PREPARING AND MAKING A CLAIM: INSURED S STRATEGIES

Transcription

1 The University of Texas School of Law Presented: 2010 Fundamentals of Insurance Program: A Guide to the Claims Process for Commercial Litigators, Business Lawyers, Brokers and New Coverage Counsel July 29-30, 2010 Dallas, Texas PREPARING AND MAKING A CLAIM: INSURED S STRATEGIES Mark L. Kincaid Mark L. Kincaid Kincaid & Horton, L.L.P. 114 West 7th Street, Ste Austin, Texas mkincaid@khs-law.com Continuing Legal Education

2 MARK L. KINCAID KINCAID & HORTON, L.L.P. 114 West 7th Street, Suite 1000 Austin, Texas (512) (512) fax EDUCATION B.B.A. with honors, University of Texas (1980) J.D. with honors, University of Texas School of Law (1983) EMPLOYMENT Kincaid & Horton, L.L.P. (1997 present) Law Office of Mark L. Kincaid ( , ) Adjunct Professor, University of Texas School of Law (1995-present) (Insurance Litigation) Public Counsel, Office of Public Insurance Counsel, State of Texas ( ) (appointed by Gov. Ann Richards to head agency advocating for the interests of Texas insurance consumers) Longley & Maxwell ( ) Managing Editor, Texas Consumer Law Reporter ( ) Briefing Attorney, Supreme Court of Texas, Justice Franklin S. Spears ( ) AWARDS & CERTIFICATIONS Board Certified in Consumer & Commercial Law (1993), Civil Trial Law (1993), and Civil Appellate Law (1991), Texas Board of Legal Specialization Fellow, American Bar Association Fellow, Texas Bar Foundation AV -rated by Martindale-Hubbell Law Directory Named as Super Lawyer by Law & Politics Media and the publishers of Texas Monthly ( ) American Board of Trial Advocates, Member PROFESSIONAL & CONTINUING LEGAL EDUCATION ACTIVITIES Co-author, Texas Practice Guide: Insurance Litigation (West 2009) State Bar of Texas Pattern Jury Charges Committee Business, Consumer, Insurance & Employment ; Chair (2009-); Vice Chair ( ); Member ( ) Consumer Law Council, State Bar of Texas Consumer Law Section: Chair ( ); Cochair, Continuing Legal Education Committee ( ); Member ( ) Frequent Lecturer and Author, for State Bar of Texas, University of Texas School of Law, Southern Methodist University School of Law, St. Mary s University School of Law, Texas Tech University School of Law, University of Houston School of Law, and South Texas College of Law

3 Preparing and Making A Claim Insured s Strategies I. Overview This paper discusses options and strategies that are available when the insured s claim is denied. It covers both first party and third party insurance. The focus is on issues to consider and choices to make. Detailed discussion of specific legal issues is left to other papers. II. First things first A. Finding the policies Often the insured knows what policy applies if their car was damaged, they bring the automobile policy, etc. But with more complex situations, finding coverage can be more complex. You should examine the potential client closely about all policies that exist and get whatever copies are available. The insurance agent should be a good source of information, because insureds often get all their policies from once source. Think broadly. A client may not realize that different types of policies may apply. For example a homeowner s policy may cover liability for acts that happen away from the home. Are there umbrella policies? Are there different layers of coverage? The hunt doesn t stop there. Could the client have insurance under someone else s policy? For example, a permissive driver will be covered under the automobile owner s policy. In commercial settings, contracts often require that one party provide insurance for the other, and liability insurers will agree to provide such coverage to these additional insureds. Look for other policies, indemnity agreements, and certificates of insurance naming your client as an additional insured or giving them the right to coverage. For more discussion of this issue, there are several very good papers: Beth Bradley, Additional Insureds & Contractual Liability:Update on Key Issues, in State Bar of Tex., 7th Ann. Adv. Ins. Law Course 21 (2010); Sandra Cockran Liser, Update on Contractual Indemnity Agreements & the Insurance Obligation They Create, in Univ. Tex., 2009 Ins. Law Institute 21 (2009); Erika L. Blomquist & Leslie C. Thorne, Additional Insureds: Practical Tips for Understanding & Maximizing Additional Insured Coverage, in State Bar of Tex. 5th Ann. Adv. Ins. Law Course 9.1 (2008); David J. Schubert, Certificates of Insurance So You Have One Now What?, in Univ. Tex. 12th Ann. Ins. Law Institute (2007). B. What kind of insurance is it? One of the first things to determine is what kind of insurance is at issue. As simple as it seems, this fact impacts many of the later issues to be decided. For example, the prompt payment of claims statute only applies to first party claims and specifically exempts certain types of coverage, such as marine insurance. If it is health insurance, you need to determine whether state law is preempted by federal law under ERISA. Etc

