Emscor Manufacturing, Inc. v. Alliance Insurance GroupEmscor Manufacturing, Inc. v. Alliance Insurance Group
Lead Opinion
MAJORITY OPINION ON REHEARING
This is an excess carrier insurance case. Appellants, Walter P. Manning Jr. (Emseor’s
As we will detail, the relationship between Emscor and Alliance has a lengthy history. On February 28, 1987, Emscor purchased an excess insurance policy (the policy) from Alliance. The policy was effective from February 28, 1987, through February 28, 1988. It provided comprehensive general liability coverage in the amount of $500,000 as excess over and above a primary comprehensive general liability policy in the amount of $500,000 issued to Emscor by Stone Mountain Insurance Company (Stone Mountain). Pursuant to the policy, Alliance was required, when and if certain conditions were met, to indemnify Emscor up to $500,000 for losses which were covered by Stone Mountain’s policy, and which were in excess of Stone Mountain’s $500,000 policy limit. On April 25, 1987, a crane collapsed, injuring and ultimately causing the deaths of Steven Ketcher and Michael Weaver. In May 1987, the families of the dead men sued Emscor and several other defendants in connection with the accident (the Ketcher litigation).
On January 26, 1990, Emscor filed a declaratory judgment action to determine whether Alliance was required by the terms of the policy to provide a defense to Emscor in the Ketcher suit. The trial court granted Alliance’s motion for summary judgment based upon the language of the policy and denied Emscor’s cross-motion for summary judgment. Emscor appealed the trial court’s ruling to this court. See Emscor Mfg., Inc. v. Alliance Ins. Group,
During the pendency of that appeal, Ems-cor began settlement negotiations with the Ketcher plaintiffs. On March 7, 1990, counsel for Emscor wrote to Alliance, stating that “serious settlement negotiations” were about to begin in the Ketcher suit and demanding that Alliance tender the limits of its coverage. Emscor’s counsel advised Alliance that unless it came forward “immediately” to tender the $500,000 in excess coverage, he would make “any arrangements or deals,” with other counsel to protect his clients.
Throughout the next several months, Ems-cor attempted to obtain a commitment of settlement funds from the Guaranty Fund. In fact, in July 1990, Emscor sent Alliance a copy of a correspondence it had received from the Guaranty Fund. That eorrespon-
In August 1990, Emscor notified Alliance that the Ketcher plaintiffs had agreed to settle against all of the Ketcher defendants for $8,000,000. Emscor reminded Alliance of the November 12, 1990, trial date and requested Alliance to “authorize” its policy limits for settlement. In response, Alliance asked for a case assessment and inquired about Emscor’s progress with the Guaranty Fund. Emscor obliged and reassured Alliance that it was “working vigorously with the Texas Guaranty Fund to obtain a commitment to pay the $500,000 primary limits.”
On September 17, 1990, Emscor notified the Guaranty Fund and Alliance that the Ketcher plaintiffs had settled with all of the defendants except Emscor. The letter sought confirmation from the Guaranty Fund on whether it had received “all information necessary to make a final determination on releasing settlement funds.” One week later, Emscor reported to Alliance that it was continuing to “work closely” with the Guaranty Fund, but that the process was “slow and tedious.” Emscor also inquired as to whether Alliance would contribute its excess coverage to add to any amount contributed by the Guaranty Fund and whether Alliance would assume Emscor’s defense in the event that it did not exhaust its policy limits. Emscor further informed Alliance that it was considering an assignment of its “rights to any Guaranty Fund proceeds as well as a certain amount for excess coverage from Alliance.” On September 25, 1990, Alliance objected to any assignment and stated that it would not authorize any of its excess coverage until the Guaranty Fund “at least authorizes” the payment of the initial $500,000. Alliance also asked for Emscor’s commitment to settle the case “for as little as possible above $500,000” and repeated its pledge “to wrap up the case when and if the Guaranty Fund pays or agrees to pay $500,000.”
On October 19, 1990, Emscor faxed to Alliance and the Guaranty Fund, the Ketcher plaintiffs’ $1,000,000 settlement demand in the underlying suit. Although it indicated that Emscor had yet to obtain monies from the Guaranty Fund, the settlement demand stated that it was contingent upon Alliance’s payment of its $500,000 policy limit. The demand also stated that it would expire on October 26, 1990. On October 24, 1990, two days before the Ketcher settlement demand was to expire, counsel for Alliance faxed a lengthy response to counsel for Emscor. In pertinent part, Alliance’s counsel stated as follows:
Let me reiterate again as I have before, that we believe we have worked with you in the past and are working with you currently to make decisions regarding the Ketcher litigation, the resolution of that litigation, and the resolution of any other litigation against Emscor arising out of the April 1987 accident. I have told you before, and again tell you, that if and when the Texas Guaranty Fund and/or Emscor provides evidence to us that they have made arrangements to pay the first $500,-000 of any settlement in this case, we will respond promptly to try to arrive at a mutually agreeable resolution of the litigation.
Alliance recognizes its obligations under the excess Alliance policy issued to your client, and is fully prepared to meet those obligations when the policy’s provisions are invoked. The Plaintiffs’ settlement demand has put Alliance on notice that the Plaintiffs in Ketcher are demanding anamount of money that may invoke the provisions of the Alliance policy if: a) the Guaranty Fund and/or Emscor agrees to pay $500,000; and b) the Plaintiffs are unwilling to settle for $500,000. However, Alliance does not believe its policy, and I do not believe the Stowers doctrine or any other Texas case law or statute, requires us to now ‘assume the defense’ or ‘settle the case’ pursuant to the Plaintiffs’ October 19,1990, demand letter. I also do not believe Alliance can be held responsible for the apparent fact that the Texas Guaranty Fund has not yet made any commitment to you in terms of primary coverage. I appreciate your desire to resolve this case now, if it can be resolved, without going to the additional time and expense to present witnesses for deposition, complete discovery, and prepare for trial. I have been in that position before, and I know it is not pleasant. However, under its policy, Alliance is unable to move forward in any way until the Texas Guaranty Fund and/or Emscor pays the first $500,000 demanded by the Plaintiffs in this case.
