Defendant's Attorney: Brett H. Payne and Gregory R. Ave
Description: Victor Egly appeals from the trial court’s grant of summary judgment in favor of
Farmers Insurance Exchange a/k/a Farmers Insurance (Farmers). In two issues, Egly contends that
the trial court erred in granting summary judgment because Farmers did not establish as a matter of
law that it had no duty to defend a suit brought by Egly against the driver of a vehicle insured by
Farmers. We will affirm the trial court’s final summary judgment.
The following facts are undisputed. Ismael Hernandez was involved in a collision
with Egly while driving a vehicle insured under an automobile liability policy issued by Farmers.
Egly sued Hernandez for negligence. Hernandez never notified Farmers of the suit. However,
Egly’s attorney sent several messages to Farmers informing them of the suit. In one message,
Egly’s attorney warned Farmers that Egly would obtain a default judgment against Hernandez if
no answer was filed. Farmers sent messages to Hernandez inquiring about the case, but Hernandez
never responded to those messages.
Egly obtained a default judgment against Hernandez. He then sued Farmers, seeking
payment of the default judgment as a third-party beneficiary to the vehicle’s insurance policy.
Farmers filed a traditional motion for summary judgment, arguing that it had established as a matter
of law that it had no duty to defend the suit against Hernandez, and therefore no duty to pay Egly,
because Hernandez never informed Farmers of the suit as required by the policy. The trial court
rendered a final summary judgment in Farmers’ favor, and this appeal followed.
STANDARD OF REVIEW
We review a trial court’s ruling on a motion for summary judgment de novo. See
Exxon Mobil Corp. v. Rincones, 520 S.W.3d 572, 579 (Tex. 2017) (citing Valence Operating Co.
v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005)). Traditional summary judgment is proper only if the
movant establishes that there is no genuine issue as to any material fact and that it is entitled to
judgment as a matter of law. Tex. R. Civ. P. 166a(c).
This case requires us to interpret an insurance policy. We interpret insurance policies
as we do other contracts. See Great Am. Ins. Co. v. Primo, 512 S.W.3d 890, 892 (Tex. 2017). “The
goal of contract interpretation is to ascertain the parties’ true intent as expressed by the plain
language they used.” Id. at 893. “If the language lends itself to a clear and definite legal meaning,
the contract is not ambiguous and will be construed as a matter of law.” Id.
In his appellate issues, Egly contends that the trial court erred in granting summary
judgment because Farmers did not establish as a matter of law that it had no duty to defend his suit
against Hernandez. The insurance policy included the following provisions:
A. We [Farmers] must be notified promptly of how, when and where the accident or
loss happened. Notice should also include the names and addresses of any injured
persons and of any witnesses. If we show that your failure to provide notice prejudices
our defense, there is no liability coverage under the policy.
B. A person seeking any coverage must:
1. Cooperate with us in the investigation, settlement or defense of any claim or suit.
2. Promptly send us copies of any notices or legal papers received in connection with
the accident or loss.
Farmers argues that it did not receive notice from Hernandez concerning the accident and Egly’s
suit and that it was prejudiced by this lack of notice. Egly responds that, because Farmers
undisputedly had actual notice of Egly’s suit against Hernandez, Farmers failed to establish as a
matter of law that it suffered prejudice.
The Texas Supreme Court’s decision in National Union Fire Insurance Co. of
Pittsburgh, PA v. Crocker, 246 S.W.3d 603 (Tex. 2008), controls the outcome of this case. In
Crocker, the United States Court of Appeals for the Fifth Circuit certified questions to the Texas
Supreme Court concerning the duties owed to an insured by an insurer with actual knowledge of a
suit implicating policy coverage. Beatrice Crocker had sued Richard Morris and obtained a default
judgment. Crocker then sued National Union to collect on the judgment. See id. at 604–05. National
Union argued that, “because Morris failed to comply with the notice provisions [of the insurance
policy], he did not invoke coverage or the right to a defense under the policy, meaning that Crocker,
who [purported] to stand in Morris’s shoes, [could not] collect under the policy either.” Id. at 605.
Crocker responded that “even though Morris did not comply with the notice-of-suit provision,
National Union had actual knowledge of Crocker’s suit, and hence was not prejudiced by Morris’s
failure to forward the suit papers.” Id.
The supreme court answered “no” to the following certified question:
Does proof of an insurer’s actual knowledge of service of process in a suit against its
additional insured, when such knowledge is obtained in sufficient time to provide
a defense for the insured, establish as a matter of law the absence of prejudice to
the insurer from the additional insured’s failure to comply with the notice-of-suit
provisions of the policy?
Id. at 609. The court explained that an insurer is not required sua sponte to defend its insured when
the insured has not informed the insurer of the suit or asked the insurer for representation:
National Union was obviously prejudiced in the sense that it was exposed to a
$1 million [default] judgment. The question, however, is not whether National Union
suffered exposure to a financial risk, but whether it should be estopped to deny
coverage because it was aware that Morris had been sued and served and had ample
time to defend him. The answer must be “no” based on the discussion above—
National Union had no duty to notify Morris of coverage and no duty to defend
Morris until Morris notified National Union that he had been served with process
and expected National Union to answer on his behalf. Because [National Union] was
not under a duty to defend the suit against its insured when [it received notice of the
claim], it is not estopped from asserting [the insured’s] breach of the policy as a bar
to its liability. Absent a threshold duty to defend, there can be no liability to Morris,
or to Crocker derivatively.
