Farmers Texas County Mutual Insurance Co. v. Wilkinson

Summary

The Texas Court of Civil Appeals considered whether an insurer waived or was estopped from asserting noncoverage after assuming its insured’s defense. The court held that the insurer’s contemporaneous unconditional defense letter and reservation-of-rights letter created an ambiguous reservation, which was construed against the insurer, resulting in waiver of the noncoverage defense. The trial court’s judgment requiring coverage and a defense was affirmed.

Holdings

1. When an insurer assumes the insured's defense with knowledge of facts indicating possible noncoverage and without obtaining an effective reservation of rights or non-waiver agreement, the insurer waives all policy defenses, including noncoverage, or is estopped from asserting them.
2. The two July 26 letters did not create an effective reservation of rights because, when read together, they were ambiguous: one promised an unqualified defense while the other purported to reserve the right to deny coverage.

Questions Presented

1. Whether Farmers waived or was estopped from asserting noncoverage by assuming Wilkinson's defense with knowledge of facts indicating possible noncoverage and without an effective reservation of rights or non-waiver agreement.
2. Whether Farmers' two letters sent on July 26, 1977, constituted an effective reservation of rights despite one letter promising an unqualified defense and the other purporting to reserve the right to deny coverage.

Disposition

affirmed