[italics and bold added]
Alliance’s counsel also stated that she was going to meet with her client to further discuss the case. The next day, October 25, 1990, Emscor sent a fax to Alliance, expressing its understanding “that Alliance would contribute all or part of its $500,000 coverage once the Texas State Board of Insurance Guaranty Fund or Emscor has paid the first $500,000.” Emscor advised Alliance that it would take whatever steps were necessary to reach the first $500,000 in coverage, but that its efforts were not to be interpreted as a waiver of its position that Alliance “immediately meet the Ketcher plaintiffs’ settlement demand and assume Emscor’s defense.” Emscor again faxed Alliance at 2:30 p.m. on October 26, 1990, the day the Ketcher settlement offer was to expire, and demanded Alliance’s offer of settlement funds “today.” That same day at 4:30 p.m., Emscor once again faxed Alliance, stating that Alliance’s October 24 letter had set forth “unconscionable conditions” on payment. Emscor informed Alliance that it had been “unsuccessful thus far in obtaining settlement funds from the Texas Guaranty Fund” and that its “ability to continue business and meet its cash flow obligations would be severely impaired” if it were forced “to pay $500,000 of its own money.” Alliance responded by fax on October 26,1990. Alliance’s counsel, stated in pertinent part:
In response to your October 26, 1990, fax and as I am sure the Plaintiffs are aware, Alliance is not in a position to respond to the Ketcher plaintiffs settlement demand unless and until the Texas Guaranty Fund or your insured, or both, give Alliance sufficient assurance that they have paid and/or have agreed to pay and/or have incurred expenses sufficient to invoke Alliance’s excess policy coverage. As I sit here at 4:30, Alliance has not been given any of this information because to my knowledge, none of these events have occurred. The Plaintiffs should be told that if and when Alliance is given any of these assurances, Alliance will be prepared to respond to their current settlement proposal, and that I am meeting with Alliance on November 5, 1990, for just that purpose.
[emphasis added]
On October 31, 1990, five days after the Ketcher settlement demand was supposed to have expired, Emscor faxed a letter and attached a “Confirmation of Settlement Demand” to Alliance. Those documents, when taken together, state that Emscor had “agreed to obligate” itself to pay $500,000 to the Ketcher plaintiffs and that the Ketcher plaintiffs had “agreed to accept this $500,000 obligation” and release all claims “only if Alliance obligates itself to pay its $500,000 excess policy limits.” [emphasis in original] Emscor also advised Alliance that it was willing to give a letter of guaranty to reflect its “obligation” and that it needed to know “immediately whether the guaranty will be sufficient to invoke the $500,000 excess coverage with Alliance.” Emscor further informed Alliance that the deadline for acceptance of this latest settlement proposal was at 5:00 p.m., November 5, 1990.
On November 5, 1990, the day the settlement offer was to expire, Emseor finally faxed a copy of the executed Letter of Guaranty to Alliance. Part 3 and 4 of the Letter of Guaranty set out its terms as follows:
3. Terms:
For good and valuable consideration, the receipt of which is hereby acknowledged and confessed, and in further consideration the compromise and settlement of the subject litigation, Guarantors [Emseor] agree to the following terms:
a. Guarantors will pay Beneficiaries [the Ketcher plaintiffs] the difference, up to Five-Hundred Thousand Dollars ($500,-000), between the amount of money that the Texas State Board of Insurance Guaranty Fund approves for payment as a result of the claims filed with the Guaranty Fund in the subject litigation, and the total sum of Five-Hundred Thousand Dollars ($500,000).
b. Before Guarantors are obligated to pay Beneficiaries anything, Beneficiaries are obligated to exhaust all efforts and remedies to collect up to Five-Hundred Thousand Dollars ($500,000) from the Texas State Board of Insurance Guaranty Fund.
c. After Beneficiaries have exhausted all efforts and remedies stated above in Paragraph 3(b) then Guarantors shall immediately become obligated upon thirty (30) days written demand of Beneficiaries to pay the amount due following the directives of Paragraph 3(a) above.
d.Guarantors’ obligations to Beneficiaries are irrevocable and unconditional.
4. Security:
To secure this Guaranty, and as inducement to Beneficiaries to accept this Guaranty, Emseor, Inc. hereby grants to Beneficiaries a security interest in and to all assets and properties of Emseor, Inc. and Emseor, Inc. agrees to execute and cause to be filed financing statements to perfect such security interest.
In the accompanying letter, Emseor stated its own conclusion that the guaranty satisfied the requirements imposed by Alliance. Emseor also stated that it had met with representatives of the Guaranty Fund and “hope[d]” that the meeting would “culminate in payment of all or some of the proofs of claims filed_” Also, the same day, Ems-cor faxed a letter received from the Guaranty Fund, reflecting the Board’s opinion that Stone Mountain would have tendered its policy limits had it not been in receivership.
Alliance faxed a response on November 5th, informing Emseor that the Letter of Guaranty and the Guaranty Fund letter, when taken together, did not satisfy the requirements of the excess policy because they did not demonstrate that the primary coverage had been paid or would be paid before the November 12th trial setting. Although it emphasized that its coverage had not been triggered, Alliance nevertheless offered to contribute $100,000 toward settlement only when the following occurred: (1) the Guaranty Fund actually paid $500,000 pursuant to the Stone Mountain policy; or, (2) Emseor actually paid the difference between $500,000 and the amount paid or determined to be paid by the Guaranty Fund, if less than $500,000; or, (3) Emseor made its “best effort to settle the Ketcher suit for $600,000 or less.”
The Emseor appeal of the declaratory judgment was submitted to this court on
On May 9, 1991, Emscor filed this suit against Alliance, alleging that Alliance’s failure to settle pursuant to G.A Stowers Furniture Co. v. American Indem. Co.,
In four points of error, Emscor contends that the trial court erred in granting Alliance’s motion for summary judgment.
A movant for summary judgment has the burden of showing that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Nixon v. Mr. Property Management,
An insurer may be held liable for the wrongful refusal to settle a claim against the insured within policy limits. Stowers,
Insurance policies are contracts and as such are controlled by rules of construction which are applicable to contracts generally. Barnett v. Aetna Life Ins.,
Part 2 of the Insuring Agreements in the Alliance policy states as follows:
Limits of Liability — Underlying Limits: Liability under this policy shall attach to the Company only after the underlying insurers have paid or have been held to pay the full amount of their respective loss liability as described in the underlying limits and the limits of liability of the Company under this policy shall then be as shown in item 4 of the Declarations.
[emphasis added]
Condition 5 states as follows:
Attachment of Liability — Liability under this policy shall not attach unless and until the underlying insurers shall have admitted liability for the underlying limits or unless and until the Insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits.
[emphasis added]
Thus, Alliance’s coverage would have been triggered during the Stowers period by Ems-cor’s compliance with any one of the following conditions:
(1) The underlying insurers have paid the full amount of their respective loss liability.
(2) The underlying insurers have been held to pay the full amount of their respective loss liability.
(3) The underlying insurers shall have admitted liability for the underlying limits.
(4) The insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits.
