Policyholders lose lots of cases that the policyholder-bar believes should have been won (and the same goes for insurer loses and its bar’s opinion of the decision). But some losses are different. I imagine that some policyholder losses leave counsel on that side of the aisle reeling. These are decisions that they believe were so wrongly decided that their faces turn red in anger as they read them. And then, like in a Road Runner cartoon, their heads explode. Lewis v. ACCC Insurance Company, No. 14-19-00197 (Tex. Ct. App. Aug. 4, 2020) is probably one of these.
Jose Jasso-Garcia was insured under an automobile policy issued by ACCC Insurance Company. While driving on a Houston highway, Jasso-Garcia’s vehicle struck a concrete barrier and then collided with a vehicle being driven by Krystle Lewis. Lewis and her minor children in the vehicle were injured.
Lewis’s attorney notified Jasso-Garcia’s insurer, ACCC, and it paid for the property damage to Lewis’s vehicle. ACCC made a settlement offer for the bodily injury claims but Lewis rejected it.
Lewis sued Jasso-Garcia and notified ACCC when he had been served. Then the following transpired: “About six weeks later, Lewis sent ACCC a courtesy copy of her motion for default judgment on liability. After the trial court granted the motion, Lewis also sent ACCC a courtesy copy of the notice of the hearing on unliquidated damages. The hearing resulted in a final judgment for Lewis and her children for $39,048.21.”
Lewis sought for ACCC to pay the judgment. But ACCC refused. As ACCC saw it, Jasso-Garcia never advise the insurer of the suit or requested a defense. This had prejudiced ACCC.
At this point, some policyholder counsel are no doubt spitting nails, with the conversation in their head going like this: What do you mean, Jasso-Garcia never advised the insurer of the suit or requested a defense. So what? ACCC was kept up to date of Lewis’s suit every step of the way. What difference did it make who put ACCC on notice of the suit? ACCC had notice. In fact, ACCC had so much notice that it paid for the property damage to Lewis’s vehicle. And ACCC even made a settlement offer for the bodily injury claims. What more did ACCC need?
But despite all this, the Texas Court of Appeals saw it differently and concluded that ACCC was not obligated to provide coverage for Lewis’s default judgment since Jasso-Garcia never put the insurer on notice. In fact, the court didn’t even break a sweat to reach its decision.
The court’s decision was tied to the ACCC policy containing a cut and dry notice provision, which stated that the person covered by the policy must promptly send the insurer “copies of any notices or legal papers received in connection with [an] accident or loss” and cooperate with the insurer “in the investigation, settlement or defense or any claim or suit.” The policy also stated that ACCC may deny coverage if the failure to comply with the notice provision materially prejudiced the insurer.
There was no doubt that Jasso-Garcia did not comply with this provision. Thus, the issue before the court was whether Jasso-Garcia’s non-compliance materially prejudiced ACCC. [Right now the policyholder counsel is back screaming – how could ACCC have been prejudiced since it knew about the suit and the default judgment and it paid the property damage claim and it even made a settlement offer for the bodily injury claims. [Of course, Jasso-Garcia’s failure to request a defense may also mean that he failed to cooperate in his defense. This is a separate issue.]
But the court concluded that the insurer’s actual knowledge of the suit was not a substitute for Jasso-Garcia’s request for a defense. By not providing notice to ACCC, Jasso-Garcia never triggered the insurer’s threshold duty to defend and the insurer was exposed to a default judgment awarding damages. Thus, as the court saw it, ACCC was “obviously prejudiced.” The court explained that the purpose of the notice provision is not solely to provide information to the insurer about the lawsuit: “[T[he more basic purpose of a notice provision is to inform the insurer that an insured expects the insurer to provide a defense.”
The court also concluded that it matter not that ACCC paid the property damage and offered to settle the bodily injury claim: “A settlement agreement is neither an agreement to pay damages nor an admission of liability; to the contrary, a settlement agreement does nothing more than buy peace.”
As I said, policyholders lose lots of cases that they believe should have been won. But some losses are different. Good news. Whenever the Road Runner’s head explodes, he always comes back in the next scene as good as new.
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