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Frank's Casing: Supreme Court Reverses Insurance Ruling on Rehearing

February 8, 2008

The Texas Supreme Court has issued its much anticipated opinion on rehearing in Excess Underwriters at Lloyd's, London v. Frank's Casing Crew & Rental Tools, Inc.  On February 1, 2008, the Court withdrew its controversial 2005 opinion and reversed its prior ruling.  Warren Harris, who heads Bracewell & Giuliani LLP's appellate practice group, was lead appellate counsel for Frank's Casing.  
Frank's Casing has been called one of the most important Texas insurance cases in the last several decades.  This case is very important to policyholders that have or may in the future have a coverage dispute with their insurer.  The issue before the Supreme Court was whether an insurer may settle a claim against its insured when coverage is disputed and then seek reimbursement from the insured should coverage later be determined not to exist.  The Court ruled on rehearing that unless an insurance policy provides the insurer a right to reimbursement of settlement proceeds following a coverage dispute, the insurer cannot create such a right without the insured's consent.
In May 2005, the Court had surprised the bar and the business community when it issued its original 7-0 decision in Frank's Casing and effectively overruled prior Texas law on this issue.  The Court had previously held in Texas Association of Counties County Government Risk Management Pool v. Matagorda County that an insurer had a reimbursement right only if it was stated in the insurance policy or the insurer obtained the insured's clear and unequivocal consent to both the settlement and the insurer's right to seek reimbursement.
Frank's Casing filed a motion for rehearing asking the Court to withdraw its opinion.  The Court granted rehearing and, in an unusual move, ordered a second oral argument.  Many amici curiae briefs were filed in support of the rehearing urging the Court to reconsider its ruling.  Businesses such as Shell Oil Company, Motiva Enterprises LLC, Temple-Inland Inc., Valero Energy Corporation, and Burlington Resources Inc. and organizations such as the Texas Civil Justice League and the Texas Association of Defense Counsel filed briefs arguing that the Court's new rule was unworkable.
Although most court watchers expected the Court to modify its 2005 opinion, it was unclear exactly what the Court might do.  Justice Harriet O'Neill, writing for a 5-3 majority on rehearing, withdrew the 2005 opinion and declined to create an exception to the rule in Matagorda County.  The Court held there was no implied right of reimbursement and reaffirmed that to have a right of reimbursement, the insurer must obtain the insured's consent to the settlement and the insurer's right to seek reimbursement.
Justice Nathan Hecht, joined by Justice Paul Green, dissented.  Justice Dale Wainwright issued a separate dissent.  Justice Scott Brister did not participate in the decision.
Fred Hagans of Hagans, Burdine, Montgomery, Rustay & Winchester in Houston was also appellate counsel for Frank's Casing.

Majority Opinion
Hecht Dissenting Opinion
Wainwright Dissenting Opinion