Although Emseor contends that it complied with all four conditions of the policy during the Stowers period, a review of the summary judgment proof shows that Emseor never triggered Alliance’s excess coverage.
Emscor conceded in the trial court that it had not actually paid the underlying limits as of the hearing on November 12, 1990. Indeed, on October 26, 1990, five days before the execution of the guaranty letter, Emscor told Alliance that it was financially unable to pay the first $500,000 itself. In addition, there is nothing in the record to show that Emscor has paid the $500,000 underlying limit as of the time of this appeal.
The policy does not expressly state that an “agreement to pay” triggers coverage. However, Emscor contends that Alliance waived reliance, or is estopped from relying on the “actual payment” terms of the policy because Alliance “modified” those terms by its October 24th and 26th letters, requiring only that the Guaranty Fund, Emscor or both “agree to pay” or “make arrangements to pay.” See Employers Casualty Co. v. Tilley,
Emscor refuses to recognize, however, that circumstances are different when dealing with an insured and an excess insurer as opposed to a primary insurer. This difference was explained by the court in Union Indem Ins. Co. of New York v. Certain Underwriters at Lloyd’s,
Primary insurance coverage is insurance coverage whereby, under the terms of the policy, liability attaches immediately upon the happening of the occurrence that gives rise to liability, [citation omitted] An excess policy is one that provides that the insurer is liable for the excess above and beyond that which may be collected on primary insurance, [citation omitted] In a situation in which there are primary and excess insurance coverages, the limits of the primary insurance must be exhausted before the primary carrier has a right to require the excess carrier to contribute to a settlement, [citations omitted] In such a situation, the various insurance companies are not covering the same risk; rather, they are covering separate and clearly defined layers of risk. The remote position of an excess insurer greatly reduces its chance of exposure to a loss. This reduced risk is generally reflected in the cost of the excess policy.
As this court recognized, an excess liability insurer has no duty to defend an insured in the event of the insolvency of the insured’s primary liability insurer. Emscor, Inc.,
In Arkwright, an excess maritime insurer, Arkwright, sought reimbursement from its insured, Aries, for the amount of the underlying primary limits paid by Arkwright to settle the claim of a worker injured aboard a vessel owned by Aries.
In the subsequent reimbursement action, Arkwright argued that the duty to disclaim coverage or reserve rights is part of the duty to defend and that the failure to reserve rights could not give rise to estoppel where there was no duty to defend. Id. at 445. Without directly addressing Arkwright’s argument, the court held that Arkwright’s participation in the settlement negotiations was not tantamount to an assumption of Aries’ defense without a reservation of rights, and therefore, Arkwright was not estopped from denying responsibility under the policy for the entire amount of the settlement. Id. at 446.
Likewise, the doctrine of estoppel is inapplicable to the facts of this case. As in Arkwright, Alliance did not provide a defense to Emscor. In fact, when Emscor brought suit against Alliance to determine its rights under the policy, this court specifically held that Alliance had no duty to defend Emscor. Emscor, Inc.,
Finally, even if it could be said that Alliance somehow provided Emscor with a defense, Alliance did not voluntarily relinquish a known right or otherwise act inconsistent with the express conditions of the policy. See Warren v. American Nat’l Ins. Co.,
More importantly, condition 10 of the policy expressly states that the terms of the policy cannot be “waived or changed except by endorsement.” No such endorsement requiring only an “agreement to pay” or “arrangement to pay” the underlying limits was executed by the parties. Furthermore, the doctrine of estoppel cannot be used to create insurance coverage where none exists by the terms of the policy. Texas Farmers Ins. Co. v. McGuire,
Assuming the express language of the policy can somehow be interpreted as requiring merely an “agreement to pay” or an “arrangement to pay” rather than “actual payment,” as Emscor suggests, the Letter of Guaranty does not as a matter of law establish a definite and binding agreement or promise by either Emscor or the Texas Guaranty Fund to pay the underlying policy limits by November 5, 1990, when the Ketch-er plaintiffs’ final settlement demand expired. Whether the guaranty letter was sufficiently definite and binding so as to satisfy the conditions of the policy, is a matter of contract interpretation and a question of law. See e.g., T.O. Stanley Boot Co. v. Bank of El Paso,
As we previously showed, the guaranty letter required the Ketcher plaintiffs “to exhaust all efforts and remedies” to collect the full $500,000 from the Guaranty Fund. It also granted the Ketcher plaintiffs a security interest in Emscor’s assets and property and required Emscor, upon the exhaustion of “all efforts and remedies” and upon demand by the Ketcher plaintiffs, to pay “the difference up to $500,000” between the amount approved by the Guaranty Fund and $500,000, within thirty days after demand. However, the guaranty letter specifically stated that Emscor was not obligated to pay “anything,” unless the Ketcher plaintiffs first attempted collection from the Guaranty Fund.
More importantly, the guaranty letter did not specify a time period or deadline for the Ketcher plaintiffs to undertake such efforts or to tender a demand, but only that such action would be taken some time in the future. In essence, Emscor was supposed to pay an uncertain amount at some time in the future after the Ketcher plaintiffs had at some point in time attempted to obtain an uncertain amount from the Guaranty Fund. Although the guaranty letter stated that Emscor’s “obligations” were “irrevocable” and “unconditional,” that clause was meaningless because Emscor did not have any “obligations” that could be considered fixed or definite. Indeed, it is hard to imagine an agreement more vague or non-binding.
Moreover, the Guaranty Fund was not even a party to the arrangement and as Emscor now concedes, was limited by statute to a payment of $100,000 per covered claim. Tex.Ins.Code Ann. art. 21.28-C § 5(8) (Vernon Supp.1993). Yet, during the Stowers period, Emscor never mentioned this statutory limit and kept telling Alliance that it was trying to get the Guaranty Fund to pay the full $500,000. In fact, Emscor, after numerous attempts and despite representations to the contrary, never obtained a commitment from the Guaranty Fund to pay any amount, let alone the $200,000 maximum provided by statute.
Further, when notified on October 31, 1990, that Emscor intended to execute a letter of guaranty to reflect its “agreement to obligate itself to pay $500,000,” Alliance immediately questioned the arrangement. When Emscor finally faxed an actual copy of the guaranty letter on November 5, 1990, the day the settlement demand was to expire, Alliance faxed an immediate response, notifying Emscor that the guaranty letter was insufficient. Rather than rejecting the settlement offer out of hand, Alliance countered with a $100,000 offer that, consistent with earlier representations, was contingent on the exhaustion of the underlying limits. Clearly, Alliance had no duty to tender its policy limits because neither Emscor nor the Guaranty Fund had ever paid or agreed to pay the $500,000 underlying limits.