4 C. Do you know the insurer s position? In many cases, the insurer has sent a denial letter, or reservation of rights letter that sets out the basis for the insurer s position, and the policy language it relies on. But it is not unusual for an insured to seek legal help before the insurer has taken a definite position such as when the insurer is taking too long to accept or reject a claim. When the insured doesn t have a clear statement of the insurer s position, you need to get one. How? There are several ways. The insured herself can ask the insurer to state its position and the language it relies on. An insurer has a statutory obligation to promptly respond to such a request. Either the insured gets a meaningful response from the insurer, or insurer s failure to respond is a fact that demonstrates its unfair conduct. Another option is for the insured to complain to the Texas Department of Insurance. A complaint can be filed on-line by the insured. TDI forwards it to the insurer and demands a response. Sometimes this exchange causes the insurer to capitulate. Sometimes this exchange causes TDI to take further steps to resolve the complaint. At a minimum, because the insurer has to respond, this process should provide a clear statement of the insurer s position. D. Who should communicate with the insurer? In general, it seems better for the communications to come from the insured, instead of from a lawyer. Potential clients (and some lawyers) have the sweetly naive idea that a stern letter from a lawyer (especially one of your stature) should cause the insurer (who has been assiduously denying the claim for months) to roll over and pay. We wouldn t be having this seminar, and you wouldn t be reading this paper if that were the case. Sending a lawyer letter too early doesn t get the claim paid, and it just causes the insurer to send the issue to its own lawyers sooner. That may limit the amount of useful information obtained at this point. That may also prompt the insurer to sue first. (See below). You can always help with the content of a letter from the insured. E. Do you have a complete copy of the policy? Insureds seldom have a complete copy of the policy, and often what they do have will omit endorsements and other parts of the policy, and they may have pages that aren t part of the applicable policy. Your first challenge is to try to obtain a complete copy of the policy. Back in the day, when Texas had standard forms, you could reliably determine for home and auto policies what the coverage looked like, because they all looked the same. Now, with form deregulation, each insurer can have its own idiosyncratic forms, so there is no reliable way to know what coverage you have until you see it. How do you know if the policy is complete? Check the declarations page for a listing of the forms that make up the policy. Typically, each form has an identifying number, and those numbers are all listed on the summary of coverage contained in the declarations page. Hey, the - 2 -

5 insurer needs to know what was part of the policy, so they list it. Once you find the list, you can organize the papers your client has, spot any discrepancies, and get any missing documents. How can you get the declarations page, or any other missing pages? Obviously, the easiest place to start is to get all the documents the insured has. The agent also should be able to provide a complete copy of the policy. The insured can also get a complete copy from the insurer. This may be an instance where it is better for the request to come from the insured and not the lawyer, to avoid some of the problems that arise when the insurer lawyers up early. If the insured is asking for an explanation of the insurer s position, or if the insured complains to TDI, the request or complaint can include a request for a copy of the policy. The importance of this step cannot be overstated (okay, it probably can be overstated, but it is really important). It is extremely difficult, if not impossible, to answer any question about coverage without a copy of the whole policy. Partial information can be extremely misleading. For example, a policy form may exclude coverage, but then that exclusion may be negated by a separate endorsement. You wouldn t know this unless you had both documents. 1. If yes, analyze coverage. 2. If no, get a complete copy, then analyze coverage. F. Has the insured made a written demand? If the insured hasn t made a written demand or given written notice of the claim, have them do so. (See below on who should write the letter). The prompt pay statute is triggered by written notice of the claim, but insureds often report claims by phone. If your client hasn t given written notice, it is easy enough for them to send a letter, simply confirming the claim exists, to trigger the prompt pay deadlines, if they haven t already been triggered. Similarly, suits for deceptive trade practices and unfair insurance practices require a demand sixty days before suit is filed. Why not have the client send one now? Just be aware of the statutory requirements for a sufficient demand. You also might want to let the letter come from the client, without any reference to attorney s fees. (See below on who should communicate). Has the insured received any sort of demand from a third party that would give rise to a need to give the insurer notice of that claim? If so, send it. III. Analyzing coverage first party claims A. If there is coverage under the policy, what causes of action are available? Breach of contract, prompt payment of claims, unfair insurance practice based on misrepresentation and failure to settle all potentially apply when an insurer denies or delays a covered claim

