Texas Insurance Law Newsbrief - August 7, 2024

TEXAS SUPREME COURT CONFIRMS TEXAS INSURANCE CODE LICENSING REGULATIONS FOR PUBLIC INSURANCE ADJUSTERS DO NOT VIOLATE THE FIRST OR FOURTEENTH AMENDMENTS

The Texas Supreme Court recently confirmed that licensing requirements for public insurance adjusters under the Texas Insurance Code do not violate an individual’s right to free speech under the First Amendment or due process under the Fourteenth Amendment.

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Tex. Dep't of Ins. v. Stonewater Roofing, Ltd. Co., 2024 Tex. LEXIS 440 (Tex. June 7, 2024). Stonewater Roofing is a professional roofing contractor that does not hold a license as a public insurance adjuster yet makes several claims that fall under the definition of a “public insurance adjuster” according to the Insurance Code, including that it has extensive experience facilitating settlement of insurance claims and extensive knowledge of insurance claims. After getting sued by a client, Stonewater Roofing filed a declaratory-judgment suit against the Texas Department of Insurance and its commissioner to invalidate the licensing requirement and dual-capacity prohibition in the Insurance Code for public adjusters, alleging that these licensing requirements violated free speech and due process rights guaranteed by the First and Fourteenth Amendments of the United States Constitution.

It is true that "negotiating for" and "effecting" a settlement can involve communicative endeavors. And it is true that both the actuating activity (representative capacity) and the commercial objective (settlement of an insurance claim) may be manifested or carried out by those activities. But under a plain reading of the statute, speech is not remotely the defining characteristic of the public insurance adjuster's job.

Speech may be an adjunct to the regulated relationship, but none of these provisions can be fairly characterized as limiting, proscribing, prescribing, or otherwise regulating protected speech. Any incidental impact on speech is not sufficient to bring the First Amendment into play.

The Texas Supreme Court ruled in favor of the state regulator and held that the First Amendment in inapplicable because the challenged laws regulate professional conduct, not free speech, and Stonewater Roofing failed to state cognizable void-for-vagueness claims under the Fourteenth Amendment’s due process clause.

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U.S. SUPREME COURT HOLDS THAT A PRIMARY INSURER IS A ‘PARTY IN INTEREST’ FOR THE PURPOSES OF CHAPTER 11 BANKRUPTCY CLAIMS

The United States Supreme Court recently held that a primary insurer is a “party in interest” in a Chapter 11 bankruptcy case due to its financial responsibility for a bankruptcy claim.

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Truck Ins. Exch. v. Kaiser Gypsum Co., 2024 U.S. LEXIS 2483 (June 6, 2024).

The Texas Truck Insurance Exchange is the primary insurer for companies that manufactured and sold products containing asbestos, and the companies filed a Chapter 11 bankruptcy after facing thousands of asbestos-related lawsuits. The Texas Truck Insurance Exchange is obligated to pay $500,000 per asbestos claim covered under its contracts, so it sought to object to the companies’ bankruptcy reorganization plan, primarily because the insurer thought the plan needed disclosure requirements to prevent millions of dollars in fraudulent claims.

An insurer with financial responsibility for a bankruptcy claim is sufficiently concerned with, or affected by, the proceedings to be a “party in interest” that can raise objections to a reorganization plan. Section 1109(b) grants insurers neither a vote nor a veto; it simply provides them a voice in the proceedings.

The U.S. Supreme Court held that the primary insurer for companies that manufactured and sold products containing asbestos was a party in interest under 11 U.S.C.S. § 1109(b) that could object to a Chapter 11 plan of reorganization because, as an insurer with financial responsibility for a bankruptcy claim, it was sufficiently concerned with, or affected by, the proceedings.

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STATE FARM ENTITLED TO SUMMARY JUDGMENT ON INSURED’S CLAIM FOR EXEMPLARY DAMAGES BUT OTHER CLAIMS PROCEED

The Western District recently clarified the type of evidence needed for an insurer to overcome its burden of proof and show entitlement to summary judgment.

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. Abulehieh v. State Farm Lloyds, 2024 U.S. Dist. LEXIS 99060 (W.D. Tex. June 4, 2024). The insured homeowners filed a claim under their homeowner’s insurance policy with State Farm after discovering damage from a leaking toilet, but the policy included an exclusion for continuous or repeated seepage or leakage. State Farm relied on photographs provided by the insured, did not inspect the property, and denied the insured’s claim. The insured filed suit after State Farm denied the insured’s claim and State Farm filed a motion for summary judgment.

State Farm does not dispute that it relied on a Policy exclusion in denying coverage. State Farm therefore bears the burden of proving that the asserted exclusion applies. State Farm has not proved that the damage at issue fell within the exclusion so as to entitle it to summary judgment as a matter of law.

The Western District held State Farm is not entitled to summary judgment on the insured’s breach of contract, prompt payment under the Insurance Code, extra-contractual claims, or the insured’s request for treble damages. However, State Farm is entitled to summary judgment on the insured’s request for exemplary damages because post-loss statements regarding coverage do not constitute actionable misrepresentations under the Insurance Code, DTPA, or common law fraud to support the recovery of exemplary damages.

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FARMERS BRINGS NO GOOD NEWS FOR GOSPEL LIGHT

Insurance agency Farmers General recently secured dismissal at the pleading stage of three of its insured’s claims against it from the Texas’s February 2021 winter storms, — demonstrating the importance of holding plaintiffs to their pleading requirements.

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In Gospel Light Eritrean v. Ohio Cas. Ins. Co., 2024 U.S. Dist. LEXIS 132216 (N.D. Tex. July 25, 2024), Farmers General obtained Ohio Casualty-provided commercial property insurance for Gospel Light’s real property in north Texas. In February of 2021, winter storms caused damage to Gospel Light’s property, and it filed a claim. Ohio Casualty made payments on the claim, then determined that Gospel Light was underinsured for the property on both a replacement cost and actual cash value basis. Gospel Light then filed a state court lawsuit against Ohio Casualty and Farmers General, alleging breaches of contract, fiduciary duty, the Texas Insurance Code, the duty of good faith and fair dealing, and the Texas Deceptive Trade Practices Act, as well as negligence and negligent misrepresentation. The defendants successfully removed the case to federal court in the Northern District of Texas, then Farmers General moved to dismiss each of Gospel Light’s claims against it.