Condition 2 — Held To Pay
Emscor contends that the phrase “held to pay,” is synonymous with “agree to pay” and, therefore, ambiguous because it does not specify who could hold Emscor to pay. Emscor suggests that it could be held to pay by a court of competent jurisdiction or
When the Policy is viewed in its entirety without isolating or giving priority to any one phrase, sentence or section, it clearly demonstrates that the phrase “held to pay” is not ambiguous. That phrase, as we will detail, is consistent with the no-action clause of the policy and plainly posits that Emscor first be “held liable to pay” either by judgment after a trial on the merits or by settlement agreement. See, e.g., Hudson Ins. Co., v. Gelman Sciences Inc.,
Assuming, for the reason stated by Emscor, the phrase “held to pay” is ambiguous and only Emseor’s “promise to pay” was required, Emscor still did not satisfy this condition of the policy. As we explained, the guaranty letter executed on October 31, 1990, did not, as a matter of law, hold Emscor to pay the underlying limit because any payment was contingent solely on the Ketcher plaintiffs taking appropriate action at some time in the future against the Guaranty Fund. In addition, the Guaranty Fund was not a party to that arrangement or to the subsequent agreed judgment. Further, the Agreed Final Judgment, regardless of whether it was the result of a trial on the merits or a settlement agreement, was not rendered until seven days after the Stowers period had expired. Moreover, that agreed judgment did not obligate Emscor to pay the underlying limits because the covenant to postpone execution and assignment of rights entered into by the Ketcher plaintiffs and Emscor shortly thereafter, discharged Ems-cor from any liability for the judgment in the event that the Alliance lawsuit was compromised or settled. Emscor was plainly not “held to pay” the underlying limits, either by its own volition or by judgment during the Stowers period.
Condition 3—Admitted Liability
Emscor contends that it “admitted liability” for the underlying limits in certain correspondence forwarded to Alliance. Generally, an admission is a “confession, concession or voluntary acknowledgment by a party of the existence of certain facts.” Black’s Law Dictionary 44 (5th ed. 1979). A “liability” refers generally “to an obligation one is bound in law or justice to perform; every kind of legal obligation, responsibility or duty; that which one is under obligation to pay, or for which one is liable.” Black’s Law Dictionary 823 (5th ed. 1979) (citing Reconstruction Finance Corp. v. Gossett,
While Emscor predicted in the letters of March 7th and October 19th that a verdict or judgment in the Ketcher litigation would probably exceed the limits of both policies, it never confessed, conceded or acknowledged any legal obligation to pay the $500,000 underlying policy limits. Also, Emscor’s “agreement to obligate itself’ as noted in the October 31st letter was tied solely to the Letter of Guaranty, which, as we already stated, did not obligate Emscor to pay the underlying limits. Moreover, the Letter of Guaranty did not contain a recital that confessed or conceded Emscor’s legal
Condition 4—Adjudged To Pay By Final Judgment
As we earlier stated, the Agreed Final Judgment was executed on November 12, 1990, after the Stowers period expired, and that judgment, along with the subsequent covenant to postpone execution and assignment of rights, did not obligate Ems-cor to pay the underlying limits. Hence, Emscor was not adjudged to pay the underlying limits during the Stowers period.
Because Emscor failed during the Stowers period to comply with any of the conditions of coverage under the Alliance policy, Alliance never had a duty to settle. Therefore, this suit is barred. This lawsuit is also barred by the no-action clause.
The “No-Action” Clause
Condition 8 of the policy, i.e., the no-action clause, states the prerequisites for bringing suit against Alliance:
Action Against Company: No action shall lie against the Company unless as a condition precedent thereto, the Insured shall have fully complied with all the terms of this policy, nor until the amount of the Insured’s obligation to pay shall have been finally determined either by judgment against the Insured after actual trial or by written agreement of the Insured, the claimant and the Company.
[emphasis added]
The operative language of the above clause is that “no action shall lie against the Company [Alliance] ... unless ... nor until” certain events occurred. Specifically, the no-action clause requires Emscor’s full compliance with all the terms of the policy and a determination of Emscor’s obligation to pay either by judgment after actual trial or by written agreement of Emscor, the Ketcher plaintiffs, and Alliance. The validity of this type of clause has long been recognized in Texas. See Guaranty County Mut. Ins. Co. v. Kline,
Written Agreement
It is undisputed that Alliance did not appear at the November 12th hearing and was not a party to the Agreed Final Judgment. Thus, the Agreed Final Judgment did not constitute a “written agreement of the Insured, the claimant, and the Company [Alliance]” as required by the no-action clause. Similarly, the Letter of Guaranty did not satisfy the requirements of the no-action clause because not only was Alliance excluded as a party to that arrangement, but also the instrument itself did not constitute a determination of Emscor’s obligation to pay or a release of Emscor’s liability. Nonetheless, Emscor contends that it complied with the no-action clause because the November 12th hearing was an “actual trial.”
Actual Trial
Emscor points out that the judge heard testimony from witnesses before giving his approval to the settlement. In support of its argument, Emscor cites Gulf Ins. Co. v. Vela,
Alliance contends there was no “actual trial” because the trial court did not hear evidence, made no findings, and did not determine liability or damages. Alliance is correct. Michael Weaver’s widow, Kristina Weaver, and Emscor’s President, Jim Jen-son, testified at the November 12th hearing, according to the Ketcher plaintiffs’ attorney, “to prove up the settlement” on behalf of the minor, Lyndsey Michelle Weaver. In actuality, the parties had already agreed before the hearing to the ad litem fees to be taxed against the other settling defendants and then agreed at the hearing to defer “other ad litem matters” with respect to Emscor, pending the outcome of the suit against Alliance.
Thus, the only “evidence” the trial court heard was the parties respective understanding of the agreement. Mrs. Weaver acknowledged that for consideration of the $3,000,000 settlement, she was foregoing the option of “going to trial against” Emscor and “obtaining a judgment that [she] may not collect.” She also recognized that she was to give Emscor a covenant to postpone execution of the judgment until such time as attempts were made to collect funds from the Guaranty Fund and until Emscor prosecuted the suit against Alliance.
Mr. Jenson acknowledged the Ketcher plaintiffs’ covenant to postpone execution of the judgment “until all efforts to recover funds from [Alliance] have failed.” He also acknowledged that in exchange for the Ketcher plaintiffs’ promise, Emscor would assign 75% of its cause of action and continue to engage in business. Finally, Mr. Jenson stated his belief that Emscor was not to blame for the accident “in any way” and that Emscor was taking this course of action as a prudent business decision. The Agreed Final Judgment itself recites that Emscor’s agreement “to this judgment was not an admission of any liability, and was not to be construed as such, but that [Emscor] was compelled to agree to this judgment in an effort to limit its exposure ... without any admission of guilt.”