6 B. If there appears to be no coverage, is there a basis for liability based on the absence of coverage? 1. Was there a misrepresentation of coverage? Did the agent represent that the policy would cover the loss? If so, there may be liability even though the policy does not cover the claim. Royal Globe v. Bar Consultants, 577 S.W.2d 688 (Tex. 1979). 2. Was there a failure to obtain coverage? Did the insured have a reasonable basis to expect coverage? Generally, an agent has no duty to get coverage, or to get the right coverage, but a course of dealing or other circumstances may give rise to such a duty. Rainey-Mapes v. Queen Charters, 729 S.W.2d 907 (Tex. App. San Antonio 1987, rehearing denied). 3. Has the insurer done anything that would waive the denial of coverage, or estop the insurer to deny coverage? There is a general principle that coverage cannot be created by waiver or estoppel, but this principle has exceptions. An insurer can waive a policy condition or exclusion. For example, even though a proof of loss ordinarily might be required, an insurer waives that requirement by denying the claim before the proof of loss is due. Viles. An insurer waives the defense of a misrepresentation in a life insurance application, if it fails to give notice of its refusal to be bound by the policy, after discovering the falsehood. Tex. Ins. Code , In the liability insurance context, an insurer may be estopped to rely on a defense, even the defense of non-coverage, when the defense lawyer hired by the insurer helps establish that coverage defense, to the prejudice of the insured. Employers Cas. Co. v. Tilley, 496 S.W.2d 552 (Tex. 1973). 4. Is there a basis to avoid the exclusion or defense? a. Is it curable? If the insurer denied the claim because it lacked information from the insured, you might be able to fix that by providing the information. In the liability insurance context, if the insurer was prejudiced by late notice after a default judgment, you might be able to persuade the plaintiff to drop the default to remove the harm and restore coverage. b. Did the excluded conduct or condition cause the loss? Even a clear breach of a policy condition or excluded conduct may not bar coverage if the breach or conduct did not cause the loss. See, e.g., Tex. Ins. Code , ; Puckett v. U. S. Fire Ins. Co., 678 S.W.2d 936, (Tex. 1984)

7 c. Is there coverage from the perspective of another insured? Even if the claim is excluded as to one insured, there may be coverage as to another insured. For example, an innocent spouse may be able to recover even though the other spouse may have committed arson. Texas Farmers Ins. Co. v. Murphy, 996 S.W.2d 873 (Tex. 1999). In the liability context, an employer that negligently hires an employee who intentionally assaults someone may be covered, even though the employee is not covered. King v. Dallas Fire Ins. Co., 85 S.W.3d 185 (Tex. 2002). d. Lack of evidence of an element of the defense or exclusion? Can the insurer prove all the elements of its asserted defense? For example, insurers often allege that there was a misrepresentation by the insured that voids coverage, but they often cannot prove intent to deceive, materiality, or sometimes even falsity. See Mayes v. Mass Mutual Life Insurance Co., 608 S.W.2d 612 (Tex. 1980); Tex. Ins. Code e. Lack of prejudice to the insurer? Various statutes and cases require that the insurer show it was prejudiced by the breach of a policy condition. If the insurer cannot show prejudice, even an otherwise valid contractual defense may not be effective. See, e.g., Pine Oak Builders, Inc. v. Great American Lloyds Insurance Co., 279 S.W.3d 650 (Tex. 2009); PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008). IV. Time to file suit? A. Sue or negotiate? Sue. Life s too short to jack around with adjusters. If you ve analyzed coverage, and the insurer has taken a definite position, what makes you think they are going to change their mind just because you ask them to? Once you ve filed suit, at least you get to talk to a lawyer. If your presuit negotiations would have been effective, the insurer s lawyer can negotiate a resolution before the suit has to go very far. If they don t, that shows filing suit was needed. Plus, negotiations give the insurer a chance to file a preemptive suit in a less favorable forum or venue. B. Send a pre-suit demand or file suit first? Sue first, unless you like representing the defendant/insured in a preemptive federal court declaratory judgment suit filed in Dallas. Believe it or not, some insurers respond to a demand letter that is intended to give them a chance to settle without the need for litigation by preemptively initiating litigation in a forum and venue less favorable to the insured. And they point to your well-reasoned demand as proof they need declaratory relief. You can always sue for breach of contract, negligence, fraud, breach of the common law duty of good faith and fair dealing, or other causes of action that don t require presuit notice, - 5 -

