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Litigation's Latest: January 2014

January 02, 2014

Below are the articles for the January issue. To view, click on the appropriate title and you will be brought to the full version of the article below.

Texas Supreme Court Allows Merit-Based Reviews of Orders Granting New Trial
Exclusion of Expert Testimony When Opinion Not Disclosed Before Trial
Economic Loss Ruling Expected to Have Minimal Impact on Florida Agents


On August 30, 2013, the Texas Supreme Court decided a significant case regarding whether an appellate court may conduct a merits-based review of a trial court’s order granting a new trial after a jury verdict. This is the third in a trilogy of cases introducing a significant change to Texas post-trial procedure.

In the past, Texas law did not allow an appeal or a petition for writ of mandamus following the grant of a motion for new trial, even if the trial court gave no reason for overturning the jury verdict. The trial court had complete discretion to grant a new trial, for any reason or no reason, and there was no meaningful avenue of review of that decision by an appellate court.

However, in two cases in 2009 and 2012, the Texas Supreme Court changed that rule and held that an order granting a new trial could be appealed by petition for writ of mandamus. The Court also specifically required that the trial court state a reasonably specific and legally sound reason why it set aside the jury verdict. In re Columbia Med.Ctr. of Las Colinas, Subsidiary, L.P., 20 S.W.3d 204 (Tex. 2009); In re United Scaffolding, Inc., 377 S.W.3d 685 (Tex. 2012).

In In re Toyota Motor Sales U.S.A., 407 S.W.3d 746, 56 Tex. Sup. Ct. J. 1007, (August 30, 2013), the Court considered an issue left open by In re Columbia and In re United. The issue before the Court was whether the appellate court may delve into the trial court record to evaluate the reasons a trial court gives for granting a new trial.

The Court held that appellate courts may review the full trial court record in a mandamus review. The court noted that to deny merits-based review would mean that a trial court could set aside a verdict for reasons that are not supported by the record, making the requirement that the trial court state valid reasons for the order a mere formality. The Court also noted that federal courts regularly conduct merits-based review of new trial orders.

The Court re-emphasized its “faith in the integrity of our trial bench,” and in a concurring opinion, two justices emphasized that trial courts must continue to have significant discretion in granting a new trial. Nevertheless, this decision severely limits the power of a Texas trial court to “undo” a jury’s verdict after trial.

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A recent Mississippi Supreme Court case held that the trial court should have excluded testimony of an expert based on the fact that the expert’s theory at trial was an entirely new theory that was not disclosed before trial. In Cleveland, et al. v. Hamil, 119 So. 3d 1020, a patient was admitted to the hospital with severe abdominal pain. The patient was treated by Dr. Smith-Vaniz, a gastroenterologist, and Dr. Cleveland, a cardiovascular surgeon, who performed surgery to repair an ulcer. Approximately one week later, after the patient had been released from the hospital, he returned to the hospital with further abdominal pain. A second surgery revealed that the patient had a second ulcer which had eroded a large blood vessel and caused his death.

The plaintiff filed suit against the doctors who had treated the patient and Jackson HMA, Inc., alleging wrongful death. During discovery, the plaintiff’s expert expressed an opinion that the doctors had deviated from the standard of care by failing to prescribe anti-ulcer medication upon the patient’s discharge from the hospital, thereby allowing the second ulcer to develop. During trial, the plaintiff’s expert admitted that he later became aware that the doctors had prescribed the anti-ulcer mediation upon discharge. However, at trial, the expert changed his theory to support his conclusion that the doctors had deviated from the standard of care by testifying, over objection from the defendants, that the second ulcer was developing during the patient’s hospital stay and the doctors should have discovered it prior to his discharge.

The jury returned a verdict against all three defendants, and the Court of Appeals reversed. With regard to the judgment against Dr. Smith-Vaniz, the court held that the plaintiff’s expert was not qualified to provide an opinion as to the standard of care for a gastroenterologist. The court also rendered judgment in favor of Jackson HMA, because Jackson HMA could only be vicariously liable for the acts of Dr. Smith-Vaniz. With regard to Dr. Cleveland, the Court of Appeals found that the plaintiff’s expert was qualified to render an opinion as to the standard of care of Dr. Cleveland, but concluded that allowing the expert to testify at trial amounted to trial by ambush. Therefore, the court remanded the case against Dr. Cleveland for a new trial. Dr. Cleveland filed a petition for writ of certiorari which was granted by the Supreme Court.

In order to establish a prima facie case of medical malpractice, a plaintiff must prove 1) the existence of a duty by the defendant to conform to a specific standard of conduct for the protection of others against an unreasonable risk of injury; 2) a failure to conform to the required standard; and 3) an injury to the plaintiff proximately caused by the breach of such duty. Expert testimony is required to establish the second and third prongs.

The Supreme Court held that the Court of Appeals erred by not rendering judgment in favor of Dr. Cleveland. The Court stated that, although the plaintiff’s expert was qualified as an expert in cardiovascular surgery, his theory at trial was an entirely new theory that was not disclosed before trial. Thus, the trial judge should have excluded his testimony as inadmissible, leaving the plaintiff without any admissible expert testimony to establish that Dr. Cleveland breached the standard of care.

