Amy Elizabeth Stewart's Legal Cases (5)

Insurance

Mary Kay, Inc., et al. v. Federal Insurance Company

Feb 06, 2009

OUTCOME: Won summary judgment; affirmed on appeal.

Amy represented Federal Insurance Company in a complex coverage lawsuit brought by Mary Kay, Inc., winning summary judgment on all claims in the district court and obtaining a ruling in the Fifth Circu ... it affirming the district court’s order. The underlying lawsuit asserted claims against Mary Kay and numerous other defendants following the bankruptcy of a national food brokerage company, Marketing Specialists Corporation (MSC). Mary Kay held a fluctuating ownership or investment interest in MSC and some of its officers and directors served as MSC officers and directors. The MSC lawsuit alleged that officers of Mary Kay, while acting as fiduciaries of MSC’s employee benefit plans: (1) misused and diverted plan assets to pay general corporate obligations in violation of their fiduciary duties under ERISA; (2) failed to disclose material information to participants in MSC’s benefit plans; and (3) misrepresented the status of those plans and participants’ rights to continuation coverage under COBRA. The underlying lawsuit further alleged that Mary Kay was vicariously liable for these alleged breaches of fiduciary duty. In addition, the MSC lawsuit alleged that Mary Kay was directly liable for failing to provide COBRA continuation coverage to MSC plan participants after the bankruptcy based on a theory of controlled group liability. Mary Kay sued, asserting causes of action against Federal for breach of the duties to defend and indemnify, statutory violations and bad faith. Federal argued that the fiduciary liability policy issued to Mary Kay did not provide coverage for wrongful acts alleged with respect to MSC’s benefit plans because MSC was not a subsidiary of Mary Kay and, as such, was not an insured organization under the policy. Although this fact was established by extrinsic evidence, Federal argued that the underlying lawsuit did not allege sufficient facts to establish subsidiary status under the eight-corners rule. In addition, the direct COBRA claim was asserted against Mary Kay in its capacity as a plan sponsor and implicated Mary Kay’s settlor functions, not fiduciary functions. Mary Kay argued in response that MSC was a subsidiary under the policy definition and that the fiduciary duty claims were therefore covered. Mary Kay also sought to persuade both courts that the direct liability COBRA continuation coverage claim alleged a breach of fiduciary duties owed by Mary Kay with respect to its own benefit plans. The Fifth Circuit agreed with Federal. In February, the appellate court affirmed the district court’s order granting Federal’s motion for summary judgment on all claims and denying Mary Kay’s cross-motion on the duty to defend. See Mary Kay Holding Corp. v. Fed. Ins. Co., No. 3:06-CV-896, 2007 U.S. Dist. LEXIS 88583, at *11 (N.D. Tex. Aug. 14, 2007), aff’d, 2009 U.S. App. LEXIS 2381 (5th Cir. Tex. Feb. 6, 2009). http://www.ca5.uscourts.gov/opinions/unpub/07/07-10951.0.wpd.pdf.

Insurance

In re Fort Worth Osteopathic Hospital, Inc.

Apr 30, 2008

OUTCOME: Won summary judgment.

Amy represented the excess D&O insurer in coverage litigation arising from claims asserted by the bankruptcy trustee against directors and officers of a not-for-profit hospital alleging corporate misma ... nagement and waste. The trustee sought to recover from non-profit D&Os more than $150 million in alleged damages ($20 million in combined policy limits). The coverage litigation turned on the enforceability of an exclusion applicable to trustee claims. The trustee argued that the exclusion was an unenforceable ipso facto provision under the Bankruptcy Code. The court disagreed, deciding that the exclusion was not an ipso facto clause. In re Fort Worth Osteopathic Hospital, Inc., 387 B.R. 706 (Bankr. N.D. Tex. 2008).

Insurance

Warrantech v. Steadfast Insurance Co.

