USA – TEXAS Trends and Developments Contributed by: Stephen Melendi, Aaron Mitchell, Lisa Songy and Matt Rigney, Tollefson Bradley Mitchell & Melendi, LLP
• the amount of applicable coverage furnished by a policy; and • whether an “absolution pollution exclusion” or similar exclusion precludes coverage. In cases involving these issues, the reasons why the insurer may have no duty to indemnify have nothing to do with the duty to defend, or the insurer may have no duty to defend at all because the coverage furnished is excess. Declaratory relief can serve a useful purpose in these cases by determining the existence of a duty to indemnify even before the liability case is resolved. If insurers cannot obtain declaratory relief as to their rights because the Griffin exception does not apply, then such insurers will often be faced with policy limit settlement demands that must be responded to when the existence or amount of coverage is disputed or unclear. Under Texas law, an insurer takes coverage into account in determining whether to accept a set- tlement demand at its own risk. This trend of using the inapplicability of the Griffin exception as a basis for denying declaratory relief means that insurers will likely have to continue making decisions about set- tlement demands without the benefit of judicial clari- fication as to what their policies cover and how much coverage their policies provide. The forum selection clause: applied by Texas courts, but challenged by insureds Insurance litigation has increased in the past decade in complexity and amount in controversy, but the law and court systems of many states have been unable to keep pace. This is especially true in large com- mercial first-party losses that involve towers of cov- erage. One tool insurance carriers increasingly use to streamline litigation – either because of favourable law or venues better equipped to handle eight- and nine-figure litigation – is the forum selection clause. These clauses, which specify the court or jurisdic- tion where disputes are litigated and often the law that applies, generally come in two types: mandatory/ exclusive clauses, which require that disputes be liti- gated only in the designated forum, and permissive/ non-exclusive clauses that allow litigation in the des- ignated forum but do not preclude other venues. This article focuses on mandatory forum selection clauses.
Insurers include forum selection clauses to achieve predictability and consistency in legal proceedings. Forum selection clauses have multiple benefits, including (i) reducing litigation costs by centralising disputes in a familiar forum; (ii) mitigating the risk of facing litigation in multiple or distant jurisdictions; (iii) utilising favourable laws or precedents in a chosen venue; and (iv) promoting efficient case management by relying on courts familiar with insurance contract interpretation. Unsurprisingly, insureds often resist application of forum selection clauses. The result can be significant litigation and briefing about the forum selection clause at the outset of the case, before the substantive issues are addressed. This not only delays resolution of the substantive coverage or legal issues, but it drives up costs immediately. This hurts both parties. It drives up defence costs for the insurers and attorney fees owed to the insured’s lawyers, which can make settlement more difficult. Forum selection clauses are generally enforceable in Texas Although their use has increased in recent years, these types of clauses are not new to Texas courts, which favour the freedom of the parties to contract how they see fit. Thus, courts will generally enforce forum selec- tion clauses. In fact, a court that does not enforce a forum selection clause abuses its discretion – a very high legal standard – absent clear evidence of one of four elements. They are that (i) enforcement would be unreasonable or unjust, (ii) the clause is invalid for rea- sons of fraud or overreaching, (iii) enforcement would contravene a strong public policy of the forum where the suit was brought, or (iv) the selected forum would be seriously inconvenient for trial. A 20-year old case called In re AIU Ins. Co. , 148 S.W.3d 109, 121 (Tex. 2004) set out these factors. In that case, the insured plaintiff initiated suit in Hildalgo County, Texas, and the insurance company moved to dismiss based on the insurance policy’s forum-selec- tion clause. The trial court denied the motion, but, on a mandamus petition, the Supreme Court of Texas directed the Hildalgo County Court to grant the insur- er’s motion to dismiss. The Supreme Court of Texas noted that litigating in New York was not a significant
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