California Insurance Guarantee Association, Oklahoma Property and Casualty Insurance Guaranty Association, and Texas Property and Casualty Insurance Guaranty Association v. Hill Brothers Transportation, Inc. ( 2015 )

ACCEPTED
03-15-00314-CV
7126183
THIRD COURT OF APPEALS
AUSTIN, TEXAS
9/28/2015 2:07:29 PM
JEFFREY D. KYLE
CLERK
CAUSE NO. 03-15-00314-CV
FILED IN
3rd COURT OF APPEALS
IN THE THIRD COURT OF APPEALS AUSTIN, TEXAS
AT AUSTIN 9/28/2015 2:07:29 PM
JEFFREY D. KYLE
Clerk
CALIFORNIA INSURANCE GUARANTEE ASSOCIATION, OKLAHOMA PROPERTY
AND CASUALTY INSURANCE GUARANTY ASSOCIATION, AND TEXAS PROPERTY
AND CASUALTY INSURANCE GUARANTY ASSOCIATION, Appellants
v.
HILL BROTHERS TRANSPORTATION, INC., Appellee
APPEAL FROM CAUSE NO. D-1-GN-09-001010
201ST JUDICIAL DISTRICT COURT OF TRAVIS COUNTY, TEXAS
HON. LORA LIVINGSTON PRESIDING
APPELLANTS’ REPLY BRIEF
Dan Price (SBN 24041725)
James Loughlin (SBN 00795489)
STONE LOUGHLIN & SWANSON, LLP
P.O. Box 30111
Austin, Texas 78755
(512) 343-1300
(512) 343-1385 Fax
dprice@slsaustin.com
Attorneys for Appellants
TABLE OF CONTENTS
TABLE OF CONTENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
INDEX OF AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
SUMMARY OF ARGUMENT.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARGUMENT AND AUTHORITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
I. ARGUMENTS IN REPLY TO APPELLEE’S BRIEF. . . . . . . . . . . . . . . . . 4
A. The Guaranty Associations Present Their Own Breach of
Contract Claims .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
B. The Policy, A Continuing Contract, Was Neither
Repudiated Nor Terminated by Legion .. . . . . . . . . . . . . . . . . . . . . . . 6
1. Legion’s Cancellation of the Policy was Authorized
by the Labor Code and the Policy.. . . . . . . . . . . . . . . . . . . . . . . 6
2. Cancellation of the Policy in Accordance With Its
Terms is Not a Repudiation of the Policy.. . . . . . . . . . . . . . . . . 7
3. Cancellation of Coverage for Nonpayment of
Premium Did Not Terminate the Policy or Legion’s
Obligations Under the Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
C. Hill Bros. Argues for a Legally Incorrect and Absurd
Result. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
D. Conclusion in Reply. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
II. RESPONSE TO HILL BROS.’ CROSS-APPEAL. . . . . . . . . . . . . . . . . . . 12
A. The Guaranty Associations Are Proper Parties to Sue for
Breach of the Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 ii
1. The Enabling Statutes Grant the Guaranty
Associations the Same Rights and Duties Under the
Policy as Legion Would Have Had if Not Insolvent,
Including the Right to Reimbursement of
Deductibles.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(a) CIGA’s Statutory Rights and Obligations
Under California Law. . . . . . . . . . . . . . . . . . . . . . . . . . 13
(b) OPCIGA’s Statutory Rights and Obligations
Under Oklahoma Law. . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) TPCIGA’s Statutory Rights and Obligations
Under Texas Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2. The Pennsylvania Insurance Receivership Laws
Acknowledge the Guaranty Associations’ Right to
Collect Deductibles from Insureds.. . . . . . . . . . . . . . . . . . . . . 16
3. Construing Similar Statutory Provisions, the
Wyoming Supreme Court Held that the Wyoming
Insurance Guaranty Association Has the Right to
Sue an Insured for Failure to Reimburse
Deductibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4. The Guaranty Associations’ Enabling Statutes
Create Contractual Privity Between Hill Bros. and
Each of the Guaranty Associations Related to the
Covered Claims Paid Under the Policy. . . . . . . . . . . . . . . . . . 19
5. Hill Bros.’ Citation of Reinsurance Cases is
Misplaced. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
B. Conclusion in Response to Hill Bros. Cross-Appeal. . . . . . . . . . . . . 23
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 iii
CONCLUSION AND PRAYER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
CERTIFICATE OF COMPLIANCE.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
CERTIFICATE OF SERVICE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 iv
INDEX OF AUTHORITIES
Cases:
General Reinsurance Corp. v. Am. Bankers Ins. Co.,
996 A.2d 26 (Pa. Commw. Ct. 2009). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21-22
Group Life and Health Ins. Co. v. Turner,
620 S.W.2d 670, 673 (Tex.App.–Dallas 1981, no writ) . . . . . . . . . . . . . . . . . . . 7-8
Hudson Environmental Servs., Inc. v. New Jersey Property-Liability Ins. Guar. Ass’n,
372 N.J.Super. 284, 308, 858 A.2d 39, 53 (N.J. Sup. Ct. 2004). .. . . . . . . . . . . . . 20
In re Imperial Ins. Co.,
157 Cal. App. 3d 290, 296 (Cal. Ct. App. 1984). . . . . . . . . . . . . . . . . . . . . . . . . . 13
Moore v. Jenkins,
109 Tex. 461, 211 S.W. 975 (1919). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Okla. ex rel. Doak v. Staffing Concepts Intern., Inc.,
CIV-12-409-C, 2014 WL 296643, *2 (W.D. Okla. Jan. 24, 2014). . . . . . . . . . . . 15
Sembera Sec. Sys., Inc. v. Tex. Mut. Ins. Co.,
No. 01-07-00310-CV, 2009 WL 214573, *7