The term “judgment following actual trial” contemplates “a contest of issues leading up to a final determination by court or jury in contrast to a resolving of the same issues by agreement of the parties, i.e., without a contest.” Wright v. Allstate Ins. Inc.,
Emscor asserts that Alliance cannot rely on the no-action clause under the exception set out in Gulf Ins. Co. v. Parker Prods. Inc. In that case, decided after Vela and Jeffer
This exception has only been applied to situations involving primary carriers who ordinarily have a contractual duty to defend when an occurrence falls within coverage provisions of the policy. See, e.g., Gulf Ins. Co.,
However, this case concerns an excess carrier who had no contractual duty to defend. Emscor, Inc.,
Failure To State A Stowers and Bad Faith Cause of Action
There is simply no authority in this State establishing a cause of action by an insured against its excess insurer for negligence, bad faith, or for unfair and deceptive practices in the handling of a claim brought by a third-party. The Stowers doctrine has been applied in Texas in only two circumstances — to the insured’s right to sue a primary carrier for wrongful refusal to settle a claim within policy limits, see G. A Stowers Furniture Co. v. American Indem., Co.,
Under Stowers, the insurer’s duty to the insured, extends to the full range of the agency relationship as expressed in the policy. See Ranger County Mut. Ins. Co. v. Guin,
Similarly, Emscor has faded to state a cause of action for bad faith. No Texas court has applied the duty of good faith and fair dealing to an excess insurer. None of the federal cases applying Texas law, which are cited by the dissent, expressly recognizes a common-law duty of good faith and fair dealing on the part of an excess carrier to an insured. Those cases merely assume without deciding that such a duty exists. Harbor Ins. Co. v. Urban Constr. Co.,
No Recovery
Assuming Emscor has stated a cause of action, it has failed to establish recovery as a matter of law. Emscor asserts that Alliance is at least liable on the policy because there is now an agreed judgment. Again, Alliance was not a party to the agreed judgment nor was the agreed judgment rendered after a trial on the merits. In addition, the record shows that Alliance never refused to tender its policy limits; rather, it promised to do so, provided that Emscor paid the underlying limits in accordance with the insurance contract. More importantly, as we previously noted, there is nothing in the record to indicate that Emscor has ever paid the $500,000 underlying limit. Thus, Emscor is not entitled to recover as a matter of law on its breach of contract cause of action.
Likewise, Emscor cannot recover on its bad faith or Stowers claim. Texas law recognizes the duty of an insurer to deal fairly and in good faith with its insured in the processing and payment of claims and, when assuming the insured’s defense, to act as an ordinary prudent person would act in the management of his or her own business affairs. Arnold v. Nat’l County Mutual Fire Ins. Co.,
If the conditions of coverage are truly ambiguous, i.e., susceptible of more than one reasonable interpretation, as Emscor suggests, then Alliance’s denial of coverage based on its interpretation of the policy terms cannot be anything but reasonable. See McCracken,
“The issue of bad faith focuses not on whether the claim was valid, but on the reasonableness of the insurer’s conduct in rejecting the claim.” Lyons,
Lastly, summary judgment on Ems-cor’s Insurance Code and DTPA claims was proper. Emscor alleged in its pleadings that Alliance “made representations to [Emscor] in order to induce [Emscor] to purchase the Policy” and that “the falsity of these representations came to light when [Emscor] discovered ... that Alliance refused to provide [Emscor] with coverage and [refused] to settle the underlying [Ketcher ] litigation.” The summary judgment proof does not reveal the preeise nature of Alliance’s alleged misrepresentations. Assuming that Emscor’s allegations are true, however, its claims are barred by limitations.
An action under article 21.21 of the Insurance Code and under the DTPA must be commenced within two years after the deceptive act or practice or within two years after the plaintiff discovered, or in the exercise of reasonable diligence, should have discovered the deceptive act or practice. Tex.Ins.Code Ann. art. 21.21 § 16(d) (Vernon Supp.1994); Tex.Bus. & Com.Code Ann. § 17.565 (Vernon 1987). Emscor purchased the Policy in 1987, but asserts that it did not learn of Alliance’s alleged misrepresentations until Alliance “refused to provide coverage and refused to settle.” Emscor does not say exactly when that occurred. The summary judgment proof shows that on September 23, 1988, Emscor was notified by Alliance that Alliance’s excess policy would not “drop down to pick up the coverage that the primary carrier provided.” Emscor filed suit on May 9,1991, more than two years after Emscor discovered that the Alliance excess policy did not provide coverage. Thus, Emscor’s DTPA and Insurance Code claims are barred.
Even if limitations do not preclude those claims, Emscor is still not entitled to recovery. Breach of the Stowers duty alone does not constitute a violation of article 21.21 or the DTPA. Garcia,
Conclusion
It is obvious from Emscor’s communications with Alliance and the Guaranty Fund and from its negotiations with the Ketcher plaintiffs that Emscor was financially unable to pay the first $500,000 of primary coverage. Indeed, the summary judgment proof reflects that Emscor had no intention of paying the underlying limits. Rather, Emscor tried to get the Guaranty Fund to pay the first $500,-000. Emscor never obtained the Guaranty Fund’s commitment and even if it had, the Fund could not have paid the entire $500,000. Nor did Emscor ever actually pay or unconditionally promise to pay the first $500,000. When these efforts failed, Emscor attempted circumvent the actual payment provision of the policy by asserting at the “last minute” that it had satisfied the policy conditions as “modified” and, finally, by executing the Agreed Final Judgment which never obligated it to pay the underlying limits. Yet, throughout these sequence of events, Emscor continued to insist that Alliance tender its excess policy limits. Had Alliance done so without assurance that Emscor would ever pay the underlying limits, it would have been left in the position of the primary insurer, contrary to the express terms of the excess policy and contrary to the laws of this State. Placing such a burden on the excess carrier would defeat the very purpose of excess liability insurance and make such coverage more expensive and inaccessible. See Ems-cor, Inc.,
In Laster v. American Nat’l Fire Ins. Co.,
The requirement that such payment be made by the insured before [the excess insurer] can become hable is an acceptable and reasonable condition precedent. It has as its objective the prevention of an arrangement by which the insured would seek to cause liability to be imposed on the insurance company for an amount in excess of the retained limit without first experiencing any financial detriment himself.
