What if it can be proved that the insurance company was wrong in denying coverage of a claim when a third party is suing the insured?
In Texas, when someone is being sued and the person being sued cannot get their insurance company to provide a defense and pay the claim, and the person being sued believes his insurance company should be providing a defense and paying the claim, then when a judgment is taken against him, he can assign the claim he has against his insurance company to the person who sued him and obtained a judgment.
Texas law requires, that in order to assign this claim against the insurance company, there must be a “fully adversarial trial” in the underlying liability claim.
In the Great American case, the Hamels and their home builder entered into a Rule 11 agreement before trial under which the Hamels agreed not to pierce the corporate veil and to only enforce a favorable judgment against the builder’s insurer in exchange for the builder’s agreement to appear at trial without seeking a continuance and to stipulating to certain facts that were important to establishing the builder’s liability. At trial, the court found in favor of the Hamels in the amount of $365,089.70. The builder then assigned it’s rights against Great American to the Hamels.
In contesting whether there had been a “fully adversarial trial” great American argued there had not been because the Rule 11 agreement took all risk away from the builder.
This court held “the presence of such an agreement creates a strong presumption that the judgment did not result from an adversarial proceeding, while the absence of such an agreement creates a strong presumption that it did.
This case is a must read for insurance lawyers dealing with similar situations regarding assignment of claims against insurers who refuse to provide a defense and pay claims.