The Court considered whether it should employ the higher pleading standards in Rule 9(b) of the Federal Rules of Civil Procedure, for fraud and other specific claims; however, it concluded that Gospel Light did not affirmatively plead fraud, so that heightened standard was inapplicable. Nevertheless, even with the normal federal pleading standards, the Court dismissed three of Gospel Light’s claims. There was no breach of fiduciary duty; Gospel Lights only provided vague statements about Farmers General’s familiarity with Gospel Light’s insurance needs. Nor was there a Deceptive Trade Practices Act violation or Negligent Misrepresentation claim; Gospel Light had not pleaded any affirmative misrepresentations by Farmers General.

This case may now continue past the pleading stage, but only with Gospel Light’s negligence claim against Farmers General.

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NORTHERN DISTRICT FINDS STOWERS DOCTRINE FACT ISSUE REGARDING REASONABLENESS OF PRIMARY INSURER DECLINING SETTLEMENT OFFERS

The Northern District recently held that there was a genuine issue of material fact in a case between the primary insurer and excess insurer regarding whether it was reasonable for the primary insurer to decline settlement within policy limits.

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Endurance Am. Ins. Co. v. Lloyd’s Syndicate 3624, 2024 U.S. Dist. LEXIS 135203 (N.D. Tex. July 31, 2024). An apartment resident was severely injured by electrocution and the apartments were insured by Endurance (excess insurer) and Lloyds Syndicate 3624 (“Hiscox” primary insurer - $1,000,000 policy limit). Hiscox rejected settlement offers within its primary policy limits one for $1,000,000 and another for $500,000. The primary insurer, Hiscox rejected both offers, the case proceeded to trial and resulted in a $3,500,000 verdict against the insured.

The insurers then settled the case, and Endurance, the excess insurer, then sued the primary insurer Hiscox, under Texas Stowers Doctrine alleging Hiscox failed to act reasonably in its defense of the insured. And, for not settling the case when the Hiscox adjuster's internal file included a comment referencing a phone call with the claimant’s attorney noting: "[Plaintiff's counsel] reiterates 500k to settle." In assessing whether Hiscox acted reasonably when defending its insured in a previous lawsuit, the Court evaluated two prior settlement offers that were within policy limits and found there is a genuine issue of material fact regarding whether a reasonable insurer would have accepted the proposed settlement offers. Accordingly, the court denied Hiscox's motion for partial summary judgment and motion for leave to amend its answer. But the court also denied Endurance's motion for partial summary judgment and the Stowers claims Endurance's claims will now proceed to trial.

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PASADENA TORNADO NOT A NAMED STORM - SUMMARY JUDGMENT GRANTED WHERE POLICY UNAMBIGUOUSLY LIMITED COVERAGE TO DAMAGE CAUSED BY NAMED STORMS 

The United States District Court for the Southern District of Texas, Houston Division, recently granted QBE Specialty Insurance Company’s motion for summary judgment because the policy unambiguously limited coverage to damage caused by “Named Storms” and because the tornado at issue was not a “Named Storm”.

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In QBE Specialty Ins. Co. v. Eduro Healthcare, LLC, No. H-23-2626, 2024 U.S. Dist. LEXIS 121751* (July 11, 2024), Defendant (“Eduro”) purchased an insurance policy from QBE Specialty Insurance Company and Tokio Marine Underwriting Limited (“Plaintiffs” or “QBE”). The Covered Cause of Loss included fire, lightning, explosion, and if added, windstorm or hail, smoke, aircraft or vehicles, riots or civil commotion, sinkhole collapse, volcanic action, vandalism, and sprinkler leakage. But the Specified Perils Exclusion Endorsement deleted from the policy all the covered causes of less except windstorm or hail and further limited coverage to instances caused by a Named Storm. The Property Endorsement defined Named Storm as “storm, cyclone, typhoon, atmospheric disturbance, depression or other weather phenomena designated by the US National Hurricane Center [(“NHC”)] and where a name (and not only a number) has been applied.”

On January 24, 2023, a tornado damaged Defendant’s commercial property and Defendant made a claim that was denied by QBE. QBE filed a declaratory action seeking a declaratory judgment that the damage was not covered under the Policy and Defendant filed counterclaims for breach of contract and violations of the Texas Insurance Code for failure to timely investigate the claim and failure to timely pay the claim. Both parties filed motions for summary judgment seeking a declaratory judgment in their favor.

The Court analyzed the following issues: 1) Whether the Policy’s structure makes it ambiguous; 2) Whether the Named Storm definition applies to Endorsement 1; 3) Whether the Named Storm definition makes coverage illusory; 4) Whether the NHC naming requirement applies to all storms; and 5) Whether the “Pasadena Tornado” was a Named Storm. Eduro argued that the policy’s coverage definition is convoluted as to be ambiguous. Eduro complained that the policy lists eleven covered causes of loss in one document, deletes ten of them in a separate endorsement and replaced the last cause in yet another endorsement, but Eduro cited no authority suggesting that this structure amounts to ambiguity. The court rejected this argument stating that when read in combination, the policy and the endorsements make it clear that the only covered cause of loss is “windstorms or hail caused by a Named Storm.” Next Eduro argued that the definition of a Named Storm applies only to the Property Endorsement and not the entire policy. The Property Endorsement states that its clauses, which include the Named Storm definition, “SHALL APPLY” “WITH RESPECT TO THE COVERAGE PROVIDED BY ALL UNDERWRITERS, CARRIERS AND INSURERS OF THIS POLICY.” There was no explicit language in the definition to suggest that it does not apply to the whole policy. The court concluded that the Named Storm definition unambiguously applies to the entire policy. 

Next Eduro argued that the coverage is illusory as to all weather events other than cyclones because the NHC only gives actual names to cyclones and not the other storms. But the court pointed out that “Texas disfavors construction of insurance contracts that render all coverage illusory.” See Balfour Beatty Construction L.L.C. v. Liberty Mutual Fire Ins. Co., 968 F.3d 504, 515 (5^th Cir. 2020).  The court went on to state that coverage is not illusory if the policy would provide coverage for other claims. Since the policy here would cover damage caused by a tropical cyclone that has been named by the NHC, the coverage here was not illusory. Eduro also argued that the NHC naming requirement applies only to the last category of storm listed (other weather phenomena”). The Court rejected this argument stating that the naming requirement applies to all covered storms listed in the policy.

