If a resident of Grand Prairie or Arlington or other cities such as Dallas, Fort Worth, Weatherford, and others in Texas has a policy of insurance with a limit and another policy that covers claims that go over the limit of the first insurance policy, what happens if the primary policy does not cooperate in settling the case? The Texas Supreme Court answered this question in a 1992 case.
The style of this case is long, American Centennial Insurance Company and First State Insurance v. Canal Insurance Company, Talbert, Biessel, Stone & Lyman, Giessel, Stone, Barker & Lyman, Henry P. Giessel and Richard S. Joseph. Canal Insurance Company (Canal) was the primary insurance company with coverage of $100,000. American Centennial Insurance Company (American) had coverage from $1 million to $4 million and First State Insurance (First State) had insurance from $100,000 for $1 million and were the excess insurance companies. In this case, the insured company was General Rent-A-Car International, Inc., who was sued for injuries and death allegedly resulting from a blowout of a defective tire on one its rental cars.
In the lawsuit against General, there was a $3.7 million settlement based on the claim itself and the alleged mishandling by trial counsel in the litigation. Trial counsel are the other parties named in the style of the lawsuit.
American and First State brought suit against Canal and the law firm and lawyers for negligence, gross negligence, breach of duty of good faith and fair dealing and violations of the Texas Deceptive Trade Practices Act and the Texas Insurance Code.
It is clear that Texas law vests a clear right in the insured to sue the primary carrier (Canal) for a wrongful refusal to settle a claim within the limits of the policy limits. As the Texas Supreme Court has stated, the insurance companies duty to act as an ordinarily prudent person in business management extends to claim investigation, trial defense and settlement negotiations.
The arguement by Canal was that American and First State did not have a right to assert the claims they were asserting in this case. The Court disagreed and stated, “If the excess carrier had no remedy, the primary insurer would have less incentive to settle within the policy limits.” They went on further to say, “Allowing the excess insurer to enforce the primary insurer’s duty to settle in good faith serves the public and judicial interests in fair and reasonable settlements of lawsuits by discouraging primary carriers from gambling with the excess carrier’s money when potential judgments approach the primary insurer’s policy limits.” And still further they stated, “Additionally, the wrongful failure to settle would likely result in increased premiums by excess carriers.”
The bottom line in this case is that the Supreme Court in Texas, allowed an excess insurance carrier the right to sue a primary carrier for violations of its duties to settle a case for policy limits rather than expose its insured or excess carriers to further liability on a claim.
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