Lead Opinion
delivered the opinion of the Court.
In this сase we consider whether an insurer’s contractual coverage under a claims-made policy can be expanded by the doctrines of waiver and estoppel to cover a risk not otherwise within the policy coverage: a suit against the insured that was not reported until after the policy expired. We hold that if an insurer’s actions prejudice its insured, the insurer may be es-topped from denying benefits that would be payable under its policy as if the risk had been covered, but the doctrines of waiver and estoppel cannot be used to rewrite the contract of insurance and provide contractual coverage for risks not insured.
I. Background
Ulico Casualty Company issued a claims-made liability policy to the Allied Phots Association (APA). The policy specified that it was effective from August 25, 1998 through August 25, 1999 and provided coverage, as relevant to this matter, for
all Loss which such Insured shall become legally obligated to pay on account of any claim made against the Insured during the Policy Period or, if exercised, during the Extended Reporting Period, for a Wrongful Act committed, attempted, or allegedly committed or attempted by such Insured before or during the Policy Period, and reported to [Ulico] ... during the Policy Period or the Extended Reporting Period, if elected.
The policy defined “loss” to include defense costs. The policy required that, as a condition precedent to APA’s rights under the policy, APA “give to [Ulico] written notice during the Policy Period or the Extended Reporting Period, if elected, of any claim made against [APA] for a Wrongful Act.” The policy provided that if Ulico cancelled or refused to renew it, APA could have an extended period of twelve months beyond the policy expiration date in which to report claims made against it— an Extended Reporting Period (ERP)— based on acts committed by APA within the policy period, provided APA paid an additional premium of fifty percent of the annual premium. The ERP section also provided that if APA terminated the policy or declined to renew, then Ulico could, “[i]f requested, at its sole discretion, grant an Extended Reporting Period.”
In December 1999, Ulico’s claims analyst, Sheila Bowers, informed APA by letter that the claim was being reviewed and that APA would be notified of Ulico’s coverage decision. Referencing the Ulico policy, she advised APA that no defense fees, costs, charges, or expenses may be incurred or settlements made without Ulico’s prior written consent. In March 2000, Bowers sent APA’s counsel a letter stating that the policy provided for defense costs, but Ulico was expressly reserving all its rights to deny coverage. She enclosed litigation management forms, attorney evaluation forms, and a form for the attorney’s time forecast. James & Hoffman did not respond to Bowers’s letter. In April 2001, Bowers wrote the law firm another letter which stated that pursuant to the reservаtion of rights letter of March 1, 2000, “Ulico has agreed to reimburse [APA] for reasonable and necessary defense expenses.” In May 2001, the firm responded and enclosed its billings of approximately $635,000 for defending APA in the suit. At that point, the law firm had defended the suit and filed a motion for summary judgment on behalf of APA without any reports to or further contact with Ulico. Neither APA nor its defense firm had sought Ulico’s approval for any actions or for authorization to incur expenses in defense of the lawsuit. The trial court granted summary judgment in APA’s favor in September, and an appeal by the Allen plaintiffs was dismissed.
Ulico filed suit in November 2001 seeking a declaratory judgment that it did not have coverage and did not owe APA’s defense costs. APA counterclaimed. At trial, a jury found in response to four liability questions that Ulico (1) granted an ERP during which APA reported the Allen suit, (2) agreed to pay the Allen defense costs separately and apart from the policy, (3) waived its right to assert that the policy did not cover the Allen defense costs, and (4) was estopped from asserting that the policy did not cover the Allen defense costs. The jury found damages of $308,235. On cross-motions for judgment notwithstanding the verdict, the trial court set aside the jury findings that Ulicо granted an ERP, that Ulico agreed to pay defense costs separately from the policy, and of damages. The trial court entered judgment in favor of APA on the waiver and estoppel findings for $616,468.55.
