The Texas Supreme Court has reversed a previous appellate ruling in Northern County Mutual Insurance Company v. Timoteo Davalos, which addressed duty to defend when venue disputes arise between insurers and policyholders.

Davalos, who was involved in a car collision in Dallas County, sued the other driver, Steven Weinberg, in Matagorda County for negligence, according to court records. Weinberg and his wife then filed a negligence suit against Davalos and the driver of a third car in Dallas County.

Prior to requesting a defense from his insurer, Northern County, Davalos hired counsel, who filed a motion to transfer venue, seeking to have the Dallas Co. case transferred to Matagorda, in which he resided. Davalos's attorneys also notified Northern County and requested that the insurer provide a defense.

Northern County wrote to Davalos, stating that it would defend him and that it did not wish to retain the attorneys he had hired. The letter also advised Davalos that his attorneys' attempt to transfer the case to Matagorda could jeopardize his “liability protection under the policy.”

Although Davalos refused to comply with Northern County's requests, the insurer settled the Dallas Co. claim on his behalf, obtaining a full and final release from the Weinbergs. Davalos subsequently filed suit against Northern County in Matagorda Co., alleging breach of the insurance policy contract and deceptive acts in violation of the Texas Insurance Code.

When the case came before the court of appeals, the appellate judges had concluded that a dispute between an insured and its insurer over the proper venue for an action created a conflict requiring the insurer to relinquish control of the defense to the insured and to allow the insured to select its own counsel.

The recent reversal of that ruling will preserve insurers' ability to properly manage the settlement and defense of insurance claims under liability insurance policies, according to the American Insurance Association. “We are very pleased with the Texas Supreme Court decision,” said Stephen Zielezienski, AIA vice president and associate general counsel. “If the decision had not been reversed, the appellate ruling, particularly given the nominal dispute at issue, could have eroded insurer litigation management — a service that Texas insurance consumers expect insurers to provide contractually when they purchase liability insurance.”

Special Reports /

Supreme Court Approves Insurer-Managed Litigation

Related Stories

Recommended For You