Court Opinion

ID: 9677757
Source: CourtListenerOpinion
Date Created: 2023-08-24 05:59:00.037684+00
Date Added: 2024-06-11T18:16:57.331806
License: Public Domain

SEARS, Justice,
dissenting.
Perhaps the most significant observation that illustrates the inequity embraced by the majority opinion is in the letter dated October 25, 1990, from Emseor attorneys to Alliance attorneys:
... It is certainly not Emscor’s fault that its primary insurance company has become insolvent. There is also no doubt that had the primary insurance company not become insolvent this case would have been settled by now with the full $500,000.00 primary being paid, along with the full $500,000.00 excess coverage with Alliance whom you represent. It would be grossly unfair to allow Alliance the windfall of not having to pay its $500,000.00 excess coverage simply because of the historical accident of Emscor’s primary insurance carrier becoming insolvent....
I concur in the foregoing and respectfully dissent from the majority opinion. I would reverse the summary judgment because Emseor satisfied the express conditions of the Alliance policy during the Stowers period. Alternatively, I would hold that there is a fact question as to whether Alliance modified or waived the conditions of the policy during the Stowers period and, therefore, under the doctrines of waiver or estoppel, could not require Emseor to comply with those conditions.
Initially, Alliance contends that the first three conditions that could trigger the excess coverage could only be satisfied by the underlying insurer, Stone Mountain, or its receiver, the Texas Guaranty Fund. The Policy reads that:
(1) The underlying insurers have paid the full amount of their respective loss liability;
(2) the underlying insurers have been held to pay the full amount of their respective loss liability;
(3) the underlying insurers shall have admitted liability for the underlying limits; and
(4) the insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits.
Alliance’s interpretation that only Stone Mountain can satisfy those conditions is unreasonable. In other words, under Alliance’s interpretation, only condition (4) could have triggered coverage under the policy once Stone Mountain became insolvent, because condition (4) was the only condition that omitted a reference to compliance by the “underlying insurer”. Such a construction of the policy favors exclusion of coverage and is unreasonable. See National Union Fire Ins. Co. v. Hudson Energy Co., 811 S.W.2d 552, 555 (Tex.1991).
Consistent with the rule that ambiguities and inconsistencies in insurance contracts are to be strictly construed in favor of coverage, I would hold that Emseor could “step into the shoes” of the underlying insurer for the purpose of satisfying the policy conditions. See id.; see also Stonewall Ins. Co. v. Modern Exploration, Inc., 757 S.W.2d 432, 434-35 (Tex.App.—Dallas 1988, no writ) (holding that third-party beneficiary of an excess policy could step into the shoes of the insured in order to satisfy conditions of a policy where excess insurer provided defense upon a reservation of rights). This interpretation is consistent with Alliance’s September 23, 1988, letter acknowledging that “Emseor would be responsible for the primary level of coverage.”
Because Emseor could properly step into the shoes of its primary carrier, Stone Moun*914tain, the question becomes whether Emscor satisfied the conditions of the Alliance policy during the Stowers period. As the majority correctly observes, Emscor did not comply with conditions (1) and (4) during the Stowers period. Emscor had not actually paid the underlying limits as of the November 12th hearing, and the Agreed Final Judgment resulting from that hearing was not rendered until seven days after the Stowers period had expired. However, Emscor only had to comply with 1 of the 4 conditions in order to trigger the excess coverage.
Condition 2 — Held To Pay
The majority opinion takes the position that “held to pay” is only satisfied when Emscor is held liable to pay by “judgment”. However, the cases cited by the majority opinion clearly show that compliance with the contract requirement that the insured be “held to pay” may be satisfied by “settlement agreement”. In the three cases cited by the majority opinion to uphold this position, the majority misstates the holdings of those cases, as will be shown below.
Case No. 1: Hudson Insurance Co. v. Gelman Sciences, Inc., 921 F.2d 92 (7th Cir.1990).