Relying on what has come to be referred to as the Wilkinson exception, see Farmers Texas County Mutual Insurance Co. v. Wilkinson,
Ulico asserts that the court of appeals erred in holding it had contractual coverage for the Allen suit based on either waiver or estoppel. Ulico notes that there was no evidence of promissory estoppel or reliance damages. See Wheeler v. White,
We hold that Ulico’s policy coverage was not expanded by either the doctrine of waiver or the doctrine of estoppel so as to bring the Allen claims within the policy coverage. We also hold that the trial court properly disregarded the jury findings that Ulico granted an ERP extending the policy period and that Ulico separately agreed to cover the Allen suit defense costs.
II. Discussion
When Uhco received notice of the Allen suit on November 5,1999, it did not have a contract of insurance in force with APA. Its policy had terminated as of October 25, 1999. Ulico’s liability to APA turns on whether Ulico’s actions after it received notice of suit created obligations to APA.
A. Preservation of Error
At the outset we address APA’s contention that Ulico failed to preserve error as to jury questions three and four, which submitted waiver and estoppel. APA argues that Ulico waived and invited error as to both doctrines because Ulico submitted the proposed questions which the trial court included in the charge. Referencing Holland v. Wal-Mart Stores, Inc.,
1. The Law
Proceeding to the merits of Uli-co’s complaints, we note that insurance policies are contracts. Barnett v. Aetna Life Ins. Co.,
In the context of issues such as those presented by this case, the doctrines of waiver and estoppel are frequently referenced together, but they are different. See Pa. Nat’l Mut. Cas. Ins. Co. v. Kitty Hawk Airways, Inc.,
2. Can the Doctrines be Used to Rewrite the Policy?
This court addressed the question of whether the contractual coverage of an insurance policy can be expanded by waiver or estoppel over seventy years ago in Washington National Insurance Co. v. Craddock,
[B]ut he alleged further that the company having paid him 11 weeks’ indemnity for an accidental injury produced by a gunshot wound, had waived this condition of the policy, and was therefore bound and obligated to pay him the remaining 93 weekly installments, and was estopped from denying its liability by virtue of such waiver. He alleged also that he had gone to considerable expense in securing and preparing claims and proof of injury.
... The question presented is not whether the act of the insurance company in making payments would constitute a waiver of its right to forfeit the policy on account of some breach by the insured of its terms, but is whether a contractual liability may be created by a waiver. By its policy the insurance company did not assume any liability for the risk declared upon and no consideration moved to it after the accident for the assumption of such liability. The insurеd seeks to create that liability by invoking the doctrine of waiver. The doctrine cannot be made to serve that purpose.
Id. at 166 (quoting Craddock v. Wash. Nat’l Ins. Co.,
[H]ere the [insurer] makes no claim of forfeiture of the contract; on the contrary, it is insisting upon the contract itself, and insisting that by its terms it did not insure the deceased when engaged in military services in time of war. To apply the doctrine of estoppel and waiver here would make this contract of insurance cover a loss it never covered by its terms, to create a liability not created by the contract and never assumed by the [insurer] under the terms of the policy. In other words, by invoking the doctrine of estoppel and waiver it is sought to bring into existence a contract not made by the parties, to create a liability contrary to the express provisions of the contract the parties did make.
Id. (quoting Ruddock v. Detroit Life Ins. Co.,
Fifty years later, in Texas Farmers Insurance Co. v. McGuire,
We hold that the court of appeals erred in applying the estoppel rule of Tilley to the facts of this case. The doctrine of estoppel cannot be used to create insurance coverage when none exists by the terms of the policy. Washington Nat. Ins. Co. v. Craddock,130 Tex. 251 ,109 S.W.2d 165 (1937).
Waiver and estoppel may operate to avoid a forfeiture of a policy, but they have consistently been denied operative force to change, re-write and enlarge the risks covered by a policy. In other words, waiver and estoppel cannot create a new and different contract with respect to risks covered by the policy. Great Am. Reserve Ins. Co. v. Mitchell,335 S.W.2d 707 (Tex.Civ.App.-San Antonio 1960, writ ref d).