(Tex.App.–Houston [1st Dist.] Jan. 29, 2009, pet. denied) (mem. op.). .. . . . . . . . . 8
Texas Workers’ Compensation Comm’n v. Garcia,
893 S.W.2d 504, 523 (Tex. 1995). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Va. Prop. & Cas. Ins. Guar. Ass’n v. Int’l Ins. Co.,
238 Va. 702, 385 S.E.2d 614, 616 (Va. 1989). . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Wyoming Medical Center, Inc. v. Wyoming Insurance Guaranty Association,
225 P.3d 1061, 1068 (Wyo. 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17-19
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 v
Statutes:
CAL. INS. CODE §1063.2(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
CAL. INS. CODE §1063.2(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12-13
36 OKLA. STAT. ANN. § 2007(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 14
40 PA. CONS. STAT. § 221.23a(f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
40 PA. CONS. STAT. § 221.23a(g). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 21-22
40 PA. CONS. STAT. § 221.23a(i).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 16, 22
TEX. INS. CODE. art. 21.28-C § 8(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
TEX. INS. CODE. art. 21.28-C § 11(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
TEX. LAB. CODE. § 401.001.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
TEX. LAB. CODE. § 406.008(a)(2)(C). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
TEX. LAB. CODE. § 406.031(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
TEX. LAB. CODE § 408.021. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Rules:
TEX. R. APP. P. 9.4(i)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 vi
Appellants CIGA, OPCIGA, and TPCIGA (collectively, the “Guaranty
Associations”) file this their Reply in support of Appellants’ Brief asking the Court
to reverse the summary judgment granted against them on the issue of limitations.
SUMMARY OF ARGUMENT
The Guaranty Associations sued Hill Bros. to recover deductible payments they
made on “covered claims” within the deductible limits of the Policy from March 3,
2003 to April 28, 2009. The Policy is a continuing contract in which the contemplated
performance and payment were divided into several parts and where the
administration of the claims covered by the Policy was continuous and indivisible.
The statute of limitations did not begin to accrue on this continuing contract until the
Guaranty Associations made demand on Hill Bros. to reimburse deductibles and Hill
Bros. repudiated its obligation to reimburse the deductible payments.
Hill Bros. discounts the significance of the continuing contract by presenting
two legally incorrect arguments to reach an untenable and absurd result. First, Hill
Bros. argues the Guaranty Associations assert Legion’s breach of contract claims
rather than their own. Second, Hill Bros. argues that Legion repudiated or terminated
the Policy effective June 6, 2002, after Hill Bros. stopped paying premium on April
1, 2002. One or both of these actions, according to Hill Bros., triggered the statute of
limitations on any and all claims under the Policy. Because Legion’s cause of action
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 1
allegedly accrued on April 1, 2002 or June 6, 2002, Hill Bros. concludes the Guaranty
Associations were required to file what would be a non-justiciable suit against Hill
Bros. as early as April 1, 2002, for Hill Bros.’ failure to reimburse the Guaranty
Associations for deductible payments the Guaranty Associations would make in the
future from March 4, 2003 through April 28, 2009.1 The Court must reject Hill Bros.’
arguments.
The Guaranty Associations present their own breach of contract claims to
recover deductible payments which they made in accordance with the Policy for the
benefit of Hill Bros.’ injured workers. Deductible recoveries by the Guaranty
Associations are not assets of the estate of Legion in Liquidation.
Even assuming, solely for the sake of argument, that the Guaranty Associations
were asserting Legion’s cause of action, the statute of limitations still did not accrue
on or about April 1, 2002, as alleged. The Policy, a continuing contract, was neither
terminated nor repudiated by Legion. In accordance with the express terms of the
Policy and the Texas Workers’ Compensation Act, Legion was permitted to cancel
coverage effective June 6, 2002, for nonpayment of premium.2 No action of either
1
Appellants’ Br. at 10.
2
In a likely typographical error, Hill Bros. cites in its brief that the Policy was
cancelled effective on both June 2, 2002, and June 6, 2002. See Appellee’s Br. at 3 (06/06/02), 5-6,
9, 11-13 (06/02/02). Legion cancelled coverage under the Policy effective June 6, 2002, at 12:01 a.m.
(CR 2095).
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 2
party terminated Legion’s obligation to pay workers’ compensation benefits to or for
the benefit of Hill Bros.’ employees injured within the Policy period. Similarly, no
action of either party terminated Hill Bros.’ obligation to reimburse Legion to the
extent such benefit payments were made within the deductible limits of the Policy.