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If the policy did not contain such a condition, [the insurer] could be subjected to fraudulent and collusive transactions of a kind to which an excess insurer becomes particularly vulnerable when the primary insurer refuses, or is unable, to perform its obligation to protect the insured by providing him an appropriate investigation and defense related to claims arising from a covered occurrence_ [The excess insurer] had no duty to defend [the insured] in the damage suit though it had the option to do so. If an excess carrier elects not to provide a defense, and if the primary carrier fails or refuses to defend the insured, there is the temptation on the part of the insured to join with the injured party in a collusive arrangement that would give the insured immunity from any financial exposure while at the same time providing the injured party an opportunity to seek collection under the excess insurance policy. When there is a requirement, such as the one contained in the [excess insurer’s] policy, that the excess insurer cannot be liable unless the insured has first made a significant payment of his own, the risk that the insured and the injured will take unfair advantage of the excess insurer is greatly reduced.
Because Emseor failed to satisfy the conditions of the Alliance policy and failed to state a cause of action, summary judgment in favor of Alliance on Emscor’s contractual and extra-contractual causes action was proper. Accordingly, we overrule Emscor’s points of error and affirm the judgment of the trial court.
Notes
. The families are parties to this appeal as judgment creditors and partial assignees of Emscor.
. All communication discussed herein, unless otherwise indicated, involved correspondence which was sent to, and/or received by, the respective counsel for Emscor and Alliance.
. Emscor focused all of its contractual and extra-contractual claims below on whether the conditions of the policy were satisfied during the Stow-ers period. However, Emscor did not necessarily have to satisfy the Policy conditions during the Stowers period for purposes of its contract claim. Nonetheless, as we will discuss, Emscor is barred from recovering on the policy by the no-action clause.
. Alliance argues that this Court, by holding that Alliance had no duty to defend in the event of the underlying insurer’s insolvency, also determined that Alliance’s coverage was not triggered. See Emscor Mfg., Inc.,
. Alliance disputes whether Emseor could properly "step into the shoes" of the underlying insurer in order to satisfy the conditions of coverage. We need not decide this issue because even if Emseor could step into Stone Mountain’s shoes, it did not satisfy the conditions of coverage under the excess policy.
. Even if Emscor had such a cause of action, Emscor was expressly prohibited from assigning it to the Ketcher plaintiffs. Condition 11 of the Policy forbids an "assignment of interest under [the] policy” without Alliance's consent. Further, the Ketcher plaintiffs were without standing to bring the type of claims asserted. Allstate Ins. Co. v. Watson,
. As Alliance points out, any potential Stowers cause of action against Alliance entails scrutiny of Emscor’s conduct during settlement negotiations. See Warren, 826 S.W.2d at 188 (and cases cited therein). Alliance’s uncontroverted summary judgment proof shows that Emscor's conduct during negotiations was, at best, suspect. The Agreed Final Judgment was three times greater than the Ketcher plaintiffs' Stowers demand. On the date that demand was to expire, Emscor could have responded with a $600,000 counter-offer, i.e. $100,000 from Alliance and $500,000 from Emscor or the Guaranty Fund. There is nothing in the record to indicate that Emscor made such an offer or that Emscor attempted to keep Alliance abreast of the status of settlement negotiations.
Dissenting Opinion
dissenting.
Perhaps the most significant observation that illustrates the inequity embraced by the majority opinion is in the letter dated October 25, 1990, from Emseor attorneys to Alliance attorneys:
... It is certainly not Emscor’s fault that its primary insurance company has become insolvent. There is also no doubt that had the primary insurance company not become insolvent this case would have been settled by now with the full $500,000.00 primary being paid, along with the full $500,000.00 excess coverage with Alliance whom you represent. It would be grossly unfair to allow Alliance the windfall of not having to pay its $500,000.00 excess coverage simply because of the historical accident of Emscor’s primary insurance carrier becoming insolvent....
I concur in the foregoing and respectfully dissent from the majority opinion. I would reverse the summary judgment because Emseor satisfied the express conditions of the Alliance policy during the Stowers period. Alternatively, I would hold that there is a fact question as to whether Alliance modified or waived the conditions of the policy during the Stowers period and, therefore, under the doctrines of waiver or estoppel, could not require Emseor to comply with those conditions.
Initially, Alliance contends that the first three conditions that could trigger the excess coverage could only be satisfied by the underlying insurer, Stone Mountain, or its receiver, the Texas Guaranty Fund. The Policy reads that:
(1) The underlying insurers have paid the full amount of their respective loss liability;
(2) the underlying insurers have been held to pay the full amount of their respective loss liability;
(3) the underlying insurers shall have admitted liability for the underlying limits; and
(4) the insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits.
Alliance’s interpretation that only Stone Mountain can satisfy those conditions is unreasonable. In other words, under Alliance’s interpretation, only condition (4) could have triggered coverage under the policy once Stone Mountain became insolvent, because condition (4) was the only condition that omitted a reference to compliance by the “underlying insurer”. Such a construction of the policy favors exclusion of coverage and is unreasonable. See National Union Fire Ins. Co. v. Hudson Energy Co.,
Consistent with the rule that ambiguities and inconsistencies in insurance contracts are to be strictly construed in favor of coverage, I would hold that Emseor could “step into the shoes” of the underlying insurer for the purpose of satisfying the policy conditions. See id.; see also Stonewall Ins. Co. v. Modern Exploration, Inc.,
Because Emseor could properly step into the shoes of its primary carrier, Stone Moun
Condition 2 — Held To Pay
The majority opinion takes the position that “held to pay” is only satisfied when Emscor is held liable to pay by “judgment”. However, the cases cited by the majority opinion clearly show that compliance with the contract requirement that the insured be “held to pay” may be satisfied by “settlement agreement”. In the three cases cited by the majority opinion to uphold this position, the majority misstates the holdings of those cases, as will be shown below.
Case No. 1: Hudson Insurance Co. v. Gelman Sciences, Inc.,
Hudson issued a $4,000,000 excess insurance policy to Gelman, to cover Gelman’s liability between $21,000,000 and $25,000,000. Mission Insurance Company covered liability from $2,000,000 to $21,000,000. When an incident occurred for which Gelman’s liability was $1,000,000 over its primary policy, the primary carrier paid. Mission was insolvent, and Gelman demanded that Hudson “drop down” and cover the excess $1,000,000. The 7th Circuit held that Hudson was not required to “drop down.” Contrary to this majority opinion, the 7th Circuit did not define or interpret the term “held to pay” or “held liable to pay”. The 7th Circuit only held that the phrase in the policy, “held liable to pay”, did not require Hudson to “drop down” into the shoes of the insolvent carrier. The Hudson case is inapposite to the appeal before this court, because Emscor did not request Alliance to “drop down” into the shoes of the insolvent carrier. Instead, Ems-cor stepped into the shoes of the insolvent carrier, executed a settlement agreement, and agreed to pay the primary coverage of $500,000. Emscor then demanded that Alliance, as excess carrier, pay its excess coverage of $500,000.
