Texas Supreme Court: Insurance Coverage Dispute Involving a $1.5 Million Arbitration Award

Within the five opinions released by the Texas Supreme Court on October 30, Chrysler Insurance Co. v. Greenspoint Dodge of Houston, Inc., (Texas 2009) (No. 08?0780) caught our attention. The case deals with a dispute over insurance coverage to pay for a $1.5 million defamation arbitration award granted to Noe Martinez, a former employee of Greenspoint. The award was confirmed by a district court in Harris County back in 2002. See Martinez. v. Greenspoint Dodge of Houston, Inc., No. 14-02-00349-CV, 2002 Tex. App. LEXIS 7448 (the appeal was abandoned after Greenspoint settled with Martinez for $1.75 million).

In the present opinion, the Texas Supreme Court said that:

The defamation claim arose from remarks and accusations directed at Noe Martinez, the inventory control manager at Greenspoint Dodge of Houston, Inc. Greenspoint’s general manager, comptroller, and used car sales manager defamed and disparaged Martinez, referring to him as a “thieving spic beaner” and a “thieving Mexican,” and accusing him of stealing cars and other criminal activity. Martinez was eventually fired and replaced by the general manager’s nephew.

Martinez thereafter sued Greenspoint, the three managers, and Greenspoint’s chief executive officer, Jack Apple, Jr., alleging defamation and intentional infliction of emotional distress. The dispute was submitted to binding arbitration, which resulted in an award of approximately $1.5 million in compensatory and punitive damages to Martinez. The arbitrators found that the individuals who engaged in the campaign to defame and injure Martinez were Greenspoint vice-principals.

Don Cruse at the Supreme Court of Texas Blog has written an excellent analysis of this case:

This case is about construing an insurance policy that excluded defamation claims were the insured had knowledge that the statements were false when made.

The wrinkle is that the insured was a corporation — and the people with knowledge were not high-ranking officers. Nonetheless, the corporation was subjected to a defamation claim in an arbitration proceeding. Its insurer denied coverage.

The fascinating part of this opinion is its discussion of a category of corporate officials who — although not truly “officers” — nonetheless are important enough that their personal knowledge can be imputed back to the corporation itself.

Continue reading here.

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