In Tilley the insurer was estopped by the actions of its attorney from asserting that the insured had forfeited policy coverage because of late notice. The case at hand does not involve a forfeiture; instеad, it involves a question of risk coverage under the contract. Because Texas Farmers’ action cannot estop it from relying on the limitations of risk coverage set forth in the contract, it is not responsible for the judgment against McGuire.
Id. at 602-03 (emphasis added). In McGuire, we mentioned the Wilkinson exception, but did not analyze or discuss the exception because it was not outcome-determinative. Id. at 603 n. 1. We do so now.
3. The Wilkinson Exception
In Wilkinson, Berta Wilkinson purchased a liability policy from Texas Farmers County Mutual which covered a Dat-sun owned by her son, Clifton.
The court of appeals affirmed. Id. at 523. It acknowledged the “well-established” rule that “the doctrines of waiver and estoppel may operate to avoid conditions that would cause a forfeiture of an insurance policy, [but] they will not operate to change, re-write or enlarge the risks covered by the policy.” Id. at 521. But the court then stated:
However, it follows from these general principles that, if an insurer assumes the insured’s defense without obtaining a reservation of rights or a non-waiver agreement and with knowledge of the facts indicating noncoverage, all policy defenses, including those of noncover-age, are wаived, or the insurer may be estopped from raising them. Pacific Indemnity Co. v. Acel Delivery Service, Inc.,485 F.2d 1169 (5th Cir.1973); Ferris v. Southern Underwriters,109 S.W.2d 223 (Tex.Civ.App.-Austin 1937, writ ref'd); Automobile Underwriters’ Ins. Co. v. Murrah,40 S.W.2d 233 (Tex. Civ.App.-Dallas 1931, writ ref'd). See:81 A.L.R. 1326 (1932);38 A.L.R.2d 1148 (1954); 7C Appleman, Insurance Law & Practices 4892 (1979). This rule is based on the "... apparent conflict of interest that might arise when the insurer represents the insured in a lawsuit against the insured and simultaneously formulates its defense against the insured for noncoverage.” Pacific Indemnity Co. v. Acel Delivery Service, Inc., supra.
Id. at 521-22.
As indicated by the above quote, the Wilkinson court did not specify whether it based its decision on waiver or estoppel. Nor did it rest its decision on a determination that the insured had been prejudiced. It held that an “apparent” conflict of interest that “might” arise sufficiently justified judicial rewriting of the insurance contract to include a risk not agreed to by the parties to the contract. Id. at 522. The court cited several cases to support its conclusion that “it follows” from the general principles enunciated by this Court in Craddock “that, if an insurer assumes the insured’s defense without obtaining a reservation of rights or a non-waiver agreement and with knowledge of the facts indicating noncoverage, all policy defenses, including those of noncoverage, are waived, or the insurer may be es-topped from raising them.” Id. at 521-22 (emphasis added).
We do not agree with Wilkinson’s statement to the effect that “noncoverage” of a risk is the type of right an insurer can waive and thereby effect coverage for a risk not contrаctually assumed. As we
To begin with, the Wilkinson court failed to state the complete basis for the rule in its quotation from Acel. See Wilkinson,
The theory underlying this exception is based upon the apparent conflict of interest that might arise when the insurer represents the insured in a lawsuit against the insured and simultaneously formulates its defense against the insured for noncoverage. For estoppel to prevent the assertion of a defense of noncoverage in accordance with this exception, there must be a showing of prejudice. As to the application of waiver, the proponent must demonstrate a voluntary relinquishment of a known right .... Because the district court disposed of this case on the basis of estop-pel, we are not concerned with the application of waiver in this appeal.
Id. at 1173 (emphasis added) (citations omitted).
