James Hansen v. Lonnie Roach and Bemis, Roach & Reed

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

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.