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Click here for the full text of this decision FACTS:Weaver Industrial Service Inc. entered into a service contract with Coastal Refining & Marketing Inc. The service contract required Weaver to supply labor, supervision and equipment for maintenance and repairs to Coastal’s refinery equipment and property. The service contract also required Weaver to designate Coastal as an additional insured on insurance policies providing coverage for all claims, demands, and causes of action arising out of Weaver’s work. The policies were required to be primary to all other valid insurance available to Coastal. Weaver added Coastal to its U.S. Fidelity and Guaranty Co. (USF&G) commercial general liability and umbrella policies. The policies were occurrence-based, as opposed to “claims made” policies, and provided coverage for property damage and bodily injuries. On May 13, 1999, Weaver’s employee, Rolando Lopez, was one of several people injured in an explosion at Coastal. Lopez and his common law wife sued Coastal and its parent company, Coastal Corp., for negligence and gross negligence in Nueces County (the Lopez suit). Without notifying USF&G of the suit, Coastal retained a firm as defense counsel. On May 13, 2000, the Lopez suit failed to settle at a court-ordered mediation during which the plaintiffs demanded $19 million. After the mediation, Coastal tendered its $500,000 self-insured retention, $500,000.00 from a fronting policy, and $1 million from Coastal Offshore Insurance Limited (COIL), Coastal’s captive insurance company, to its excess insurer, Lexington Insurance Co. Lexington assumed the defense of the case through the same counsel, and settlement negotiations continued. On or about June 15, 2000, Coastal’s defense attorneys made a “demand for insurance coverage” as an additional insured under the USF&G general liability and umbrella policies. The demand letter included a copy of the latest petition in the Lopez suit, the service contract between Weaver and Coastal, and the certificate of liability insurance showing Coastal as an additional insured on the USF&G policies. The letter stated that a mediation was scheduled for June 17, 2000, and requested “the presence of the appropriate representatives at the mediation.” The notice to Weaver appears to have been made in accordance with a provision in the service contract that required all notices concerning liability or indemnity to be sent to Weaver at a specified fax number. The record does not show the date Weaver received the notice; however, the parties agree that the notice was forwarded to USF&G by June 19 or 20, 2000. USF&G did not respond to the letter until five days after the referenced mediation had taken place and at least three days after receiving the demand. On June 23, 2000, a USF&G senior claim specialist telephoned Coastal’s attorneys and learned that the Lopez plaintiffs’ final demand at the second mediation was $8.5 million, and that Lexington had offered $6 million. USF&G also learned that trial was set for July 10, 2000, and that settlement negotiations were continuing. In a letter to Coastal’s attorneys, Harless reserved USF&G’s right to disclaim coverage due to late notice, and to contest Coastal’s status as an additional insured on the basis that Lopez’s injuries did not arise out of Weaver’s work for Coastal. USF&G also requested additional information. USF&G informed Coastal’s defense attorneys that USF&G “had insufficient information to respond to the demand letter, and arranged to visit the offices of Coastal’s attorneys on July 5, 2000, to review the litigation files in the Lopez suit. USF&G was aware that settlement negotiations were continuing. Using funds supplied by Coastal, COIL and Lexington, Coastal’s defense attorneys settled the Lopez suit for $7 million on June 30, 2000. USF&G subsequently filed suit against Coastal, seeking a declaration that USF&G had no duty to indemnify Coastal for the settlement funds. COIL and Lexington intervened in the suit. USF&G moved for traditional summary judgment on the grounds that Coastal breached explicit policy conditions by 1. failing to give USF&G notice of the Lopez suit for over a year after it was filed, 2. settling the suit without USF&G’s knowledge or consent, and 3. breaching its duty to cooperate with USF&G. The court granted USF&G’s summary judgment motion without stating the grounds for its decision, and Coastal, Lexington, and COIL appeal. HOLDING:Reversed and remanded. Coastal’s delay in notifying USF&G of the Lopez suit did not prevent USF&G from subsequently investigating the claims, defending the suit, or controlling settlement negotiations. Importantly, when USF&G was notified of the suit, the defense and negotiations were ongoing, and under the terms of the policy, USF&G had the right to assume control of both. There is no indication that USF&G chose to do so. The court concludes the summary judgment cannot be sustained on the basis of late notice. Assuming arguendo that the settlement payments were voluntary, USF&G failed to show the settlement was prejudicial. All parties acknowledge that Hernandez v. Gulf Group Lloyds, 875 S.W.2d 691 (Tex. 1994) requires an insurer to demonstrate that the insured prejudiced the insurer by settling an underlying liability claim without the insurer’s consent before coverage will be denied; however, USF&G argues that the holding and the reasoning of Hernandez are specific to uninsured/underinsured motorist claims. The court disagrees. USF&G failed to establish that Coastal breached its duty to cooperate and that the breach, if any, prejudiced USF&G. OPINION:Guzman, J.; Fowler, Edelman and Guzman, J.J.

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