Acel involved a declaratory judgment action to determine liability coverage for an airplane accident. Id. at 1171. The trial court and court of appeals held that the incident in question was not covered by the policy. The court found that Pacific Indemnity Company was estopped from denying coverage for the judgment, however, because it assumed dеfense of the suit without a valid non-waiver agreement or reservation of rights when it had knowledge of facts indicating possible lack of coverage and the insured was prejudiced. Id. at 1176. The court determined the insured was prejudiced in several ways: (1) by Pacific’s failure to notify the insured of possible lack of coverage so it could take measures to defend itself, (2) by the manner in which the defense was conducted before Pacific withdrew, (3) because the withdrawal took place just before trial, and (4) because of the apparent conflict of interests that arose when Pacific assumed the defense with doubts as to coverage and without notifying the insured of the conflict. Id. at 1175-76. The court noted the similarity of the facts to those in Tilley, in which this Court held that an insured was prejudiced as a matter of law when an attorney hired by the insurer simultaneously built a policy defense for the insurer and thus the insurer was estopped from asserting a late-notice defense under the policy. Id. at 1176; see Tilley,
Wilkinson also cited Ferris v. Southern Underwriters,
In Murrah, an indemnity policy issued by Automobile Underwriters to C.E. Adair provided that Automobile Underwriters would have no liability for accidents or injuries occurring if the driver was intoxicated.
[W]hen appellant, with full knowledge of the issues to be tried in the suit against Adair, took exclusive control and management of Adair’s defense in such suit, introduced all of the evidence that was before the court on such defense, filed all of the pleadings that were filed for Adair, examined and cross-examined all witnesses, it thereby waived the defensive clauses in the policy of insurance.
Id. at 235 (emphasis added).
The court cited as controlling authority this Court’s decision in American Indemnity Co. v. Fellbaum,
It is true that the provision doеs not say that if the indemnity company fails in its defense, and judgment is rendered against the assured, it will pay the judgment; but we believe that this was the purpose and intention of the parties when the contract was made.
Id. at 909-10. In Fellbaum, this Court did not address whether policy coverage could be judicially expanded to encompass a risk not agreed to by the parties; it held that the policy language required the insurer to pay the judgment based on the policy language itself, that is, the agreement the parties made. Id. In short, neither Mur-rah nor the case it relies on support the rule that a liability insurance policy’s risk coverage can be expanded by waiver or estoppel.
The court in Wilkinson also cited Ferris,
The rule is settled in this state that “a defense by the insurer, in an action on the policy, that a certain claimed liability is not -within the policy terms, is waived when it assumes absolute control, underthe terms of its contract with insured, of the action brought against the insured to recover damages.”
Id. (quoting Am. Indem. Co. v. Fellbaum,
In Dallas Coffee,
Nor was a question presented as- to whether risk coverage of a liability insurance policy could be expanded by waiver or estoppel in Leap,
[T]he rule now prevails in this and other jurisdictions that where an insurance company, in pursuance of the terms of such contract, takes charge of and manages and contests the suit against the assured until the recovery of final judgment against him thereon, it thereby becomes so connected with the litigation, by its interest in the result and participation therein, as to be bound by such judgment, and is estopped to deny its liability thereon.
Id. at 1218. This Court did not approve the court of appeals’ language, but rather, reversed the judgment against Maryland: “[Maryland] Casualty Company was in no sense a party to the suit and the Court of Civil Appeals was wholly without jurisdiction over it. The judgment as to it was therefore a nullity.” Leap v. Braziel,
Finally we reach the court of appeals’ opinion in Fellbaum,
A defense by the insurer, in an action on the policy, that a certain claimed liability is not within the policy terms, is waived when it assumes absolute control, under the terms of its contract with insured, of the action brought against the insured to recover damages. When appellant assumed the exclusive management and control of the suit for damages ..., as it was empowered to do under the terms of the policy, it became unconditionally hable for the amount of the judgment rendered....