Finally, Eduro tried to argue that the tornado qualifies as a Named Storm because it was referred to as the ‘Pasadena Tornado’ by local media and because the Small Business Administration identified it as “Texas Disaster Number TX-00647.”  These arguments did not persuade the Court. The Court stated that it would be surprising for parties to a property insurance contract to intend that coverage would depend on how local media described a storm instead of the NHC’s objective classification criteria. Because it is undisputed that the NHC did not designate or name the tornado, it was not a Named Storm as defined in the policy and therefore the policy provided no coverage for the damage to Eduro’s property. The court granted Plaintiff’s summary judgment, denied Defendant’s summary judgment, declared that the policy provides no coverage for damage caused by the January 24, 2023, tornado and entered a take nothing judgment on Defendant’s counterclaims.

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SUMMARY JUDGMENT GRANTED IN FAVOR OF INSURER WHEN PRE- AND POST-APPRAISAL PAYMENTS PROVIDED ALL THE RELIEF TO WHICH THE INSURED WAS ENTITLED

The United States District Court for the Northern District of Texas, Dallas Division, recently dismissed Plaintiff’s claims with prejudice after determining that the insurer’s pre-appraisal and post-appraisal payments gave Plaintiff all the relief to which she was entitled.

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In Peterson v. Safeco Ins. Co. of Ind., No. 3:21-CV-02186-K, 2024 U.S. Dist. LEXIS 121802* (July 11, 2024), Plaintiff Lynn Meister Peterson (“Peterson”) sued Defendant Safeco Insurance Company of Indiana (“Safeco”) because Peterson was not satisfied with Safeco’s payments totaling over $270,000 on her property damage claim following an October 20, 2019, tornado that damaged her residence, including a tree that fell into the roof. Safeco first inspected the home on October 31, 2019, and paid $6,250 to remove the tree. On November 27, 2019, Safeco issued a repair estimate and a $52,929.12 payment representing the actual cash value less deductible. Safeco also paid for Peterson to live in a rental property and paid around $86,000 for living expenses. On May 5, 2020, Safeco received an engineering report from Peterson’s contractor which called for additional costs. Safeco revised its estimate setting the total replacement cost at $217,000 and issued another check for $94,675, representing the actual cash value less prior payments and deductible. Safeco also paid $31,000 in recoverable depreciation. Peterson hired her own engineer and, in a report, (curiously dated 13 days before his inspection) more than doubled the repair estimate. The parties appointed appraisers, who sided with Peterson. Safeco then issued another check for $159,000 based on the actual cash value and another $58,000 in interest. Peterson amended her complaint and alleged breach of contract, Prompt Payment Act, and Chapter 541 of the Texas Insurance Code causes of action. Safeco moved for summary judgment on all causes of action.

Peterson’s theory on the breach of contract cause of action was essentially that Safeco may breach the contract in the future because Safeco may eventually owe her the replacement cost, which exceeds the actual cash value that Safeco used to calculate its payments. The court refused Peterson’s request to withhold summary judgment on this possibility reasoning that it is merely a prediction and Safco need not pay replacement cost until Peterson actually replaces or repairs her property, which she had not yet done at that point in time. Since repairs had not occurred, no jury could find that Safeco has an obligation to pay replacement cost of the property or that it breached that obligation.

Next the Court granted summary judgment on the Prompt Payment Act cause of action because Peterson had already been fully compensated for its violations of the Act. Peterson claimed in her amended petition that Safeco violated deadlines imposed by Tex. Ins. Code § 542. Safeco did not pay Peterson the full amount of her claim until after it received the appraisal award amount, but the deadline to pay the claim had already passed. That is because Appraisal does not pause Prompt Payment Act deadlines for accepted claims. See Hinojos v. State Farm Lloyds, 619 S.W.3d 651, 656 (Tex. 2021). Because Safeco paid statutory interest under the Act, Peterson is not entitled to receive any additional interest for her Prompt Payment Act claims. Peterson also argued that she is entitled to attorney’s fees, which Safeco calculated as being zero dollars. The Supreme Court of Texas, in Rodriguez v. Safeco Insurance Co. of Ind., held that “an insured pursuing a first-party real property insurance claim for tornado damage cannot recover attorneys’ fees if the insurer pays the full appraised value of the claim and any possible statutory interest on that amount. 684 S.W.3d 789, 792 (Tex. 2024).

Lastly, the Court granted summary judgment on the claims for violations of Chapter 541 of the Texas Insurance Code and common law duty of good faith and fair dealing.  Her only theory of recovery in the summary judgment briefing was that Safeco unreasonably delayed its investigation of her claim and failed to pay her promptly. Because Safeco “has paid all substantiated damages caused by its alleged delays, the Court need not pass on Safeco’s investigatory and payment decisions to reject this theory.” To recover under Chapter 541, an insured “must prove a statutory violation that (1) caused her to lose benefits she was entitled to receive under her insurance policy or (2) caused her an injury independent of her right to policy benefits.” The same applies to claims for breach of good faith and fair dealing. Because Safeco paid Peterson the benefits she was entitled to receive as determined by the binding appraisal, and she offered no evidence of any independent injury, summary judgment for Safeco was appropriate on the Chapter 541 and good faith and fair dealing claims.

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TEXAS CONCURRENT-CAUSATION DOCTRINE CONSIDERED IN DENIAL OF INSURER’S MOTION FOR PARTIAL SUMMARY JUDGMENT

The United States District Court for the Western District of Texas, Midland Division, recently denied Defendant Landmark American Insurance Company’s (“Landmark”) partial motion for summary judgment in an insurance coverage dispute.

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In William Douglas C/O the Havens Grp., Inc. v. Landmark Am. Ins. Co., No. MO:22-CV-00167-DC, 2024 U.S. Dist. LEXIS 119255* (July 7, 2024), Plaintiff William Dougals C/O the Havens Group Insurance Company, Inc. (“Havens”) sued Landmark American Insurance Company in connection with a dispute over Kingsway Mall roof damage and hail damage in Midland, Texas. Landmark first received notice of claim six months after the commercial policy period expired. The notice stated the date of loss was June 19, 2020. The policy had a wind and hail deductible of $449,250.00. When Landmark obtained a bid from Plaintiff’s roofing contractor in the amount of $392,955.00, Landmark sent a letter stating that there was no evidence of damage associated with the June 19^th weather event and even if coverage applied, the repair cost does not exceed the deductible. Plaintiff then hired a public adjuster, who estimated the replacement cost value totaling over $5.7 million. A second inspection of the roof revealed that the roof had been exposed to three different, earlier hailstorms (April 16, 2017, May 16, 2017, and April 23, 2019). Landmark sent a new letter explaining this and explaining that the hail damage could not be attributed to the June 19, 2020, storm. Landmark took further steps and obtained an estimate for the hail indentations that it attributed to the April 23, 2019, storm, which totaled about $104,000 (again less than the deductible). A year later, Plaintiff designated expert reports which opined that the April 2019, storm caused nearly $5 million in costs to repair, of which $2.3 million would need to be spent to replace lightweight concrete and metal roof decking.