8 then you can amend later to assert statutory claims for unfair or deceptive practices, after giving notice and waiting the required time. If limitations is a problem, you can sue for the statutory violations without first giving notice, and the defendant can seek an abatement. As a practical matter, you can sue for statutory violations without first giving notice and hope the defendant doesn t raise the issue and waives it. Or, you can take the abatement if they do raise lack of notice. This is a bad idea, and bad form, because there is supreme court authority stating that sanctions may be appropriate if you file suit without giving the required notice. C. When to sue? Litigation should be a last resort. It takes a long time and costs a lot. If there is any other viable means to resolve the dispute, that should first be explored and perhaps exhausted. Also, judges and juries want to see that you had to file suit and weren t just suit-happy. It makes sense to have a clear event or act by the insurer that justifies filing suit such as an unequivocal denial, or a failure to decide the claim. If the insurer hasn t provided such a clear trigger that justifies filing suit, it may be helpful to solicit one. How? By an earnest appeal to the insurer providing it whatever information it has requested and asking it to pay. Maybe the insurer will pay, and that is good. Maybe the insurer will still refuse to pay, and now a lawsuit is clearly justified. D. Other presuit considerations compliance with insurer demands. Is your client s house in order? Did the insurer ask for anything that the insured hasn t provided? Before filing suit, you need to do all that you can to remove every possible excuse the insurer has for not paying, and make sure that the insured has cooperated and has a paper trail that proves it. E. Who to sue? 1. Sue the insurer whenever you can. They usually are the one that is responsible, and they have more money. Even if the problem is lack of coverage, the insurer will still be liable if the person who failed to get coverage was the insurer s agent. 2. Sue the agent or adjuster if you need to. Why add another defendant unless you really need to? You may need to add the agent or adjuster, when there is a sufficient basis, to defeat diversity and stay out of federal court. Sometime the agent is so blameworthy that leaving them out makes the case less compelling, because the insurer can try the empty chair, and the jury may agree. It can be fun to put the - 6 -

9 insurer in the position of bringing the agent in as a third party, because it looks bad when the agent and insurer blame each other. You should think about what, if anything, you gain by adding an individual defendant, even when there is sufficient factual basis, because a jury may be more sympathetic to the individual than it is to the insurance company. And, that extra defendant often brings another lawyer to think up more questions in depositions and trial, and more objections. That defendant may get more jury strikes. On the other hand, if the agent is independent his errors and omissions coverage may help get the case settled by providing an additional funding source. F. State court or federal? If you ve had a case in each forum, you know many of the pros and cons of each. Given that I have friends (I hope) and cases (for sure) in both judicial systems, I will simply say that this is an issue that deserves consideration to determine which of their respective qualities best fit your case. G. What about arbitration? If you are initiating the litigation, and there is an arbitration clause, it is worth considering whether to invoke arbitration, knowing that if you don t, they can. If the claim denial came in the form of the insurer filing suit to void coverage, and you have an arbitration clause, it is worth considering whether to invoke it. Either way, you should weigh the pros and cons. In general, arbitration can be faster but more expensive. A primary advantage is finality; you don t have to worry about appellate review and the attendant uncertainty and delay. Most lawyers feel that arbitration compresses the range of outcomes like judging Olympic diving, it takes out the high and low scores. If you have an emotionally compelling case, choosing arbitration instead of a jury trial, if that is the choice, can limit your recovery. If you have a relatively weak case, getting half a loaf could be great. V. Liability insurance issues A. Which duty is at issue? Liability insurers have three essential duties defend, settle, and pay. The options available to the insured or the claimant vary depending on which duty is breached. B. Which law applies? As you analyze the issues, it can be helpful to consider whether the law of another jurisdiction might apply. Under Texas law, there are certain unresolved issues like the responsibility of an insurer to settle when there is an excess demand but the insured would pay the difference and there are some issues that are resolved badly for insureds such as an insurer has no duty to initiate settlement discussions, an excess demand triggers no duty, and an insurer can pay any one of several claims when multiple claims exceed the policy limits. In - 7 -

