The opinion
ACCEPTED
03-15-00378-CV
8148155
THIRD COURT OF APPEALS
AUSTIN, TEXAS
12/8/2015 6:00:03 PM
JEFFREY D. KYLE
CLERK
N0. 03—15—00378—CV
FILED IN
3rd COURT OF APPEALS
JAMES HANSEN AUSTIN, TEXAS
12/8/2015 6:00:03 PM
JEFFREY D. KYLE
Clerk
LONNIE ROACH and
BEMIS, ROACH & REED
APPELLANT’S REPLY BRIEF
Scott R. Kidd
State Bar No. 11385500
512-330-1713
sc0tt@kidd1awaustin.com
Scott V. Kidd
State Bar No. 24065556
512-542-9895
sVk@kiddlaWaustin.com
KIDD LAW FIRM
819 West 11th Street
Austin, TX
78701
512-330-1709 (fax)
Oral Argument Requested
TABLE OF CONTENTS
Table Of Contents
Index To Authorities ii
Caption
Argument & Authorities
De Novo Review
Roach ’s Brief Contains Red Herring Arguments 2
The “Business” Continued Under The Texas
Business Organizations Code
Hansen Did Not “End The Business” When He
Could No Longer Perform Surgery
Construction Of The Policy Supports Coverage 10
Breach Of Contract By Northwestern Mutual
Nullifies Its Contractual Defenses 12
Conclusion 13
Prayer 15
Certificate Of Compliance With TRAP 9.4 15
Certificate Of Service 16
INDEX OF AUTHORITIES
Cases
City of Houston U. Williams, 353 S.W.3d 128,
141 (Tex. 2011) 6
Continental Casualty Company v. Warren,
254 S.W.2d 762, 763 10
FFE Transportation Services, Inc. U. Fulgham,
154 S.W.3d 84 (Tex. 2004) 2
Gulf Insurance Company v. Parker Products, Inc.,
498 S.W.2d 676, 679 (Tex. 1973) 10
Markel Insurance Company v. Muzyka,
293 S.W.3d 380, 385 (Tex. App.—
Ft. Worth 2009, no pet.) 12
Mead 12. Johnson Group, Inc., 615 S.W.2d 685,
689 (Tex. 1981) 13
Statutes
TEX. BUS. ORG. CODE. 5, 6
No. 03-15-0037 8-CV
JAMES HANSEN
LONNIE ROACH and
BEMIS, ROACH & REED
APPELLANT’S REPLY BRIEF
Appellant James Hansen ("Hansen") files this Appellant's Reply
Brief.
ARGUMENT & AUTHORITIES
Despite Roach’s attempts to claim to the contrary, the only issue
before the court is Whether Roach’s negligence Was the proximate
cause of harm to Hansen. The defendants have admitted
negligence in failing to timely perfect the appeal in the underlying
case. Did that admitted failure cause harm to Hansen? The
answer is undoubtedly “yes.” The question is Whether this Court
would have reversed the underlying case if Roach had properly
perfected the appeal, and that is a question of law.
De Novo Review
The facts of the underlying case were undisputed—the
parties in that case stipulated to the facts. A trial court’s
application of the law is reviewed de novo and is not entitled to
any deference. FFE Transportation Services, Inc. v. Fulgham, 154
S.W.3d 84 (Tex. 2004). The issue before this court, in determining
if Roach’s negligence in failing to properly perfect the appeal was
a proximate cause of harm to Hansen, is to decide if the trial court
in the underlying case properly applied the law in denying
benefits under the Disability Office Expense policy (“the DOE
policy’) after Hansen surrendered his medical license and had not
completed the winding up of his business. The Court makes this
review de novo.
Roach’s Brief Contains Red Herring Arguments
Roach spent a significant portion of his brief in this Court in
a transparent attempt to make Hansen appear unworthy of this
Court’s consideration. Those matters are irrelevant to the issue
before the court. Roach emphasized that Hansen had malpractice
cases pending against him. That was certainly not a defense to
any claim by Northwestern Mutual in the underlying case, and it
is no defense in this case nor is it in any Way relevant. Does the
fact that Hansen had malpractice cases pending against him mean
that Hansen (Who had paid premiums for years on the DOE
policy) is not entitled to recover on the DOE policy? Certainly not.
