In re Essex Ins. Co.

Decision Date21 November 2014
Docket NumberNO. 13–1006,13–1006
PartiesIn re Essex Insurance Company, Relator
CourtTexas Supreme Court

Bryan P. Vezey, Joseph A. Ziemianski, Cozen O'Connor, Houston, Jason K. Fagelman, Fulbright & Jaworski LLP, Dallas, Marcy Hogan Greer, Alexander Dubose, Jefferson & Townsend, Zachary Spratt Smith, Fulbright & Jaworski LLP, Austin, for Relator.

David Tijerina, Dallas, Roger L. Turk, Thomas J. Henry, Law Offices of Thomas J. Henry, Corpus Christi, for Real Party in Interest Rafael Zuniga.

James Peirce Davis, Joseph M. Heard, Heard & Medack, P.C., Houston, Randal W. Hill, Randal W. Hill, P.C., Corpus Christi, for Real Party in Interest San Diego Tortilla.

Opinion

PER CURIAM

Rafael Zuniga sued San Diego Tortilla (SDT) for personal injuries and then added a declaratory judgment claim against SDT's liability insurer, Essex Insurance Company, seeking a declaration that Essex must indemnify SDT for its liability to Zuniga. The trial court denied Essex's motions to dismiss, and the court of appeals denied Essex's petition for writ of mandamus. “In Texas, the general rule ... is that an injured party cannot sue the tortfeasor's insurer directly until the tortfeasor's liability has been finally determined by agreement or judgment.” Angus Chem. Co. v. IMC Fertilizer, Inc., 939 S.W.2d 138, 138 (Tex.1997) (per curiam) (citing Great Am. Ins. Co. v. Murray, 437 S.W.2d 264, 265 (Tex.1969) ); see also Aviles v. Aguirre, 292 S.W.3d 648, 649 (Tex.2009) (per curiam) (“The plaintiffs sued only Dr. Aviles; they could not sue his insurer under the Texas rules barring direct actions.”) (citing Angus Chem., 939 S.W.2d at 138 ); State Farm Cnty. Mut. Ins. Co. of Tex. v. Ollis, 768 S.W.2d 722, 723 (Tex.1989) (per curiam) (“However, [the plaintiff] cannot enforce the policy directly against the insurer until it has been established, by judgment or agreement, that the insured has a legal obligation to pay damages to the injured party.”). Because no exception to this “no direct action” rule applies here, we conditionally grant mandamus.

Zuniga sued SDT after he lost his hand while operating a tortilla machine at SDT's facility. Essex, which had issued a commercial general liability policy insuring SDT, investigated the accident and concluded that the policy does not cover Zuniga's claims because Zuniga was an SDT employee at the time of the accident.1 Zuniga and SDT denied that Zuniga was an employee and asserted instead that he was working at SDT as an independent contractor. While maintaining its position that Zuniga was an employee, Essex nevertheless agreed to defend SDT under a reservation of its right to refuse to indemnify SDT against any judgment, based on the policy's employee exclusion.

After Essex rejected Zuniga's offer to settle his claims against SDT for the policy limits, Zuniga filed an amended petition adding Essex as a defendant and seeking a declaration that the policy requires Essex to indemnify SDT for its liability to Zuniga. In response, Essex filed a motion to dismiss Zuniga's claims under Texas Rule of Civil Procedure 91a, arguing that the “no direct action” rule, Zuniga's lack of standing, and a lack of ripeness bar Zuniga from suing Essex until SDT's liability to Zuniga is determined. SDT retained separate counsel and filed a plea in intervention seeking the same declaratory relief that Zuniga had sought. Essex also moved to dismiss SDT's plea under Rule 91a. The trial court denied both of Essex's Rule 91a motions. SDT has since abandoned its plea in intervention and in this Court now supports Essex's position that Zuniga's claims against Essex must be dismissed.