Landmark filed for summary judgment asserting that: 1) Plaintiff is not entitled to coverage for replacement of the steel and lightweight concrete roof decking due to age damage; 2) Plaintiff is not entitled to ordinance or law coverage; 3) the policy limits Plaintiff’s recovery to actual cash value because Plaintiff has not yet made repairs and 4) Plaintiff’s common law duty of good faith and fair dealing claims and the Texas DTPA claims fail as a matter of law.

The Court was not convinced that Landmark established that there is no genuine issue of material fact on Plaintiff’s claims regarding good faith and fair dealing, violations of the Texas Insurance Code, and violations of the Texas DTPA and denied summary judgment on these extracontractual claims. The Court further stated that summary judgment is not proper as to causation regarding replacement of steel and lightweight concrete decking, applying the Texas concurrent-causation doctrine. The concurrent-causation doctrine applies when “covered and excluded events combine to cause an insured’s loss.” See Dillon Gage Inc. of Dallas v. Certain Underwriters at Lloyds Subscribing to Policy No. EE1701590, 636 S.W.3d 640, 645 (Tex. 2021). If the covered and uncovered events are inseparable, then causation is concurrent. Id. This means that the insurer would owe no coverage for the loss. On the other hand, if the covered and excluded events each independently cause the loss, then the insurer must provide coverage despite the exclusion. Id. Landmark conceded that there is a dispute as to whether the lightweight concrete could be attributed to storm damage. The court also pointed out that Landmark waived its concurrent-causation arguments by waiting to bring it up for the first time in their Reply and further stated that some Texas courts have said that concurrent causation is a question for the jury. See Overstreet v. Allstate Vehicle & Prop. Ins. Co., 34 F.4^th 496, 498 (5^th Cir. 2022).

Landmark next argued that the policy’s Ordinance or Law provision did not trigger because Plaintiff failed to complete code related repairs within the two-year period following the loss. The Court rejected this argument. Plaintiff even pointed to another case where Landmark tried to make the same argument and lost. See Kabir Marina Grand Hotel, Ltd. v. Landmark American Insurance Company, 2022 U.S. Dist. LEXIS 241437, 2022 WL 19517466 (S.D. Tex. Jan 18, 2022).  Whether Plaintiff was prevented from accomplishing the repairs necessary to claim Ordinance or Law benefits is a question of fact for the jury.

Moving on to the next argument made by Landmark that recovery should be limited to actual cost value and that five years have passed with repairs remaining well below the policy’s deductible. Plaintiff again pointed out that Landmark has made this argument in another case before and lost. Further, no court in Texas has applied the prevention doctrine to avoid applying a policy’s replacement cost provisions. While the Court agreed that Plaintiff first needs to perform the repairs before triggering payment of the policy proceeds, this too is still a question of fact for the jury to decide.

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HARRIS COUNTY JUDGE ABUSED HER DISCRETION IN DENYING RELATOR’S VERIFIED MOTION TO COMPEL A SIGNED MEDICAL AUTHORIZATION FOR PLAINTIFF’S MEDICAL RECORDS WHICH WAS CLEARLY DISCOVERABLE INFORMATION

The Court of Appeals of Texas, First District, Houston, granted mandamus relief to Relator Austin Maintenance & Construction, Inc. after Harris County trial court judge Fredericka Phillips twice denied Relator’s Motion to Compel a medical authorization from Real Party to discover her medical condition and negotiated rates accepted by her medical providers in a personal injury suit stemming from a car accident.

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In In re Austin Maint. & Constr., Inc., No. 01-23-00935-CV, 2024 Tex. App. LEXIS 3707* (May 30, 2024), the dispute centered on a medical authorization, which Real Party Maria Consuela Reyna (“Reyna”) refused to sign, instead arguing that because she produced medical records already, she should not be compelled to sign Relator’s medical authorization.  The underlying case is Maria Consulo Reyna v. Clinton Dow Ramey and Austin Industrial, Inc., Cause No. 2021-55761, In the 61^st District Court of Harris County, Texas.

In her Initial and Expert Disclosures, Real Party stated she incurred over $173,000 in past medical expenses, including Celebrity Spine & Joint, which represented the majority of her medical expenses for nerve-related injections. Relator served written discovery and requested that Reyna execute a medical authorization that was not limited in time or scope argued Reyna. Relator moved to compel arguing that because this is a personal injury lawsuit, Reyna’s medical records are relevant and discoverable, including potential pre-existing injuries. Reyna argued that she should not have to execute the medical authorization because she had already produced medical records for treatment of injuries sustained in the accident “in lieu of an authorization.” She also argued the authorization was overbroad because it was not limited to medical providers seen as a result of the accident. The crux of her argument, which Judge Phillips agreed with, was that Reyna could unilaterally determine to either produce medical records and bills herself or execute a medical authorization, but not both. Judge Phillips denied the motion to compel in November 2022. In October 20203, Relator filed a Verified Motion to Compel the authorization. Subsequent to the November order, Relator served depositions on written questions and document subpoenas seeking any negotiated rates that the providers accept from either private insurance companies or Medicare and Medicaid, but Celebrity Spine & Joint refused to respond without an executed authorization. Relator argued that it was entitled to independently investigate Reyna’s medical condition. Again, Reyna argued that because she provided all medical records and bills, she should not be compelled to sign a medical authorization and again Judge Phillips denied the Relator’s motion. This led to Relator seeking mandamus relief with the Court of Appeals.

The Court of Appeals rejected Reyna’s arguments. First, the Court stated that the Texas Supreme Court holds that the “reasonableness of [a] claimant’s medical expenses” is relevant in a personal injury case where, as here, the plaintiff seeks to recover medical expenses as part of her damages. See In re K&L Auto Crushers, LLC, 627 S.W.3d 239, 256 (Tex. 2021). The Court also pointed out that Reyna did not explain why the request is “broad,” did not acknowledge that Relator agreed to limit the authorization to a five-year period prior to the accident and stated that several courts in Texas have held that a five-year request for medical records in personal injury suits is not overbroad. The Court held that in this case, the medical authorization is not overly broad. Next, the Court addressed the issue of production in lieu of an executed release, saying that nothing in Rule 194.2 precludes a defendant from seeking relevant documents under Rule 196 or from requesting a properly tailored medical authorization. Reyna cited to no authority that either Rule 194 or 196 require a defendant to rely on a plaintiff to produce medical records. The court held that Reyna cannot circumvent what is a legitimate request for an authorization just because she delivered selected medical records to Relator.