Because the Policy was neither terminated nor repudiated by Legion on or about April
1, 2002, the statute of limitations did not accrue until Hill Bros. refused to reimburse
the Guaranty Associations on demand for their payment of deductibles.
On cross-appeal, Hill Bros. argues the Guaranty Associations do not have
standing to bring their breach of contract claims. The Court must reject Hill Bros.’
appeal because each of the Guaranty Associations is empowered with all of the rights,
duties, and obligations that the insolvent insurer would have had under the Policy.
These rights, duties, and obligations with respect to the Policy create contractual
privity between the insured and each guaranty association to the extent of the
guaranty associations’ payment of “covered claims” under the Policy.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 3
ARGUMENT AND AUTHORITIES
I. ARGUMENTS IN REPLY TO APPELLEE’S BRIEF
The Guaranty Associations’ claims against Hill Bros. for failure to reimburse
deductibles are not barred by limitations. The Guaranty Associations present their
own claims to recover their own assets from Hill Bros. in accordance with the Policy.
Their breach of contract claims under the Policy, a continuing contract, did not accrue
until Hill Bros. refused to meet its deductible obligations by reimbursing the
Guaranty Associations for their payment of “covered claims.” Because Hill Bros.’
refusal did not occur until after March 31, 2005 (i.e., four years before suit was filed
on March 31, 2009), the Guaranty Associations’ claims are not barred by the statute
of limitations.
A. The Guaranty Associations Present Their Own Breach of Contract Claims
The Guaranty Associations sued Hills Bros. to recover post-impairment and
post-liquidation deductible payments which they made within the deductible limits
of the Policy.3 They do not seek to recover any deductible payments made by Legion
or Legion in Liquidation.4
3
Appellants’ Br. at 10 (identifying the first and last of the deductible payments for
which each of the Guaranty Associations seek reimbursement in this case).
4
Appellants’ Br. at 10.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 4
In accordance with Pennsylvania law, the law governing the liquidation of
Legion in the Commonwealth Court of Pennsylvania, recoveries of deductible
payments made by the state guaranty associations are assets of the guaranty
associations and are treated as such by the insolvent insurer’s estate. See 40 PA. STAT.
§ 221.23a(f)(1) (“When the policyholder reimbursements are collected, the receiver
shall promptly reimburse such guaranty association for claims paid that were subject
to the deductible.”); 40 PA. STAT. § 221.23a(g) (“Any resulting recoveries under the
deductible reimbursement policy shall be payable to the guaranty associations to the
extent of claims paid within the deductible.”).5 The Pennsylvania statute expressly
acknowledges that the state guaranty associations may collect deductibles directly
from the policyholder. See 40 PA. STAT. § 221.23a (i)(2) (“To the extent that guaranty
associations pay claims within the deductible amount but are not reimbursed by either
5
The Pennsylvania statute, 40 PA. STAT. § 221.23a, is available at Tab 6, App.,
Appellants’ Br. This Pennsylvania law is consistent with a similar Texas statute which became
effective on September 1, 2005. See e.g., TEX. INS. CODE ANN. § 443.213(h)(1) (“At the time the
policyholder reimbursements are collected, the receiver shall promptly forward those amounts to the
guaranty association, based on the claims paid by the guaranty association that were subject to the
deductible.”). Because the statute was not in effect on the date Legion became an impaired insurer
on October 25, 2002, the statute is cited for illustrative purposes only. See Appellants’ Br. at 2, n.
2.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 5
the receiver under this section or by policyholder payments from the guaranty
association’s own collection efforts, the guaranty association shall have a claim in the
insolvent insurer’s estate for such unreimbursed claim payments.”).6
Because the Guaranty Associations allege only that Hill Bros. breached the
Policy by failing to reimburse the Guaranty Associations for the deductible payments
the Guaranty Associations made under the Policy, they are asserting their own causes
of action against Hill Bros. for breach of the Policy. The Guaranty Associations are
not asserting any cause of action belonging to Legion.
B. The Policy, A Continuing Contract, Was Neither Repudiated Nor
Terminated by Legion
The Policy was a continuing contract that was neither repudiated or terminated
by Legion effective June 6, 2002, following Hill Bros. nonpayment of premium on
April 1, 2002.7
1. Legion’s Cancellation of the Policy was Authorized by the Labor Code
and the Policy
In accordance with the Texas Labor Code, an insurer is authorized to cancel a
workers’ compensation policy for nonpayment of premium. TEXAS LABOR CODE
§406.008(a)(2)(C) provides that a workers’ compensation insurer may cancel a policy
6
Appellants’ Br., App. Tab 6.