[[Image here]]
No reservations were made as to its liability by appellant when it assumed control of the case. The judgment is in effect one against appehant as well as against Carr, and it must pay off and discharge the judgment. There are other authorities that sustain this ruling. ... We have seen no Texas case that passes on the question.
Id. at 874 (emphasis added) (citations omitted). While this Court affirmed the court of appeals’ judgment, it did not do so on the basis of waiver or estoppel. Rather, it did so by holding the insurer was directly hable to the judgment creditor based on the policy language. Fellbaum,
The court of appeals’ decision in Fellb-aum and the cases citing it underlie general statements such as that made in Wilkinson that the doctrines of waiver and estoppel preclude an insurer from asserting the “defense of noncoverage” if the insurer assumes the defense of its insured without a vahd reservation of rights or non-waiver agrеement. The cases cited in Wilkinson, however, do not support its conclusion.
4. Prejudice
Justification for the Wilkinson rule typically is noted as the “apparent conflict of interest that might arise when the insurer represents the insured in a lawsuit against the insured and simultaneously formulates its defense against the insured for noncov-erage.” Wilkinson,
Tilley,
In the declaratory judgment action, Employers conceded that it had coverage for the accident unless Tilley violated a policy provision requiring Tilley to give Employers notice of the accident “as soon as practicable.” Id. at 555. The trial court granted Tilley’s motion for summary judgment in which he asserted waiver and estoppel theories related to Employer’s late notice defense. Id. at 554. We discussed the “serious questions involving legal ethics and public policy” in the foregoing context. Id. at 557. We held that Tilley had been prejudiced and Employers was estopped to deny coverage:
We think prejudice to Tilley ... has been shown as a matter of law.
Under the undisputed facts and circumstances of this case, it would be untenable to permit Employers to disclaim liability for the defense of Tilley in the [personal injury] suit on account of the late notice defense. Its conduct being violative of the guiding principles and public policy heretofore discussed, we hold that Employers is estopped as a matter of law from denying the responsibilities under its policy for defense of the [personal injury] suit.
Id. at 561.
We discussed the doctrines of both waiver and estoppel in Tilley, but we did not hold that Employers waived its late notice defense. We determined that Tilley had been prejudiced and held that Employers was estopped from asserting the late notice forfeiture provision of its policy. Id. The question was not presented as to whether either the doctrine of waiver or estoppel can expand the coverage of a liability policy to encompass a risk or period of time for which no premiums were paid. Nor did we hesitate to label the situation as an actual conflict of a most serious nature, not an “apparent conflict оf interest that might arise.” See Wilkinson,
When an insurer’s defense of or controlling the defense of the insured prejudices an insured, as happened in Tilley and Acel, the insurer cannot escape liability for the detriment its actions cause its insured. In those cases, the insurer was estopped from refusing to pay the damages its actions caused, but there was no rewriting of the insurance contract. We think Tilley’s rule, ethical rules applicable to attorneys defending insureds, and the doctrine of estoppel all work to protect an insured without the necessity of remolding the doctrines of waiver and estoppel to create an anomaly in the law by judicially rewriting agreements between insurers and insureds.
Tilley condemned a situation in which a defense attorney provided by an insurance company has divided loyalty that results in prejudice to an insured. It goes without saying that an attorney defending an insured has the obligation to fully disclose to the insured conflicts of interest, whether because of the attorney’s relationship with the insurer or otherwise. That obligation is independent of the insurer’s issuing a valid reservation of rights or obtaining a non-waiver agreement. We fail to sеe how the insured is not protected from prejudice by the rule of Tilley or a variation of that rule. In contrast, the Wilkinson rule would afford the insured more contractual coverage than the policy provided, even if the insurer provides a perfect defense at no cost to the insured and the insured suffers no prejudice. The
5. The Jury Charge
The trial court submitted the “Wilkinson exception” to the jury by two separate questions. Jury question three submitted APA’s estoppel theory:
Is Ulico estopped from asserting that the APA’s claim for attorney’s fees and expenses incurred in defending the Allen Action is not covered by the Policy?
