Scottsdale Ins. v. National Emergency
| Decision Date | 29 July 2004 |
| Docket Number | No. 01-02-00929-CV.,01-02-00929-CV. |
| Citation | 175 S.W.3d 284 |
| Parties | SCOTTSDALE INSURANCE COMPANY and Market Finders Insurance corporation, Appellants, v. NATIONAL EMERGENCY SERVICES, INC.; NES Holdings, Inc.; NES Government Healthcare Services, Inc.; National Emergency Services West, Inc.; EMSCO Management Services, Inc.; NES Alabama, Inc.; NES Arizona, Inc.; NES Arkansas, Inc.; National Emergency Services California, Inc. d/b/a NES California, Inc.; National Emergency Services District of Columbia, Inc. d/b/a NES District of Columbia, Inc.; NES of Florida, Inc.; NES Georgia, Inc. National Emergency Services Idaho, Inc. d/b/a NES Idaho, Inc.; NES Illinois, Inc.; NES Indiana, Inc.; NES Iowa, Inc.; NES Kentucky, Inc.; NES Louisiana, Inc.; National Emergency Services Maine, Inc.; NES Michigan, Inc.; NES Minnesota, Inc.; NES Mississippi, Inc.; NES Missouri, Inc.; NES New Jersey, Inc.; NES New Mexico, Inc.; NES New York, Inc.; National Emergency Services North Carolina, Inc. d/b/a NES North Carolina, Inc.; NES Ohio, Inc.; NES Oregon, Inc.; NES Tennessee, Inc.; NES Virginia, Inc.; NES Washington, Inc.; National Emergency Services West Virginia, Inc. d/b/a NES West Virginia, Inc.; NES Wisconsin, Inc.; CP/National, Inc.; NES Governmental Services, Inc.; Garfield Emergency Medical Group, Inc.; Community Emergency Physicians, Inc.; Whitaker National Corporation; NES Medical Services, Inc.; Lakes/National Emergency Physicians, Inc.; Global Healthcare Services, Inc.; Physician One Medical Management, Inc.; National Medical Services of New York, P.C.; NES Medical Services of New York, P.C.; NES Medical Group of Texas, P.A.; NES Medical Services of Northern Connecticut, P.C.; NES Medical Services of Staten Island, P.C.; National Emergency Services of Kentucky, P.S.C.; and NES International, Inc., Appellees. |
| Court | Texas Supreme Court |
Alexander N. Beard, Bishop & Hummert, P.C., Dallas, TX, Erin L. Alexander, Richard R. Winter, Holland & Knight LLP, Chicago, IL, Andrew L. Kerr, Holland & Knight L.L.P., San Antonio, TX, for Appellants.
Joy M. Soloway, Osborne J. Dykes, III, Fulbright & Jaworski L.L.P., Matthew E. Coveler, Houston, TX, for Appellees.
Panel consists of Justices TAFT, NUCHIA, and KEYES.
OPINION ON MOTION FOR REHEARING
The court has considered Market Finders Insurance Corporation's (Market Finders) motion for rehearing in this case and is of the opinion that the motion should be denied. However, we withdraw our opinion and judgment dated March 11, 2004 and substitute those issued today.
Plaintiff/insured National Emergency Services, Incorporated, on behalf of itself and several affiliates (collectively NES), recovered a judgment against defendant/insurer Scottsdale Insurance Company (Scottsdale) and its general agent, Market Finders, based on jury findings that both defendants engaged in unfair or deceptive acts or practices in violation of article 21.21 of the Texas Insurance Code. The jury also found against Scottsdale for breach of contract and for breach of the duty of good faith and fair dealing. NES elected to recover on its statutory claim under the Insurance Code. On appeal, both Scottsdale and Market Finders challenge the trial court's application of Texas law to NES's claims and the trial court's exclusion of their exhibits 117, 120, and 121, which pertained to their pass-on damages defense that, because NES's insured physicians would be the ultimate bearers of the increased premium, either NES was not damaged or its recovery should be reduced. Scottsdale additionally complains that the trial court improperly excluded its exhibit 71, a page of notes written by a Healthcare Insurance Services (HIS) employee with an attached Virginia statute, which sets forth an opinion about the applicability of Virginia law. Finally, Scottsdale challenges the sufficiency of the evidence to support the jury's actual damages award. We affirm.
