Chapter 5-6 Declaratory Judgment on Policy—Duty to Defend

• Jurisdiction: United States

5-6 Declaratory Judgment on Policy—Duty to Defend

5-6:1 Overview

5-6:1.1 Related Causes of Action

Bad Faith, Breach of Duty of Prompt Payment, Breach of Contract, DTPA, Insurance Code Violations, Claims Against Contractual and Statutory Indemnitors

MUST READ CASES & STATUTES

Texas Civil Practice and Remedies Code Sections 37.001-37.011 (Texas Declaratory Judgments Act)

Nat'l County Mut. Fire Ins. Co. v. Johnson, 829 S.W.2d 322, 324 (Tex. App.—Austin 1992), aff'd, 879 S.W.2d 1 (Tex. 1993)

5-6:2 Elements

(1) Plaintiff is insured or beneficiary under the policy¹²⁷

Insured has the burden to prove coverage under the terms of the insurance policy.¹²⁸

(2) A third party sues the insured¹²⁹

(3) Insured notifies insurer that a defense is expected¹³⁰

Insured must comply with the notice of suit provision in the insurance policy.¹³¹

(4) A claim alleged falls within the scope of policy coverage¹³²

Once the duty to defend arises as to one claim, the insurer must defend the entire suit.¹³³
Courts follow the "eight corners" rule to determine if an insurer has the duty to defend by analyzing the third-party plaintiff's pleadings, considered in light of the insurance policy provisions, without regard to the truth or falsity of those allegations.¹³⁴
Courts interpret insurance policies using the same rules of construction as ordinary contracts.¹³⁵
Pleadings must allege a claim within the policy period.¹³⁶
To trigger the duty to defend, the insured must allege an injury.¹³⁷

5-6:3 Damages and Remedies

5-6:3.1 Declaratory Judgment

Duty to defend is a justiciable issue suitable for declaratory judgment.¹³⁸

5-6:3.2 Court Costs

Court can award court costs to either party in declaratory judgment action.¹³⁹

5-6:3.3 Attorney's Fees

Court can award reasonable and necessary attorney's fees in declaratory judgment action.¹⁴⁰

5-6:4 Defenses

5-6:4.1 Statute of Limitations

Because a suit over an insured's duty to defend is a contractual dispute, limitations period for bringing a declaratory judgment action is four years.¹⁴¹

5-6:4.2 No Timely Notice of Claim or Occurrence

Insurer can assert defense that insured did not provide timely notice of claim or occurrence¹⁴²

5-6:4.3 Did Not Cooperate

Insurer can assert the defense that insured did not cooperate in the investigation, defense or settlement of the insurance claim¹⁴³

5-6:4.4 Known Loss

Under the Fortuity Doctrine, insurer can assert the defense that the insured knew about the claim that gave rise to suit when it purchased the policy.¹...