If someone in Grand Prairie, Fort Worth, Saginaw, Keller, Roanoke, Haslet, Rhome, Justin, Boyd, or anywhere els gets a “reservation of rights” letter from their insurance company, there is one thing they need to do right away. See an experienced Insurance Law Attorney and have him go over the facts and policy in your situation.
The Texas Court of Appeals, Houston, 1st District, issued an opinion in 1999, that deals with a “reservation of rights” situation. The style of the case is Pecan Grove Association v. John L. Wortham & Sons. Here are some facts.
From 1982 to 1988, Pecan Grove purchased general liability insurance from Lloyds through its agent, Wortham. After June 1988, Pecan Grove purchased its general liability insurance from St. Paul through Wortham, which was also an agent for St. Paul. Wortham was an agent for both carriers. In February, 1988, Pecan Grove was sued by homeowners alleging that the property sold to them was not fit for construction. In October 1990, the Plaintiffs in the underlying suit amended their claims to add more than 70 additional plaintiffs. On December 6, 1990, Pecan Grove sent a letter to St. Paul with a copy to St. Paul through Wortham. On December 13, 1990, St. Paul issued a general reservation of rights letter. On December 17, 1992, St. Paul denied a defense and indemnity based on the policy’s real estate operations exclusion. On December 30, 1993, Pecan Grove settled the underlying lawsuit for $2,500,000.
Pecan Grove sued St. Paul for coverage. St. Paul settled paying $1,400,000.
In September 1997, Pecan Grove sued Wortham for negligent claim processing and Llyods for breach of contract, breach of duty of good faith and fair dealing, negligence, violations of the Texas Insurance Code, and the violations of the Texas Deceptive Trade Practices Act (DTPA). Wortham filed a Motion for Summary Judgment asserting the statute of limitations defense. Lloyds filed a Motion for Summary Judgment asserting that:
(i) Pecan Grove violated the policy’s prohibition against voluntary payments (ii) Pecan Grove’s lawsuit against Lloyds was barred by the “no action” clause (iii) Lloyds was not obligated to pay Pecan Grove’s pre-tendered defense costs,
(iv) breach of contract, tort and statutory causes of action were barred by limitations (v) Texas does not recognize the tort of good faith and fair dealing for third-party claims.
The trial court granted both Motions for Summary Judgment against Pecan Grove and in favor of Wortham and Lloyds. Pecan Grove appealed.
In its ruling the court held that the summary judgments of Wortham and Lloyds are affirmed.
The notice letter that Pecan Grove claims that it sent to Lloyds through Wortham was in actuality addressed to St. Paul. Wortham is the agent for both St. Paul and Lloyds. Notice to an agent who is acting within the scope of his authority and with reference over which his authority extends is notice to the principle. However, in this case, Wortham was an agent for at least two different insurance companies. Notice cannot be imputed to one of the agencies on matters concerning the other agency merely because such notice has been given to Wortham, an agent for both. Therefore, in this case, notice to Wortham was not notice to Lloyds.
The Lloyds policy had a “no voluntary payment” clause and a “no action” clause. In this case, Pecan Grove assumed its own defense and settled the case without notice to Lloyds. This was clearly in violation of the terms of the policy.
Pecan Grove claimed that Wortham was negligent in processing the claim. Pecan Grove sent a letter to St. Paul through Wortham on December 6, 1990. Pecan Grove did not sue Wortham until September 1997. In this case, Pecan Grove would have sustained an injury by Wortham when Pecan Grove began to insur attorneys’ fees in the underlying suit as a result of the carrier’s failure to provide a defense. The evidence shows that Pecan Grove began incurring such fees in 1990. Therefore, the claim against Wortham for negligent processing is barred by limitations.
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