10 contrast, some other jurisdictions have better case law, recognizing broader, more general duties for insurers to take reasonable steps to settle. If the insured, insurer, or both (or maybe even the plaintiff) are from another jurisdiction, then choice of law principles may support the argument that the other jurisdiction has the most substantial relationship and its law should apply. For more discussion, see Mark L. Kincaid, Suzette E. Selden & Zach Wolfe, Insurance Litigation, including Bad Faith and Extra Contractual Damages, , State Bar of Texas, 32nd Annual Advanced Civil Trial Law Course (2009). C. Duty to defend? 1. Refusing to defend If the insurer has refused to defend, the first step is to analyze the eight corners of the petition and policy to see if the petition potentially states a claim within coverage. If it does, the insured has several options. First, this may be an instance where a lawyer communication is worthwhile. The risk of triggering a declaratory judgment suit isn t a big concern, because the insurer is likely to do that anyway. Your letter may change their mind. If the insurer persists in the denial, and later is proved wrong, rejecting your letter can be evidence of bad faith. Second, you can contact the plaintiff s lawyer with ideas about how to replead into coverage. If you are the plaintiff s lawyer, you can replead to state a covered claim. Third, the insured can file suit for breach of contract and seek a declaration that the insurer has a duty to defend. With an affluent insured with lots at stake in the underlying suit and facing high defense costs, this approach may make economic sense. In that suit, the insured can recover defense costs, fees for pursuing the claim, and penalties under the prompt payment statute. Fourth, the insured may take the opportunity to defend himself and later recoup defense costs in a suit against the insurer. If the defendant doesn t independently have the means to pay a judgment, the fact that the insurer fled may dampen the plaintiff s enthusiasm for pursuing recovery against this defendant or may at least reduce the settlement value. Fifth, the defendant may be able to use the insurer s breach as an opportunity to reach an agreement with the plaintiff to let the plaintiff pursue the claim against the insurer. 2. Defending under a reservation of rights Defending under a reservation of rights does not breach the insurer s duty to defend or its duty to pay. Because the duty to pay is not triggered until the underlying liability is established, it is permissible for the insurer to defend, while putting the insured on notice of possible defenses to coverage