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The Florida Supreme Court recently issued its much-discussed opinion in Tiara Condominium Association, Inc., etc., v. Marsh & McLennan Companies, Inc., etc., et al. (No. SC10-1022). Strictly speaking, the Court’s ruling does nothing more than limit the applicability of an arcane legal theory known as the “Economic Loss Rule.” While the Court’s ruling eliminates any remaining argument that the Economic Loss Rule (“ELR”) might provide a defense in agent malpractice cases, in practice the Tiara decision will have little impact on Florida’s insurance agents.

The ELR is a judicially-created doctrine. Historically, the ELR was used to prohibit a negligence claim and any resulting non-economic damage when a contract existed that specifically defined the limits of liability and risk. Stated another way, a traditional application of the ELR prevented a claimant, who was a party to a contract, from recovering under a negligence theory (also known as a tort theory) without a distinct claim for personal injury or property damage. The doctrine originally applied only in products liability cases. In Fla. Power & Light, 510 So. 2d 899 (Fla. 1987), a Florida electric company sued the manufacturer of electric turbines asserting a negligence (or tort) theory in an attempt to recover for damages to the turbines caused by the turbine’s malfunction. The court dismissed the negligence claim because the damages alleged were the subject of a contract between the parties. Applying the ELR, the court held that the electric company could sue in negligence only if the turbines’ malfunction caused personal injury or property damage to property other than the turbines, which was not the case. As applied, the ELR had the effect of eliminating claims for negligence where a party alleges breach of the contract and an additional count for negligently breaching that contract.

Although a simple concept in theory, the ELR has been the source of much confusion in the Florida courts. The problems in Florida began in 1987 when the Florida Supreme Court, in AFM Corp. v. Southern Bell, 515 So. 2d 180 (Fla. 1987), expanded the ELR to include contracts for services. As the years went by the Florida courts continued to expand the doctrine’s application. There were also judicially-created exceptions to the ELR, such as the exception for professional services. The expansions, together with the exceptions, created a confusing body of law.

The Tiara case began in federal court when a condo association sued its insurance broker alleging the broker failed to advise the association of its complete insurance needs. The insurance broker argued that the ELR barred the negligence (tort) claim. The Eleventh Circuit certified the following question to the Florida Supreme Court:
Does an insurance broker provide a ‘professional service’ such that the insurance broker is unable to successfully assert the economic loss rule as a bar to tort claims seeking economic damages that arise from the contractual relationship between the insurance broker and the insured?

The Florida Supreme Court rephrased the certified question as follows: “Does the Economic Loss rule bar an Insured’s suit against an insurance broker where the parties are in contractual privity with one another and the damages sought are solely for economic losses?” In its opinion, the Supreme Court did not answer the question before it, but instead limited the ELR to products liability cases only. Thus, the Tiara decision has rightfully received a good deal of attention because the Court abolished practically every ELR decision since 1987, including the expansions and the exceptions, and returned the law in Florida to its pre-1987 status.

Even prior to Tiara, however, it was never clear whether the ELR applied to actions against Florida insurance agents. Some trial courts would apply it and some would not. This ambiguity resulted largely from the professional services exception to the ELR. Because Florida courts treat insurance agents as professionals on some but not all matters, considerable confusion existed as to whether the ELR applied to the agreements between agents and their clients. The only known case to address the specific issue concluded that the ELR did not apply to actions against insurance agents because the relationship between an agent and insured involved extra-contractual duties. Randolph v. Mitchell, 677 So. 2d 976 (Fla. 5th DCA 1996) suggested that an insurance agent’s relationship with his client was not unlike the relationship between an attorney and his client. If Mitchell was the law of the land, which was never clear, then Tiara changes nothing for Florida’s insurance agents.

To the extent Tiara represents a bright-line ruling on use of the ELR, it is still not likely to be material in most insurance agent cases. There were always advantages and disadvantages to invoking the ELR in an agent malpractice case. The obvious advantage of the ELR was that the parties were limited to the terms of the oral (and occasionally the written) agreement to procure insurance coverage. When invoked, a cause of action for negligence could not stand. Since this left only the contract claim, such advantages were frequently outweighed by the significant disadvantages. By requesting that the action proceed solely in contract the agent was forced to give up any defenses directed to the negligence claim, including comparative negligence. In a typical insurance agency case, comparative negligence can be the best defense. It is not unusual for an insured to sue an insurance agent despite never taking the time or effort to read his or her policy, or other pertinent documents and communication. Most courts would agree that such failures constitute comparative negligence, thereby reducing the potential liability of the insurance agent. Comparative negligence is not available as a defense to a contract action, thus when the ELR was invoked the agent had to give up any comparative negligence arguments. As a result, agents defending against such claims often intentionally abandoned the ELR defense.

In sum, the Tiara decision does little more than return Florida to the state of the law as existed pre-1987. That is to say, an insurance agent’s client may again sue in the same action for both breach of the contract and negligence. Importantly, however, the decision does not expand the duties an agent owes to an insured, nor does the decision affect the general limitation of damages recoverable against an agent.

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