Texas Farmers Insurance Company and Farmers Insurance Exchange v. Frank Kurosky and Pamela Rust
02-13-00169-CV
| Tex. App. | Jul 3, 2015Background
- Frank Kurosky owned two neighboring homes; his daughter Pamela Rust lived in and was injured at the rented property (4333 Fossil Dr.).
- Texas Farmers issued homeowners policies for both properties; Farmers Exchange issued a personal umbrella policy naming Kurosky as insured. Rust sued for medical benefits and later added negligence claims against Kurosky. Rust did not originally sue Farmers Exchange.
- Texas Farmers and Farmers Exchange retained and paid an attorney to defend Kurosky. Insurers mailed a reservation-of-rights letter addressed to Kurosky at the Fort Worth address listed on the policies; Kurosky testified he never received it but accepted the retained counsel.
- While the insurers later filed a declaratory-judgment action regarding coverage, Kurosky and Rust entered an agreed final judgment for $300,000 (not signed by insurers and with an enforcement proviso tied to attempting to collect insurance proceeds).
- The trial court granted summary judgment in favor of Rust (ordering Farmers Exchange to pay $299,000). On appeal the court reversed, holding insurers had no duty to indemnify because (1) Kurosky breached policy conditions by entering the agreed judgment without insurer participation/consent and (2) insurers were prejudiced by that breach; waiver/estoppel did not apply.
Issues
| Issue | Plaintiff's Argument (Rust) | Defendant's Argument (Farmers/Texas Farmers) | Held |
|---|---|---|---|
| Whether no-evidence summary judgment was proper on reservation-of-rights | Farmers Exchange did not reserve rights; no evidence of reservation | Toni Johnson affidavit and copy of mailed reservation letter show reservation | No-evidence SJ improper — insurer produced more than scintilla showing reservation mailed |
| Whether the agreed final judgment binds Farmers Exchange via insurer/attorney agency | Attorney retained by insurer acted as insurer’s agent; agreed judgment binds insurer | Attorney represented Kurosky, not insurer; no evidence insurer signed or participated in judgment | Judgment does not bind insurer; attorney was insured’s counsel and insurer not in privity for the consent judgment |
| Whether Kurosky’s entry into agreed judgment breached policy conditions and prejudiced insurer | Agreed judgment should be covered; insurer defended without clear reservation | Kurosky breached cooperation/suit-against-us conditions by negotiating settlement without insurer consent; insurer was prejudiced as a matter of law because it could not evaluate reasonableness | Held breach occurred and insurer was prejudiced as matter of law; bars indemnity |
| Whether insurer waived or was estopped from asserting coverage defenses by defending without clear notice | Insurer assumed defense without proper reservation so waived/estopped from defenses | Insurer mailed reservation, accepted defense, filed DJ action; no evidence of prejudice or unequivocal relinquishment | Waiver/estoppel not established; acceptance of defense is commonly treated as implied consent to reservation; no detrimental reliance shown |
Key Cases Cited
- Gilbert Texas Const., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118 (Tex. 2010) (burden-shifting for coverage and exclusions)
- Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 289 S.W.3d 844 (Tex. 2009) (review standard where both parties move for summary judgment)
- Maldonado v. State Farm Lloyds Ins. Co., 963 S.W.2d 38 (Tex. 1998) (requirement that agreed settlement/judgment be signed by insurer or result from an actual trial)
- State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696 (Tex. 1996) (consent judgments from non-adversarial proceedings are not binding on insurer)
- Ranger County Mut. Ins. Co. v. Guin, 723 S.W.2d 656 (Tex. 1987) (discussing Stowers agency principles for defense counsel)
- Ulico Cas. Co. v. Allied Pilots Ass’n, 262 S.W.3d 773 (Tex. 2008) (distinguishing waiver and estoppel and their elements)
- Harwell v. State Farm Mut. Auto. Ins. Co., 896 S.W.2d 170 (Tex. 1995) (prejudice required to bar insurer from asserting policy breach; insurer prejudiced when excluded from settlement)
- Excess Underwriters at Lloyd’s, London v. Frank's Casing Crew & Rental Tools, Inc., 246 S.W.3d 42 (Tex. 2008) (insured’s implied consent to reservation when accepting defense)