Case No. 2: Highlands Insurance Co. v. Gerber Products Co.,
Gerber carried primary insurance with Liberty Mutual, first-level excess with Mission National, and second-level excess with Highlands, AIU, American and Federal. Gerber settled a lawsuit for one million dollars in excess of its primary coverage. The second level excess carrier, Mission National, was bankrupt. Gerber then sought to have Highlands, AIU, American and Federal “drop down” and provide first level excess coverage. Like the Emscor policy, the Highlands policy had language providing that Highlands would not become liable until the underlying carriers had paid or had been “held liable to pay.” The majority opinion indicates that the Maryland Court holding was that the phrase, “held liable to pay” meant that the insured be held hable to pay by “judgment or a settlement.” However, that was not the holding of the Court. The Maryland District Court held that the phrase “held hable to pay” was “merely an acknowledgment that attachment of [the excess carriers] liability need not wait for actual payment of the underlying amount.” The Court then correctly held that Highlands did not have to “drop down.” However, it is significant to this appeal that the Maryland court held that the triggering of the excess carrier liability “need not wait” for actual payment of the primary coverage.
Case No. 3: Vickodil v. Lexington Insurance Co.,
Vickodil was a plaintiff in a lawsuit against Amrak and received a judgment of $1,473,-934.10. Amrak’s primary carrier Aetna, provided coverage up to $100,000.00. Amrak’s
While the majority opinion clearly states that all three of the foregoing cases hold that “held to pay” requires that a “judgment” be rendered prior to triggering the liability of an excess carrier, that is not the law, and was not the law as stated in those opinions. While there is no Texas law that defines “held to pay”, or “held liable to pay,” all of the caselaw which I can find from our sister states clearly do not require that a judgment be rendered in order to satisfy the “held to pay” provision of an excess carrier’s insurance policy. The majority opinion appears to confuse this appeal with “drop down” case. This is not a “drop down” case. This is a case where the excess carrier refused to pay the excess coverage after the insured stepped into the shoes of the bankrupt primary carrier, executed a settlement agreement, and held itself liable to pay the full limits of the primary policy.
I have found a case that is remarkably similar to some important aspects of this appeal. United States Fid. and Guaranty Co. v. Safeco Ins.,
Also of particular interest in the Safeco case is that the plaintiffs settled with the insured because the primary carrier was insolvent. In the terms of the settlement, the plaintiffs agreed not to pursue the insured’s personal assets to satisfy any judgments they might recover, but instead agree to seek relief only from the solvent excess carriers involved. In exchange for that concession, the insured admitted liability.
Emseor is in a much better position than the insured in Safeco in that Emseor has: (1) settled, (2) admitted liability, and (3) held itself to pay the full amount of the primary coverage. The Safeco court cited an earlier case and held “while emphasizing that exhaustion of the primary insurance was a necessary condition precedent to liability under the excess policy, such condition is complied with when the insured proves that the claims
Settlement Agreement/Guaranty Letter
The majority holds that the guaranty letter was not definite or binding, because it did not specify a deadline for the Ketcher plaintiffs to undertake efforts to collect the full $500,000 from the guaranty fund or to tender a demand to Emscor. However, as the above cases show, there is no requirement that the plaintiffs collect in full from the insured on the underlying policies. There is only a requirement that they enter into a settlement agreement which they accept as satisfaction of the coverage due under the primary policy.
The terms of the letter of guaranty are as follows: “for good and valuable consideration, the receipt of which is hereby acknowledged and confessed and in further consideration of the compromise and settlement of the subject litigation, guarantors agreed to the following terms:”
3(a) Guarantors will pay beneficiaries the difference, up to five-hundred thousand dollars ($500,000), between the amount of money the Texas state board of insurance guaranty fund approves for payment as the result of claims filed with the guaranty fund in the subject litigation, and the total sum of five-hundred thousand dollars ($500,000).
(b) Before guarantors are obligated to pay beneficiaries anything, beneficiaries are obligated to exhaust all efforts and remedies to collect up to five-hundred thousand dollars ($500,000) from the state board of insurance guaranty fund.
(c) After beneficiaries have exhausted all efforts and remedies stated in paragraph 3(b) then guarantors shall immediately become obligated upon thirty (30) days written demand of beneficiaries to pay the amount due following the directives of paragraph 3(a) above.
(d)Guarantors obligations to beneficiaries are irrevocable and unconditional.
Further, paragraph 4 shows that as security to the beneficiaries, Emscor “hereby grants to beneficiaries a security interest in and to all assets and properties of Emscor, Inc. and Emscor, Inc. agrees to execute and cause to be filed financing statements to perfect such security interests.”
In spite of all of Emscor’s attempts to comply with the policy conditions, as they existed and as they were modified, and to convince Alliance to settle the Ketcher plaintiffs’ excess claims, Alliance defiantly refused.
Condition 3 — Admitted Liability
Emscor contends that it “admitted liability” for the underlying limits of the primary coverage and thereby satisfied condition 3. For the majority opinion to ignore the satisfaction of condition 3, the majority must believe that only Stone Mountain and not Ems-cor could be responsible for the primary coverage. However, Alliance specifically told Emscor that Emscor would be responsible for its own primary coverage as a result of the underlying insurers insolvency. Further, in an attempt to fulfill that responsibility, and in accordance to Alliance’s instructions and modified conditions, Emscor executed the letter of guaranty. The letter of guaranty satisfies all of plaintiffs’ claims against Emscor and is an admission of liability.
Condition 5
Condition 5 of the policy states as follows:
Attachment of Liability — Liability under this policy shall not attach unless and until the underlying insurers shall have admitted liability for the underlying limits or unless and until the insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits, (emphasis added).
Clearly, Emscor can step into the shoes of the bankrupt primary carrier, and clearly Emscor “admitted liability for the underlying limits.” Therefore, summary judgment for Alliance was error.
