The law is as clear as it can be in the State of Texas. An insured has a duty to cooperate with his insurance company regarding the investigation of a claim.
The next question is – Are there exceptions to this duty? Here is my response.
The insurance contract may impose conditions on the insured. For example, most policies require that the insured give notice of the claim and cooperate with the insurance company. Policies may require that the insured file a formal proof of loss, if the insurer requests one. The Texas Supreme Court in a 1994 opinion said that when one party to a contract commits a material breach of that contract, the other party is discharged or excused from any obligation to perform. The opinion is styled, Hernandez v. Gulf Group Lloyds. It is necessary that the breach be “material.” The Court explained it this way:
In determining the materiality of a breach, courts will consider, among other things, the extent to which the nonbreaching party will be deprived of the benefit that it could have reasonably anticipated from full performance … The less the non-breaching party is deprived of the expected benefit, the less material the breach ….
The Court went on to say:
The other factors courts consider in determining the materiality of a breach are: (i) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived; (ii) the extent to which the party failing to perform or to offer to perform will suffer forfeiture; (iii) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances; (iv) the extent to which the behavior of the party failing to perform or to offer t perform comports with standards of good faith and fair dealing.
In Hernandez, an uninsured/underinsured motorist policy required that the insured obtain the insurer’s consent to settle with the negligent driver. The reason for this was to let the insurer protect its subrogation rights. An insured’s settlement without consent from the insurer was not material and thus did not relieve the insurer of its obligation to pay, when the subrogation rights had no value.
In another Texas Supreme Court case, this one from 1993, styled, Liberty Mutual Insurance Company v. Cruz, a liability insurance policy required that the insured give prompt notice of any suit. The insured did not give notice to the insurance company until after a default judgment was rendered against the insured. This breach was material because it prejudiced the insurer by denying its opportunity to answer for the insured and litigate the merits of the suit or to appeal any adverse judgment. The breach relieved the insurer of its obligation under the contract.