There is no doubt that, when it comes to important courts for insurance coverage, the Texas Supreme Court is near, or even at, the top.  In an earlier issue of CO I addressed the whys of this.  So when the Texas Supreme Court handed down its decision, In re Farmers Texas County Mut. Ins. Co., No. 19-0701 (Tex. April 23, 2021), I took close note.  However, the decision came down on Friday, just as I was wrapping up this issue.  And my mojo to keep going was no more.  So, while I see Farmers Texas as a very important decision, I just wasn’t able to address it in any detail.  Here is the very brief moral of the story.

[I anticipate that Farmers Texas will make the 2021 “Top 10 Coverage Cases of the Year” list.  So I’ll have a chance to delve into further in early 2022.]

Farmers Texas involves coverage for an automobile accident.  Cassandra Longoria rear-ended a vehicle being driven by Gary Gibson.  Gibson sued Longoria.  She was insured under a policy issued by Farmers Texas County Mutual Insurance Company, which undertook her defense.

Gibson sought damages of $1 million. Longoria’s policy had a $500,000 limit.  As trial approached, Gibson agreed to settle for $350,000.  Farmers refused to contribute more than $250,000.  As Farmers saw it, there was a coverage defense, which justified it paying less than the full demand.  Longoria, concerned about her personal exposure, offered to pay the additional $100,000, but without waiving her right to seek recovery of that payment from Farmers. Gibson accepted and gave Longoria a release in exchange for Farmers’ and Longoria’s payments.

Longoria sued Farmers, alleging all manner of claims, and sought recovery of her $100,000 payment.

The Texas Supreme Court concluded that Longorio had a right to recovery.  She still needed to do more to win, but the right existed.

In arriving here, the court cited to its well-known decisions in Frank’s Casing and Matagorda, which hold that “[i]f a liability insurer disputes whether some claims asserted against its insured are covered, it may comply with its policy obligations by defending under a reservation of rights, and it may settle the entire suit and—with the insured’s consent—reserve for separate litigation the question whether the insured should reimburse it for part of the settlement.” (emphasis added).

The Texas Supreme Court concluded that the matter at hand was reverse Frank’s Casing and Matagorda: “This approach also works the other way: if an insurer agrees to settle some claims but refuses to cover others, the insured may join with it to settle the entire suit and reserve for separate litigation the question whether the insurer should reimburse it for the remainder of the settlement.”

The court noted this caveat: “[A]n insured generally must show that the settlement amount ‘is one that a reasonable person who bears the sole financial responsibility for the full amount of the potential covered judgment would [pay].’ Restatement Of The Law Of Liability Insurance § 27(2)(d). If Farmers contends that Longoria should not receive full reimbursement because she paid an unreasonable amount to settle the remainder of the suit, the parties may introduce evidence on that issue in the trial court.”

There is more to the decision and other issues addressed, but this is the part that matters most.