Next, the Court addressed whether Relator failed to preserve its complaint. Reyna argued that Relator was required to pursue a motion to compel against the actual medical providers before moving to compel Reyna to execute a medical release. The Court rejected this argument. Because at least one medical provider had already stated it would not produce records until it receives an executed release, Relator properly filed its motion to compel against Reyna. Lastly, Reyna attempted to make a weak argument that the authorization would lead to the creation of documents not in existence. Because Reyna never objected to the motion on that ground previously, the Court held that the argument is not properly before them and held that Judge Phillips abused her discretion in denying Relator’s Motion to Compel the executed medical authorization.  Because the denied discovery was necessary for Relator to develop defenses that go to the heart of the case and the extent of the alleged damages, the court conditionally granted mandamus relief and directed Judge Phillips to vacate her October order.

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ERRONEOUSLY ADMITTED VIDEOS PROBABLY CAUSED THE RENDITION OF AN IMPROPER JUDGMENT WITH RESPECT TO WHETHER A MASTIFF MIX WAS A “DANGEROUS DOG” AS DEFINED BY TEXAS HEALTH AND SAFETY CODE SECTION 822.041

The Court of Appeals of Texas, First District, Houston, recently had to decide whether a lower court judge properly admitted certain evidence that led to a finding that a certain Mastiff mix, who attacked a maltipoo later causing that dog’s death, could be considered not “dangerous” as defined by the Texas Health and Safety Code Section 822.041.

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In Kish v. Mastiff Mix, No. 01-23-00351-CV, 2024 Tex. App. LEXIS 3694* (May 30, 2024), Appellant David Kish appealed from a county court’s order finding that a neighbor’s dog that attacked the Kish’s dog is not a “dangerous dog” as defined by for two reasons: 1) the evidence is legally and factually insufficient because it was submitted untimely; and 2) the trial court abused its discretion in admitting and excluding certain evidence which was harmful. The Court of Appeals of Texas, First District, Houston reversed and remanded to county court.

David and Julie Kish were owners of a maltipoo named Daisy.  Israel and Sandra Garza were their neighbors and owned of a Mastiff mix named Anakin.  David and Julie Kish were returning from their mailbox with Daisy when Anakin, who was across the street, got out of the Garza’s enclosure through an open gate and attacked Daisy. The Kishes believed Anakin would attack them also and David Kish even sought treatment for PTSD. Apparently, Daisy died about a week after the attack due to the injuries she suffered. The Kishes sued the Garzas to declare Anakin a “dangerous dog.” This suit started in a justice court and was later appealed to county court at law.^[1]  The justice court ordered Anakin as a “dangerous dog,” so the Garzas appealed. Having the dog declared dangerous means that the Garzas would have to 1) register the dog with the Veterinary Public Health Division, pay an annual license of $50, provide proof that the dog was or will be neutered and microchip the dog; 2) restrain the dog at all times on a leash or in a secure enclosure; and 3) obtain liability insurance in the amount of at least $100,000 for any future attack by the dog.

At the county court level, which was a trial de novo, the Garzas offered exhibits into evidence several videos. The Kishes objected because all exhibits had to be filed five days before the hearing, which the Garzas failed to do. The Kishes raised two issues for appeal: the only evidence that the trial court relied on was untimely, constituted unfair surprise and was not properly authenticated. The second issue was that that these errors were harmful. The judge allowed the videos.  At the conclusion of the hearing, the judge stated “This looks more like dogs getting into it than it does a dangerous dog. It didn’t last for very long. I did not see any aggression of the dog to any human…”

The Court of Appeals reviewed the trial court’s decision to admit or exclude evidence for an abuse of discretion. The Court held that it is undisputed that the Garzas did not comply with the trial court’s order. The Garzas responded that the videos were admitted for the purpose of impeaching the Kishes’ testimony that Anakin behaved in a way that gave them reason to fear that he would also attack them. But the Garzas did not make the impeachment argument in the court below. Because this argument was not raised in the court below, the Court of Appeals held that it could not consider this argument on appeal.  The Court of Appeals held that the authentication argument failed because the videos were sufficiently authenticated by Garza’s testimony.  Having concluded that the trial court abused its discretion in admitting the videos because the Garzas failed to comply with the trial court’s order, the Court went on to the harm analysis.  The Kishes argued that the trial court did not merely consider the videos in determining that the Garzas’ dog was dangerous but it’s judgment, in fact, turned on them. The Court agreed and concluded that the erroneously admitted videos probably caused the rendition of an improper judgment and reversed the trial court’s judgment and remanded the case for a new trial. Having addressed the Kishes’ second issue, the Court did not address the first issue challenging the sufficiency of the evidence to support the trial court’s judgment.

_{[1] This case was on appeal from County Civil Court at Law No. 3, Harris County, Texas, Trial Court Case No. 1198660.}

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COURT OF APPEALS UPHOLDS TRIAL COURT’S GRANTING OF SUMMARY JUDGMENT IN FAVOR OF AMGUARD INSURANCE COMPANY

The Court of Appeals of Texas, Second District, Fort Worth, affirmed a trial court’s summary judgment in favor of AmGuard because there were unchallenged grounds on which the trial court could have relied.

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In Madhu Lodging Partners, LP v. Amguard Ins. Co., No. 02-23-00379-CV, 2024 Tex. App. LEXIS 3756* (May 30, 2024), Appellant Madhu Lodging Partners, LP (“Madhu”) sued Amguard for breach of contract for denying a property damage claim as a result of a frozen pipe bursting and causing water damage to a hotel owned by Madhu. AmGuard investigated the claim and concluded that the water damage was attributable to a sprinkler-system pipe that after being filled with water due to a defect had frozen and burst. AmGuard denied the claim based on the “Protective Safeguards Endorsement” in the policy which provided that, “[a]s a condition of th[e] insurance, [Madhu] was required to maintain [certain] protective devices or services,” include and “[a]utomatic sprinkler system … [and] related supervisory services.” Madhu’s failure to maintain the system caused the water damage. The trial court granted AmGuard’s summary judgment on the breach of contract cause of action and AmGuard filed both a traditional and a no evidence motion for summary judgment.^[1]

Madhu raised three appellate issues, all which related to the contract claim. Madhu argued that the endorsement applied only to fire damage and not to water damage, that if it applies to water damage, the word “maintain” in the endorsement is ambiguous, and AmGuard failed to disprove Madhu’s maintenance of the sprinkler system and raised a genuine fact question on the issue.  However, the Court held that none of these arguments addressed AmGuard’s no-evidence grounds for summary judgment based on Madhu’s alleged lack of evidence as to causation or damages. Madhu completely overlooked those grounds. Notably, the Court held that because the trial court did not specify a basis for its summary judgment, it could have relied upon either or both of the two no-evidence grounds in granting summary judgment. Therefore, the Court affirmed summary judgment “if any ground on which the judgment could have been based stands unchallenged.”

