by Chris Gabriel
The issue of properly tendering coverage for a defense under a liability insurance policy is not solely pertinent to the insurance practitioner. This issue may intersect with many areas of practice and has come up so frequently that a body of jurisprudence has formed around it. The seminal case is National Union Fire Insurance v. Crocker, 246 S.W.3d 603 (Tex. 2008), which held that an insurer has no duty to defend or indemnify an insured who does not tender suit and request a defense.
Crocker and its progeny hold that actual knowledge of suit is not enough to trigger an insurer’s policy duties and that the insurer has no duty to inform the insured that it may be entitled to a defense or indemnity. In fact, the insurer owes no duties to insured A unless insured A expressly requests a defense. That is true even if insured A is owed a defense under a liability policy, and the insurer is defending insured B under the policy.
Most liability policies provide a duty to defend an insured against third party claims. This includes policies for commercial auto, commercial general liability, directors and officers, errors and omissions, homeowners insurance and other types of insurance covering an insured sued for its alleged negligence.
An insured may have coverage for defense or indemnity under several policies for any given claim. In addition to coverage under policies taken out as the named insured, there may also be coverage as an additional insured, depending on if there is an agreement with another entity (usually a subcontractor) requiring additional insured coverage under that entity’s policy, and the policy so provides. In either case, in order to trigger the duty to defend or indemnify, coverage must be properly tendered and a defense must be requested. Liability policies require this as a condition precedent to coverage.
Though the rule in Crocker arose in a factual scenario involving an additional insured—i.e., someone provided coverage under a policy in which another party is the named insured—the Fort Worth Court of Appeals rejected the argument that the rule only applies to additional insureds. See Jenkins v. State & County Mut. Fire Ins. Co., 287 S.W.3d 891, 897-98 (Tex. App.—Fort Worth 2009, pet. denied). The court held that the rule is even more pertinent to named insureds because a named insured has a duty to read the policy issued to it.
The practical effect is that an insured, whether a named insured or additional insured, who fails to tender and request a defense will forfeit coverage for an otherwise covered liability claim. Because actual knowledge will not suffice to trigger these duties, simply forwarding suit papers may not be enough. The cases cited above have held that a defense must specifically be requested.
The reasoning is sound: it is not efficient to place the duty on the insurer to keep up with all suits filed against its insureds, nor should the insurer be forced to guess whether or not an insured seeks a defense. The insured may have its own counsel defending, may not want the insurer controlling the defense, or may not request a defense for any number of reasons.
The rule dovetails with the pre-tender defense rule. That is, an insurer will not owe defense costs incurred prior to the insured tendering and requesting the defense. In other words, the duty is not retroactive. The insurer is only required to cover defense costs, if the claim is otherwise covered, from the date the defense is requested going forward.
The argument is frequently put forth that the insurer must show prejudice in order to deny paying pre-tender defense costs. However, Crocker distinguished between late notice and no notice cases. In a no notice case, even though an insurer may have notice of the suit, if the insured has not requested a defense, there is no duty to defend or indemnify. Thus, a case in which no notice is given falls under the authority of Crocker and Jenkins instead of PAJ, Inc. v. Hanover Ins. Co., 243 S.W.3d 630 (Tex. 2008), which would govern in a situation in which an insurer is denying coverage for late notice from prejudice for the entire claim, including from the date of tender forward.
No matter in what area you practice, if your client is sued, your client may be owed defense or indemnity under liability policies as the named insured or as an additional insured. Be aware that these duties can be forfeited unless a defense is expressly requested.
Chris Gabriel is an associate at Thompson, Coe, Cousins & Irons, LLP. He may be reached at email@example.com.