It is well-settled Texas law that plaintiffs are prevented from directly suing a defendant’s insurer unless and until a final judgment or settlement has resolved the litigation at issue. A related line of cases sets out when a third party (not the insured) can bind a non-participating insurer to an underlying judgment or settlement.
Claimant/Named Insured Limited to $30K Statutory Minimum when Houston First Court Declines to Find a “Separation of Insureds” Implied in Auto Policy
Texas Farm Bureau Mutual Ins. Co. v. Minchew[i]
A claimant who is also a named insured is limited to a $30,000.00 (statutory minimum) recovery under a $300,000.00 policy when the Houston First Court declines to find a “separation of insureds” implied in the contract language.
By Henry Moore, Moore & Bomben PLLC
The plaintiff’s boyfriend[ii] drove his car into a ditch, injuring plaintiff, a passenger. Both plaintiff (Meredith Minchew) and her boyfriend (Brian Kaiser) were named insureds under the same liability policy. Meredith sued Brian for bodily injuries after the crash. Texas Farm Bureau agreed to cover Brian for liability but insisted that the coverage was limited to minimum limits under the family member exclusion. While Meredith and Brian were not “family members” they were both named insureds so fell under the terms of the family member exclusion.
This language was included in the family member exclusion:
“[Texas Farm Bureau] do[es] not provide Liability Coverage for you … for bodily injury to you …, except to the extent of the minimum limits of Liability Coverage required by … [the] Texas Motor Vehicle Safety–Responsibility Act.”
Meredith asserted that in the context of this claim, she was a stranger to the policy as she was not asking for any benefits under the policy so the exclusion should not apply to her[iii]. Both sides filed declaratory judgment actions on which the trial court entered judgment for the plaintiff. The Houston First Court reversed the judgment and remanded to the trial court to reconsider attorney’s fees and cost.
On appeal the plaintiff argued that she simply wore a different hat in this case than that of an insured. She was a claimant and antagonistic to both the other insured and the insurer, citing Rumley v. Allstate Indemnity Co.[iv] The Court notes the parallel in the facts but concludes that since Rumley was concerned with the duty of good faith and fair dealing, the issue presented was distinguishable.
Meredith also argued that the word “you” is singular and as such, requires each insured be treated separately. She finally argued that there is a common law “doctrine of severability” that is imposed on the policy regardless of the expressed language, citing Verhoev v. Progressive County Mut Ins Co.[v] . The Court agreed that if the policy contained a severability clause, Minchew would prevail. In rejecting her argument however, the Court noted that the Verhoev opinion was withdrawn[vi] so consequently had no precedential value. Despite that acknowledgment, both parties argued the Verhoev case so the Court addressed the opinion. It then noted that the “you” in the Progressive policy at issue in Verhoev was interpreted to limit recovery in the same manner as Farm Bureau argued in this case.
The Verhoev court relied on an earlier Texas Supreme Court opinion, Commercial Standard Ins. Co. v. American General Ins. Co.,[vii]. In Commercial Standard Ins. Co. the Supreme Court relied on an explicitly stated separation of insureds clause that had been added to the standard auto policy in 1955. The current standard auto policy, promulgated in 1992, does not have that clause. Neither did the Texas Farm Bureau policy at issue in Minchew.[viii]
In summary, the First Court simply refused to imply from other language in the policy a separation of insureds provision, since the clause itself was not expressly stated.
[i] No. 01-21-0330-CV ,2023 WL 3356703 (Tex. App. – Hous. [1st Dist.] May 11 ,2023)
[ii] One must presume ex-boyfriend at this point as the court uses the term “then-boyfriend.”
[iii] Her un/underinsured motorist claim was dropped before this appeal
[iv] 924 S.W.2d 448 (Tex. App. – Beaumont 1996, no writ)
[v] 300 S.W.3rd 803 (Tex. App. – Fort Worth 2009
[vi] (No. 02-08-00055-CV, 2009 WL 4547125 (Tex. App. – Fort Worth Dec. 3, 2009, no pet)
[vii] 455 S.W.2d 714 (Tex. 1970)
[viii] It should be noted that since 2004, we are no longer living with just the standard auto policy. A change to the Tex. Ins. Code now allows auto carriers and homeowner carriers to write their own policies. Tex. Ins. Code Sec. 2301.052.