Hudson issued a $4,000,000 excess insurance policy to Gelman, to cover Gelman’s liability between $21,000,000 and $25,000,000. Mission Insurance Company covered liability from $2,000,000 to $21,000,000. When an incident occurred for which Gelman’s liability was $1,000,000 over its primary policy, the primary carrier paid. Mission was insolvent, and Gelman demanded that Hudson “drop down” and cover the excess $1,000,000. The 7th Circuit held that Hudson was not required to “drop down.” Contrary to this majority opinion, the 7th Circuit did not define or interpret the term “held to pay” or “held liable to pay”. The 7th Circuit only held that the phrase in the policy, “held liable to pay”, did not require Hudson to “drop down” into the shoes of the insolvent carrier. The Hudson case is inapposite to the appeal before this court, because Emscor did not request Alliance to “drop down” into the shoes of the insolvent carrier. Instead, Ems-cor stepped into the shoes of the insolvent carrier, executed a settlement agreement, and agreed to pay the primary coverage of $500,000. Emscor then demanded that Alliance, as excess carrier, pay its excess coverage of $500,000.
Case No. 2: Highlands Insurance Co. v. Gerber Products Co., 702 F.Supp. 109 (D.Maryland 1988).
Gerber carried primary insurance with Liberty Mutual, first-level excess with Mission National, and second-level excess with Highlands, AIU, American and Federal. Gerber settled a lawsuit for one million dollars in excess of its primary coverage. The second level excess carrier, Mission National, was bankrupt. Gerber then sought to have Highlands, AIU, American and Federal “drop down” and provide first level excess coverage. Like the Emscor policy, the Highlands policy had language providing that Highlands would not become liable until the underlying carriers had paid or had been “held liable to pay.” The majority opinion indicates that the Maryland Court holding was that the phrase, “held liable to pay” meant that the insured be held hable to pay by “judgment or a settlement.” However, that was not the holding of the Court. The Maryland District Court held that the phrase “held hable to pay” was “merely an acknowledgment that attachment of [the excess carriers] liability need not wait for actual payment of the underlying amount.” The Court then correctly held that Highlands did not have to “drop down.” However, it is significant to this appeal that the Maryland court held that the triggering of the excess carrier liability “need not wait” for actual payment of the primary coverage.
Case No. 3: Vickodil v. Lexington Insurance Co., 412 Mass. 132, 587 N.E.2d 777 (1992).
Vickodil was a plaintiff in a lawsuit against Amrak and received a judgment of $1,473,-934.10. Amrak’s primary carrier Aetna, provided coverage up to $100,000.00. Amrak’s *915first-level excess carrier, Northeastern, provided coverage between $100,000.01 and $999,999.99, and Amrak’s second-level excess earner, Lexington, provided coverage starting at $1,000,000.00. Aetna paid the full limits of their primary liability, $100,000.00. Northeastern was bankrupt, and the Guaranty Fund paid $299,000 to Vickodil on behalf of the first-level excess carrier. Lexington then paid $473,934.10, which was the amount in excess of a million dollars. Vickodil sued Lexington for the remaining $601,000.00, claiming that Lexington had an obligation to “drop down” and pay that amount which Northeastern could not pay. Lexington’s insurance contract also contained the language “had paid or had been held liable to pay.” That court determined that “held liable to pay” meant that the insured had been “held liable to pay the plaintiff.” Again, the majority opinion is incorrect in stating that the court held the phrase “held liable to pay” means that they be held to pay by a judgment. The court simply found that the insured, under the facts of this case, had been held liable to pay because a judgment had been rendered. However, the majority fails to point out that the court determined that “held to pay” meant “held liable to pay the plaintiff.” Clearly, by the settlement agreement which will be discussed later in the opinion, Emseor was “held liable to pay the plaintiff’ during the Stowers period.