Id. (footnote and quotation marks omitted).
The court distinguished PAJ, Inc. v. Hanover Insurance Co., 243 S.W.3d 630 (Tex.
2008), in which it had held that the insured’s failure to timely notify the insurer of a covered claim
did not defeat coverage. As the court pointed out, “PAJ’s notice was tardy; Morris’s was nonexistent.”
Crocker, 246 S.W.3d at 609. This distinction between late notice and no notice is important, the
court explained, because the “notice and delivery-of-suit-papers provisions in insurance policies
serve two essential purposes: (1) they facilitate a timely and effective defense of the claim against
the insured, and more fundamentally, (2) they trigger the insurer’s duty to defend by notifying
the insurer that a defense is expected.” Id. at 608 (citing Harwell v. State Farm Mut. Auto. Ins. Co.,
896 S.W.2d 170 (Tex. 1995) and Weaver v. Hartford Accident & Indem. Co., 570 S.W.2d 369 (Tex.
1978)). The court went on to further discuss the notice requirement’s second purpose:
Mere awareness of a claim or suit does not impose a duty on the insurer to defend
under the policy; there is no unilateral duty to act unless and until the additional
insured first requests a defense—a threshold duty that the insured fulfills under the
policy by notifying the insurer that the insured has been served with process and the
insurer is expected to answer on its behalf.
Notice of service of process lets the insurer know that the insured is subject to default
and expects the insurer to interpose a defense. An insurer cannot necessarily assume
that an additional insured who has been served but has not given notice to the insurer
is looking to the insurer to provide a defense. Potential insureds, for a variety of
reasons, might well opt against seeking a defense from an insurer. For example, an
additional insured may opt against invoking coverage because it wants to hire its own
counsel and control its own defense.
Id. at 609–10.
Here, the first purpose of the notice requirement is satisfied, because Farmers had
actual notice of Egly’s suit and could have prepared a defense. However, the second purpose is not
satisfied, because Hernandez never notified Farmers that he “expect[ed] the insurer to interpose a
defense” or was “looking to the insurer to provide a defense.” Therefore, Farmers had no duty to
defend against Egly’s suit. And because Farmers had no duty to represent Hernandez, it cannot be
liable to Egly under the policy. See Crocker, 246 S.W.3d at 609 (“Absent a threshold duty to defend,
there can be no liability to Morris, or to Crocker derivatively.”).
Because Hernandez never notified Farmers of Egly’s suit or requested representation,
and because Egly obtained a default judgment against Hernandez that it sought to enforce against
Farmers, Farmers has established as a matter of law that it was prejudiced by this lack of notice.
See Hoel v. Old Am. Cty. Mut. Fire Ins. Co., No. 01-16-00610-CV, 2017 WL 3911020, at *5 (Tex.
App.—Houston [1st Dist.] Sept. 7, 2017, pet. filed) (mem. op.) (“[W]e conclude that Salinas’s failure
to notify Old American and Statewide of the underlying lawsuit and the resulting default judgment
against him prejudiced them as a matter of law.”); Hudson v. City of Hous., 392 S.W.3d 714, 728
(Tex. App.—Houston [1st Dist.] 2011, pet. denied) (“Similar to the facts of Crocker and Jenkins,
the insured in this case, Green, was not merely late in providing notice of suit; Green wholly failed
to provide notice. The City’s actual knowledge of the suit or of the default judgment does not
preclude a showing of prejudice.”) (footnote omitted); id. at 729 (concluding that rendition of default
judgment against employee prejudiced the City as a matter of law, where employee did not notify
the City of the suit). As our sister court explained:
The rule from Weaver, Harwell, and Crocker is clear: an insurer has no duty to
defend and no liability under a policy unless and until the insured in question
complies with the notice-of-suit conditions and demands a defense. This is true even
when the insurer knows that the insured has been sued and served and when the
insurer actually defends other insureds in the same litigation, as happened in both
Weaver and Crocker.
Jenkins v. State & Cty. Mut. Fire Ins. Co., 287 S.W.3d 891, 897 (Tex. App.—Fort Worth 2009, pet.
denied). Accordingly, we cannot conclude that the trial court erred in granting summary judgment
in Farmers’ favor, and we overrule Egly’s issues.1
* * *
Egly 1 argues that the interpretation of Crocker that we follow here “would effectively
eliminate the prejudice requirement from the policy.” This is not necessarily true; if Hernandez had
merely provided late notice, rather than no notice, our prejudice analysis might have been different.
Moreover, Egly has not cited any post-Crocker case in which an insured provided no notice of suit
to the insurer and yet the court concluded that this complete lack of notice prior to a default judgment
was not prejudicial to the insurer.
Outcome: We affirm the trial court’s final summary judgment.