Jury question four submitted the waiver theory:
Has Ulico waived its right to assert that the APA’s claim for attorney’s fees and expenses incurred in defending the Allen Action is not covered by the Policy?
Both questions were accompanied by definitions and instructions, including an instruction that waiver and estoppel “generally cannot be used to create insurance coverage when none exists under the terms of an insurance policy. But, in certain circumstances, [they] may expand the coverage provided under an insurance policy.” In Craddock and McGuire, we said neither doctrine could effect a change in the policy’s coverage. Craddock,
Jury questions three and four, which submitted the theories of expanding Uli-co’s policy coverage by waiver and estop-pel, are immaterial and cannot support a judgment against Ulico. Because we determine that Ulico’s policy coverage could not be expanded by waiver or estoppel, we do not reach its assertions that even if Wilkinson properly stated the law, Ulico still must prevail because there was no evidence that it either assumed control of APA’s defense or that APA was prejudiced by its actions.
C. Judgment Notwithstanding the Jury Verdict
APA urges that if judgment in its favor is not sustained on the waiver and estoppel
The court of appeals did not address the trial court’s actions in disregarding the jury’s answers to questions one and two. We will consider the issues rather than' remanding for review by the court of appeals. See Tex.R.App. P. 53.4.
1. Extended Reporting Period
Jury question one asked whether Ulico agreed to grant APA an ERP under the policy, during which APA reported the claim. APA first contends that the trial court could only disregard the jury’s “yes” answer if no evidence supported the answer, and that Ulico’s actions were evidence that Uhco impliedly granted an ERP.
Section II. EXTENDED REPORTING PERIOD
... If the insured terminates or declines to accept renewal [of the Policy], [Ulico] may, if requested, at its sole option, grant an Extended Reporting Period.
APA urges that the referenced policy language does not require Ulico’s grant of an ERP to be in writing, and that Ulico’s two letters together with its internal computer entries are some evidence that an ERP was both requested and granted. Ulico replies, in part, that APA is wrong in its position that the policy does not require a writing to grant an ERP. Ulico specifically references paragraph F of the GENERAL CONDITIONS section of the policy:
F. ALTERATION & ASSIGNMENT
No change or modification of, or assignment of interest under this policy shall be effective except when made by written endorsement to this policy signed by an authorized representative of [Ulico].
Uhco argues that its position is supported by (1) Bowers’s testimony that she did not consider APA to have requested an ERP, she did not grant one, and her letters stating that defense costs were covered by the policy were no more than coverage determination mistakes because she did not realize that the policy had expired
We agree with Ulico. The policy expressly required written notice of a claim, which is what APA provided. The written notice of a claim did not request a period of time for an ERP or specify that an ERP was being requested. The policy required a request for an ERP under these circumstances. Ulico’s written responses did not grant any period beyond the policy period during which a claim could be reported and still comply with coverage requirements.
APA correctly notes that the applicable language of the EXTENDED REPORTING PERIOD section does not require a written request from the insured. But that language cannot be read separately and in isolation from the GENERAL CONDITIONS requirement that no change or modification of the policy shall be effective except when made by written endorsement signed by an authorized representative of the company. See Forbau,
APA also claims the trial court erroneously failed to apply a “no-evidence” standard of review in disregarding the jury’s answer, pointing to the trial court’s conclusion of law that “the evidence does not support” APA’s claim that an ERP was granted. APA claims this indicates that the trial court improperly disregarded the jury’s finding based on insufficient rather than no evidence. But even if the trial court applied the wrong standard in reaching its decision to disregard the jury’s answer, Ulico is entitled to a no-evidence review because it asserted in its Motion for Judgment Notwithstanding the Verdict and its cross-issues that no evidence supported the jury finding. The trial court properly granted judgment notwithstanding the verdict on that ground.