National Emergency Services, Inc. is a corporation existing under Illinois law with its principal place of business in California. National Emergency Services' affiliates and subsidiaries conduct business in most of the 50 states, including Texas and Virginia. Each affiliate and subsidiary has a different state of incorporation. NES contracts with hospitals and clinics to provide physicians and other healthcare professional staff to emergency rooms and other healthcare facilities. The physicians and other healthcare professionals who are paid by NES are independent contractors, and NES provides them with medical liability insurance. No hospital allows a physician to treat a patient unless the physician carries sufficient malpractice insurance; therefore, NES provides each NES staffed doctor with a certificate evidencing that the physician carries insurance. Healthcare Insurance Services, Inc., a Houston, Texas insurance agency, is NES's broker/agent in obtaining the physicians' malpractice insurance.
In September 1999, HIS began working to secure malpractice insurance for NES after learning that NES's then-current insurer had decided to exit the malpractice insurance business. HIS transmitted an insurance package to Market Finders. Market Finders was a Louisville, Kentucky based insurance broker/agent for Scottsdale Insurance Company. Scottsdale was a surplus lines carrier incorporated in Ohio with its principal place of business in Scottsdale, Arizona. As the agent for Scottsdale, Market Finders wanted to write the coverage for HIS and NES. From its Houston, Texas office, HIS transmitted to Market Finders a Proposal of Insurance to cover NES and its contract healthcare professionals for the year 2000. On December 22, 1999, Market Finders initialed the Proposal, stamped it approved, and faxed it back to HIS in Houston. The Proposal contained the terms of the offer, including the policy period from December 31, 1999 to December 31, 2000, and the specified premium of $3,071,400. The Proposal listed the named insureds as "National Emergency Services, Inc. and NES Healthcare Services, Inc., aka NES Holdings, Inc., affiliates and subsidiary companies, 6477 College Park Square, Suite 316, Virginia Beach, VA 23461."
On December 22, 1999, HIS faxed the Proposal to NES's outside counsel, Sanford Pomerantz, in Missouri. Pomerantz proposed some changes to the Proposal, which HIS made and sent back. After receiving the revised HIS Proposal, Pomerantz sent it to Allan Rappaport, NES's President, in California. Rappaport signed the Proposal and returned it to Pomerantz, who in turn faxed it to HIS in Houston. On December 27, 1999, Market Finders initialed the Proposal in Kentucky, stamped it approved, and sent the final Proposal to HIS in Houston.
On the same day, Market Finders sent the underwriting package to Scottsdale in Arizona. In reviewing the risks, Scottsdale determined that it wanted a $3,300,000 premium, approximately $300,000 more than the agreement between Market Finders and NES/HIS. Unaware of the premium dispute, the next day, after receiving the two approvals based on the $3 million premium (one from Rappaport on behalf of NES and one from Watts on behalf of Market Finders), and thus documentation that the insurer had been bound, HIS began sending the "Certificates of Liability Insurance" to each of its locations where NES provided emergency room physicians.
On February 25, 2000, Market Finders, with Scottsdale's approval, issued a notice of cancellation of the insurance for nonpayment of premium. However, NES had already paid the premium in full to HIS by January 31, 2000; and HIS, in turn, had remitted it to Scottsdale. Scottsdale thus rescinded the cancellation on March 10, 2000. Four days later, Market Finders, again with Scottsdale's approval, issued a second cancellation notice, citing underwriting reasons and increased exposure as the basis. NES claimed that the second cancellation lacked any reasonable basis, was in bad faith, and breached the contract for coverage through December 31, 2000.
NES had to quickly find replacement insurance coverage. When it did find replacement coverage, the coverage was approximately $600,000 more expensive than Scottsdale's. Rather than replacing the Scottsdale coverage with another insurance company's, NES had to enter into contracts with four different insurers.
NES filed suit against Market Finders and Scottsdale alleging (1) breach of the common law duty of good faith and fair dealing; (2) violations of the Texas Insurance Code, including unfair or deceptive acts or practices; (3) breach of contract; and (4) fraud. NES claimed that Scottsdale and Market Finders falsely promised to ensure NES for a full year at the premium price set forth in the Proposal, falsely cancelled the insurance guaranteed by the Proposal without a reasonable basis, misrepresented the reason for the first cancellation as being for nonpayment of the premium, and misrepresented that the second cancellation was because of increased risk. All the claims arose out of or in relation to the Proposal entered into by NES and Scottsdale through their agents HIS and Market Finders respectively.
A jury found in favor of NES and against Scottsdale by finding that Scottsdale breached its duty of good faith and fair dealing, the Insurance Code, and its contract with NES. The jury also found that Market Finders violated the Insurance Code by engaging in unfair or deceptive acts or practices. NES elected to recover against both defendants on its Insurance Code claim. With respect to NES's Insurance Code claim, the jury awarded and NES recovered $642,585 in damages as the cost of replacement insurance. The judgment was rendered accordingly.
In their first issue, Scottsdale and Market Finders argue that the trial court erred in applying Texas, rather than Virginia, law to...
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