Texas Supreme Court Weighs in on Post-Judgement Claims Against a Defendant’s Insurer

Earlier this month, the Texas Supreme Court issued an opinion in Great American Insurance Company v. Hamel clarifying the circumstances where an insurer who refuses to provide a defense to its insured may be held accountable for a judgment successfully obtained against its insured. In the underlying case, homeowners sued their builder for failing to construct their home in a good and workmanlike manner. They claimed that defects in workmanship caused water damage. The builder’s insurance company refused to provide the builder with a defense to the homeowner’s claims. Prior to trial, the homeowners and builder agreed, in effect, that if the homeowners were successful, then the homeowners would not seek to collect on the assets of the builder.

At trial, the builder did not call any witnesses and took positions contrary to its written discovery responses, which the insurance company argued was a “sham defense” with the purpose of setting the insurance company up for a subsequent lawsuit. The homeowners were successful, and the Court awarded them a judgment for $365,089. Subsequent to the judgment, the builder assigned the homeowners the right to sue the builder’s insurance company for failing to provide a defense and indemnity.

Ultimately, the insurance company did not dispute that it wrongfully refused to defend the builder. Thus, the primary question before the Texas Supreme Court was whether the builder’s insurance company could be held responsible for the judgment that the homeowners obtained against the builder. In order for the homeowners to hold the builder’s insurance company accountable, the Court noted that the underlying case had to be “fully adversarial.” The Court refused to second-guess the trial strategies of the builder and instead focused on the pre-trial agreement between the homeowners and builder that the homeowners would, in effect, not seek to collect against the builder’s assets. The Texas Supreme Court clarified “that the controlling factor is whether, at the time of the underlying trial or settlement the insured [builder] bore an actual risk of liability for the damages awarded or agreed upon, or had some other meaningful incentive to ensure that the judgment or settlement accurately reflects the plaintiff’s [homeowners’] damages and thus the defendant-insured’s covered liability loss.”

Trial attorneys suing or representing defendants whose insurance carriers have denied a defense should look closely at the Texas Supreme Court’s recent ruling. Agreements concerning post-judgement collections that eliminate or substantially reduce the defendant’s exposure may result in the plaintiff having to re-try their case.

Our attorneys have experience handling all types of claims, including those where the defendant’s insurance company has denied coverage. If you have been seriously injured, contact us today for a free consultation by calling (713) 222-7211 or toll free at 713-222-7211.