FIFTH CIRCUIT FINDS THIRD-PARTY HAS STANDING AGAINST INSURER WHEN FORCED TO COUNTERCLAIM BY FEDERAL RULES

The Fifth Circuit recently addressed an exception to the general principal under Texas law that when an insured damages the property of a third party, the insurer is not obligated to pay damages on behalf of its insured until there is a final judgment entered against the insured or a settlement agreement.  Texas courts have construed this to be a rule of standing and will consider whether a final judgment existed at the time a third-party claim was filed.[1]

In Nat. Liability & Fire Ins. Co. v. R & R Marine, Inc., No. 10-20767, 2014 WL 2932671 (5th Cir. June 30, 2014), National initiated a lawsuit to disclaim liability on a policy covering its insured, R & R Marine, which operated a shipyard and allegedly damaged Hornbeck Offshore Service’s vessel during repairs. Hornbeck counterclaimed against National, arguing the policy obligated National to cover all sums for which R & R Marine became obligated to pay.

National acknowledged that if R & R was negligent, it would have to pay up to policy limits once a final judgment was entered, but it argued Hornbeck did not have standing to sue it because no final judgment had been entered. Hornbeck argued it was forced to file its compulsory counterclaim under the federal rules of civil procedure.  The court found under these circumstances Hornbeck’s counterclaim was compulsory and it therefore had standing to bring its claim against National. The court then upheld the district court’s finding of negligence and damages against R & R for which National was liable under the policy.  

With regard to damages, however, the Fifth Circuit found the district court’s application of the 18% statutory interest rate was improper because it resulted in a judgment in excess of National’s $1,000,000 policy limit.

[1] See e.g. Owens v. Allstate Ins. Co., 996 S.W.2d 207, 208-09 (Tex. App.—Dallas 1998, pet. denied) (holding that insurance company lacked standing to bring interpleader action “because [the insured-tortfeasor] was not legally responsible to pay for any of the defendants at the time of the interpleader petition”).