7
See Appellants’ Br. at 29-32.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 6
on ten days written notice for “failure to pay premium when due.” The Policy tracks
this statutory language in the Texas Amendatory Endorsement at CIGA 236: “We
may cancel this policy. . . . we may send notice [of cancellation or nonrenewal] not
later than the 10th day before the date on which the cancellation or nonrenewal
becomes effective if we cancel or nonrenew because of: . . . (b) Failure to pay a
premium when payment was due.”8 In addition, each state specific endorsement
included in the Policy, as well as the main policy language, confirm repeatedly the
insurer’s right to cancel the Policy for nonpayment of premium.9 In accordance with
the express language of the Policy and consistent with the Texas Labor Code, Legion
was authorized to cancel the Policy for nonpayment of premium.
2. Cancellation of the Policy in Accordance With Its Terms is Not a
Repudiation of the Policy
Repudiation of a contract consists of words or conduct of a contracting party
which show a fixed intention to abandon, renounce, and refuse to perform the
8
Appellant’s Br., App., Tab 4 at CIGA 236.
9
Appellants’ Br., App., Tab 4 at CIGA 221 (Workers’ Compensation and Employers
Liability Policy: “We may cancel this policy . . . . The policy period will end on the day and hour
stated in the cancelation notice.”), CIGA 229 (Kansas Cancelation and Nonrenewal Endorsement:
“We may cancel this policy. . . . If this policy has been in effect for 90 days or more, we may cancel
only for one of the following reasons: (a) nonpayment of premium.”), CIGA 231 (Nebraska
Cancelation and Nonrenewal Endorsement: “We may cancel or nonrenew this policy within the
policy period . . . . the cancelation shall be effective ten (10) days after the giving of the notice if the
cancelation is based on: (a) nonpayment of premiums.”), CIGA 233 (Oklahoma Cancelation,
Nonrenewal and Change Endorsement: “If this policy has been in effect for more than 45 days, we
may cancel only for one of the following reasons: (a) Nonpayment of premium.”).
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 7
contract. Group Life and Health Ins. Co. v. Turner, 620 S.W.2d 670, 673 (Tex.
App.–Dallas 1981, no writ) (citing Moore v. Jenkins, 109 Tex. 461, 211 S.W. 975
(1919)).
An insurance carrier’s cancellation of a workers’ compensation policy for
nonpayment of premium, in accordance with the express terms of the policy, is
conduct consistent with the terms of the contract and does not show a fixed intention
to abandon, renounce, and refuse to perform the contract. See Sembera Sec. Sys., Inc.
v. Tex. Mut. Ins. Co., No. 01-07-00310-CV, 2009 WL 214573, *7 (Tex.App.–Houston
[1st Dist.] Jan. 29, 2009, pet. denied) (mem. op.) (holding that cancellation of a
workers’ comp policy for nonpayment of premium is not, as a matter of law, a breach
of contract by the workers’ compensation carrier).
Because the Policy, as well as applicable law, afforded Legion the express right
to cancel coverage for nonpayment of premium effective June 6, 2002, Legion did not
repudiate the Policy.
3. Cancellation of Coverage for Nonpayment of Premium Did Not
Terminate the Policy or Legion’s Obligations Under the Policy
While the policy period ended on the day and hour stated in the cancellation
notice provided to Hill Bros, in accordance with Texas Law and the Policy, Legion
remained liable to provide workers’ compensation benefits for all claims incurred
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 8
within the policy period and Hill Bros. remained liable to reimburse deductible
payments made on all such claims.
Under the terms of the Policy, the workers’ compensation insurance applies to
“[b]odily injury by accident [which] must occur during the policy period.”10 When the
Policy was cancelled by Legion, the contract provides that the policy period ended
on the effective date of cancellation of coverage: “The policy period will end on the
day and hour stated in the cancelation notice.”11
The Policy language tracks the requirements of TEXAS LABOR CODE §
406.031(a), which mandates that coverage extends to any employee injured within the
policy period. “An insurance carrier is liable for compensation for an employee’s
injury without regard to fault or negligence if: (1) at the time of injury, the employee
is subject to this subtitle . . . .” Id. (Emphasis supplied).12
Under no interpretation of the Policy or Texas Law did the cancellation of
coverage on June 6, 2002, terminate Legion’s obligations to continue providing
workers’ compensation benefits to Hill Bros.’ employees who were injured during the
policy period.
10
See Appellants’ Br., App., Tab 4 at CIGA 217.
11
See Appellants’ Br., App., Tab 4 at CIGA 221.
12
The subtitle is the Texas Workers’ Compensation Act. See TEX. LAB. CODE §
401.001.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 9
C. Hill Bros. Argues for a Legally Incorrect and Absurd Result
In this case, Hill Bros. argues the Guaranty Associations’ breach of contract
claims against Hill Bros. for failure to reimburse deductibles accrued on April 1,
2002, when Hill Bros. stopped paying premium to Legion. The logical consequence
of Hill Bros.’ argument is that the statute of limitations for any contract claim under
a workers’ compensation policy accrues on the date the insured elects to stop paying
premium irrespective of when the actual injury occurs. This interpretation is incorrect
as a matter of law and would effect an absurd result.
