negligence proximately caused injuries to a 12-year-old girl while riding an ATV on the landowner’s property. The minor child, Carli, was visiting her 12-year-old friend, Courtney Meredith, at the Meredith’s home in Burnet County. During the visit, the  Merediths gave the 12-year-old girls permission to drive around on the Meredith’s property on the family ATV. The Merediths did not supervise the girls and Courtney made a sharp turn while driving the ATV causing it to flip over and break Carli’s ankle requiring surgery. Carli’s father filed suit on Carli’s behalf and the jury found that the Meredith’s negligence proximately caused Carli’s injuries and awarded $88,620 in damages. However, the jury found that the conduct of the Merediths did not constitute gross negligence.

The Merediths cited the recreational-use-statute and moved the trial court to enter a take nothing judgment since there was no finding by the jury of gross negligence. The trial court denied the request and entered a judgment awarding the damages in the amount found by the jury.

The Austin Court of appeals held that the Texas recreational-use statute applied because the Meredith’s property was agricultural land and Carli was invited as a social guest to the Meredith’s property for recreational purposes. Since the statute applied, Carli’s father was required to prove that Carli’s injuries were the result of the Meredith’s gross negligence, malicious intent, or bad faith. Given that the jury found that the Meredith’s were only negligent but not grossly negligent, then under the statute, the Merediths were not liable for the injuries. The court of appeals reversed the  trial court’s judgment and rendered judgment that Carli take nothing on her injury claims.

 

Introduction. In Lyda Swinerton Builders, Inc. v. Oklahoma Sur. Co., 16-20195, 2018 WL 4113795 (5th Cir. Aug. 29, 2018), the United States Firth Circuit Court of Appeals had to decide whether a subcontractor’s commercial general liability (“CGL”) insurance policy covered the defense of the general contractor named as an additional insured under the policy.

Background. Lyda Swinerton Builders, Inc. (“Lyda”) was hired as the general contractor to build a 10 story building in College Station, Texas. Lyda hired numerous subcontractors including roofer, A. D. Wills Company, Inc. (“Willis”). The subcontract agreement between Lyda and Willis contained a broad indemnity clause requiring Willis to indemnify and hold harmless Lyda and the owner of the project including against property claims, arising out of Willis’s work.

Willis obtained a CGL insurance policy that identified Willis as the named insured, provided contractual liability coverage, and contained an endorsement naming Lyda as an additional insured.

The project owner later sued Lyda for allegedly failing to properly perform its work resulting in damages to the owner. The allegations included that the roof was affected by the deficient work and that Lyda’s negligence caused loss of use of the building and property damage separate and apart from Lyda’s scope of work under the contract documents.

Issue. Lyda requested that the CGL insurance carrier cover its defense against the lawsuit by the project owner, since Lyda was an additional insured under the CGL insurance policy. The carrier denied the request and another lawsuit ensued including between Lyda and the carrier.

Court’s holding. The United States 5th Circuit Court of Appeals held in the lawsuit between Lyda and the CGL insurance carrier that:

  1. The CGL insurance policy obligated the carrier to defend Lyda as an additional insured against the underlying lawsuit filed by the owner of the project.
  2. The carrier’s failure to tender a defense and pay for defense costs also would entitle Lyda to recover an 18% penalty against the carrier under the Texas Prompt Payment of Claims Act.
  3. If Lyda establishes that the carrier’s misrepresentations caused it to be deprived of a defense, Lyda can recover the defense costs under Chapter 541 of the Texas Insurance Code–without limitation from the independent-injury rule–which may also entitle Lyda to recover treble damages if the carrier knowingly violated the statute.

New Insurance Bill – Storm Loss Claims

On May 19, 2017, a bill was sent by the Texas legislature to the Governor for signature relating to claims for storm loss property damage. This bill was passed to curb alleged lawsuit abuses for property damages caused by severe storms. According to House Research Organization Bill Analysis, the supporters of the bill state that the frequency of these types of lawsuits has increased 1400 percent since 2012, are motivated by profit rather than actual damages, and should be discouraged. The proponents of the bill contend that the bill will obstruct the rights of property insurance policyholders to relief by restricting their rights to sue insurance carriers that wrongfully deny or underpay claims.

The bill will require an insured consumer who has suffered a storm loss to their home or real property to provide 61 days advance written notice to their insurance carrier before filing a lawsuit. The notice must specify the acts of the carrier giving rise to the claim, the amount owed, and the amount incurred in attorney fees. The carrier will be allowed to perform a pre-suit inspection of the property. The bill also provides a mechanism for protecting an insurance carrier’s agents and claims adjusters from personal liability. The bill, amongst other things, places limitations upon the rights of the insured consumer to recover attorney fees and interest. Obviously, only time will tell if the bill achieves its purpose.