Great American Insurance Company and Great American Lloyds Insurance Company v. Glen Hamel and Marsha Hamel, 525 S.W.3d 655

Background

Glen and Marsha Hamel sued Terry Mitchell Builders (the Builder) for defective construction causing water damage; trial (Damage Suit) resulted in a bench judgment for the Hamels for roughly $365,089.
Great American, the Builder’s CGL insurer, wrongfully refused to defend the Builder (conceded at trial).
Before the Damage Trial, the Hamels and the Builder entered a Rule 11 pretrial agreement under which the Hamels agreed not to pursue the builder-owner’s (Mitchell’s) personal assets or certain company assets; Mitchell testified the company had no other assets besides the policy.
The Builder executed stipulations conceding many liability facts and participated minimally at trial; the Builder later assigned most of its claims against Great American to the Hamels.
The Hamels sued Great American (Insurance Suit) as judgment-creditors and assignees to collect the Damage Judgment; the trial court entered judgment for the Hamels and found the Damage Trial was a ‘‘genuine contest’’ and binding on Great American.
The Texas Supreme Court granted review to decide whether the Damage Judgment was the product of a “fully adversarial trial” (Gandy issue) and whether any lack of adversity was cured by the Insurance Suit; it reversed and remanded for a new trial.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the Damage Judgment is binding on the insurer when the insured assigned its claims after trial	Hamels: Judgment is binding; assignment valid; insurer breached duty to defend so cannot collaterally attack	Great American: Gandy bars enforcement because the underlying trial was not fully adversarial due to pretrial agreement and stipulations	Held: Not binding — the pretrial agreement removed the Builder’s meaningful incentive to defend, so the Damage Trial was not fully adversarial under Gandy
Validity of the Builder’s assignment of claims to the Hamels	Hamels: Assignment made after judgment and thus valid	Great American: Assignment should be voidable under Gandy-related concerns	Held: Assignment valid — Gandy’s narrow invalidation does not apply because (1) assignment occurred after judgment, (2) insurer breached duty to defend, and (3) insurer did not adjudicate coverage in good faith before judgment
Whether the Insurance Suit effectively cured the lack of adversity in the Damage Trial (i.e., may insurer relitigate liability/damages)	Hamels: Insurance trial allowed full litigation of coverage, liability, and damages, curing any defect	Great American: Problems from destroyed adversity are incurable; insurer entitled to judgment	Held: Insurance trial did not fully cure the lack of adversity here — some issues were relitigated, but many damage and allocation issues were not fully retried; remand ordered so parties can litigate disputed underlying issues with full adversity
Whether insurer’s wrongful refusal to defend precludes it from relitigating covered-damage issues	Hamels: Insurer wrongfully refused defense and thus should be barred from attacking the underlying judgment	Great American: Wrongful refusal does not bind insurer if underlying trial lacked adversity	Held: Wrongful refusal is relevant but not dispositive; insurer may challenge liability/damages when the underlying proceeding was not fully adversarial, but the insurer does not automatically win — a new, adversarial trial on remand is required

Key Cases Cited

State Farm Fire & Casualty Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996) (assignment-before-adjudication that destroys insured’s incentive prevents enforcement of judgment against insurer; introduced “fully adversarial” language)
Emp’rs Cas. Co. v. Block, 744 S.W.2d 940 (Tex. 1988) (insurer that wrongfully refuses to defend barred from collaterally attacking an agreed judgment)
Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008) (distinguishing Gandy where insured sued insurer directly; insurer bound by settlement when insured retained incentive to minimize recovery)
Don’s Bldg. Supply, Inc. v. OneBeacon Ins. Co., 267 S.W.3d 20 (Tex. 2008) (discussing manifestation vs. injury-in-fact rules for occurrence timing)
GuideOne Elite Ins. Co. v. Fielder Rd. Baptist Church, 197 S.W.3d 305 (Tex. 2006) (insurer’s duty to defend is triggered by plaintiff’s factual allegations that potentially state a covered claim)
Cantey Hanger LLP v. Byrd, 467 S.W.3d 477 (Tex. 2015) (courts should not lightly second-guess trial strategies)