11 When the insurer offers a qualified defense i.e. defends under a reservation of rights the insured has the right to choose his own lawyer, and the insurer has to pay that lawyer. Britt v. Cambridge Mut. Fire Ins. Co., 717 S.W.2d 476, 481 (Tex. App. San Antonio 1986, writ ref d n.r.e.); Rhodes v. Chicago Ins. Co., 719 F.2d 116, (5th Cir. 1983). One problem is that the insurer never tells the insured he has the right to choose his own lawyer, at the insurer s expense. In the context of a reservation of rights letter, which sets out all of the insurer s asserted rights, this omission to inform the insured seems to be a clear statutory violation. See Tex. Ins. Code (2) (unfair practice to fail to state a material fact necessary to make other statements not misleading). If you are advising the insured at the time of the reservation of rights, you can point out the right to select counsel and avoid any harm, thus saving the insurance company from itself. So what advice should you give? It is tempting to reflexively exercise the right to choose independent counsel and make the insurer pay. Sometimes having an attorney chosen by the insured may create more uncertainty on a part of the insurer, which can create settlement pressure, if that is desired. Also, when an insurer defends under a reservation of rights there is an inherent conflict. One of the key benefits of a good defense is often to position the case for a favorable settlement. It may be very undesirable to reach a critical juncture where the case could be settled only to have the insurer insist that it will not settle because there is no coverage. In that situation, the insured could benefit from a lawyer willing to aggressively argue coverage issues with the insurer. An independent lawyer may be more effective in making those arguments than a lawyer chosen by the insurer who may be reluctant to jeopardize other relations with the insurer. On the other hand, there are reasons it might not be a good idea to insist that the insurer pay for an attorney selected by the insured. When the insurer chooses the lawyers, under certain circumstances the insurer may be to blame and held responsible for conduct of that lawyer. A mistake in the defense of the case might be attributable to the insurer and thus create a basis to collect from the insurer. If the insured chose the lawyer, the insurer may have a more plausible argument that it did not control the conduct of the lawyer and cannot be blamed for any mistakes. Although the reasoning is questionable, one court held that the insured could be guilty of contributory negligence based on his selection of, and failure to replace, his chosen defense counsel who the court said was incapable of properly handling the civil case in the professional manner. State Farm Fire & Cas. Co. v. Gandy, 880 S.W.2d 129, 137 (Tex. App. Texarkana 1994), rev d on other grounds, 925 S.W.2d 696 (Tex. 1996). Another factor to consider is the attorney s fees. Insurance defense lawyers usually (universally?) agree to work for lower hourly rates, in return for getting repeat business from the insurer. Despite the lower rates, many of the lawyers are very good defense lawyers. Hiring a person of similar skill and experience in the free market almost always requires higher hourly fees, and the insurer may balk at paying those fees. This creates the prospect of having to fight over the proper amount of fees at the very beginning of the case

12 Still another factor to consider is that in many cases insurance defense lawyers work under litigation guidelines imposed by insurers. These guidelines may limit what work is done by the lawyer and may dictate that certain tasks be performed by paralegals. A free market lawyer without an ongoing relationship with the insurer may be less likely to be influenced by such guidelines. This cuts both ways. If the guidelines impair the defense, it may be better to have an independent lawyer who is free of them. But if the guidelines impair the defense, the insurer may become liable for the claim because of creating that impairment, which ultimately may benefit the insured. See State Farm Mut. Auto Ins. Co. v. Traver, 980 S.W.2d 625 (Tex. 1998). D. Duty to settle? If the insurer refuses to settle, several things need to be considered. First, is the claim covered? If not, there is no duty to settle. Second, has the plaintiff made an effective Stowers/Rocor demand? If not, get one, or there is no duty to settle. G.A. Stowers Furniture Co. v. Am. Indem. Co., 15 S.W.2d 544 (Tex. Comm' n App. 1929, holding approved); Rocor Int l, Inc. v. Nat l Union Fire Ins. Co., 77 S.W.3d 253 (Tex. 2002). Third, does the record show potential liability and damages that would cause a reasonable person to settle? If not, make it so and, if necessary, get another settlement demand. Fourth, has the defense lawyer encouraged the insurer to settle to protect the insured? Occasionally, a defense lawyer will clutter the file with correspondence explaining why the insurer should not settle, or should offer less. This is misguided, because the lawyer owes her unqualified loyalty to the insured, and it is almost always in the insured s best interest that the insurer settle to protect the insured. If you are that lawyer, take it back. If you are the insured s personal counsel, write your own letter explaining why the insurer should settle, and then discuss with the defense lawyer her ethical duties to her one true client, and see if she feels it is proper to revise her correspondence to encourage the insurer to settle. If you represent the plaintiff, make sure your demand letter is in order and try to make sure the defense lawyer and any personal counsel are also advocating settlement. If the insurer persists in refusing to settle, the defendant may have a viable claim for extracontractual damages to protect him from an excess judgment. E. Duty to pay? If the insurer refuses to pay after a judgment against the insured, the options for the insured are to sue for breach of contract and unfair insurance practices, or get the plaintiff to take those claims by assignment or turnover and pursue them. If the insurer makes it clear in advance that it won t pay, that may be an anticipatory breach of contract that allows the insured to settle with the plaintiff and then sue the insurer for repayment. Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008). Presumably, the insured could give this claim to the plaintiff by assignment or turnover to pursue against the insurer