Hill Bros.’ accrual date is incorrect as a matter of law because, if the statute of
limitations accrues for any and all breach of claims on the date the insured elects to
stop paying premium, then the insurer would be required to sue as early as the accrual
date to recover benefits payments that would be made within the deductibles in the
future. This cannot be correct. On this proposed accrual date, the insurer’s claim is
not yet ripe because there has been neither payment by the insured nor injury to the
insurer. For this reason, the accrual date for future deductible payments cannot occur
on the date the insured stops paying premium. Hill Bros.’ argument to the contrary
is incorrect as a matter of law.
Hill Bros.’ proposed accrual date would effect an absurd result because large
deductible insurers would be left in the lurch without recourse by any insured who
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 10
elects to stop paying premium prior to the end of the policy period stated in the
contract. Even if an insured stops paying premium resulting in the cancellation of
coverage, the insurer will remain obligated to continue providing benefits for the
insured’s workers injured prior to the cancellation date of the policy. If the applicable
policy contains per claim or aggregate deductibles, the insured would also remain
liable to reimburse deductibles in the future until the applicable deductible limit is
reached. Because an injured worker is entitled to lifetime medical benefits for a
compensable injury in Texas, the continuing obligations to pay benefits and
reimburse deductibles will likely continue many years into the future. See Texas
Workers’ Compensation Comm’n v. Garcia, 893 S.W.2d 504, 523 (Tex. 1995)
(“Workers covered by the Act receive lifetime medical benefits. . . .”); TEX. LAB.
CODE § 408.021. If the statute of limitations expires on any and all breach of contract
claims four years after the insured stops paying premium, then the insurer could never
collect deductible payments made more than four years after that date even though
the deductible limits had not been reached. Hill Bros.’ proposed accrual date would
rewrite all large deductible workers’ compensation policies so that the insureds will
not be liable for deductible obligations incurred more than four years after the policy
period ends. Hill Bros. asks the Court to effect an absurd result.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 11
D. Conclusion in Reply
In sum, in the absence of a repudiation or termination by Legion, the statute of
limitations did not begin to accrue on the Guaranty Associations’ claim against Hill
Bros. for breach of the Policy until they made demand on Hill Bros. and Hill Bros.
repudiated its continuing obligation under the Policy to reimburse the Guaranty
Associations for their payments of “covered claims” within the deductible limits of
the Policy.
II. RESPONSE TO HILL BROS.’ CROSS-APPEAL
A. The Guaranty Associations Are Proper Parties to Sue for Breach of the
Policy
1. The Enabling Statutes Grant the Guaranty Associations the Same Rights
and Duties Under the Policy as Legion Would Have Had if Not
Insolvent, Including the Right to Reimbursement of Deductibles
The guaranty association statutes of California, Oklahoma, and Texas direct the
guaranty associations in each of the states to pay “covered claims,” under policies of
insurance issued by insolvent insurers licensed in their respective states. To the extent
of their payment of “covered claims,” the statutes grant the guaranty associations all
rights, duties, and obligations under the Policy,13 including the causes of action the
13
CAL. INS. CODE ANN. §1063.2(b) (West 2002) (CIGA “shall have the same rights as
the insolvent insurer would have had if not in liquidation. . . .”); 36 OKLA. STAT. ANN. § 2007(A)(2)
(West 2002) (OPCIGA shall “[b]e deemed the insurer to the extent of the obligations on covered
claims and to that extent shall have all rights, duties and obligations of the insolvent insurer as if the
insurer had not become insolvent.”).
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 12
insolvent insurer would have had against the insured for breach of the Policy if the
insurer had not been in liquidation.
(a) CIGA’s Statutory Rights and Obligations Under California Law14
Under California Law, Appellant CIGA “shall pay and discharge covered
claims. . . .” CAL. INS. CODE §1063.2(a). CIGA is a “party in interest in all
proceedings involving a covered claim,” and to that extent, “shall have all rights as
the insolvent insurer would have had if not in liquidation, including, but not limited
to, the right to: (1) appear, defend, and appeal a claim in a court of competent
jurisdiction; (2) receive notice of, investigate, adjust, compromise, settle, and pay a
covered claim.” CAL. INS. CODE §1063.2(b). Discussing CAL. INS. CODE §1063.2(b),
a California appellate court concluded,“A necessary concomitant of these rights and
duties is entitlement to the policy deductible.” In re Imperial Ins. Co., 157 Cal. App.
3d 290, 296 (Cal. Ct. App. 1984).15
Under the California statute, CIGA is entitled to reimbursement of deductibles
under the Policy.
14
The statutes governing CIGA are available at Appellants’ Br., App. Tab 2.
15
In re Imperial Ins. Co., 157 Cal. App. 3d 290, 296 (Cal. Ct. App. 1984) (“CIGA is
given the ‘same rights as the insolvent insurer would have had if not in liquidation, including . . . the
right to . . . adjust, compromise, settle, and pay a covered claim. . . .” (Ins. Code §1063.2, subd. (b).)
A necessary concomitant of these rights and duties is entitlement to the policy deductible.”).
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 13
(b) OPCIGA’s Statutory Rights and Obligations Under Oklahoma
Law16
The Oklahoma guaranty statute obligates Appellant OPCIGA to “pay the
covered claims . . . ,” 36 OKLA. STAT. ANN. §2007(A) (West 2002), but expressly
limits that obligation to the limits of the underlying policy. 36 OKLA. STAT. ANN.