Nevertheless, Roach insists on highlighting that circumstance for
the Court, although it is totally irrelevant to any issue before the
Court.
Roach emphasized that Hansen had a complaint pending at
the Medical Board at the time Hansen surrendered his medical
license. Roach also pointed out that Northwestern Mutual made a
settlement offer of $75,000.00. Those facts have no bearing
whatsoever on Whether Hansen’s ongoing expenses were within
coverage of the policy. The only possible purpose for Roach
arguing those facts in his brief were an attempt to cast Hansen as
somehow unworthy of a recovery. As the insured who paid his
premiums for years and was admittedly totally disabled, Hansen
was most certainly not unworthy of a recovery.
Roach goes into detail about Hansen being unable to perform
surgery following his injury, not seeing patients following the
injury, notifying patients that he Was closing his practice, etc.
Those facts might have been relevant evidence that Hansen
“ended” his practice on the date of his injury, but both the trial
court in the underlying case and the trial court in this case
properly rejected that conclusion. So Why does Roach spend any
time in his brief on those issues? Again, it is simply a transparent
attempt to argue that Hansen is simply unworthy of any recovery,
and should have no bearing on this court’s ruling.
The issue before this Court is one of law—were the ongoing
expenses (Which were stipulated in the underlying case) covered
expenses under the policy of insurance after Hansen surrendered
his medical license. That is a question of law and simply requires
the correct application of law to the undisputed facts.
The undisputed facts are that Hansen had ongoing expenses
that exceeded the maximum monthly benefit for the entire period
of coverage. Roach argues several times in his brief that Hansen
Wanted to keep the business going to repay the $758,313.51 loan
Hansen made to.the P.A. But the particular elements of the
“covered” overhead expense is not relevant—in the underlying
case the parties stipulated that the covered expenses exceeded the
maximum monthly benefit for the entire time that coverage was
available. Roach argues that Hansen could just keep one account
open and receive benefits indefinitely. That bugbear is nothing
other than a red herring. Accounts receivable are not covered by
the DOE policy. What is covered are expenses, including rent and
payroll expenses, and those were stipulated to exceed the
maximum benefit. This would be so whether there were any
accounts receivable or not. Roach’s argument is completely
foreclosed by the stipulation in the underlying case because it was
agreed that the “covered expenses” would exceed the monthly
maximum for every month benefits were payable.
The “Business” Continued Under The Business Organizations Code
Roach argues that the Texas Business Organizations Code
has no application in this case. Roach’s theory is that the Texas
Business Organizations Code has no application because the Code
was not specifically mentioned in the contract of insurance. When
a contract is entered into in Texas, it is subject to the laws of the
State in existence at the time. City of Houston v. Williams, 353
S.W.3d 128, 141 (Tex. 2011). The Texas Business Organizations
Code was part of the laws of Texas, and to the extent provisions of
that code could impact the insurance contract between the parties,
it was applicable without any mention or incorporation into the
insurance contract. Taking Roach’s argument to its logical (or,
more accurately, illogical) conclusion, an insurer would not be
subject to the Deceptive Trade Practices Act or the Insurance
Code unless those statutes were specifically incorporated by
reference in the policy of insurance. That is not the law, and
cannot logically be the law.
The Texas Business Organizations Code applies to the facts
of this case. As discussed in Hansen’s Appellant’s Brief, when
Hansen surrendered his medical license, that Was an event
requiring the winding up of Austin Neurosurgical. By statute,
Austin Neurosurgical had to “cease to carry on its business, except
to the extent necessary to wind up its business.” By that very
provision, the business does carry on to the extent necessary to
wind up its business. At that point the Winding up of the business
is the “continuing operation of the business.” The trial court’s
conclusion of law that Hansen’s entitlement to monthly benefits
ended on April 8, 2011, is therefore an incorrect application of the
law to the undisputed facts. As a matter of law and fact, the
“business” continued in existence for the period necessary to wind
up the business’s affairs and that continued past April 8, 2011.