While the majority opinion clearly states that all three of the foregoing cases hold that “held to pay” requires that a “judgment” be rendered prior to triggering the liability of an excess carrier, that is not the law, and was not the law as stated in those opinions. While there is no Texas law that defines “held to pay”, or “held liable to pay,” all of the caselaw which I can find from our sister states clearly do not require that a judgment be rendered in order to satisfy the “held to pay” provision of an excess carrier’s insurance policy. The majority opinion appears to confuse this appeal with “drop down” case. This is not a “drop down” case. This is a case where the excess carrier refused to pay the excess coverage after the insured stepped into the shoes of the bankrupt primary carrier, executed a settlement agreement, and held itself liable to pay the full limits of the primary policy.
I have found a case that is remarkably similar to some important aspects of this appeal. United States Fid. and Guaranty Co. v. Safeco Ins., 555 S.W.2d 848 (Missouri App.1977). Although Safeco is a complex ease, involving the payment of interest accumulated while the insurance companies litigated their respective liabilities, it involves an additional question that we are faced with in this appeal: can settlement between the insured and the plaintiffs of the primary policy limits trigger the obligation of excess carriers to pay? Safeco, like Alliance, maintains that excess carriers have no liability until the primary carrier has discharged its responsibility by “paying the full policy limit.” Also, like Alliance, Safeco contends that payment, not settlement, discharges a primary carriers liability and triggers the excess coverage. However, the enlightened Supreme Court of Missouri held that the primary carriers “liability was exhausted by the settlement with the [plaintiffs], and Safe-co’s liability as the excess carrier arose.” (emphasis added).
Also of particular interest in the Safeco case is that the plaintiffs settled with the insured because the primary carrier was insolvent. In the terms of the settlement, the plaintiffs agreed not to pursue the insured’s personal assets to satisfy any judgments they might recover, but instead agree to seek relief only from the solvent excess carriers involved. In exchange for that concession, the insured admitted liability.
Emseor is in a much better position than the insured in Safeco in that Emseor has: (1) settled, (2) admitted liability, and (3) held itself to pay the full amount of the primary coverage. The Safeco court cited an earlier case and held “while emphasizing that exhaustion of the primary insurance was a necessary condition precedent to liability under the excess policy, such condition is complied with when the insured proves that the claims *916aggregating the full amount of the specific policy had been settled thereunder and full liability of the insurer discharged.” Handleman v. U.S.F. & G. Co., 223 Mo.App. 758, 18 S.W.2d 532 (1929). (emphasis added).
Settlement Agreement/Guaranty Letter
The majority holds that the guaranty letter was not definite or binding, because it did not specify a deadline for the Ketcher plaintiffs to undertake efforts to collect the full $500,000 from the guaranty fund or to tender a demand to Emscor. However, as the above cases show, there is no requirement that the plaintiffs collect in full from the insured on the underlying policies. There is only a requirement that they enter into a settlement agreement which they accept as satisfaction of the coverage due under the primary policy.
The terms of the letter of guaranty are as follows: “for good and valuable consideration, the receipt of which is hereby acknowledged and confessed and in further consideration of the compromise and settlement of the subject litigation, guarantors agreed to the following terms:”
3(a) Guarantors will pay beneficiaries the difference, up to five-hundred thousand dollars ($500,000), between the amount of money the Texas state board of insurance guaranty fund approves for payment as the result of claims filed with the guaranty fund in the subject litigation, and the total sum of five-hundred thousand dollars ($500,000).
(b) Before guarantors are obligated to pay beneficiaries anything, beneficiaries are obligated to exhaust all efforts and remedies to collect up to five-hundred thousand dollars ($500,000) from the state board of insurance guaranty fund.
(c) After beneficiaries have exhausted all efforts and remedies stated in paragraph 3(b) then guarantors shall immediately become obligated upon thirty (30) days written demand of beneficiaries to pay the amount due following the directives of paragraph 3(a) above.
(d)Guarantors obligations to beneficiaries are irrevocable and unconditional.