§2007(A) (flush language) (West 2002) (“In no event shall the Association be
obligated to pay a claimant in an amount in excess of the obligation of the insurer
under the policy . . . from which the claim arises . . . .”). To the extent of its covered
claim obligations, the Oklahoma act expressly grants OPCIGA all rights, duties and
obligations of the insolvent insurer as if the insurer had not become insolvent. 36
OKLA. STAT. ANN. §2007(A) (West 2002) (“The Association shall . . . (2) Be deemed
the insurer to the extent of the obligations on covered claims and to that extent shall
have all rights, duties and obligations of the insolvent insurer as if the insurer had not
become insolvent.”). Because Legion would have had the right to enforce the
deductible provisions under the Policy if it had not become insolvent, under the
16
The statutes governing OPCIGA are available at Appellants’ Br., App. Tab 3.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 14
Oklahoma act, so too does OPCIGA have the right to enforce the deductible
provisions of the Policy to the extent of its payment of covered claims.17
(c) TPCIGA’s Statutory Rights and Obligations Under Texas Law18
Finally, the Texas guaranty act requires Appellant TPCIGA “to discharge the
policy obligations of the impaired insurer, . . . to the extent that the policy obligations
are covered claims under [the Texas guaranty act].” TEX. INS. CODE. art. 21.28-C
§8(b). The Texas act also grants TPCIGA the right to “enforce any duty imposed on
the insured party or beneficiary under the terms of any policy of insurance within the
scope of [the Texas guaranty act].” Id. The right to enforce such duties includes the
right to sue the insured for any cause of action the impaired insurer would have had
if the impaired insurer had not become insolvent. TEX. INS. CODE. art. 21.28-C §11(a)
(“Each insured or claimant seeking the protection of this Act shall cooperate with the
association to the same extent as that person would have been required to cooperate
with the impaired insurer. The association does not have a cause of action against the
17
A recent slip opinion from the United States District Court for the Western District
of Oklahoma provides instructive guidance on the rights of Plaintiff OPCIGA to recover deductibles.
Okla. ex rel. Doak v. Staffing Concepts Intern., Inc., CIV-12-409-C, 2014 WL 296643, *2 (W.D.
Okla. Jan. 24, 2014) (“Because the guaranty associations may independently seek to recover
deductible reimbursements from SCI, and the Receiver has not been injured with respect to the
guaranty association-paid claims, the Court concludes the Receiver ‘lacks the requisite interest to
have standing to represent the interests of the Guaranty Associations in this matter.’”).
18
The statutes governing TPCIGA are available at Appellants’ Br., App. Tab 1.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 15
insured of the impaired insurer for any sums it has paid out except those causes of
action the impaired insurer would have had if the sums had been paid by the impaired
insurer and except as provided in Subsection (b) of this section.”).
In this case, the duty to reimburse deductibles under the Policy is a duty
imposed on the insured Hill Bros. under the terms of the Policy itself. Under the
powers granted by the Texas guaranty act, TPCIGA may enforce Hill Bros.’
contractual duty to reimburse deductibles. Moreover, because the impaired insurer,
Legion, would have had a cause of action against Hill Bros. for Hill Bros.’ failure to
reimburse deductibles to Legion, so too does TPCIGA have a cause of action against
Hill Bros. for Hill Bros.’ failure to reimburse deductibles to TPCIGA.
2. The Pennsylvania Insurance Receivership Laws Acknowledge the
Guaranty Associations’ Right to Collect Deductibles From Insureds
As discussed briefly above, the Pennsylvania insurance receivership statute
expressly acknowledges that the Guaranty Associations may collect deductibles
directly from the policyholder. The statute states in pertinent part, “To the extent that
guaranty associations pay claims within the deductible amount but are not reimbursed
by either the receiver under this section or by policyholder payments from the
guaranty association’s own collection efforts, the guaranty association shall have a
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 16
claim in the insolvent insurer’s estate for such unreimbursed claim payments.” 40 PA.
STAT. § 221.23a (i)(2) (emphasis supplied).19
3. Construing Similar Statutory Provisions, the Wyoming Supreme Court
Held that the Wyoming Insurance Guaranty Association Has the Right
to Sue an Insured for Failure to Reimburse Deductibles
Whether a state guaranty association may recover deductibles from an insured
is not a matter of first impression.
In Wyoming Medical Center, Inc. v. Wyoming Insurance Guaranty Association,
225 P.3d 1061 (Wyo. 2010),20 the Wyoming Supreme Court addressed in depth the
question of whether the Wyoming Insurance Guaranty Association (“WIGA”) had the
right to sue an insured for breach of contract where the insured failed to reimburse
WIGA for deductibles paid in accordance with a policy issued by an insolvent
insurer. The court discussed WIGA’s powers and duties granted by the Wyoming
Insurance Guaranty Association Act (the “Wyoming Act”), citing the following
relevant provisions. Id. at 1066.
“[WIGA shall:] Be obligated to pay covered claims:”
Id. (citing WYO. STAT. ANN. §21-31-106(a)(I)) (emphasis in original).