_{[1] On appeal from the 43rd District Court, Parker County, Texas. Trial Court No. CV-19-1436.}

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U.S. DISTRICT COURT AFFIRMS INSURER’S RIGHT TO APPRAISAL

The United States District Court for the Southern District of Texas, McAllen Division recently ruled in favor of an insurer, denying the insured’s motion for reconsideration of a summary judgment order.

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In Salinas v. State Farm Lloyds, No. M-23-283, 2024 U.S. Dist. LEXIS 127959 (S.D. Tex. 2024), summary judgment had been granted as to the insured’s claims for breach of contract, violations of the Texas Insurance Code, and breach of the duty of good faith and fair dealing because they had been filed outside of the limitations period.

The insured attempted to argue in its motion for reconsideration that (1) the policy’s language was ambiguous about whether she could have filed suit during the appraisal process, (2) that State Farm’s conduct was inconsistent with its position that it never retreated from its denial decision, and that (3) State Farm was required under the policy to timely communicate its engineer’s findings.

Here, the Court found the policy’s language only prohibited an appraisal demand once suit has been brought and was silent on whether she could bring suit during the appraisal process. As to the insured’s second argument, the Court found that State Farm’s retention of an engineer for the appraisal process was not inconsistent with its denial, as it participated in appraisal under a reservation of rights. The Court further reasoned that an insurer’s consideration “of additional information from the insured or participation in the appraisal process after denying coverage does not alter the finality of an otherwise unambiguous decision to deny coverage" and that insurers are permitted to reopen and reinvestigate claims. The Court also found Salina’s last argument unconvincing, as it was not clear how late disclosure of the engineer’s findings would alter the Court’s conclusions. As such, the Court denied the insured’s motion for reconsideration and dismissed the case with prejudice.

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UNITED STATES DISTRICT COURT GRANTS PARTIAL SUMMARY JUDGMENT IN FAVOR OF INSURER

The United States District Court for the Southern District of Texas, Houston Division recently partially granted summary judgment in favor of an insurer.

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In April Point S. Prop. Owner's Ass'n, Inc. v. Third Coast Ins. Co., No. H-23-2654, 2024 U.S. Dist. LEXIS 123724 (S.D. Tex. 2024), the insured, April Point, alleged that its insurer, Third Coast, owed it over $1.8M to repair damage from a hailstorm to its condominium project. After Third Coast denied coverage, April Point sued, alleging breach of contract, unfair settlement practices, violations of the Texas Insurance Code, and the Deceptive Trade Practices Act, and breach of the duty of good faith and fair dealing. Third Coast then moved for partial summary judgment, arguing that it was not liable for certain costs due to provisions in the policy which excluded coverage, and that April Point could not recover its common law and extracontractual claims. The Policy states that it would not pay on a replacement cost basis if repairs were not made within a year of the date of loss. However, the court found that if repairs could not be made due to lack of funds due to the insurer’s denial, the one-year deadline may be extended. The Policy also stated that any damage to existing roof coverings that have been in place for more than 15 years would only be valued at actual cash value.

Although the insured alleged that it could prove that at least two of the roofs of the condominiums had been repaired within the past 15 years, April Point had not shown that the rest of the roofs were under 15 years old. As such, the Court granted summary judgment in favor of Third Coast, finding that April Point could only recover replacement costs for the two roofs, and only the actual cash value could be recovered for the rest of the 186,400 square feet of roof. The Court also followed the language of the Policy and granted summary judgment in favor of the Third Coast, agreeing that the insured could not seek payment for cosmetic loss or damage. Nor could April Point recover damages for diminution of market value based on the appearance of the roofs. Lastly, the Court found April Point’s arguments on the limitation of coverage to be unpersuasive. The policy contained an unambiguous provision limiting Third Coast’s obligation to pay repair costs to the prices at the date of loss. A dispute of coverage, the Court reasoned, did not eliminate this limit on coverage.

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COURT FINDS THAT APPRAISALS SHOULD GENERALLY GO FORWARD

The United States District Court for the Southern District of Texas, Houston Division, once again ruled in favor of the insurer, granting its motion to compel appraisal.

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In Apolinar v. Safeport Ins. Co., No. H-24-1714, 2024 U.S. Dist. LEXIS 125701 (S.D. Tex. 2024), the insured, Gerardo Apolinar, sued his insurer, Safeport Insurance Company, after Safeport denied his property damage claim. Safeport denied coverage in August and November of 2023, and shortly after, Apolinar filed suit in state court. Safeport then removed the case to federal court and invoked appraisal. Apolinar opposed the appraisal, alleging that appraisal had been waived, and that appraisal was not appropriate due to the small size of the claim and because this was a coverage dispute, not a dispute over the amount of loss.

Although the contractual right to appraisal may be waived, the Texas Supreme Court has explained that the acts relied upon must be reasonably calculated to induce the assured that compliance with the requirements of the policy is not desired or are of no effect if performed. When an unreasonable delay is a factor in finding waiver, “reasonableness must be measured from the point of impasse.” In this case, the Court found that a delay of five to six months is not sufficient to constitute waiver of appraisal rights. Additionally, the court reasoned. As to Apolinar’s second argument, the Court found that unless the “amount of loss” will never be needed, “appraisals should generally go forward without preemptive intervention by the courts. The court further agreed with Safeport, in that this was both a coverage dispute and dispute regarding the amount of loss. Lastly, the court found that Apolinar had not shown that appraisal would be unduly expensive or disproportionate to the potential loss, which was estimated to be around $28,000.

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COURT EMPHASIZES IMPORTANCE OF ADEQUATELY PLEADING CAUSES OF ACTION AGAINST INSURERS

Fif Eng'g, LLC v. Pac. Emp'rs Ins. Co., No. H-24-665, 2024 U.S. Dist. LEXIS 125704 (S.D. Tex. 2024) highlights the importance of an insurer adequately pleading its causes of action, in accordance with the Texas Rules of Civil Procedure.