The trial court also concluded as a matter of law that
“collection of accounts receivable did not constitute the
“continuing operation of the Insured’s business” within the plain
meaning of the applicable provisions of the insurance policy
between Northwestern Mutual Life Insurance Company and
Plaintiff.” The trial court was incorrect in that conclusion of law
since collection of accounts receivable is part of the winding up
process and therefore part of the continuing operation of Hansen’s
business in the winding up period. Additionally, payment of the
ongoing expenses (such as the lease obligation, payroll expenses,
medical record maintenance, etc.) is most certainly part of the
ongoing operation of the business during the winding up period.
Roach argues that the court cannot allow Hansen to recover
the benefits due to the continuation of the business during the
winding up process because a physician practicing as an
individual might not be able to make the same argument. That is
simply a false argument. That “individual physician” might or
might not be able to receive benefits, but the Court is not faced
with that circumstance or the particular facts applicable to that
hypothetical “individual physician.” The Court must restrict its
analysis to the facts of this case—the surrender of Hansen’s
medical license was an event of termination of the professional
association beginning the winding up period of Austin
Neurosurgical. During the Winding up period, the business
continues for that winding up purpose, and the expenses in that
continued operation were covered by the DOE policy.
Hansen Did Not “End The Business” When He Could No Longer
Perform Surgery
Roach argues that the benefits ended when Hansen ended
his professional practice. Under that flawed approach, the
benefits would have terminated on the date of Hansen’s injury,
since he could not operate after that date and never saw a patient
after that date. Roach successfully argued against that position in
the underlying case, and neither the court in that case nor the
trial court in this case accepted that as the date Hansen “ended
the business.”
Roach argues on page 21 of his brief that Hansen has
omitted an important provision found in the Definitions Section of
the Disability Overhead Expense Supplement, and then quotes
that provision from the supplement. What Roach does not point
out to the Court is that the Supplement does not replace the policy
but only purports to explain it.
You will find the following information of value to you
if you are totally or partially disabled and wish to claim
benefit under 21 Northwestern Mutual Disability
Overhead Expense Policy. This form explains the
terms used but it does not replace the policy.
Please refer to the policy if you are in doubt....
The policy itself defines the term “business.” “Business” means
“the Insured’s business or the Insured’s professional practice at
the time disability starts.” As pointed out in the Supplement, the
language in the policy controls over that of the Supplement.
Construction Of The Policy Supports Coverage
A policy of insurance must be strictly construed against the
insurer and in favor of the insured, and any reasonable
interpretation of a policy provision must be indulged in favor of
the insured and coverage. Gulf Insurance Company U. Parker
Products, Inc., 498 S.W.2d 676, 679 (Tex. 1973). The Court must
adopt the construction of an exclusionary clause urged by the
insured as long as that construction is not by itself unreasonable,
even if the construction urged by the insurer appears to be more
reasonable or a more accurate reflection of the parties’ intent.
Continental Casualty Company v. Warren, 254 S.W.2d 762, 763
(Tex. 1953).
The Court must interpret the termination provision in favor
of providing coverage, if any reasonable interpretation Will do so.
10
Interpreting the policy as Roach does now denies coverage;
interpreting the policy as Hansen does provides coverage. A
reasonable interpretation of the termination provision is that if
either the insured’s “business or professional practice” is not
ended during disability, the coverage is not terminated. While the
injury ended Hansen’s professional practice, it did not end the
business at that time. The “business” was Austin Neurosurgical,
and that business continued through the period of Winding up, as
a matter or law.
Neither the court in the underlying case nor the trial court
in this case specifically found that Hansen “ended” the business
during the period of disability. Both found that he “closed” the
business on April 8, 2011, and that terminated the right to
benefits. Roach criticizes Hansen’s discussion of the definitions of
“close” and “end” in his opening brief, stating that “[d]efinitions for
these common words are unnecessary and represent an attempt to
divert this Court’s focus from the key issue in this case.” But
Words have meaning, and there is a difference between the
definitions of “close” and “end.” The definition of “end” is to “bring
11
to an end” and “come or bring to a final point, finish.” “Close” is
“to suspend or stop the operations” or to “cease to be in operation
or accessible to the public.
