The Court of Appeals of Texas recently held that a third-party claimant does not have standing to assert claims against a commercial general liability insurer. Specifically, the court ruled that an insurer, which had issued a general commercial liability policy to a condominium association, does not owe a duty to an individual condominium owner even if the condominium owner had paid premiums for and was entitled to liability coverage under the policy.
Reule v. Colony Ins. Co., 407 S.W.3d 402 (Tex. App. 2013) involved a condominium unit owner (“Reule”) who had sued a commercial general liability insurer (“Colony”), which previously had issued a policy to her condominium association, alleging, in part, violations of the Texas Insurance Code and breach of the duty of good faith and fair dealing. A district court granted Colony’s motion for summary judgment without specifying on what grounds. On appeal, Reule argued, in part, that the district court had erred by failing to find that she had standing to assert claims against Colony as a first-party claimant. The Court of Appeals of Texas ultimately affirmed, holding that an insurer does not owe a third-party claimant duties under the Texas Insurance Code, governing unfair settlement practices, or the duty of good faith and fair dealing, even if the third-party claimant paid premiums for and was entitled to liability coverage under a general commercial liability policy issued to her condominium association.
As an initial matter, the court recognized it is well-settled that a third-party claimant cannot enforce an insurance policy against an insurer until it is determined that the insured is legally obligated to compensate an injured party for damages. In addition, under sections 541.060 and 542.051 of the Texas Insurance Code, a third-party claimant does not have standing to assert a claim against a liability insurer. A third-party claimant, likewise, lacks standing to sue an insurer for breach of the duty of good faith and fair dealing under common law.
Having examined the underling policy, the court determined that Colony provided commercial general liability coverage for its insured when the insured injures another person or property, but Colony did not provide coverage for the insured’s own personal injuries or property damage.
The court, furthermore, expressly rejected Reule’s argument under Allstate Ins. Co. v. Watson, 876 S.W.2d 145 (Tex. 1994) that she possessed standing as a first-party claimant because she had paid premiums for the commercial general liability policy. Citing Rumley v. Allstate Indemnity Co., 924 S.W.2d 448 (Tex. App. 1996), the court held that even if Reule had paid premiums for and was entitled to liability coverage, in her position as a third-party claimant, Colony did not owe her duties under sections 541.060 and 542.051 of the Texas Insurance Code, or the duty of good faith and fair dealing. To hold otherwise, the court noted, would mean that Colony owed conflicting duties to Reule and to its tortfeasor insureds.
Also unpersuasive was Reule’s argument under Loudin v. Nat’l Liab. & Fire Ins. Co., 716 S.E.2d 696 (W. Va. 2011), in which the Supreme Court of West Virginia ruled that an insured was a first-party claimant because he had paid premiums for and was a named insured on the liability policy. The Loudin court distinguished Rumley, holding that the underlying rationale in Rumley was the avoidance of placing the insurer in a scenario where it owed conflicting duties to both the tortfeasor insured and the injured insured. In Loudin, the court found that the injured insured initially filed an administrative claim directly with the insurer; thus, at that time, no antagonism existed as the tortfeasor insured was not yet involved. The Reule court, conversely, refused to find that an injured insured’s initial direct claim against a liability insurer permanently brands the injured insured a first-party claimant.
It is noteworthy, however, that the Reule court emphasized its ruling regarding third-party claims does not necessarily apply to the Texas Insurance Code beyond those provisions at issue in this case, sections 541.060 and 542.051. The court also noted that its decision does not prohibit Reule from asserting claims against Colony for any unfair settlement practices or bad faith related to its actions occurring after Reule settled with, or obtained judgment against, other insureds.
The opinion can be found here.