Duty to Defend
Material Duties- Auto

Insured's failure to cooperate in defense prejudicial to insurer.
Progressive County Mut. Ins. Co. v. Trevino
04-05-00113 (Tex. App. June 28, 2006 )

    The Texas Court of Appeals reversed a trial court's judgment in favor of third-party judgment creditors who sued an auto insurer to collect on a judgment awarded against its insured on an underlying suit arising out of an auto accident. The record supported a conclusion that the insured failed to cooperate in his defense and that the insurer was prejudiced as a result.

    Hector Trevino and Mario Moyeda obtained a default judgment against Alejandro Alvarado in an underlying personal injury  suit arising out of an auto accident. Alvarado's insurer was Progressive County Mutual Insurance Co. Progressive withdrew from defending Alvarado in the action, contending that he refused to cooperate with his defense.

    Trevino and Moyeda sued Progressive, contending that they were judgment creditors against Alvarado with standing to sue Progressive as third-party beneficiaries of the policy. Progressive contended that Trevino and Moyeda as judgment creditors also failed to cooperate in the defense. A trial court ruled in favor of Trevino and Moyeda, and Progressive appealed.

    Cooperation a condition precedent to coverage under policy provision. The court of appeals noted that because the policy's cooperation clause required Alvarado's cooperation, it was a condition precedent to coverage. As a result, Trevino and Moyeda had the burden of showing satisfaction of that condition, or that Progressive was not prejudiced by Alvarado's lack of cooperation.

    The record shows that Alvarado filed a pro se answer despite having counsel hired by Progressive, that he refused to permit Progressive to pay on the underlying claim and that his guardian informed Progressive that he did not wish to be involved in the action. The court of appeal concluded that Progressive was prohibited by Alvarado from mounting a defense to limit his liability, and was prejudiced as a matter of law.

    The court of appeal also rejected Trevino and Moyeda's argument that the cooperation clause violated the Texas Motor Vehicle Safety Responsibility Act. Amendments to the Act instituted in 1995 did not abolish policy defenses or otherwise substantially change the original Safety Responsibility Law.

    Moreover, to adopt such an interpretation would require every insurer to defend its insured in every filed case, regardless of whether the claim fell within the scope of coverage. Accordingly, the trial court's judgment in favor of Trevino and Moyeda was reversed.

Strafford Texas Insurance Law & Litigation Alert
July 31, 2006