“[WIGA shall:] Be deemed the insurer to the extent of its
obligation of the covered claims and to that extent has all
19
Appellants’ Br., App. Tab 6.
20
See Appellants’ Br., App. Tab 5.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 17
rights, duties and obligations of the insolvent insurer as if
the insurer were not insolvent;”
Id. (citing WYO. STAT. ANN. §21-31-106(a)(ii)) (emphasis in original).
“Notwithstanding subsection(a)of [§21-31-106], [WIGA]:
....
(iv) Is not obligated to pay a claimant an amount in
excess of the obligation of the insolvent insurer under the
policy or coverage from which the claim arises.”
Id. (citing WYO. STAT. ANN. §21-31-106(c)(iv)).
“[WIGA] has no cause of action against the insolvent
insurer’s insured for any sums it has paid out except the
causes of action as the insolvent insurer would have had if
it had paid those sums.”
Id. (citing WYO. STAT. ANN. §21-31-110(a)).
Construing the foregoing statutory language from the Wyoming Act, the Court
explained the plain language of the statute reflects a legislative intent that WIGA is
obligated to pay claims of the insured to the same extent as the insolvent insurer had
the insurer not become insolvent. Id. at 1067. If the insurer had not become insolvent,
the insurer would have been required to pay claims under the subject policy, less the
deductibles. Id. The insured, for its part, was required to pay the deductibles to the
insurer in accordance with the insurance contract. Id. at 1067.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 18
Had [the insured] refused to pay the deductibles, it would have been in
breach of the insurance contract and a solvent [insurer] could have
sought recovery from [the insured] of the deductible amounts. WIGA’s
rights and duties are no more and no less than [the insolvent insurer’s]
would have been. Construing the statutory language otherwise would
leave [the insured] in a better position as a result of WIGA’s
involvement than it would have been if [the insurer] had not been
insolvent, a result we are not convinced the legislature intended.
Id. (emphasis supplied). The Court concluded that WIGA is “entitled to
reimbursement of deductibles just as [the insurer] would have been had it remained
solvent.” Id. at 1068.
The statutory language from the Wyoming Act addressed above is virtually
identical to the statutes applicable to CIGA, OPCIGA, and TPCIGA. If Hill Bros.
refused to pay the deductibles to Legion, it would have been in breach of the
insurance contract and Legion could have sought recovery from Hill Bros. for the
deductible amounts. Because Appellants have the same rights and duties as Legion
with respect to “covered claims” paid under the Policy and within the deductible
amounts, Appellants are entitled to reimbursement of the deductibles just as Legion
would have been.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 19
4. The Guaranty Associations’ Enabling Statutes Create Contractual
Privity Between Hill Bros. and Each of the Guaranty Associations
Related to the Covered Claims Paid Under the Policy
The statutory rights, duties, and obligations of the Guaranty Associations to
pay covered claims under the Policy in accordance with their respective statutes
creates contractual privity between the insured Hill Bros. and each of the Guaranty
Associations to the extent of each Guaranty Association’s payment of “covered
claims.”
Construing the Virginia guaranty association statute, the Supreme Court of
Virginia explained, “The insolvency of [the insurer] created a legal relationship
between [the insured] and the [Virginia Property and Casualty Insurance Guaranty]
Association which reflected the terms of the [insurance] policy only to the extent they
were not otherwise limited by the [Virginia] Act.” Va. Prop. & Cas. Ins. Guar. Ass’n
v. Int’l Ins. Co., 238 Va. 702, 385 S.E.2d 614, 616 (Va. 1989). Stated differently, to
the extent of payment of covered claims, privity between the guaranty associations
and the insured is created at the time the guaranty associations’ obligations are
triggered through an insurer’s insolvency or impairment.21
21
See Hudson Environmental Servs., Inc. v. New Jersey Property-Liability Ins. Guar.
Ass’n, 372 N.J.Super. 284, 308, 858 A.2d 39, 53 (N.J. Sup. Ct. 2004). In an effort to avoid liability
for a bad faith claim, the New Jersey Property and Liability Insurance Guaranty Association argued,
in part, that it was not be liable to the insured because the insured and the New Jersey association
lacked privity of contract under the subject policy. The New Jersey court rejected this argument:
“Indeed, the privity argument seems to fly in the face of the express provision of the Act, under
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 20
To the extent of their payment of covered claims under the Policy, the Guaranty
Associations are in contractual privity with Hill Bros.
5. Hill Bros.’ Citation of Reinsurance Cases is Misplaced
In support of its argument that the Guaranty Associations are not proper parties
to sue for breach of the workers’ compensation policy, Hill Bros. cites the Court to
General Reinsurance Corp. v. Am. Bankers Ins. Co., 996 A.2d 26 (Pa. Commw. Ct.
2009). Hill Bros. argues that, because a state guaranty association is not entitled to
direct access to reinsurance proceeds in a suit with a reinsurer, then the Guaranty
Associations do not have standing to collect deductibles under the Policy. The Gen
Re court explained at least two critical facts about the reinsurance treaty at issue in
the case which show Hill Bros.’ citation is misplaced.
