Who Do You Sue?

Most Dallas insurance attorneys can give a quick answer to the above question. A November 2014, Texas Supreme Court opinion helps with the answer. The style of the case is, In re Essex Insurance Company. Here is relevant information from that case.
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.
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. 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 abandoned its plea in intervention and supports Essex’s position that Zuniga’s claims against Essex must be dismissed.
This Court agreed 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 this Court has recognized that the “no direct action” rule applies to a declaratory judgment suit. 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, and (2) necessarily require the admission of evidence of liability insurance in violation of Texas Rule of Evidence 411. 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, this Court rejected Zuniga’s reliance on the Declaratory Judgments Act as a means to avoid the rule.