13 F. Declaratory judgment filed by insurer? Has the insurer filed a declaratory judgment suit? If so, you need to consider the scope of the issues and what parties have been joined. If the insurer has teed up the duty to defend, that is proper. The defendant really has no choice but to fight the issue, if he can. The plaintiff really doesn t have a dog in that fight. If the insured wins, he recovers his defense costs or gets a defense, which doesn t directly benefit the plaintiff. Even if the insured loses on the duty to defend, that doesn t necessarily decide the issue of whether the insurer ultimately will have a duty to pay, which is the issue the plaintiff cares about getting to the money. The duty to defend is decided based on the pleading against the defendant and the policy, and asks whether there potentially is coverage. The duty to pay depends on the actual evidence and findings at trial, and often resolution of other coverage issues that aren t decided in the underlying case. In some clear cases, such as a drive-by shooting, the court can decide there is no duty to defend and there never will be a duty to pay. The plaintiff is harmed by the adverse decision on the duty to pay, but in those obvious cases, the plaintiff s presence in the declaratory judgment suit wouldn t matter. In less clear cases, deciding the duty to defend won t decide the duty to pay. In those cases, the plaintiff really doesn t need to be in the declaratory judgment suit to decide the duty to defend. However, a prudent plaintiff will recognize that the coverage issues that decide the duty to defend may foreshadow the outcome of the duty to pay. Using the drive-by case as an example, if a court found no duty to defend for the intentional tort, the plaintiff could pretty well see that, unless the evidence at trial proved different covered conduct, the insurer would not have to pay a judgment based on that intentional conduct. The plaintiff may have a vital interest in being present in a declaratory judgment suit that seeks to decide whether there is a duty to pay, prior to resolution of the underlying case. A plaintiff may need to protect coverage, when insurance is the only likely source of payment. If the defendant is sufficiently solvent, coverage isn t really the plaintiff s problem, and defending coverage isn t either. The defendant can pay the ultimate judgment and has an incentive and resources to defend coverage in the declaratory judgment suit. But if the defendant isn t sufficiently solvent, so that insurance is the only source of funding, the plaintiff may have no choice but to try to intervene in the declaratory judgment suit and take the laboring oar on trying to defend coverage. A broke defendant who can t pay the resulting judgment and can t pay a coverage lawyer to fight the declaratory judgment suit makes for a poor champion on coverage. There is substantial authority for the proposition that the plaintiff is not a proper party in a declaratory judgment suit filed by the insurer to decide the duty to pay, before the underlying case is resolved. On the other hand, the supreme court in State Farm v. Gandy wrote as if plaintiffs are always parties in such suits. As a practical matter, if the plaintiff sees his selfinterest as being served by being in the declaratory judgment suit, no one else really has a reason

14 to object. The defendant shouldn t care, because the plaintiff is aligned in helping to establish coverage. The insurer should prefer to have the plaintiff in the case so that a decision on coverage binds the plaintiff. If the plaintiff is not a party, a judgment against the defendant/insured doesn t necessarily bind the plaintiff. A trial court shouldn t mind if no one objects. The insurance basket may belong to the defendant, but the eggs in that basket are what the plaintiff wants to get. Both the defendant and plaintiff have substantial grounds to persuade a court not to decide the duty to pay until after the underlying suit is resolved. While insurance companies have tactical reasons to file such preemptive claims, courts aren t necessarily obligated or authorized to decide those issues until the underlying suit is resolved. G. Negotiating a deal with the plaintiff, when the insurer breaches a duty. Space does not allow for a full discussion of when and how an insured defendant can strike a deal with the plaintiff that gives the plaintiff any claims against the insurer and gives the defendant some degree of protection. A lengthier discussion is presented in Mark L. Kincaid, Settlements, Assignments, and Agreements Between Plaintiffs and Insured/Defendants: What Can and Can t Be Done. Subject to certain restrictions, if the insurer clearly breaches a duty to the defendant/insured, then the defendant/insured can settle with the plaintiff and hold the insurer liable for that settlement. Evanston Ins. Co. v. ATOFINA Petrochemicals, Inc., 256 S.W.3d 660 (Tex. 2008)