In what may be the final denouement of a ten-year litigation saga,  Houston’s 14th Court of Appeals recently denied rehearing of its September 2012 opinion holding that an insurance agent was not liable to its client for procuring “bad insurance” after the client’s insurance carrier refused to pay a claim. Guidry v. Environmental Procedures, Inc., No. 14-11-00090-CV, 2012 WL 4017984 (Tex. App.—Houston [14th Dist.] Sep. 13, 2012, supplemental opinion denying rehearing Jan. 31, 2013).

After the insured was forced to settle a $15 million patent infringement suit out of its own funds, the insured previously sued its carriers, including one liability carrier who had issued coverage with limits of $5 million. In this subsequent suit against the agent, the insured contended the agent had sold the insured “bad insurance” from this carrier and obtained a judgment against the agent in the trial court for the full $5 million policy limit which the insured contended the carrier should have paid.  The insured alleged, and the jury agreed, that the agent sold the insured a surplus lines policy without being properly licensed either in Texas or as a surplus lines agent, failed to disclose to the insured that the policy was a surplus lines policy, and sold the insured a policy written by a financially unstable insurer.

 The Court of Appeals reversed the trial court’s judgment on the jury verdict and rendered judgment that the insured take nothing.  The court concluded that although the agent did commit all the acts alleged, there was no evidence that any of them caused the insured’s damages. There was no evidence that the insured could have obtained coverage from an admitted carrier, no evidence that its claim would have had a different outcome had its insurer been an admitted carrier, and no evidence that the decline in the insurer’s financial rating from A- to D resulted in any actual inability to pay a covered claim.

In response to the insured’s request for rehearing on an alternative theory that it should at least recover the premium it paid to the agent, the court continued to rebuff the insured’s claims.  The court again held there was no evidence the insurer’s failure to pay the claim was the causal result of any of the proven acts or omissions of the agent. The court noted that in its prior bad faith suit against the insurer, the insured was able to secure a settlement of $500,000, which on its face showed that the policy was not “worthless,” as the insured contended.

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