Further, paragraph 4 shows that as security to the beneficiaries, Emscor “hereby grants to beneficiaries a security interest in and to all assets and properties of Emscor, Inc. and Emscor, Inc. agrees to execute and cause to be filed financing statements to perfect such security interests.”
In spite of all of Emscor’s attempts to comply with the policy conditions, as they existed and as they were modified, and to convince Alliance to settle the Ketcher plaintiffs’ excess claims, Alliance defiantly refused.
Condition 3 — Admitted Liability
Emscor contends that it “admitted liability” for the underlying limits of the primary coverage and thereby satisfied condition 3. For the majority opinion to ignore the satisfaction of condition 3, the majority must believe that only Stone Mountain and not Ems-cor could be responsible for the primary coverage. However, Alliance specifically told Emscor that Emscor would be responsible for its own primary coverage as a result of the underlying insurers insolvency. Further, in an attempt to fulfill that responsibility, and in accordance to Alliance’s instructions and modified conditions, Emscor executed the letter of guaranty. The letter of guaranty satisfies all of plaintiffs’ claims against Emscor and is an admission of liability.
Condition 5
Condition 5 of the policy states as follows:
Attachment of Liability — Liability under this policy shall not attach unless and until the underlying insurers shall have admitted liability for the underlying limits or unless and until the insured has by final judgment been adjudged to pay a sum which exceeds such underlying limits, (emphasis added).
*917The majority opinion interprets the underlined portion of Condition 5 to mean that “the underlying insurers have paid the full amount of their respective loss liability.” (emphasis added). Further, by footnote 5, the majority disputes that Emscor can “step into the shoes of the underlying insurer.” This interpretation that the insurer must “pay the full amount” is clearly erroneous and is simply not a requirement of Condition 5. The majority belief that payment in full is required is not supported by any part of the excess insurance policy issued by Alliance to Emscor.
Clearly, Emscor can step into the shoes of the bankrupt primary carrier, and clearly Emscor “admitted liability for the underlying limits.” Therefore, summary judgment for Alliance was error.
Modification/W aiver/Estoppel
Even if it can be said that Emscor failed to comply with the express conditions of the policy, a material fact question exists as to whether Alliance modified the express conditions and was prohibited by the doctrines of waiver or estoppel from demanding strict compliance with those conditions. See Employers Casualty Co. v. Tilley, 496 S.W.2d 552, 561 (Tex.1973); see also State Farm Lloyds, Inc. v. Williams, 791 S.W.2d 542, 552 (Tex.App.—Dallas 1990, writ denied). Although the terms are often used interchangeably, “waiver” and “estoppel” are two distinct doctrines. Id. at 552. “Waiver” requires the voluntary and intentional relinquishment of a known, existing right, or intentional conduct inconsistent with claiming that right. Id. citing Utilities Ins. Co. v. Montgomery, 134 Tex. 640, 138 S.W.2d 1062, 1064 (Tex.Comm’n App.1940, opinion adopted); Swiderski v. Prudential Property & Cas. Ins., 672 S.W.2d 264, 268 (Tex.App.—Corpus Christi 1984, writ dism’d) (and cases cited therein).
“Estoppel,” on the other hand, arises “where by fault of one, another has been induced to change his position for the worse.” Id. at 268 (citations omitted); see Stonewall Ins., 757 S.W.2d at 436. In the insurance context, it ordinarily requires a showing that the insured was prejudiced by the conduct of the insurer. Williams, 791 S.W.2d at 552 (citing Tilley, 496 S.W.2d at 560). Assuming that Alliance’s summary judgment proof established Emscor’s non-compliance with the conditions of the policy, the burden was on Emscor, the non-movant, to adduce evidence of waiver or estoppel which was sufficient to raise a fact issue necessary to defeat summary judgment. See Swiderski, 672 S.W.2d at 268.
