OneBeacon Insurance Company v. T. Wade Welch & Associates et al
Filing
130
ORDER GRANTING IN PART, DENYING IN PART 103 MOTION for Clarification as to 101 Order.(Signed by Judge Gray H. Miller) Parties notified.(rkonieczny)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
ONE BEACON INSURANCE COMPANY,
Plaintiff,
v.
T. WADE WELCH & ASSOCIATES,
ROSS W. WOOTEN , T. WADE WELCH ,
AND JOSEPH H. BOYLE ,
Defendants.
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CIVIL ACTION H-11-3061
O RDER
Pending before the court are defendants and counter-plaintiffs T. Wade Welch & Associates
(the “Welch Firm”) and T. Wade Welch’s (collectively, the “Welch Defendants”) motion for
clarification or reconsideration of the court’s order addressing the Welch Defendants’ motion to
dismiss. Dkt. 103. The Welch Defendants move, alternatively, for leave to amend. Id. After
considering the motion, response, reply, and applicable law, as well as other relevant documents in
the record, the court is of the opinion that the motion should be GRANTED IN PART AND
DENIED IN PART.
I. BACKGROUND
On June 25, 2012, the court granted in part and denied in part plaintiff and counter-defendant
OneBeacon Insurance Company’s (“OneBeacon”) motion to dismiss. Dkt. 101. Among other
rulings, the court granted the motion with regard to claims relying on a policy issued by OneBeacon
for 2006, the Stowers duty, the duty of good faith and fair dealing, and failure to timely deny
coverage. Id. The Welch Defendants now move for reconsideration or clarification with regards to
each of these rulings. Dkt. 103.
II. LEGAL STANDARD
The Federal Rules of Civil Procedure do not recognize a motion for reconsideration.
Edwards v. City of Houston, 78 F.3d 983, 995 (5th Cir. 1996). However, motions that challenge a
prior judgment on the merits are treated as either a Rule 59(e) or Rule 60(b) motion. Id. “If the
motion is served within [28] days of the rendition of judgment, the motion falls under Rule 59(e);
if it is served after that time, it falls under Rule 60(b).” Ford Motor Credit Co. v. Bright, 34 F.3d
322, 324 (5th Cir. 1994). Here, the motion was filed within 28 days, so the court considers it
pursuant to Rule 59(e). A “motion to alter or amend the judgment under Rule 59(e) ‘must clearly
establish either a manifest error of law or fact or must present newly discovered evidence’ and
“cannot be used to raise arguments which could, and should, have been made before the judgment
issued.’” Rosenzweig v. Azurix Corp., 332 F.3d 854, 864 (5th Cir. 2003) (quoting Simon v. United
States, 891 F.2d 1154, 1159 (5th Cir. 1990)).
III. ANALYSIS
The court will consider each of the four issues raised by the Welch Defendants in turn. With
regard to the dismissal of the claim relating to the 2006 policy, the Welch Defendants argue that the
innocent insured clause applied to the entire section entitled Reporting of Claims and Wrongful Acts
and that it appears from the order that the court did not consider the applicability of this clause. Dkt.
106. However, the court found that the policy was inapplicable because it is a claims-made policy
and there were no claims made within the policy period. See Dkt. 101. Whether the Welch
Defendants were relieved from reporting potential claims during the policy period under the innocent
insureds clause has nothing to do with the fact that there was no actual claim made–by a third
party–during the policy period. Thus, the 2006 policy does not apply. The Welch Defendants’
motion, as it relates to court’s order dismissing the claim for breach of the 2006 policy is DENIED.
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With regard to the Stowers duty, the Welch Defendants argue that the court should not have
dismissed their Stowers claim with prejudice because it merely found that the claim was not ripe;
with the prejudicial dismissal, the Welch Defendants will be unable to replead when the claim does
become ripe. Dkt. 103. OneBeacon points out that the count implicating Stowers that was dismissed
was styled as a negligence claim, not a Stowers claim. Dkt. 104. The court finds that whether it is
framed as a negligence claim or a Stowers claim is a matter of semantics and that this claim should
have been dismissed without prejudice. Accordingly, the Welch Defendants’ motion to reconsider
this aspect of the court’s June 25, 2012, order is GRANTED. That order is hereby AMENDED to
reflect that Count V is DISMISSED WITHOUT PREJUDICE.
The Welch Defendants next take issue with the court’s ruling on the duty of good faith and
fair dealing. Dkt. 103. The Welch Defendants assert that their claims for breach of the duty of good
faith and fair dealing are first-party claims, not third-party claims, and that, as such, they should not
have been dismissed. Id. Under Texas law, “a duty of good faith and fair dealing may arise as a
result of a special relationship between the parties governed or created by a contract.” Arnold v.