7)
The business (Austin Neurosurgical)
may have closed, but it had not ended until the period of winding
up had been concluded. Terms in an insurance contract will be
given their ordinary meaning unless the policy shows that the
Words were meant in a technical or different sense. Markel
Insurance Company v. Muzyka, 293 S.W.3d 380, 385 (Tex. App.-
Ft. Worth 2009, no pet.). Much as Roach now wants to argue
otherwise, interpreting the policy liberally in favor of coverage (as
the Court must do), and using common ordinary definitions,
results in the conclusion that the trial court in the underlying case
got the result wrong, and this court would have reversed that
judgment if the appeal had been properly perfected.
Breach Of Contract By Northwestern Mutual Nullifies Its
Contractual Defenses
The trial court in the underlying case found that
Northwestern Mutual breached the contract by refusing to pay
benefits when due. When one party to a contract commits a
12
material breach of the contract, the other party is excused from
any further obligation to perform. Mead U. Johnson Group, Inc.,
615 S.W.2d 685, 689 (Tex. 1981). The trial court in the underlying
case found that Hansen was entitled to benefits from the time of
injury until he surrendered his medical license, so maintaining
that license was what Hansen had to do to maintain the right to
benefits. However, he was excused from the obligation to
maintain that license by Northwestern Mutual’s breach of the
contract. As much as Roach wants to mischaracterize Hansen’s
argument in his opening brief, the result is that simple. Upon
Northwest Mutua1’s breach of the contract, Hansen Was under no
obligation to further perform any act under the contract, and was
entitled to the full contract benefits.
CONCLUSION
If Roach had not negligently failed to perfect the appeal in
the underlying case, this Court would have reversed the trial
court in the underlying case. As a matter of law, Hansen did not
“end the business” when he surrendered his medical license. By
statute, the “business” continued for the period of winding up, and
13
that was the “continued operation of the business” under a liberal
interpretation of the policy, Both factually and legally, the
business continued in existence for that period, and it was
stipulated that the “covered expenses” would exceed the maximum
monthly benefit for the entire period of coverage.
Northwestern Mutual breached the contract of insurance,
and from that period forward could not insist on any action by the
insured necessary to comply with the policy. Hansen was
therefore not required to maintain his medical license in order to
continue to receive benefits.
If this Court had heard the appeal of the underlying case, it
would have reversed the judgment of the trial court and rendered
judgment for Hansen for the full amount of the unpaid benefits
plus penalty interest. Therefore, the trial court in the present
case erred in holding that Roach’s admitted negligence in failing
to timely perfect the appeal was not a proximate cause of Hansen’s
loss.
14
PRAYER
Wherefore, Hansen prays that the Court reverse the
judgment of the trial court and render judgment for Hansen for
the full amount of his damages, and for such other relief to which
he may show himself justly entitled.
KIDD LAW FIRM
819 West 11“1 Street
Austin, TX 78701
512-330-1709 (fax)
/s/Scott R.Kidd
Scott R. Kidd
State Bar No. 11385500
512-330-1713
scott@kidd1aWaustin.com
Scott V. Kidd
State Bar No. 24065556
512-542-9895
sVk@kjddlaWaustin.com
Certificate of Compliance with TRAP 9.4(i)(3)
This brief contains a total of 2487 words excluding the parts
exempted under TRAP 9.4(i)(1), as Verified by Microsoft Word for
Mac. This brief is therefore in compliance with TRAP 9.4(i)(2)(B).
/s/Scott R. Kidd
15
Certificate of Service
A copy
of this brief has been served on John Shepperd, 909
Fannin Street, Suite 3300, Houston, TX 77010 in accordance With
the Texas Rules of Appellate Procedure this 8”‘ day of December,
2015.
/s/Scott R. Kidd
16