The October 24th and 26th letters written by Alliance were attached to Emscor’s response to the Alliance’s motion for summary judgment. Those letters show that when Emscor was trying desperately to avoid excess liability that would destroy the company, Alliance told Emscor that it could trigger Alliance’s coverage by “arranging to pay” or “agreeing to pay” the first $500,000. In other words, Alliance told Emscor it could satisfy the “pay” or be “held to pay” condition if Emscor would “arrange to pay” or “agree to pay.” After Emscor subsequently executed the Letter of Guaranty, Alliance rejected the guaranty and denied coverage, thereby exposing Emscor to liability in excess of its ability to pay. Emscor certainly changed its position for the worse based on Alliance’s offer to modify the conditions by complying with Alliance’s definition of the condition.
Performance of a condition precedent can be modified by word or deed by the party to whom the obligation was due. Ames v. Great Southern Bank, 672 S.W.2d 447, 449 (Tex.1984). Clearly, a material fact question exists as to whether Alliance, by word or deed, changed the conditions of the policy to Ems-eor’s detriment and, therefore, waived reliance, or was estopped from relying on Ems-cor’s strict compliance with the express conditions of the policy.
Alliance and the majority maintain that the doctrines of waiver and estoppel cannot be used to create insurance coverage where none exists by the terms of the policy. Texas Farmers Ins. Co. v. McGuire, 744 S.W.2d 601, 602-3 (Tex.1988) (opinion on rehearing). *918“In other words, waiver and estoppel cannot create a new and different contract with respect to risks covered by the policy.” Id. (quoting Great Am. Reserve Ins. Co. v. Mitchell, 835 S.W.2d 707 (Tex.App.—San Antonio 1960, writ ref'd)). Here, there was no dispute that the risks covered by the Alliance policy included the personal injury claims that were asserted against Emscor in the underlying litigation. Because there was no dispute about the risks covered by the policy, but only about when coverage was triggered, Texas Farmers is inapplicable.
The “No-Action” Clause
Notwithstanding the fact issue regarding Emscor’s compliance with the express or modified condition of the policy, the majority points out that this suit is barred by the no-action clause. According to the majority, Emscor’s obligation to pay was never determined by judgment “after actual trial”, or by written agreement, to which Alliance was a party. However, even if that were true, there is still the question of whether Alliance was entitled to rely on the no-action clause under the exception recognized in Gulf Ins. Co. v. Parker Products Inc., 498 S.W.2d 676 (Tex.1973). As the majority observes, the Texas Supreme Court held in Gulf Ins. that an insurance company may ordinarily insist upon compliance with a no-action clause except where it was given the opportunity to defend a suit, or to agree to a settlement, and refused to do either on the erroneous ground that it had no responsibility under the policy. Id. at 679. Whether Alliance’s refusal to agree to settle was erroneous is the precise fact question that a jury must decide.
Stowers Doctrine
The majority, citing Ranger County Mutual Ins. Co. v. Guin, 723 S.W.2d 656, 659 (Tex.1987), held that Alliance owes no duty to Emscor because Alliance was not required by the terms of the policy to assume control of the investigation, negotiation, or defense of the claim by the Ketcher plaintiffs. Guin in no way stands for the proposition that a policy must contain such terms to enable the insurer to be “Stowerized.” In fact, in American Physicians Ins. Exchange v. Garcia 876 S.W.2d 842, 848-49 (1992) (opinion on motion for rehearing), cited by the majority, the Texas Supreme Court, citing Guin, stated without reservation that the insurer’s duty of ordinary care under Stowers includes investigation, preparation for defense of the lawsuit, trial of the ease, and reasonable attempts to settle. More importantly, the court suggested that this duty might extend to “excess insurers”. Id. at 855 n. 25. In any event, Alliance thoroughly involved itself in the investigation and settlement of the Ketcher suit before refusing the settlement offer proposed by the Ketcher plaintiffs and recommended by Emscor.