2. Separate Agreement
Jury question two asked whether Ulico and APA agreed, separate from the policy, that Ulico would reimburse APA for costs of defending the Allen suit. The trial court granted Ulico’s motion to disregard the jury’s affirmative answer. The trial court entered Findings of Fact and Conclusions of Law and specified that they were being entered regarding the issue of attorney’s fees. Conclusions of Law numbers five and six addressed the “separate agreement” question:
5. To the extent the APA contends that correspondence from Ulico to the APA after the end of the Policy periodcan be construed as a supplemental agreement by Ulico to cover a claim which was not otherwise covered by the Policy, there was no consideration for the alleged agreement.
6. The APA and Ulico did not enter into an agreement, separate from the Policy, for Ulico to reimburse the APA for its attorney’s fees incurred in the Allen Action.
Apparently assuming that these conclusions apply to the entirety of the trial court’s judgment, APA urges that the trial court erred in its conclusions. Assuming, without deciding, that the trial court’s findings and conclusions apply to the entirety of its final judgment as opposed to only that part of the judgment denying recovery of attorney’s fees, we conclude that APA’s contentions are without merit.
APA claims the trial court erred in concluding there was no consideration for a supplemental agreement because Ulico had the burden of proof on thе issue of lack of consideration and waived the defense by failing to (1) file a verified pleading regarding no consideration, and (2) request a jury question on and obtain a finding as to lack of consideration. First, we address APA’s contention that Ulico waived the issue by failing to file a verified pleading. Ulico asserts that a verified denial was not required because the April 2001 letter from Bowers was not a “written instrument upon which a pleading is founded” within the meaning of Texas Rule of Civil Procedure 93(9). Ulico also asserts that APA waived any objection regarding the lack of pleading because APA failed to object to testimony that it did not pay for a separate agreement and the issue was tried by consent. We agree that APA failed to preserve error when it failed to object to testimony regarding the lack of an additional premium. See Tex.R.App. P. 33.1.
As to the merits, our statement in Federal Sign v. Texas Southern University,
Consideration is a bargained for exchange of promises. Consideration consists of benefits and detriments to the contracting parties. The detriments must induce the parties to make the promises and the promises must induce the parties to incur the detriments.
Id. at 408-09 (citations omitted). APA asserts that the letter from Bowers dated March 1, 2000 was an “agreement separate from the Policy,” and that the separate agreement was confirmed by the April 25, 2001 letter. APA cites Northern Natural Gas Co. v. Conoco, Inc.,
In Northern Natural Gas, we noted that “Consideration is defined as ‘either a ben
Having determined that there was no consideration for an alleged agreement, we need not and do not consider APA’s contention that the trial court erred in concluding there was no separate agreement in the first place.
III. Conclusion
Jury questions three and four were immaterial and could not form the basis of a judgment against Ulico. The trial court correctly rendered judgment notwithstanding the verdict in favor of Ulico as to jury questions one and two. There is no basis for a judgment against Ulico and the judgment of the court of appeals must be reversed. Judgment is rendered that APA take nothing.
Notes
. APA did not renew its liability policy with Ulico. It purchased a new policy from Legion Insurance Company.
. APA had a deductible that reduced its damages to less than the full defense costs.
. This court refused writ in Wilkinson with thе notation "no reversible error.” That designation meant the Court was not satisfied that the opinion of the court of appeals correctly declared the law, but that the application presented no error requiring reversal of the judgment. See City of Dallas v. Dixon,
. However, we note in passing that, as discussed below, there was no evidence APA suffered detriment because of Ulico’s actions. Also, Ulico acknowledges that another element of the Wilkinson exception is it did not obtain an effective reservation of rights. Uli-co did not address whether its reservation of rights was effective to preserve its right to deny coverage.
