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A Texas appellate court has affirmed a trial court’s decision rejecting a lawsuit against an insurer by two plaintiffs who had obtained a default judgment against the insured, reasoning that the plaintiffs’ action had to fail because the insured had not notified the insurer of the plaintiffs’ lawsuit against her.

The Case

Rebecca Leigh Flores and Fernando Medina were involved in a vehicle collision with Vanessa Hernandez, who was driving a vehicle insured under an automobile liability policy issued by State Farm Mutual Automobile Insurance Company.

State Farm received notice that Ms. Flores and Mr. Medina had retained counsel in relation to the accident. State Farm then sent a letter to Ms. Hernandez advising her that Ms. Flores and Mr. Medina were represented by counsel and instructing her to notify State Farm if she “receive[d] any contact from this attorney or their representatives[.]”

Ms. Flores and Mr. Medina later sued Ms. Hernandez for negligence and obtained a default judgment. Ms. Hernandez did not forward the lawsuit to State Farm and did not otherwise notify State Farm that she had been sued.

Thereafter, Ms. Flores and Mr. Medina sued State Farm, seeking to collect on the default judgment they had obtained against Ms. Hernandez.

Ms. Flores and Mr. Medina moved for summary judgment, arguing that the judgment they had obtained against Ms. Hernandez made them third-party beneficiaries with respect to the insurance policy State Farm had issued to Ms. Hernandez.

State Farm filed a response, arguing that it had no duty to defend under the policy because Ms. Hernandez had not complied with the policy’s notice-of-suit provisions.

State Farm moved for summary judgment.

The trial court granted summary judgment in favor of State Farm, and Ms. Flores and Mr. Medina appealed.

The State Farm Policy

The State Farm policy provided:

PART E — DUTIES AFTER AN ACCIDENT OR LOSS

A. We must be notified promptly of how, when and where the accident or loss happened. Notice should also include the names and addresses of any injured persons and of any witnesses. If we show that your failure to provide notice prejudices our defense, there is no liability coverage under the policy.

B. A person seeking any coverage must:

1. Cooperate with us in the investigation, settlement or defense of any claim or suit.

2. Promptly send us copies of any notices or legal papers received in connection with the accident or loss.

. . . .

LEGAL ACTION AGAINST US

A. No legal action may be brought against us until there has been full compliance with the terms of this policy. . . .

The Appellate Court’s Decision

The appellate court affirmed.

In its decision, the appellate court explained that, generally speaking, an injured person cannot sue the tortfeasor’s liability insurer directly until the tortfeasor’s liability has been determined by agreement or judgment. After judgment, the appellate court continued, the injured person can sue the insurer as a third-party beneficiary of the insurance policy.

The appellate court added that, as a third-party beneficiary, the injured party “steps into the shoes” of the tortfeasor and is bound by the policy’s conditions precedent – including its notice provision.

Here, the appellate court pointed out, Ms. Hernandez had not complied with the notice requirements in the State Farm policy. Moreover, State Farm was unaware of the lawsuit filed by Ms. Flores and Mr. Medina against Ms. Hernandez until after judgment had been rendered. Therefore, the appellate court ruled, State Farm had no duty to defend or indemnify Ms. Hernandez in the underlying litigation and was not liable to Ms. Flores and Mr. Medina under the policy.

In addition, the appellate court added, State Farm had established prejudice as a matter of law because it had not been notified of the default judgment against Ms. Hernandez until after the default judgment had become final and nonappealable.

Accordingly, the appellate court concluded that the trial court had properly granted State Farm’s motion for summary judgment.

The case is Flores v. State Farm Mutual Automobile Ins. Co., No. 13-17-00167-CV (Tex. Ct.App. June 7, 2018).

Steven A. Meyerowitz, Esq., is the Director of FC&S Legal, the Editor-in-Chief of the Insurance Coverage Law Report, and the Founder and President of Meyerowitz Communications Inc. As FC&S Legal Director, Mr. Meyerowitz, a member of the team that conceptualized FC&S Legal, provides daily analysis and commentary on the most significant insurance coverage law decisions from courts across the country and news regarding legislative and regulatory developments. A graduate of Harvard Law School, Mr. Meyerowitz was an attorney at a prominent Wall Street law firm before founding Meyerowitz Communications Inc., a law firm marketing communications consulting company.