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Lennar Corp. v. Markel American Insurance Co.,

2013 WL 4492800, No. 11-0394 (Tex. Aug. 23, 2013): Texas Supreme Court denies Markel’s motion for rehearing

On August 23, 2013, the Texas Supreme Court issued a significant opinion limiting a liability insurer’s ability to protect its interests in the settlement of claims between an insured and third-party claimant, even when there is a consent clause requiring the insurer’s consent to settle.

Markel American Insurance Co. (“Markel”) sought rehearing to reverse, or at a minimum clarify, the opinion. We also filed an amicus brief in support of rehearing on behalf of a number of insurers and an insurer trade group. The points for rehearing focused on: (1) the impact the opinion could have on duties to defend and indemnify, and an insurer’s prejudice requirement for certain breaches by an insured; (2) the opinion erring in applying, a case placing liability for damage spread across policies on a single insurer who had issued consecutive policies, to Markel in this case when it did not issue consecutive policies and all damage did not fall within its policy period; and (3) the opinion noting that Markel could exercise subrogation rights, when prior precedent says such an insurer has no subrogation rights under a similar scenario.

In refusing to grant rehearing, all of these issues—and the impact of the opinion—remain uncertain. For example, the prejudice requirement is now more uncertain than ever.  It appears the insurer may now have to  show prejudice even when the insured settles claims without consent of the insurer as required by the insuring agreement. But it is unclear how prejudice is shown in this setting, particularly if it was not shown as a matter of law by the insured’s conduct in this instance.

Another example of the uncertainty involves the duty to indemnify. In this regard, an insurer traditionally was not responsible for loss outside the policy period (except possibly when the insurer issues consecutive policies and all loss falls within the single insurer’s collective policy periods), yet Markel was responsible in this case even though some loss occurred outside its policy period.  Another example of the uncertainty is whether an insurer really does (or even could) have subrogation rights in such a setting as this.

These issues remain uncertain until the Supreme Court takes up a case clarifying some or all of these issues, or at least other intermediate courts begin to weigh in on this case.

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