Summary
The Supreme Court of Texas held that an insurer that wrongfully refused to defend was barred from collaterally attacking the reasonableness of an agreed liability judgment, but remained free to contest insurance coverage. The court concluded that the agreed judgment did not establish coverage or preclude litigation of whether the damage occurred during the policy period. Because the evidence conclusively showed that the damage occurred on August 6, 1980, within the policy period, the court affirmed the court of appeals.
Topics
Practice areas
Questions Presented
- Whether Employers Casualty was barred from litigating the reasonableness of the damages recited in the agreed judgment between the Blocks and CSI.
- Whether the agreed judgment conclusively established, through collateral attack or collateral estoppel, that the property damage occurred on August 6, 1980, and was covered by the policy.
- Whether Employers Casualty was required under Texas Rule of Civil Procedure 94 to affirmatively plead that the damage occurred outside the policy period.
- Whether the evidence required submission of a jury issue concerning whether the damage occurred during the policy period.
Holdings
- An insurer that wrongfully refuses to defend is barred from collaterally attacking the agreed liability judgment by litigating the reasonableness of the damages recited in that judgment.
- The agreed judgment did not conclusively establish that the damage occurred on August 6, 1980 or that the damage was covered by the policy. Employers Casualty was free to litigate coverage in the present action.
- The insurer was not required under Texas Rule of Civil Procedure 94 to affirmatively plead that the damage occurred outside the policy period. The insured bears the burden of pleading and proving facts showing that the claimed damage is covered by the policy.
- The trial court did not err in refusing to submit a jury issue asking whether the damage occurred during the policy period because uncontroverted evidence established that the damaging event occurred on August 6, 1980, within the coverage period.
Key quotations
“Since the agreed judgment between the Blocks and CSI does not establish coverage, Employers Casualty is free to contest coverage in the present suit since this does not constitute a collateral attack on the liability judgment.” (744 S.W.2d at 943)
“An insured cannot recover under an insurance policy unless facts are pleaded and proved showing that damages are covered by his policy.” (744 S.W.2d at 944)
“Thus, we hold that Employers Casualty's general denial placed the burden on the Blocks to prove that their house was damaged during the policy period.” (744 S.W.2d at 944)
Factual background
Coating Specialists installed a monoflex roof on the Blocks' home in 1977, and the Blocks purchased the home in 1978. After repairs in 1979, the roof did not leak again until August 1980, when Hurricane Allen caused heavy rainfall and the Blocks discovered leaks. CSI was insured by Employers Casualty under a policy covering property damage occurring from August 1, 1980, through August 1, 1981, but the insurer refused to defend the Blocks' subsequent suit against CSI. The Blocks and CSI entered into an agreed judgment reciting that the damage occurred on August 6, 1980, and the jury later found the agreed damages reasonable.
Procedural history
The Blocks sued Coating Specialists Inc. for roof-related damages and warranty violations. Employers Casualty refused to defend CSI on the ground that the damage occurred outside the policy period, after which the Blocks and CSI entered into an agreed judgment for $47,500 plus interest and attorneys' fees. CSI initially pursued the insurer for wrongful refusal to defend, but settled that claim; the Blocks then proceeded as judgment creditors and assignees. A jury found the agreed damages reasonable, but the trial court granted Employers Casualty's motion for judgment notwithstanding the verdict. The court of appeals reversed and rendered judgment for the Blocks, and the Texas Supreme Court affirmed.