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In this case, the United States District Court for the Southern District of Texas, Houston Division, dismissed all of an insured’s claims against its insurer. The insured, Fif Engineering, originally filed suit in January of 2024, merely alleging that its insurer, Pacific, “neglected to conduct a comprehensive assessment of the claim.” After Pacific removed this case to the federal court, Fif’s claims were dismissed for failure to state a claim, and Fif was ordered to file an amended complaint. However, Fif’s amended complaint also fell short, as the Court dismissed all claims again.

Fif’s amended complaint asserted five causes of action: (1) breach of contract; (2) breach of the duty of good faith and fair dealing; (3) violation of the Texas Prompt Payment of Claims Act; (4) violation of the Texas Deceptive Trade Practices Act (DTPA); and (5) violation of Chapter 541 of the Texas Insurance Code. The court found that Fif’s breach of contract failed because it failed to identify the specific provisions that were breached. Fif’s second claim failed for the same reason—Fif failed to allege specific ways in which Pacific’s investigation was unreasonable. A claim under the Prompt Payment of Claims Act requires a plaintiff to plead and prove that the insurer breached the insurance policy, and such violation caused the insured an injury independent of its right to recover policy benefits. However, because Fif did not adequately plead its breach of contract claim, and did not allege an independent injury, this claim failed too.

As to Fif’s claims under the DTPA and Chapter 541, the court emphasized that such claims are subject to a heightened pleading standard. Vague fraud allegations fail to satisfy this heightened standard. Additionally, the court found that the pleading requirements were not satisfied by “Fif’s bare allegation that Pacific acted grossly unfairly and oppressed Fif by denying its allegedly legitimate claim. Although all claims were dismissed yet again, Fif was given leave to amend its pleadings.

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WATER DAMAGE IS WATER DAMAGE, REGARDLESS OF CAUSE

The First Court of Appeals in Houston recently ruled in favor of an insurer, affirming a trial court’s ruling in favor of the insurer.

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In Allen v. Homeowners of Am. MGA, Inc., No. 01-22-00797-CV, 2024 Tex. App. LEXIS 3311 (Tex. App.—Houston [1st Dist.] May 14, 2024, no pet. h.), the insured, Altornett Allen, brought suit against her insurers, Homeowners of America MGA, Inc. and Homeowners of America Insurance Company Inc., in connection with a claim she had made on her homeowners’ insurance policy for a loss sustained during the February 2021 Winter Storm Uri. The insured sued the insurers for breach of contract, violations of the Unfair Settlement Practices Act, and the Texas Prompt Payment of Claims Act. The insurers requested a declaration that an endorsement limiting coverage for water damage claims had been properly applied, filed a traditional motion for summary judgment of the breach of contract claim, and a no evidence motion for summary judgment on the extra-contractual claim. Both motions were granted, and the trial court declared that the endorsement had been properly applied.

On appeal, the insured contended that the trial court erred in its rulings. However, the First Court of Appeals affirmed the trial court’s rulings. The issue turned on whether the endorsement applied, as the insured argued that the trial court had misinterpreted the policy. The First Court of Appeals cited a case from a sibling court in Houston, which had similar facts. In both cases, the insured argued that although the endorsement applied to one type of peril (accidental discharge of water), it did not apply to the particular peril, freezing, that damaged the homes. However, the Court found that whether or not the water damage was deemed to be caused by a certain peril was not a material factor to the application of the limitation clause. The endorsement limited liability for water damage to $10,000 for “direct physical damage caused by sudden and accidental discharge or overflow of water or steam from within a plumbing . . . system." The Court found that such language did not exclude water damage precipitated by a freeze, and thus the limit applied. Further, the insured had acknowledged in her notice of claim letter that she had suffered “water damage,” which would fall within the endorsement. Thus, the court found that the trial court correctly concluded that there was no issue of material fact on the breach of contract claim.

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INSURED CANNOT TRANSFORM THEFT OF PROPERTY CLAIM INTO NEGLIGENCE CLAIM TO OBTAIN COVERAGE

The United States Court of Appeals for the Fifth Circuit recently held that an insurer, Nationwide, had no duty to defend or indemnify its insured in a lawsuit against the insured for theft of Bitcoin.

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In Nationwide Mut. Ins. Co. v. Choi, No. 23-20405, 2024 U.S. App. LEXIS 11599 (5th Cir. 2024), the Court of Appeals agreed with the district court’s ruling that Nationwide had no duty to indemnify or defend its insured under a homeowner’s policy and personal-umbrella policy. The lawsuit against the insured alleged only intentional acts, and the U.S. District Court of Appeals rejected the insured’s argument that a particular paragraph in the complaint should be interpreted as claiming negligence. The Court also found it an impossibility for a theft of property claim to be transformed into a negligence case. Since the policy required Nationwide to defend and indemnify a claim against the insureds only for damages based on an occurrence arising from negligent personal acts, Nationwide had no duty to defend its insured, and “the same reasons that negate the duty to defend likewise negate any possibility the insurer will ever have a duty to indemnify.” As such the trial court’s decision was affirmed.

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“REGULAR-USE” EXCLUSION DID NOT VIOLATE PUBLIC POLICY AS APPLIED

In Progressive Cty. Mut. Ins. Co. v. Freeman, No. 14-22-00450-CV, 2024 Tex. App. LEXIS 3307 (Tex. App.—Houston [14th Dist.] May 14, 2024, no pet. h.), the insured, a police officer, had been rear-ended by another car while she was in her police vehicle.

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Although the driver of the other car had a policy that provided coverage, the insured’s expenses exceeded the amount of coverage provided. The insured then sought to recover from the uninsured/underinsured motorist and personal injury protection benefits under her personal policy with Progressive County Mutual Insurance Co. ("Progressive"). Progressive denied coverage due to the “regular-use” exclusion, with stated that the policy did not provide coverage for bodily injury sustained by a person occupying “a motor vehicle that is owned by or available for the regular use” of the insured. The insured then filed suit, and trial court found that the regular-use exclusion violated public policy. Progressive then appealed.

On appeal, Progressive challenged the trial court's holding and requested that the Court of Appeals reverse the judgment and render summary judgment for Progressive. The trial court had found that the “regular use” violated public policy because it operated to “deprive an insured of the protection required by the Texas Uninsured Motorists Statute.” The insured had the burden of proving that public policy warranted the non-enforcement of the contract provision. The Court of Appeals found that the insured failed to show how much she had received in workers’ compensation benefits, failed to show that she suffered financial loss, and failed to show how Progressive’s policy violates Texas’ interest in protecting conscientious and thoughtful motorists from financial loss. As such, the Court found that the trial court erred in holding that the “regular use” exclusion violated public policy, and the trial court’s judgment was reversed.