Mar 28, 2008

OUTCOME: Texas Supreme Court declined review on the merits

Handled briefing on the merits in the Texas Supreme Court on the issue of whether the fortuity doctrine may be applied in an eight-corners analysis to defeat the duty to defend. It is well-establish ... ed that fortuity is an inherent requirement in all insurance policies. Texas law recognizes the “fortuity doctrine” as a matter of public policy because the purpose of insurance is to protect against unknown, fortuitous risks. An insured cannot insure against something that has already begun and which is known to have begun – the proverbial burning building. Under the fortuity doctrine, insurance coverage is precluded not only for known losses, but also for losses of which an insured is, or should be, aware at the inception of the policy. If an insured knows, or should have known, at the time it purchased the insurance policy, that its current behavior is wrongful and could result in liability, it effectively removes the risk element inherent in insurance. Similarly, the loss in progress doctrine precludes a party from voluntarily engaging in an activity that gives rise to an accusation of wrongdoing and potential legal liability, and then purchasing insurance so that it may shift financial responsibility for its conduct. The relevant inquiry is whether the insureds knew at the time they entered the insurance policy that they were engaging in activities for which they could possibly be found liable. The issue of whether the fortuity doctrine may preclude an insurer’s duty to defend was briefed on the merits for the Texas Supreme Court in Warrantech Corp. v. Steadfast Ins. Co. In Warrantech, the court of appeals analyzed the insurer’s fortuity defense under the eight-corners rule to determine whether the insurer had a duty to defend its insured in litigation arising from the administration of a consumer warranty program. The court based its analysis on the allegations in the underlying petition. As administrator of the program, Warrantech was in charge of processing the warranty claims. When a claim was made, Warrantech was responsible for validating the warranty in question before authorizing a repair and paying the repair costs. Because the program was entirely paperless, however, warranty information existed only in a computer database that was incomplete and inaccurate. Many of the electronic warranty records failed to provide even basic information to identify the customer, the product or the type of warranty sold. In 1996, Warrantech began haphazardly matching unvalidated warranty repair claims to incomplete “shell” warranty contracts in a deliberate attempt to turn unvalidated, uninsured claims into validated, insured claims. Warrantech automated that process with linking software in 1997. Warrantech then denied the existence of the linking software during the arbitration proceeding and deliberately destroyed the second version of the software. After an audit, Warrantech’s warranty insurer accused it of overpaying claims and demanded reimbursement of $19 million. When reinsurers refused to reimburse the insurer for Warrantech claims, an arbitration ensued. Warrantech was aware of and involved in the arbitration over the disputed claims. All of this happened before the policy’s inception date. The court reiterated that “[a]pplication of the fortuity doctrine in the duty-to-defend context is resolved by the eight-corners rule; ‘we focus only on those facts that are alleged in the pleadings in the underlying lawsuit.’” Based on its analysis of the petition, the court concluded that Warrantech knew of the loss caused by its mispayment of warranty claims long before the inception date of Steadfast’s policy. Applying the fortuity doctrine under the constraints of the eight-corners rule, the court of appeals held that the liability insurer had no duty to defend Warrantech. Warrantech petitioned the Texas Supreme Court for review and, after briefing on the merits, the court denied review.

Insurance

Calad v. CIGNA

Jun 21, 2004

OUTCOME: Prevailed in US Supreme Court

Amy represented CIGNA in federal district court and before the Fifth Circuit in the landmark ERISA preemption case decided by the United States Supreme Court in 2004, CIGNA Healthcare of Texas, Inc. v. ... Ruby Calad, 542 U.S. 200 (2004). The issue was whether claims brought under the Texas Healthcare Liability Act were preempted by ERISA. CIGNA prevailed in the district court, defeating the plaintiff's motion to remand. The Fifth Circuit reversed and held firm on rehearing. The Supreme Court ultimately agreed with the insurers and concluded that the healthcare liability claims were preempted. (NOTE: Amy handled the briefing in the district court and before the Fifth Circuit panel. CIGNA's national counsel briefed and argued the motion for rehearing en banc and before the Supreme Court.)

Construction and development

Rogers v. North Texas Bomanite, Inc.

Nov 19, 2002

OUTCOME: Won arbitration

Amy represented an architectural concrete contractor who was alleged to have performed faulty work, involving breach of contract and deceptive trade practice claims. Case was resolved through arbitrati ... on pursuant to a clause in the contract. The arbitrator denied plaintiff’s claim in its entirety.

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