Declaratory Judgment In Insurance

Farmers Branch insurance lawyers will run across situations where an insurance company is defending a lawsuit under a “reservation of rights” and then filing a declaratory judgment lawsuit against their insured. This is what happened in an opinion styled, Broussard v. Texas Farm Bureau. The opinion is from the Houston Court of Appeals [14th Dist.].
Farm Bureau issued a homeowner’s insurance policy to Becky and Joseph Broussard for their property. Becky injured an individual while she was operating an all-terrain vehicle. The Broussards reported a claim to Farm Bureau for the accident. The injured individual filed suit against the Broussards (the underlying suit), and the Broussards requested Farm Bureau defend and indemnify the underlying suit. Farm Bureau provided a defense to the Broussards with a reservation of rights.
At the same time, Farm Bureau filed a declaratory judgment action seeking a declaration that it has no duty to (a) defend or indemnify the Broussards for the underlying suit and (b) make medical payments to the injured plaintiff in the underlying suit. The Broussards answered with a general denial and a counterclaim for a declaration that Farm Bureau owed them both a duty to defend and indemnify and to make medical payments in the injured plaintiff in the underlying suit and for violations of the DTPA.
Farm Bureau filed a motion for summary judgment on the coverage.
The Broussards do not claim that there was originally coverage for the underlying suit under the insurance policy at issue. Instead, they assert that the trial court erred in declaring that Farm Bureau did not owe a duty to defend or indemnify in the underlying suit or owe them attorney’s fees under the DTPA in the instant suit because: (1) Farm Bureau’s settlement of the underlying suit operates to collaterally estop Farm Bureau from claiming it did not owe them a duty to defend or indemnify; (2) the doctrine of quasi-estoppel precludes Farm Bureau from claiming it did not owe them any duties in the underlying suit; (3) Farm Bureau’s settlement of the underlying suit operates as a judicial admission of Farm Bureau’s “obligation and duty to the Broussards in the present suit”; and (4) an award of actual damages is not a requirement for attorney’s fees under the DTPA. Effectively, the gravamen of the Broussards’ appeal is that when Farm Bureau settled the underlying case, (a) Farm Bureau could no longer challenge coverage in the instant declaratory judgment action, which (b) rendered the Broussards prevailing parties in this case. This appeals court disagreed.
The Broussards’ arguments regarding estoppel and judicial admissions spring from Farm Bureau’s settlement of the underlying suit, but the suit in which they seek their attorney’s fees is this case, which, as noted above, began as Farm Bureau’s declaratory judgment action. It is undisputed that Farm Bureau, after reserving its rights, provided the Broussards with a defense and ultimately indemnified them in the underlying suit.
First, insurance coverage cannot be established by estoppel: The doctrine of estoppel cannot be used to create insurance coverage when none exists by the terms of the policy. Thus, the Broussards may not rely on estoppel to undermine the trial court’s declaration that Farm Bureau owed them no duty to defend or indemnify the underlying suit.
Second, the “judicial admission” the Broussards claim establishes coverage is the following excerpt from Farm Bureau’s motion to reconsider the partial denial of its motion for summary judgment:
Texas Farm Bureau has continued to defend the Broussards and also made an economic decision to settle the claims [in the underlying suit]. That settlement is being completed. Having been fully defended and indemnified from what the Court has already held was not a covered claim, the Broussards have no actual damages to assert against Texas Farm Bureau.
A judicial admission occurs when an assertion of fact is conclusively established in live pleadings. Farm Bureau did not in any way “admit” that it owed a duty to defend or indemnify the Broussards, nor have the Broussards provided any authority for the proposition that such an admission would result in coverage where none exists.
Finally, the Broussards assert that, because Farm Bureau defended and indemnified them in the underlying suit, which is the relief they were requesting in the instant suit, they are “prevailing parties” under the DTPA. But, as discussed above, none of the grounds presented by the Broussards created coverage where none existed, and they have not challenged the trial court’s determination that the policy itself precluded coverage of the underlying suit. Indeed, the trial court explicitly ruled against them on all their counterclaims, including their DTPA claim. Thus, they cannot be said to be prevailing parties under the DTPA.