As for the reasonableness of the $3,000,000 settlement, Alliance and the majority assert that Emscor failed to take reasonable steps to minimize Alliance’s legal liability primarily because the settlement was three times greater than the original demand. Neither Alliance nor the majority cite any authority for the proposition that the amount of the judgment alone is sufficient to establish that a settlement was per se unreasonable. Contrary to the majority’s assertion, there is nothing in Alliance’s summary judgment proof which undermines the “reasonableness” of the settlement. At the very least, there is a question of fact as to the reasonableness of the settlement.
Breach Of The Duty Of Good Faith And Fair Dealing
The majority, citing a host of cases, holds that Emscor cannot assert a bad faith claim because Texas law does not recognize a cause of action by an insured against its insurer for bad faith in the handling of a third-party claim. In one of those cases, Charter Roofing Co. v. Tri-State Ins. Co., 841 S.W.2d 903, 905-6 (Tex.App.—Houston [14th Dist.] 1992, no writ), the insured brought a bad faith suit against its insurer for denying a third party’s claim. This court observed that there was no authority to support such a claim but did *919not expressly rule out such a claim, and in fact proceeded to review whether the insurer had acted in bad faith. 841 S.W.2d at 905-6. Here, Emscor presents an entirely cognizable cause of action. See, e.g., Harbor Ins. Co. v. Urban Constr. Co., 990 F.2d 195, 202 (5th Cir.1993); Beaumont Bice Mill, Inc. v. Mid American Indem. Ins. Co., 948 F.2d 950, 952 (5th Cir.1991); McCracken v. U.S. Fire Ins. Co., 802 F.Supp. 30, 36 (W.D.Tx 1992) (recognizing that excess carrier may have duty of good faith and fair dealing).
In direct compliance with Alliance’s instructions, Emscor “held” itself to pay the underlying limits by the Letter of Guaranty. After Alliance subsequently refused to tender its policy limits, a judgment was rendered against Emscor in excess of both its primary and excess coverage. Emscor is entitled to have a jury determine whether that excess judgment resulted from Alliance’s bad faith or negligence.
Finally, although not addressed by the majority, Alliance contends that Emscor’s cause of action for breach of the duty of good faith and fair dealing is barred by limitations. The statute of limitations governing a cause of action for breach of the duty of good faith and fair dealing is “two years after the day the cause of action accrues.” Tex.Civ.PRAC. & Rem.Code Ann. § 16.003(a) (Vernon 1986). A bad faith cause of action ordinarily accrues when an insurer fails to pay an insured under the policy; in other words, when there is a denial of coverage. Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 829 (Tex.1990).
Alliance asserts that limitations accrued when Emscor learned on September 23, 1988, that Alliance would not provide primary coverage as a result of Stone Mountain’s insolvency. Emscor did not file this suit until May 9, 1991. However, Alliance’s denial of primary coverage is irrelevant for purposes of this lawsuit because Emscor was seeking to invoke excess coverage, not primary coverage. Thus, the significant event in determining when the limitations period accrued is Alliance’s denial of excess coverage, which occurred November 5, 1990, when Alliance rejected the Letter of Guaranty. Suit was filed only six months later and well within the limitations period. Therefore, Emscor’s bad faith claim is not-barred by limitations.
Violations Of The Insurance Code and DTPA
Alliance also contends and, the majority agrees, that the Emscor’s DTPA and Insurance Code claims are barred by limitations and that the Ketcher plaintiffs lack standing under those statutes. Tex.Bus. & Com.Code Ann. §§ 17.45(4), 17.565 (Vernon 1987); Tex. Ins.Code Ann. art. 21.21 § 16(a), (d) (Vernon Supp.1994). These contentions are also without merit. As the majority notes, Emscor claimed that it learned of misrepresentations made by Alliance with respect to coverage when Alliance refused to provide coverage and to settle the Ketcher suit. As we previously stated, the limitations period did not accrue until Emscor learned of Alliance’s refusal to provide its excess coverage. That occurred sometime after the beginning of settlement negotiations in March 1990, which was fourteen months before suit was filed. Thus, Emscor’s DTPA and Insurance Code claims are not barred by limitations.
