Uninsured Motorist Coverage And Full Trial

Lawyers handling insurance disputes involving uninsured motorist (UM) coverage should already know the law discussed in a recent case from the Southern District, Houston Division.  The case is, Eleazar Cantu, Jr. v. State Farm Mutual Automobile Insurance Company.

Cantu was injured when he fell off a truck driven by an uninsured motorist.  Cantu sued the driver, two other UM individuals, and State Farm and took a default judgment in the amount of $65,095.12.  Cantu demanded State Farm pay $30,000, the policy limit, and when State Farm declined to pay, Cantu sued State Farm.

State Farm moved for partial summary judgment, arguing that it is not responsible for paying the default judgment in the uninsured-motorist lawsuit because it did not consent to be bound by that judgment.  Mr. Cantu responded and cross-moved for partial summary judgment, arguing that State Farm’s knowledge of and participation in that lawsuit indicated its consent to be bound by the default judgment.
Under Texas law, an insurer’s obligation to pay under an UM policy does not arise until there is a judicial determination that an uninsured tortfeasor was

negligent and caused the policyholder’s damages, up to the policy limits.

Because the alleged tortfeasor’s negligence and the plaintiff’s damages are by definition uncontested when a default judgment issues, the default does not bind an insurer that does not otherwise consent to be bound by the proceedings.
State Farm argues that it did not consent to be bound by the default judgment awarded to Mr. Cantu and that negligence and damages have yet to be judicially
determined under Mr. Cantu’s uninsured-motorist policy.  The issue is whether, as Mr. Cantu claims, State Farm’s participation in the UM lawsuit indicated its consent to be bound by the default judgment issued in that case
In Texas, default judgments are not binding without the insurer’s consent if the UM policy requires consent.  Consent clauses protect the carrier from liability arising from default judgments against the UM or from insubstantial defense of the UM.
The State Farm policy required consent.  Cantu acknowledges it did not ask for or receive consent but asserts State Farm’s consent was apparent from being in the lawsuit, taking a deposition, and appearing at the default hearing.

Cantu’s arguments are unavailing.  Even if unwritten, the insurer’s consent must be “expressly” given. During the proceedings, State Farm stated on the record

that “by appearing [it was] not agreeing to be bound” by any default judgment entered in the proceedings.  Mr. Cantu’s attorney responded, “We’re not contending State Farm is bound by [a default judgment].”  It is clear that State Farm expressly refused to be bound by a default judgment and that Mr. Cantu’s attorney understood State Farm’s position.
Texas law is clear that the contractual duty to pay under an UM policy does not arise until an adversarial proceeding establishes that a covered activity was negligently performed and caused covered damages within the policy limit.  Cantu cannot recover on the speculation that, when proven, the damages awarded will likely exceed the policy limits.
Cantu argues alternatively that State Farm’s participation in the proceedings waived the policy’s consent requirement.  Waiver requires the intentional relinquishment of a known right or intentional conduct inconsistent with claiming it.  Texas courts have consistently held that insurance providers do not waive the consent requirement by knowing about the suit or by entering a general denial.
State Farm unconditionally denied liability.  State Farm’s clear statement that it did not agree to be bound by the default judgment in the suit shows that State Farm did not waive the consent requirement.