Failure of Methodist's Arguments under Binding Precedent
Methodist is not alleging in this case that Zurich breached the Stowers duty. Instead, Methodist alleges Zurich
was negligent in handling and paying workers' compensation claims asserted against Methodist. The crux of
Methodist's main issue is that Zurich is not acting as an insurer for claims within the $1 million deductible and
therefore, the no-duty rule established by the Supreme Court of Texas does not apply. However, under the
unambiguous language of the insurance policies and the Deductible Agreement, Zurich is Methodist's insurer
and has the duty to promptly pay when due workers' compensation benefits to Methodist's employees. In the
policies, the parties describe the workers' compensation benefits as “benefits payable by this insurance."
Methodist promises to reimburse Zurich for claims within the $1 million deductible, and the parties established a
Methodist-funded escrow account by which Zurich is to be reimbursed weekly for the amounts Methodist owes
under this reimbursement obligation. Though none of the past precedents in this area have involved this exact
arrangement between the insurer and its insured, Zurich is nonetheless Methodist's insurer, handling and
defending third-party claims against Methodist. In addition, Methodist has not cited and research has not
revealed authority that would support an exception to the no-duty rule if (1) the insurance policy has a high
deductible, (2) the insurer is the insured's claims servicing agent, (3) the insured reimburses the insurer for
payments within the deductible, or (4) the insured funds an escrow account that promptly reimburses the
insurer for payments made on claims within the deductible. See Wayne Duddlesten, Inc. v. Highland Ins. Co.,
110 S.W.3d 85, 96-97 (Tex. App.- Houston [1st Dist.] 2003, pet. denied) (applying no-duty rule to workers'
compensation insurer even though, under a premium payment plan, insured would reimburse insurer for claims
paid under the insurance). Therefore, under binding precedent from the Supreme Court of Texas, Zurich
does not owe the negligence duty alleged by Methodist. See Maryland Ins. Co., 938 S.W.2d at 28; Garcia,
876 S.W.2d at 849; see also Ford, 230 F.3d at 831-32.
Though Methodist does not cite the Ranger case in its argument, Methodist's emphasis on a common-law or
statutory agency relationship as the source of Zurich's purported negligence duty is reminiscent of the
language from Ranger that the Supreme Court of Texas later disavowed as dicta. See Ranger County Mut.
Ins. Co., 723 S.W.2d at 659-60; see also Garcia, 876 S.W.2d at 849.
The insurers in Maryland Insurance Company and Garcia acted as the insureds' claims-handling agent, yet the
Supreme Court of Texas still found the insurers owed no negligence duty other than the Stowers duty. See
Maryland Ins. Co., 938 S.W.2d at 28; Garcia, 876 S.W.2d at 849. As an intermediate court of appeals, we are
bound by this no-duty rule, and we must leave any consideration of changing that rule to our high court.
See In re K.M.S., 91 S.W.3d 331 (Tex. 2002).
/s/ Kem Thompson Frost
The Methodist Hospital v. Zurich American Inc. Co. (Tex. App. - Houston [14th Dist.] Jul. 7, 2009) (Seymore)
(INSURANCE LITIGATION: insured's suits against worker's compensation carrier alleging wrongful payment of
noncompensable injury claims within the deductible)(insurer's duty of good faith and fair dealings, negligent
claims handling, express warranty claim, breach of warranty - elements, conclusory affidavit)
AFFIRMED: Opinion by Justice Seymore
Before Justices Frost, Seymore and Guzman
14-07-00663-CV The Methodist Hospital v. Zurich American Insurance Company, Tamera McKinney and Mary
Appeal from 280th District Court of Harris County
CONCURRING: Concurring Opinion by Justice Frost (higlighting applicable binding Supreme Court