I am aware of the Texas Supreme Court’s recent opinion in Allstate Ins. Co. v. Watson, 876 S.W.2d 145 (Tex.1994) (opinion on motion for rehearing), holding that a third-party has no standing under article 21.21 to sue an insurer directly for unfair settlement practices. However, the court in Watson was concerned with the potential conflict that could exist if an insurer owed a duty to deal in good faith with its insured as well as an injured third-party. 876 S.W.2d at 150. No such conflict exists here. The plaintiff in Watson was a third-party claimant, with whom the insurer had no contractual duty. The Ketcher plaintiffs are not third-party claimants per se, but are assignees of the contractual rights of Emscor. See e.g. Garcia, 876 S.W.2d at 871-72. (Justice Hightower dissenting). As Emscor’s assignees, the Ketcher plaintiffs can enforce the obligations and duties that Alliance owed to Emscor *920under the excess coverage policy. The Ketcher plaintiffs’ covenant to postpone execution on the judgment in return for Ems-cor’s assignment of its negligence and bad faith claims against Alliance, entitled the Ketcher plaintiffs to more than just recovery on the policy; it allowed them recovery on the entire excess judgment. Id.
As we noted earlier, plaintiffs may settle their lawsuit against an insured for the primary coverage, and take an assignment of the insured’s cause of action against an excess carrier for its refusal to pay. Safeco, 555 S.W.2d at 854. Emscor purchased or acquired insurance services from Alliance and claimed that Alliance engaged in unfair settlement practices and deceptive acts during the sale of the policy. See Garcia, 876 S.W.2d at 847 (breach of the Stowers duty alone does not constitute a violation of the Insurance Code or of the DTPA); see also Allstate Ins. v. Kelly, 680 S.W.2d 595, 603 n. 4 (Tex.App.—Tyler 1984, writ ref'd n.r.e.). Because Emscor has standing under the Insurance Code, and is a consumer under the DTPA, the same is true for it’s assignees, the Ketcher plaintiffs.
Good Faith & Fair Dealing
The duty of “good faith and fair dealing” exists because of a special relationship between the insurer and the insured. It does not emanate from specific terms of the insurance contract. Further, it exists because of the unequal bargaining power between the two parties, and the tendency for that imbalance to encourage the strong to take advantage of the weak. See Arnold v. National County Mutual Fire Insurance Co., 725 S.W.2d 165 (Tex.1987). The duty also exists because of that “special relationship”, created by the imbalance, which gives insurers the power and exclusive control over “evaluation, processing, and denial of claims.” Id. at 167. Because of the imbalance of power, and the special relationship existing between insurer and insured, a breach of the duty of good faith and faith dealing gives rise to a cause of action for tort damages, rather than simple liability for breach of contract.
I cannot conceive of a more deserving situation to apply the duty of good faith and fair dealing, than the present appeal. There is no good reason at law or in equity to deny an insured protection from abuse of the imbalance of power by an excess insurance carrier.
I would hold that Emscor has satisfied the requirement of “held to pay” as a matter of law, have executed a settlement agreement with the plaintiffs, and that they have admitted liability. Upon the occurrence of any one of the foregoing, Alliance was obligated to provide its excess coverage. In the alternative, there is at least a fact question as to whether the foregoing occurred and if so whether they triggered the requirement for Alliance to provide the excess coverage.
There is also material question of fact as to whether Alliance defined or modified the express conditions of the policy and, therefore, waived the necessity of compliance with those conditions, or is estopped from demanding compliance.
In conclusion, summary judgment in favor of Alliance was error. Accordingly, all of Emscor’s points of error should be sustained, the trial court’s judgment should be reversed, and this case should be remanded to the trial court for proceedings consistent with this opinion.