First, and most importantly, the Gen Re court explained, reinsurance proceeds
are general assets of Legion’s estate. Id. at 36 (“The general rule is that reinsurance
recoveries are general assets of the insolvent insurer estate.”) (internal citations
omitted). In contrast, Pennsylvania insurer receivership law provides that deductible
recoveries for covered claims paid by state guaranty associations are assets belonging
to the guaranty associations. (citing 40 PA. STAT. § 221.23a (g) (“Any resulting
which PLIGA assumes the insolvent insurer’s contractual obligations and has ‘all rights, duties and
obligations of the insolvent insurer.’ At bottom, the problem with the privity analysis . . . is that [it
is] unmoored to the language of the [New Jersey guaranty statute].” Id. (Internal citations omitted).
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 21
recoveries under the deductible reimbursement policy shall be payable to the guaranty
associations to the extent of claims paid within the deductible.”).22
Second, the reinsurance treaty at issue in the Gen Re case contained an
Insolvency Clause which expressly required the reinsurer to pay all reinsurance
proceeds to the insurer or the liquidator in the event of insolvency: “In the event of
the insolvency of [Legion], the reinsurance proceeds will be paid to [Legion] or the
liquidator on the basis of the claim allowed in the insolvency proceeding without
diminution by reason of the inability of [Legion] to pay all or part of the claim.” Id.
at 38. In contrast, Pennsylvania law expressly provides that the Guaranty
Associations have the right to collect deductibles due under the Policy on “covered
claims.” 40 PA. STAT. § 221.23a (i)(2) (“To the extent that guaranty associations pay
claims within the deductible amount but are not reimbursed by either the receiver
under this section or by policyholder payments from the guaranty association’s own
collection efforts, the guaranty association shall have a claim in the insolvent
insurer’s estate for such unreimbursed claim payments.”) (emphasis supplied).23
Whether the Guaranty Associations have standing to pursue collection of
reinsurance proceeds directly from a reinsurer under a reinsurance treaty has no
22
See supra I(A).
23
See supra II(A)(2).
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 22
bearing on whether the Guaranty Associations have standing to sue to collect
deductibles under a workers’ compensation policy. Hill Bros.’ citation of the Gen Re
case is misplaced and provides no support for its argument that the Guaranty
Associations do not have standing to collect deductibles.
B. Conclusion in Response to Hill Bros. Cross-Appeal
The enabling statutes in the Appellants’ states of residency grant the Guaranty
Associations the same rights, duties, and obligations as the insolvent insurer to the
extent of payment of covered claims. These rights include not only the right to
reimbursement of deductibles, but also the right to sue Hill Bros. to enforce that
right–a right acknowledged under Pennsylvania Law. Appellants are unquestionably
proper parties to sue for breach of the Policy. Hill Bros.’ cross-appeal lacks merit.
CONCLUSION AND PRAYER
The Guaranty Associations ask the Court to reverse the trial court’s award of
summary judgment based on the statute of limitations defense. As a matter of law, the
statute of limitations did not begin to run against the Guaranty Associations until they
either fully performed the continuing contract or Hill Bros. repudiated its deductible
obligation to the Guaranty Associations. The earliest either of these events occurred
was February 19, 2007, well within four years prior to the Guaranty Associations
filing suit on March 31, 2009.
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 23
The Guaranty Associations’ enabling statutes grant them the right to collect the
deductibles; and Pennsylvania insurer receivership law acknowledges this right. The
Guaranty Associations have standing and are proper parties to sue for breach of
contract in this case.
For the reasons stated, the Guaranty Associations, Appellants, ask the Court
to reverse the District Court’s summary judgment and to remand the case for further
proceedings.
Respectfully submitted,
STONE LOUGHLIN & SWANSON, LLP
P.O. Box 30111
Austin, Texas 78755
(512) 343-1300
(512) 343-1385 Fax
dprice@slsaustin.com
By:
Dan Price (SBN 24041725)
James Loughlin (SBN 00795489)
Attorneys for Appellants
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 24
CERTIFICATE OF COMPLIANCE
Relying on the word count of the computer program used to prepare
Appellants’ Reply Brief, the total number of words in this document, excluding
sections that are not to be counted under TEX. R. APP. P. 9.4(i)(1), is 5,464.
Dan Price
CERTIFICATE OF SERVICE
I hereby certify that on September 28, 2015, a true and correct copy of the
foregoing document served as indicated to the parties listed below.
Via e-Filing/e-Service
Patrick Pearsall
Adrian Ciechanowicz
DUGGINS WREN MANN & ROMERO, LLP
P.O. Box 1149
Austin, Texas 78767-1149
Telephone: (512) 744-9300
E-mail: pPearsall@dwmrlaw.com
E-mail: aCiechanowicz@dwmrlaw.com
Dan Price
G:\SLS\21744\Appeal\Drafts\2015-09-28 Appellants' Reply Brief.wpd
APPELLANTS’ REPLY BRIEF, Cause No. 03-15-00314-CV—SLS No. 21744 25