Nat’l Cnty. Mut. Fire Ins. Co., 725 S.W.2d 165, 167 (Tex. 1987). “In the insurance context a special
relationship arises out of the parties’ unequal bargaining power and the nature of insurance contracts
which would allow unscrupulous insurers to take advantage of their insureds’ misfortunes in
bargaining for settlement or resolution of claims.” Id. “A cause of action for breach of the duty of
good faith and fair dealing is stated when it is alleged that there is no reasonable basis for denial of
a claim or delay in payment or a failure on the part of the insurer to determine whether there is any
reasonable basis for the denial or delay.” Id. Additionally, “a cause of action for breach of good
faith and fair dealing exists when the insurer wrongfully cancels an insurance policy without a
reasonable basis. A cause of action is stated by alleging that the insurer had no reasonable basis for
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the cancellation of the policy and that the insurer knew or should have known of that fact.” Union
Bankers Ins. Co. v. Shelton, 889 S.W.2d 278, 283 (Tex. 1994).
Here, the counterclaim alleges that OneBeacon breached its duty of good faith and fair
dealing when it “refused to pay, delayed in paying or offered grossly inadequate and unconscionable
sums to settle . . . .” Dkt. 61. The court construed this claim as involving the alleged failure to
defend or the mishandling of the claim of a third party. Dkt. 101. The court has re-reviewed the
counterclaim and notes that the Welch Defendants also specifically allege that OneBeacon breached
its duty by “its attempted rescission of the 2007 and 2008 policies in its August 19, 2011 letter.” The
allegations with regard to that letter indicate that it was issued nearly two-and-a-half years after
OneBeacon was notified of the incident giving rise to EchoStar’s claim, which was also the Friday
before mediation, and that the letter alleged that OneBeacon had discovered the 2005 Dominion
attorneys’ fees order no earlier than May 31, 2011, when in reality OneBeacon had knowledge of that
order before that date. Dkt. 61. The court finds that these allegations are sufficient to plausibly state
that OneBeacon wrongfully rescinded the policy without a reasonable basis. Thus, the Welch
Defendants’ motion to reconsider is GRANTED. The breach of the duty of good faith and fair
dealing claim—as it relates to the alleged wrongful rescission of the policies—is still a viable claim.
The remainder of the allegations under this claim, however, as noted in the original order, all relate
to the third-party claims and are DISMISSED.
Finally, the Welch Defendants request the court to reconsider its dismissal of the failure to
timely deny coverage claim. Dkt. 103. The court dismissed this claim to the extent that it relates
to OneBeacon’s alleged failure to timely affirm or deny its duty to indemnify, but denied it to the
extent that it related to OneBeacon’s failure to timely affirm or deny its duty to defend and failure
to timely submit a reservation of rights letter. Dkt. 101. The Welch Defendants note that they
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received new information via discovery in June 2012 indicating that OneBeacon knew of the alleged
falsity of Question 42 no later than June 21, 2011. Dkt. 103. The Welch Defendants thus request
leave to amend their counterclaim to add an allegation that there has been a failure by OneBeacon
to affirm or deny coverage within a reasonable period of time. Id. OneBeacon argues that an
amendment would be futile because there is still no judgment or settlement of the underlying case,
and thus the claims relating to denial of indemnification cannot be untimely. Dkt. 104. The court
agrees. The Welch Defendants’ new arguments relate to OneBeacon’s alleged failure to respond to
the Stowers demand before it lapsed despite knowing about the 2005 Dominion attorneys’ fees order
during the Stowers period.
See Dkt. 103 at 6.
Under Texas Insurance Code subsection
541.060(a)(4), which is the subsection under which the Welch Defendants assert this claim, it is
deceptive practice to fail to affirm or deny coverage of a claim within a reasonable time; the cases
interpreting this section indicate that a denial of indemnification made before the final judgment or
settlement is considered reasonable. See Dkt. 101 (considering subsection 541.060(a)(4) and Texas
caselaw interpreting it). While the court understands the Welch Defendants’ assertions that the
timing of the denial of indemnification was unreasonable given the Stowers deadline, that has little
to do with subsection 541.060(a)(4). The Welch Defendants’ motion to reconsider or amend with
regard to the alleged failure to timely affirm or deny a request to indemnify is DENIED.
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IV. CONCLUSION
The Welch Defendants’ motion for clarification, reconsideration, or alternatively to amend
(Dkt. 103) is GRANTED IN PART AND DENIED IN PART. The motion is GRANTED with
respect to the motion to reconsider the dismissal with prejudice of the negligence/Stowers claim.
This claim should have been and is hereby DISMISSED WITHOUT PREJUDICE. It is also
GRANTED with respect to the breach of the duty of good faith and fair dealing claim as it relates
to the alleged wrongful rescission of the policies. This portion of the claim should not have been
dismissed and is hereby REINSTATED. The motion for clarification, reconsideration, or to amend
is DENIED in all other respects.
It is so ORDERED.
Signed at Houston, Texas on November 7, 2012.
___________________________________
Gray H. Miller
United States District Judge
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