Duty To Cooperate

Here is a Dallas, Texas opinion that insurance lawyers need to read.  It is from the Dallas Court of Appeals and is styled, American National County Mutual Insurance Company v. Jonathan A. Medina.

On October 30, 2009, Angel Freeman ran a stop sign and crashed into Medina who was riding a motorcycle.  The cycle was totaled and Medina was injured.  Angel had a 1998 Dodge Ram that was listed as a covered vehicle on an ANPAC policy belonging to Paul and Katie Freeman.  Angel is Paul’s sister.

After the wreck, a question arose as to who owned the Ram. and whether it was insured by Paul’s policy.  If the truck was not owned by Paul, it could not be covered by the policy.  Paul and Angel both told ANPAC that Paul sold the vehicle to Angel for cash four weeks before the accident, on October 1, 2009, and both gave written statements to ANPAC to that effect.  Angel never put the title into his name.  ANPAC cancelled the policy effective October 1, and refunded premiums paid.  On December 8, 2009, ANPAC  notified Medina of the decision and closed the file.

Medina sued Paul and Angel, and ANPAC retained defense counsel for Paul.  During the pendency of the lawsuit, Medina made a Stowers demand to ANPAC.  Paul was later dismissed from the lawsuit.  After Paul was dismissed, Medina obtained a default judgement against Angel for damages.  Later, Angel assigned her rights in the policy to Medina, and then Medina sued ANPAC for breach of contract and other extra-contractual claims.

A jury found that Angel failed to cooperate with ANPAC in the case and that this was prejudicial to ANPAC.  The Judge ignored these findings and ruled in favor of Medina.  This appeal followed.

An insurer’s obligation depends upon proof that all conditions precedent have been performed.  The ANPAC policy at issue here required a person seeking coverage to “cooperate with us in the investigation, settlement or defense of any claim or suit.”  The language of the cooperation clause is enforceable.  Because the cooperation clause is a condition precedent to coverage under the policy, Medina had the burden of showing Angel cooperated with ANPAC.  But a lack of cooperation will not operate to discharge the insured’s obligations under the policy unless the insurer is prejudiced.  ANPAC had the burden of showing it was prejudiced by the failure to cooperate.  If an insurer is actually prejudiced or deprived of a valid defense by the insured’s failure to cooperate, the insurer’s obligations under the policy are discharged.

Here, the legal effect of the jury’s answers was to discharge ANPAC’s obligations under the policy.