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U.S. DISTRICT COURT CONCLUDES INSURED FAILED TO PROVIDE VALID PRESUIT NOTICE OF SPECIFIC AMOUNT ALLEGEDLY OWED BY INSURER; PRECLUDES INSURED FROM RECOVERING ATTORNEYS’ FEES

The United States District Court for the Southern District of Texas recently concluded that the insured did not provide the insurer with valid pre-suit notice because the insured failed to state the specific amount allegedly owed by the insurer.

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Thus, the insured was precluded from recovering certain attorneys' fees. In Baker v Am. Econ. Ins. Co., No. H-24-1145, 2024 U.S. Dist. LEXIS 108804 (S.D. Texas [Houston Division], June 20, 2024, mem. op.), Carole Baker's home and contents suffered storm damage. She filed an insurance claim with her homeowner’s insurance company, American Economy Insurance Company (“American Economy”). In response, American Economy paid Baker in accordance with the mitigation and build-back estimates submitted by American Economy’s inspectors. Subsequently, Baker sent American Economy a series of emails with her own estimates of mitigation and build-back costs based on quotes from her inspector. In response, American Economy sent Baker a revised repair estimate and made an additional payment based on the estimate Baker submitted. Unsatisfied with the additional payment, Baker sued American Economy asserting claims of breach of contract and violations of the Texas Insurance Code and Texas Deceptive Trade Practices Act, claiming that the payments under the policy were inadequate. As part of its response, American Economy filed a motion to preclude attorneys' fees, contending that Baker failed to provide pre-suit notice stating the “specific amount” allegedly owed by American Economy, as required by Section 542A.003 of the Texas Insurance Code.

The U.S. District Court concluded that Baker did not provide American Economy with valid pre-suit notice as Baker failed to give notice that contained a “specific amount”. The court reasoned that although “Baker point[ed] to a series of emails she sent American Economy … containing a contractor's estimate of the cost of damages to the property, the emails did not specifically state the amount Baker asserted American Economy owed. It is possible to calculate the difference between the total amount Baker demanded based on the various estimates she received, and the total amount American Economy paid, or the difference between the total amount American Economy paid and the unpaid amount of Baker's latest estimates. But a valid presuit notice must contain a ‘specific amount,’ not merely information sufficient to calculate a specific amount.” “The requirement to state a ‘specific amount’ is not excused merely because the amount is easily calculable." “The [presuit notice] requirement is not satisfied by the trading of estimates that often occurs during the adjustment process. Such trading is an ordinary part of the claims process, but it does not fulfill the purpose of presuit notice of ‘discouraging litigation and encouraging settlements.’" Because Baker failed to provide valid pre-suit notice, she was precluded from recovering attorneys' fees incurred after the date American Economy filed its motion to preclude attorneys' fees.

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U.S. DISTRICT COURT CONCLUDES THAT PLAINTIFFS IN UNDERLYING SUIT AGAINST THE INSURED ARE PROPER PARTIES TO DECLARATORY JUDGMENT ACTION BROUGHT BY INSURER

The United States District Court for the Northern District of Texas recently concluded that the plaintiffs in the underlying suit against the insured were proper parties to a declaratory judgment action brought by the insurer seeking affirmation of no duty to defend and indemnify.

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In Crum & Forster Specialty Ins. Co. v. Smallwood No. 4:23-cv-01079-P, 2024 U.S. Dist. LEXIS 107793(N.D. Texas [Fort Worth Division], June 18, 2024), Octavio Peguero sustained fatal injuries while employed on a hotel construction site. The general contractor of the construction project, I&A Development & Construction, LLC (“I&A”), had hired Electrical Solutions for electrical work, which subcontracted a remodeling company which in turn employed Peguero. Peguero fell to his death when a wooden box attached to a forklift elevating supplies to the building’s fourth level overturned. Electrical Solutions had an insurance policy with Crum & Forster Specialty Insurance Company ("CFSIC"), which contained a Worker Injury Exclusion clause excluding coverage for bodily injuries sustained by any employee or temporary worker during the course of their employment. 

Peguero’s heirs brought a wrongful-death suit against I&A, Electrical Solutions, and others in state court. CFSIC defended Electrical Solutions under a reservation of rights, but it denied any obligation to defend or indemnify I&A based on the Worker Injury Exclusion clause. Subsequently, CFSIC filed a declaratory judgment action in federal court against I&A, Electrical Solutions, and the plaintiffs in the underlying wrongful-death suit (the “Underlying Plaintiffs”), seeking a ruling that it had no duty to defend or indemnify Electrical Solutions, I&A, or the Underlying Plaintiffs. In response, the Underlying Plaintiffs filed a motion to dismiss arguing that there was no justiciable controversy between them and CFSIC because there was no privity or legal relationship between them and CFSIC. Thus, according to the Underlying Plaintiffs, they were not proper parties to the declaratory judgment action. In response, CFSIC argued that the Underlying Plaintiffs were proper parties because there was privity between the Underlying Plaintiffs and the insured parties, Electrical Solutions and I&A, as the Underlying Plaintiffs’ potential rights to policy proceeds derived from the insured parties. Thus, according to CFSIC, there was an actual controversy regarding the insurance coverage, making the issues ripe for judicial review.

The U.S. District Court began its analysis by noting that “courts may only assert jurisdiction over declaratory judgment actions involving ripe controversies. "In the context of declaratory judgments, the test for ripeness is to examine whether there is a substantial controversy of sufficient immediacy and reality between parties having adverse legal interests." The court concluded that the Underlying Plaintiffs were proper parties and denied their motion to dismiss. The court reasoned that “[f]or nearly seventy years, courts have consistently affirmed that injured parties who obtain a judgment against an insured party are legally entitled to enforce an insurance policy. This has resulted in a well-established precedent upholding the standing of such injured parties to participate in declaratory judgment actions initiated by insurers.” “Injured parties are appropriate defendants in a federal declaratory judgment action brought by the insurer, even if they have not yet obtained a state court judgment.” “The reasoning is that dismissing an injured party on the grounds of a remote interest could result in conflicting judgments between federal and state courts. For the federal court, in a judgment not binding on the injured parties, might determine that the insurer was not obligated under the policy, while the state court, in a supplemental proceeding by the injured parties against the insurer, might conclude otherwise.

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