Insureds in Grand Prairie, Arlington, Dallas, Fort Worth, Richardson, Garland, Mesquite, Carrollton, Irving, Mansfield, Weatherford, Aledo, Azle, and all other cities in Texas may want to be aware of one of the ways an insurance company will try to keep from paying on a claim.
There are many things an insurance company might do and regardless of which one of the many things they may try, the best advice for someone to take is: Consult with an experienced Insurance Law Attorney if it ever happens to you.
One of the things an insurance company might do is file a declaratory judgment action, also called a “dec action”, to have a court declare as a matter of law that there is no coverage on the policy that is at issue.
This happened in the 1983, Texas Supreme Court case styled, Dairyland County Mutual Insurance Company of Texas v. Harry Childress, et al.
In this case, there was a dispute as to liability insurance coverage provided by a family automobile insurance policy containing a non-owner’s endorsement. Harry Childress and the passengers in his automobile at the time of the collision along with the owner of a private residence damaged as a result of the collision sued Fredrick Booth, the insured, for damages arising out of the collision. While this suit was pending, Dairyland County Mutual Insurance Company of Texas, (Dairyland), the insurer, sued Booth seeking a declaratory judgment that the non-owners policy did not cover the automobile in the wreck. An agreed judgment was rendered declaring that no coverage was provided. Childress and the other defendants in this case were not made parties to the dec action.
Childress et al sued Dairyland for the policy limits and Dairyland asked the court to dismiss the lawsuit based on the result of the dec action declaring there was no coverage.
The issue, among others, presented to the Texas Supreme Court was; whether the Childress parties were bound by the dec action between Dairyland and their insured, to which Childress and the others were not made parties?
Here is what the court looked at in ultimately ruling against Dairyland:
Childress filed suit against Booth on May 17, 1976. Dairyland hired an attorney to defend Booth and paid him for his services. The attorney filed an answer for Booth on June 4, 1976. On June 15, 1976, Dairyland filed suit for declaratory judgment that the non-owners policy did not provide Booth coverage for the collision with Childress. On January 17, 1977, an agreed judgment was rendered that Dairyland had no duty to defend Booth and that the non-owner’s policy provided no coverage for Booth respecting the collision with Childress. On July 18, 1978, judgment was rendered for Childress in this suit against Booth.
Dairyland relied upon the doctrine of res judicata and collateral estoppel to support its contention that Childress was bound by the dec action. Their arguement was that Childress’ suit was derivative of Booth’s coverage and therefore they were in privity with Booth. In their arguement, Dairyland cited a few cases that they contended supported their position. This court distinguished the facts in those cases from the facts in this case.
In this case, the court stated, “In the present action, Childress could exercise no control over the declaratory judgment suit. Their interests were not represented by a party to the action nor were they successors in interest to a party. In fact the purpose of the suit was to work against their interest.”
The court went on to point out the requirements of a declaratory judgment action found in the present day Texas Civil Practice & Remedies Code, Chapter 37, which states in relevant part:
When declaratory relief is sought, all persons shall be made parties who have or claim any interest which would be affected by the declaration, and no declaration shall prejudice the rights of persons not parties to the proceeding.
In ruling for the Childress side on the lawsuit, the court stated, “We hold that Childress and Booth were not in privity respecting the declaratory judgment suit and the doctrine of res judicata and collateral estoppel is not applicable to Childress’ suit against Dairyland.
The proper action for Dairyland to have taken in this matter would have been for them to serve legal papers on Childress et al. Then if they had prevailed, they may have been able to successfully keep from paying any damages. Since they did not have Childress et al involved in the lawsuit, then the results of the lawsuit were not binding on Childress et al and the doctrine of res judicata and collateral estoppel did not apply.
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