DALLAS COURT OF APPEALS HOLDS THAT INSURER’S DENIAL OF COVERAGE DOES NOT PRECLUDE SUIT UNDER TEXAS DECLARATORY JUDGMENT ACT

The Dallas Court of Appeals last Thursday concluded that a trial court could entertain a declaratory judgment lawsuit brought by an insurer to determine its duties to defend and indemnify an action against its insured involving a pollution cleanup in Indiana.  In Transportation Insurance Company et al v. WH Cleaners, Inc., No. 05-10-00654-CV, 2012 WL 2049534 (Tex. App.—Dallas June 7, 2012), the appellate court reviewed a trial court ruling that sustained a plea to the jurisdiction brought by the insured.  The court of appeals reversed and remanded for further proceedings, holding that the carriers’ right to a court declaration of rights under insurance policies “is clear,” and rejecting WH Cleaners’ arguments for an exception to that rule.

WH Cleaners’ primary argument was that because the carriers had denied coverage, they had effectively determined the parties’ rights, and there was nothing more that the court could do.  Essentially, WH Cleaners argued that an insurer could not both deny coverage and sue for a declaration of rights under the policy.  The court of appeals distinguished a Georgia case that was a primary support for WH Cleaners’ arguments, and stated that “[j]ust because a carrier takes a position and denies coverage to an insured does not mean there is no coverage and that the matter has been resolved.  A court can determine otherwise.”

The court of appeals also rejected two alternative arguments asserted by WH Cleaners.  First, the court found that there was no evidence supporting WH Cleaners’ contention that it would not pursue defense and indemnity, such as a formal withdrawal of its request or some other mechanism relinquishing an entitlement to coverage.  The court finally determined that the declaratory judgment action was not simply a means to determine whether the insurance contract had been breached.

Editor's Note: MDJW was honored to handle the carriers’ appeal in this case. The firm's Managing Partner Levon Hovnatanian and Senior Counsel Bruce Ramage handled the appellate briefing, and Mr. Hovnatanian argued the case to the court of appeals. We are pleased to have had the opportunity to win this important case and we thank CNA for the opportunity to do so.