We only issue mandamus “to correct a clear abuse of discretion or the violation of a duty imposed by law when there is no other adequate remedy by law.” Walker v. Packer, 827 S.W.2d 833, 839 (Tex.1992) (quoting Johnson v. Fourth Court of Appeals, 700 S.W.2d 916, 917 (Tex. 1985) ). Thus, to obtain mandamus relief in this case, Essex must establish that (1) the trial court abused its discretion by denying Essex's Rule 91a motions to dismiss, and (2) Essex has no adequate remedy by appeal.2 See id. We conclude that it has done so.

Essex contends that the trial court abused its discretion by refusing to dismiss Zuniga's claims because the “no direct action” rule prohibits a plaintiff from directly suing a defendant's liability insurer to recover benefits under the insurance policy until the defendant's liability to the plaintiff has been established. See Angus Chem., 939 S.W.2d at 138. Moreover, Essex asserts, because SDT's liability to Zuniga has not yet been established, Zuniga's claims against Essex are not ripe and Zuniga lacks standing to assert them, and thus the trial court lacks jurisdiction over those claims. In response, Zuniga argues that his claims against Essex do not violate the “no direct action” rule because he is merely seeking a declaration that the Essex policy covers SDT's liability to Zuniga, as opposed to a money judgment against Essex in the amount of that liability and because the Texas Declaratory Judgments Act expressly permits him to seek such relief.

We agree with Essex that Zuniga's claims against it are barred. Whether stated as claims for damages or for declaratory relief, Zuniga's claims against Essex must fail unless SDT is in fact liable to Zuniga for his injuries, which is why we have recognized that the “no direct action” rule applies to a declaratory judgment suit. See Angus Chem., 939 S.W.2d at 138 (involving declaratory judgment by plaintiff against defendant's insurer). Allowing Zuniga to pursue claims simultaneously against SDT (for liability) and Essex (for coverage of that liability) in the same suit would prejudice both Essex and SDT in their defenses against Zuniga's claims because it would (1) create a conflict of interest for Essex,3 and (2) necessarily require the admission of evidence of liability insurance in violation of Texas Rule of Evidence 411.4 Because those policy reasons for the “no direct action” rule apply regardless of whether the plaintiff is seeking declaratory relief or money damages from the insurer, we reject Zuniga's reliance on the Declaratory Judgments Act as a means to avoid the rule.

Zuniga argues that we have previously held that parties can seek a declaratory judgment regarding an insurer's duty to indemnify even before the insured defendant's liability has been determined. See, e.g., Burlington N. & Santa Fe Ry. Co. v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 334 S.W.3d 217, 219–20 (Tex.2011) (acknowledging the lower court's ability to decide both the duty to defend and the duty to indemnify, but holding that the court “erred by not considering all the evidence presented by the parties when it determined the ... duty to indemnify”); Tex. Ass'n of Counties Cnty. Gov't Risk Mgmt. Pool v. Matagorda Cnty., 52 S.W.3d 128, 135 (Tex.2000) (noting that an insurer “may, among other options, seek prompt resolution of the coverage dispute in a declaratory judgment action, a step we have encouraged insurers ... to take”) (citing State Farm Fire & Cas. Co. v. Gandy, 925 S.W.2d 696, 714 (Tex.1996) ); Farmers Tex. Cnty. Mut. Ins. Co. v. Griffin, 955 S.W.2d 81, 84 (Tex.1997) (holding that “the duty to indemnify is justiciable before the insured's liability is determined in the liability lawsuit when the insurer has no duty to defend and the same reasons that negate the duty to defend likewise negate any possibility the insurer will ever have a duty to indemnify). But none of these cases implicates the “no direct action” rule because in each of these cases, it was the insurer or the insured defendant, not the plaintiff, who sought declaratory relief, or the insured defendant's liability to the plaintiff had in fact been determined before the declaratory judgment suit was filed. See Burlington N. & Santa Fe Ry., 334 S.W.3d 217 (insured brought declaratory judgment suit against insurer); Matagorda, 52 S.W.3d 128 (insurer sought indemnification from insured after liability was found); Griffin, 955 S.W.2d 81 (insurer brought declaratory judgment suit against insured); Gandy, 925 S.W.2d 696 (...

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