Sueing The Other Guy’s Insurance Company

Here is info for someone in Arlington, Grand Prairie, Dallas, Fort Worth, Mansfield, Garland, Mesquite, Richardson, and other places in Texas to think about.
Normally, an injured party cannot sue the other guy’s insurance company. Any lawsuit is brought against the person who caused the injury or damages and then that person turns the claim over to their own insurance company to defend or pay the claim to the injured party.
Here is a case for thought on this subject. Ben P. Perez and Minerva B. Perez v. Catlin Specialty Insurance Company f/k/a Wellington Specialty Insurance Company. This is a United States District Court for the Western District of Texas case. The opinion was issued on December 20, 2010.
The facts generally are, in 2005, the Perez’s contracted with Kyle Construction (Kyle) to construct an addition to their existing home. According to the Perez’s, the construction work was performed in a negligent manner. In 2007, the Perez’s experienced significant water damage to their home as a result of Kyle’s negligence. They sued Kyle and the case was sent to arbitration. The Kyle’s prevailed at arbitration.
Catlin Specialty Insurance Company f/k/a Wellington Specialty Insurance Company (Catlin) issued a policy of liability insurance to Kyle for the period of September 13, 2006 — September 13, 2007. Thus, the policy was in effect at the time of the damage to the Perez’s property. Catlin accepted coverage and provided legal assistance to Kyle. Two years into the lawsuit, Kyle entered into a Settlement Agreement with Catlin wherein, in exchange for a lump-sum payment from Catlin, Kyle released Catlin from any further obligation to defend or indemnify Kyle with respect to the Perez lawsuit. The Perez’s continued their claim against Kyle and obtained a judgment at arbitration. The Perez’s then obtained a turnover order, ordering Kyle to give the Perez’s any and all rights and claims that Kyle might have against Catlin. The Perez’s then sued Catlin alleging Catlin is obligated to pay their judgment against Kyle. The Perez’s contended that the purported release between Kyle and Catlin was void as against public policy.
Based on this allegation Catlin attempted to have this case thrown out of court. The Perez’s filed a motion for summary judgment on this same legal question: is the release entered into between Catlin and Kyle valid, or is it void as against public policy? The Perez’s prevailed.
In ruling for the Perez’s the court stated the following: It is undisputed under Texas law that a plaintiff becomes a third party beneficiary of an insurance contract at the moment he obtains a judgment against the insured. It is also undisputed that an insured and its insurer cannot defeat a plaintiff’s rights in the policy by executing a release after the plaintiff has received a judgment against the insured.
The distinction in this case is that the Perez’s did not obtain a judgment against the insured until after the release had been entered into between Kyle and Catlin. Catlin therefore contended that the Perez’s did not have standing to sue Catlin for benefits under the policy because its obligations under the policy were extinguished by the Settlement Agreement.
The law in Texas is that releases entered into prior to a plaintiff receiving a judgment against the insured are void as against public policy. Other cases ruling on this matter have dealt with situations where the insurance was mandatory. Even though the insurance in this particular situation was not mandatory, Kyle was required to maintain public liability insurance according to the guidelines of the subdivision in which the Perez’s lived. Additionally, insurance under the Texas Occupations Code is mandatory for residential appliance installers per Section 1305.1618. It is requred for Master Plumbers in Section 1301.552, and for air conditioner contractors per Section 1302.260.
In making its ruling the court looked at the above situations and others where liability insurance is required and noted that the purpose of the laws in this area were to protect persons who suffered damage as a result of operations of an insured. That persons damaged are third party beneficiaries of the policies.
Considering the purposes of the law and the legislature in adopting the laws, the court ruled in favor of the Perez’s and stated that the release in this case was void as against public policy.