Dallas Fort Worth Insurance Lawyer Blog
To sue an insurance company, a person must have “standing.”
Texas is not a direct action state. In other words, when Fred and Ted collide in their cars, the resulting lawsuit is styled Fred vs Ted, and their respective liability insurers are not named parties. Fred can’t sue Ted’s insurer; he has to sue Ted. Because of the lack of privity between a liability insurer and a third-party claimant, an insurer had no duty to a third party to settle a claim brought against its insured until the insured’s liability has been established. This was made clear by the Texas Supreme Court in 1997, in a case styled, Farmers Texas County Mutual Insurance Co. v. Griffin. Indeed, until the liability of the insured is judicially established, a third-party plaintiff does not have standing to bring a direct action against the insurer to recover for the liability of the insured. For further guidance there is more case law.
This rule of law is so well ingrained in the jurisprudence of the State that it is embodied within the Texas Rules of Civil Procedure. Rule 51(b) regarding the Joinder of Claims and Remedies provides:
(b) Joinder of Remedies. Whenever a claim is one heretofore cognizable only after another claim has been prosecuted to a conclusion, the two claims may be joined in a single action; but the court shall grant relief in that action only in accordance with the relative rights of the parties. This rule shall not be applied in tort cases so as to permit the joinder of a liability or indemnity company, unless such company is by statute or contract directly liable to the party injured or damaged.
Because of the rule against advisory opinions, a district court has no power to render a declaratory judgment on the hypothetical question of an insurer’s liability to its insured before it has been determined that the insured is liable to a third-party claimant. The converse generally holds true as well.
For example, in a 1978 opinion, National Savings Ins. Co. v. Gaskins, the Fort Worth Court of Appeals held that no justiciable cause existed between an insurer and a tort plaintiff where the insurer brought an action for a declaratory judgment that it owed no duty to defend or indemnify its insured prior to entry of a judgment against its insured brought by the tort plaintiff. The Court held that any judgment would be a prohibited advisory opinion because the tort plaintiff had no interest in the insurer’s duty to defend its insured, and the duty to indemnify might never arise because a jury could return a verdict in favor of the insured.
For similar reasons, a third-party claimant has no standing to recover from a liability insurer for breach of contract, violation of the Deceptive Trade Practices Act, or for common law bad faith.
There has been however, an interesting case decided by the Fort Worth Court of Appeals which touches on this issue. It is a 2007 opinion styled, Richardson v. State Farm Lloyds. The Court held that a third party could file a declaratory judgment action against an insurer to determine that insurer’s duty to defend. The Court reasoned that, since an insurer was able to file a declaratory judgment action under these circumstances, then what was good for them was also good for the third-party.