Modification/W aiver/Estoppel
Even if it can be said that Emscor failed to comply with the express conditions of the policy, a material fact question exists as to whether Alliance modified the express conditions and was prohibited by the doctrines of waiver or estoppel from demanding strict compliance with those conditions. See Employers Casualty Co. v. Tilley,
“Estoppel,” on the other hand, arises “where by fault of one, another has been induced to change his position for the worse.” Id. at 268 (citations omitted); see Stonewall Ins.,
The October 24th and 26th letters written by Alliance were attached to Emscor’s response to the Alliance’s motion for summary judgment. Those letters show that when Emscor was trying desperately to avoid excess liability that would destroy the company, Alliance told Emscor that it could trigger Alliance’s coverage by “arranging to pay” or “agreeing to pay” the first $500,000. In other words, Alliance told Emscor it could satisfy the “pay” or be “held to pay” condition if Emscor would “arrange to pay” or “agree to pay.” After Emscor subsequently executed the Letter of Guaranty, Alliance rejected the guaranty and denied coverage, thereby exposing Emscor to liability in excess of its ability to pay. Emscor certainly changed its position for the worse based on Alliance’s offer to modify the conditions by complying with Alliance’s definition of the condition.
Performance of a condition precedent can be modified by word or deed by the party to whom the obligation was due. Ames v. Great Southern Bank,
Alliance and the majority maintain that the doctrines of waiver and estoppel cannot be used to create insurance coverage where none exists by the terms of the policy. Texas Farmers Ins. Co. v. McGuire,
The “No-Action” Clause
Notwithstanding the fact issue regarding Emscor’s compliance with the express or modified condition of the policy, the majority points out that this suit is barred by the no-action clause. According to the majority, Emscor’s obligation to pay was never determined by judgment “after actual trial”, or by written agreement, to which Alliance was a party. However, even if that were true, there is still the question of whether Alliance was entitled to rely on the no-action clause under the exception recognized in Gulf Ins. Co. v. Parker Products Inc.,
Stowers Doctrine
The majority, citing Ranger County Mutual Ins. Co. v. Guin,
As for the reasonableness of the $3,000,000 settlement, Alliance and the majority assert that Emscor failed to take reasonable steps to minimize Alliance’s legal liability primarily because the settlement was three times greater than the original demand. Neither Alliance nor the majority cite any authority for the proposition that the amount of the judgment alone is sufficient to establish that a settlement was per se unreasonable. Contrary to the majority’s assertion, there is nothing in Alliance’s summary judgment proof which undermines the “reasonableness” of the settlement. At the very least, there is a question of fact as to the reasonableness of the settlement.
Breach Of The Duty Of Good Faith And Fair Dealing
The majority, citing a host of cases, holds that Emscor cannot assert a bad faith claim because Texas law does not recognize a cause of action by an insured against its insurer for bad faith in the handling of a third-party claim. In one of those cases, Charter Roofing Co. v. Tri-State Ins. Co.,
In direct compliance with Alliance’s instructions, Emscor “held” itself to pay the underlying limits by the Letter of Guaranty. After Alliance subsequently refused to tender its policy limits, a judgment was rendered against Emscor in excess of both its primary and excess coverage. Emscor is entitled to have a jury determine whether that excess judgment resulted from Alliance’s bad faith or negligence.
Finally, although not addressed by the majority, Alliance contends that Emscor’s cause of action for breach of the duty of good faith and fair dealing is barred by limitations. The statute of limitations governing a cause of action for breach of the duty of good faith and fair dealing is “two years after the day the cause of action accrues.” Tex.Civ.PRAC. & Rem.Code Ann. § 16.003(a) (Vernon 1986). A bad faith cause of action ordinarily accrues when an insurer fails to pay an insured under the policy; in other words, when there is a denial of coverage. Murray v. San Jacinto Agency, Inc.,
Alliance asserts that limitations accrued when Emscor learned on September 23, 1988, that Alliance would not provide primary coverage as a result of Stone Mountain’s insolvency. Emscor did not file this suit until May 9, 1991. However, Alliance’s denial of primary coverage is irrelevant for purposes of this lawsuit because Emscor was seeking to invoke excess coverage, not primary coverage. Thus, the significant event in determining when the limitations period accrued is Alliance’s denial of excess coverage, which occurred November 5, 1990, when Alliance rejected the Letter of Guaranty. Suit was filed only six months later and well within the limitations period. Therefore, Emscor’s bad faith claim is not-barred by limitations.
Violations Of The Insurance Code and DTPA
Alliance also contends and, the majority agrees, that the Emscor’s DTPA and Insurance Code claims are barred by limitations and that the Ketcher plaintiffs lack standing under those statutes. Tex.Bus. & Com.Code Ann. §§ 17.45(4), 17.565 (Vernon 1987); Tex. Ins.Code Ann. art. 21.21 § 16(a), (d) (Vernon Supp.1994). These contentions are also without merit. As the majority notes, Emscor claimed that it learned of misrepresentations made by Alliance with respect to coverage when Alliance refused to provide coverage and to settle the Ketcher suit. As we previously stated, the limitations period did not accrue until Emscor learned of Alliance’s refusal to provide its excess coverage. That occurred sometime after the beginning of settlement negotiations in March 1990, which was fourteen months before suit was filed. Thus, Emscor’s DTPA and Insurance Code claims are not barred by limitations.
I am aware of the Texas Supreme Court’s recent opinion in Allstate Ins. Co. v. Watson,
As we noted earlier, plaintiffs may settle their lawsuit against an insured for the primary coverage, and take an assignment of the insured’s cause of action against an excess carrier for its refusal to pay. Safeco,
Good Faith & Fair Dealing
The duty of “good faith and fair dealing” exists because of a special relationship between the insurer and the insured. It does not emanate from specific terms of the insurance contract. Further, it exists because of the unequal bargaining power between the two parties, and the tendency for that imbalance to encourage the strong to take advantage of the weak. See Arnold v. National County Mutual Fire Insurance Co.,
I cannot conceive of a more deserving situation to apply the duty of good faith and fair dealing, than the present appeal. There is no good reason at law or in equity to deny an insured protection from abuse of the imbalance of power by an excess insurance carrier.
I would hold that Emscor has satisfied the requirement of “held to pay” as a matter of law, have executed a settlement agreement with the plaintiffs, and that they have admitted liability. Upon the occurrence of any one of the foregoing, Alliance was obligated to provide its excess coverage. In the alternative, there is at least a fact question as to whether the foregoing occurred and if so whether they triggered the requirement for Alliance to provide the excess coverage.
There is also material question of fact as to whether Alliance defined or modified the express conditions of the policy and, therefore, waived the necessity of compliance with those conditions, or is estopped from demanding compliance.
In conclusion, summary judgment in favor of Alliance was error. Accordingly, all of Emscor’s points of error should be sustained, the trial court’s judgment should be reversed, and this case should be remanded to the trial court for proceedings consistent with this opinion.