USA – TEXAS Trends and Developments Contributed by: Stephen Melendi, Aaron Mitchell, Lisa Songy and Matt Rigney, Tollefson Bradley Mitchell & Melendi, LLP
district court’s decision regarding non-justiciability could be erroneous was if the trial court had erred in holding that the excess insurer had no duty to defend. Because the underlying insurer was defending, the excess insurer had no duty to defend. Further, the reasons negating any duty on the part of the excess insurer to defend were different from the issues affect- ing whether there was a duty to indemnify. Therefore, the duty to indemnify was not justiciable. The court’s decision with regard to non-justiciability was certainly correct. Under Texas law, breach of a notice provision typically requires prejudice. The existence of prejudice is almost invariably an issue of fact that cannot be determined until the underlying litigation is concluded. However, the court’s refusal to apply the Griffin exception signals an increased will- ingness on the part of courts generally to tie the jus- ticiability of the duty to indemnify to issues regarding the existence of a duty to defend. This is particularly problematic for excess insurers. An earlier state court example of reliance on the inap- plicability of the Griffin exception to hold an indem- nity controversy non-justiciable is Farmers Ins. Exch. v Cincinnati Ins. Co. , 2024 WL 3973432 (Tex. App.— Houston [1st Dist.] Aug. 29, 2024), in which a Texas appellate court held that a controversy between two insurers providing excess coverage was non-justicia- ble based in large part on the inapplicability of the Griffin exception. Farmers Insurance Exchange and Cincinnati Insurance Company both insured a prop- erty manager. Cincinnati issued a primary policy and an excess policy to a mutual insured. Cincinnati and Farmers agreed that the primary policy issued by Cin- cinnati provided the first layer of coverage. Farmers issued a liability policy to the mutual insured but took the position that the policy did not furnish coverage at all for liability involving the premises where the underlying drowning death took place. Not only did Farmers and Cincinnati dispute the existence of cov- erage under the Farmers policy, but the two insurers disagreed on whether the Farmers policy and the Cin- cinnati excess policy furnished coverage at the same level, or whether one insurer’s policy was primary to the other insurer’s.
Cincinnati filed a declaratory judgment action to have the insurers’ respective rights and duties under their policies determined while the underlying liability case against the mutual insured was still pending. The trial court determined that the Farmers policy provided coverage, and held that the Farmers policy and the Cincinnati excess policy furnished coverage at the same level in excess of the Cincinnati primary poli- cy. On appeal, the Houston Court of Appeals deter- mined that no justiciable controversy on indemnity was presented, reversed the trial court’s judgment and rendered judgment dismissing the case for lack of jurisdiction. The court relied largely on the inap- plicability of the Griffin exception in holding that the controversy was not justiciable until the underlying litigation against the mutual insured was concluded by judgment or settlement. Griffin may not apply, but declaratory relief may still be appropriate A court has discretion whether to decide a declara- tory judgment action. In doing so, it must determine whether the action is justiciable, whether the court has authority to grant declaratory relief and whether to exercise its discretion to decide or dismiss the action. For an action to be justiciable, it must be capable of being litigated and decided and must not be hypo- thetical, conjectural, or based on the possibility of a factual scenario that will never develop. If a matter is determined to be justiciable, the court must decide whether to exercise its discretion to decide the case. This decision is based on a variety of factors that are weighed in order to determine whether a declaration of the parties’ rights would provide relief from uncer- tainty and serve a useful purpose. Among the issues that may be determinative of wheth- er an insurer has a duty to indemnify the insured and that are separate from questions concerning any duty to defend are: • whether one insurer’s coverage is excess to or co- primary with another insurer’s coverage; • whether a person or organisation qualifies as an insured under a policy; • the timing of the damage involved in the underly- ing liability case – ie, whether the damage began or took place during a particular policy period;
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