. In urging that the trial court erred, APA points specifically to evidence that (1) Ulico’s internal computer files referenced "EXTENDED REPORTING PERIOD” next to the word "Coverage” and another similar entry; (2) APA’s agent was notified on October 26, 1999 that the policy expired on October 25, then APA’s agent submitted a claim for the Allen suit specifying the October 25 policy expiration date and a late reporting date of November 4, 1999; (3) after receiving the claim, Ulico’s underwriter advised Ulico and the APA by letter dated November 16, 1999 that the policy expired on October 25 and APA’s Notice of Loss form was received after that date; (4) Ulico internally noted the issue of late reporting and directed Bowers to question the delayed reporting when the claim was assigned to her; (5) APA and Ulico exchanged letters in December 1999 and in its next letter in March 2000, Ulico did not object to the timing of the notice of the claim, did not deny coverage for late reporting, and stated that defense costs were afforded to APA under the policy; and (6) in April 2001, Ulico again wrote APA without objecting to the timing of the notice of the claim, denying coverage, or reserving Ulico’s rights, and specifically stated that Ulico had agreed to reimburse APA for reasonable and necessary defense expenses.
. Because there was no writing purporting to endorse the policy by granting an ERP, we need not and do not address the question of whether Bowers had authority to execute such an endorsement.
Concurrence Opinion
As I understand the Court’s opinion, the Court (1) resolves the tension between our holdings in Craddock and Ferris by making it clear that while estoppel cannot create coverage, the benefits that would have been paid had the insurer not denied coverage remain the appropriate measure of damages; and (2) requires that the insured show prejudice in order to recover those damages. See
In Washington National Insurance Co. v. Craddock, we held that the doctrine of estoppel cannot be used to create insurance coverage when none exists by the terms of the policy. Craddock,
The tension inherent in those holdings is explained, I think, by the unique concerns involved when an insurer assumes control over its insured’s defense without reserving the right to later deny coverage. As other Texas courts have noted, “[w]e have found no case, nor has either party cited a case, in which the general rule (that coverage cannot be created by waiver or estop-pel) was applied where there was an assumption of the insured’s defense by an insurer. All of the cases that we have found applying the general rule involved entirely different situations.” State Farm Lloyds v. Williams,
Nor is this distinction unique to Texas law. As noted in a leading insurance treatise:
Although the doctrine of waiver and es-toppel cannot generally be used to create insurance coverage where none exists under [the] terms of the policy, an exception to the rule exists where a liability insurer assumes the insured’s defense with knowledge of facts indicating noncoverage and without declaring a reservation of rights or obtaining a non-waiver agreement in which ease all policy defenses, including those of noncover-age, are waived.
14 Lee R. Russ & Thomas F. Segalla, Couch on InsuRance 3d § 202.54 (2005) [hereinafter COUCH] (citations omitted); see also R.D. Hursh, Annotation, Liability Insurance: Insurer’s Assumption of or Continuation in Defense of Action Brought Against the Assured as Waiver or Estoppel as Regards Defense of Noncover-age or Other Defense Existing at Time of Accident,
The general rule, and the rule established in our precedent, is that “[t]he courts will not allow an insurer to lull an insured into a belief that coverage exists in a situation where it does not, or even where the insurer simply believes it does not,” Couch at § 202.54, and thereby induce the insured to give up the right to manage its own defense. If the insurer is able to later deny liability, however, the basis for its assumption of the defense is undermined, and thus many courts have bound insurers to provide coverage in these cases without a further showing of harm, either because prejudice is conclusively presumed, or, similarly, because “the loss of the right of the insured to control and manage the defense is itself prejudicial.” Couch at §§ 202.67-68 (collecting cases). Other courts, however,
If the insurer defends without reserving its rights, and the insured shows prejudice, the insured is entitled to recover the benefits that would have been due under the policy. To that extent, it matters little whether a court says coverage was created or that the benefits are those that would have been payable had there been coverage; a rose by any other name would smell as sweet.