Texas Supreme Court Limits Claims Between Settling Co-Insurers
On October 12th, the Supreme Court of Texas issued a surprising decision of importance to liability carriers doing business in Texas regarding the reimbursement claims available to liability insurers against other insurers in Texas.
In Mid-Continent Insurance Co. v. Liberty Mutual Insurance Co., No. 05-0261 (Tex. October 12, 2007), Mid-Continent provided a $1 million CGL policy which covered a general contractor as an additional insured. The general contractor also had its own $1 million CGL policy with Liberty Mutual and a $10 million excess policy. Neither insurer disputed that both owed a portion of the general contractor’s defense and indemnity expenses and both agreed that a total verdict for the injured parties would fall in the $2 to $3 million range, but they disagreed both on the settlement value of the case and the percentage of liability to be assessed against the general contractor. Mid-Continent would only agree to pay $150,000 to settle. Liberty Mutual then paid the $1.35 million needed to settle sued Mid-Con for the difference. On appeal, the Texas high court held that Texas does not recognize a direct action by one insurer against another – they can only bring an equitable subrogation claim. Because the only extra-contractual tort claim recognized in Texas for an insured to assert against its liability insurer is a “Stowers” claim for the insurer’s failure to settle a covered claim within policy limits, the high court ruled that a liability insurer asserting an equitable subrogation claim against another carrier could only assert such a claim.
This decision raises very significant questions for any carrier facing the settlement of tort claims where the insured has multiple primary carriers. If one carrier plays “hard ball,” can they be sued in Texas by the settling carrier who pays more than its “fair share?” Probably not, unless the insured contributes to the settlement and still possesses a claim against the recalcitrant insurer. Such a claim may also exist if the reluctant carrier is subject to a valid Stowers claim for failing to settle within limits. Otherwise, liability carriers may force more cases to trial due to the reluctance of co-carriers to fund tort settlements for their insureds due to this shift in Texas law.
