Whenever an insured is sued, the insured must provide notice to the insurance company. Here is a case where the insured did not do so. The 2020, opinion is from the 14th Court of Appeals and is styled, Krystle D. Lewis, Individually and as Next Friend of Eliseo Lewis and Chrishelle Wortham v. ACCC Insurance Company.
After obtaining a default judgment against another driver for her injuries, Lewis sued the other drivers insurance company, ACCC. The trial court granted summary judgment in favor of ACCC on the fround that the insurer was prejudiced as a matter of law by the insured’s failure to notify ACCC of the lawsuit and request a defense. Lewis maintains that ACCC was not prejudiced as a matter of law because she, as a third-party beneficiary of the policy, gave ACCC actual notice of the lawsuit, notice of the pending motion for summary judgment, and notice of the hearing on unliquidated damages. This Court affirmed the trial court and explained why.
Like many liability policies, ACCC’s policy requires the person covered by the policy to promptly send the insurer “copies of any notices or legal papers received in connection with [an] accident or loss” and cooperate with the insurer “in the investigation, settlement or defense or any claim or suit.” The policy states that ACCC may deny coverage if ACCC can show that the covered person’s failure to comply with those terms materially prejudiced the insurer.
Lewis produced no evidence of Jasso-Garcia’s compliance; indeed, it is undisputed that Jasso-Garcia did not comply with these terms. Thus, the issue before the Court is whether ACCC met the burden it assumed in its traditional motion for summary judgment to conclusively prove that Jasso-Garcia’s non-compliance actually prejudiced ACCC.
The Court concludes that ACCC established that it was prejudiced as a matter of law when Jasso-Garcia allowed summary judgment to be rendered against him.
As the Supreme Court of Texas explained in 2008, an insurance policy’s notice provision serves at least two purposes. First, requiring an insured to forward suit papers to the insurer “enable[s] the insurer to control the litigation and interpose a defense.” Second, its “more basic purpose is to advise the insurer that an insured has been served with process and that the insurer is expected to file an answer.” Because an insurer has “no duty to provide a defense absent a request for coverage,” the insurer “ha[s] no duty to inject itself gratuitously into a lawsuit by defending an…insured who ha[s] not requested a defense and who fail[s] to comply” with the policy’s requirement to forward suit papers. Rather, the insured “trigger[s] the insurer’s duty to defend by notifying the insurer that a defense is expected.” Thus, the insurer has “no unilateral duty to act unless and until the…insured first requests a defense”—even if the insurer has actual knowledge of the suit.
If the insured does not comply with the obligations to notify the insurer of the suit and forward copies of the suit papers and instead allows a default judgment to be rendered, then the notice provision’s first purpose—that of enabling the insurer to control the litigation and interpose a defense—has been defeated. This can be seen by the difference in the insurer’s position before and after the default. Before a default judgment, the plaintiff bears the burden of proof, but after a default judgment, the insurer can no longer defend against the underlying claim unless it first meets a new burden of proof on new issues. As a result, the entry of a default judgment will ordinarily constitute prejudice as a matter of law.
In the issue that is dispositive of this appeal, Lewis argues that ACCC was not prejudiced as a matter of law by Jasso-Garcia’s failure to comply with the policy’s notice provisions because ACCC had actual knowledge of the suit, having received from Lewis, as a third-party beneficiary of the policy, (1) timely notice of the claim, (2) a courtesy copy of the petition,and (3) notice of the default-judgment hearing.
But as explained above, the case law demonstrates that an insurer has no duty to defend—and hence, no liability—if the insured never requests a defense and instead allows a default judgment to be taken.
To avoid this result, Lewis re-frames the issue and argues that the default judgment against Jasso-Garcia does not conclusively establish prejudice to ACCC because an insurer cannot prove prejudice as a matter of law “by the failure of a policyholder to personally notify his carrier of suit” if the injured plaintiff, as a third-party beneficiary of the policy, provides actual notice. Lewis implies that by forwarding copies of the suit papers to ACCC, she cured any prejudice to ACCC from lack of notice. In making this argument, Lewis reads the notice provision too narrowly and interprets “third-party beneficiary” too broadly.
The notice provision’s purpose is not solely to provide information to the insurer about the lawsuit; if that were so, then actual notice of the suit in time to interpose a defense would be sufficient to prove the absence of prejudice, and the Court would have reached the opposite result on the certified question discussed above. Lewis, however,does not address prior case law holding that the more basic purpose of a notice provision is to inform the insurer that an insured expects the insurer to provide a defense.